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700
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2025-01-28 10:00:00
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The Boeing Company
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for F-15 Japan super interceptor upgrade and services from the U.S. Air Force. BGS is a terrific long-term franchise focused on profitable, capital-efficient service offerings and executing well with mid-single-digit revenue growth, mid-team margins, and very high cash flow conversion. Turning to the next page, I'll cover Cash and Debt. On cash and marketable securities, we ended the quarter at $26.3 billion, primarily reflecting the successful $24 billion capital raise in October, partially offset by the free cash flow usage and debt repayment. The debt balance ended at $53.9 billion, down $3.8 billion in the quarter, driven by the early repayment of a $3.5 billion bond originally set to mature in 2025. Importantly, this prepayment de-risks our 2025 maturity profile, resulting in $800 million of debt maturities remaining in the year. The company maintains access to $10 billion of revolving credit facilities, all of which remain undrawn. We remain committed to managing the balance sheet in a prudent manner with two main objectives. First, continue to prioritize the investment grade rating; and second, allow the factory and supply chain to reset. We will continue to evaluate opportunities to further supplement the balance sheet as we make certain portfolio decisions through the course of the year. Turning to the next page, I'll cover the total financial company results for the full year. Full year revenue was $66.5 billion, down 14% year-over-year, driven by lower commercial deliveries, including impacts of the IAM work stoppage. The core loss per share was $20.38, down from prior year, primarily on lower deliveries and commercial and defense program chargers, including impacts of the IAM work stoppage and agreement. Pre-cash flow was a $14.3 billion usage for the year, down versus prior year on commercial deliveries and unfavorable working capital timing, including the impact of the work stoppage. Stepping back, let me provide some additional context on 2025 free cash flow. 2025 will be an important year in our
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701
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2025-01-28 10:00:00
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The Boeing Company
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stoppage. Stepping back, let me provide some additional context on 2025 free cash flow. 2025 will be an important year in our recovery, and while we still expect it to be a use of cash, we anticipate a significant improvement over 2024. Within 2025, we expect 1Q free cash flow will be a usage, and similar to 4Q’24, driven by continued working capital headwinds as we ramp production, as well as normal seasonality. We still expect the first half to be a use of cash, with the second half turning positive and accelerating as we exit 2025. CapEx investments stepped up last year and could increase by approximately $500 million in 2025 to support planned growth across both, the commercial and defense businesses. Importantly, we expect to exit the year with real momentum in the business as we return to normal production rates. This outlook will be underwritten by a few critical factors. Increasing 737 production rates through the year; moving 787 steadily towards its long-term production rates; liquidating our legacy 737 and 787 inventory and shutting down both shadow factories; strategically investing in the business, including the 777X production ramp and CapEx to support planned growth across the portfolio; Improving our defense business as we continue to mature the fixed price development programs and work to transition recently challenged programs with our renewed focus on disciplined program management and stabilizing the business. And finally, continuing to demonstrate strong performance across our services business. Broadly, the markets we serve continue to be significant and our backlog of more than $0.5 trillion demonstrates that our product portfolio is positioned to win. Long-term, these fundamentals underpin our confidence as we continue to manage the business with a long-term view built on safety, quality and delivering for our customers. With that, let's open it up for questions.
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702
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2025-01-28 10:00:00
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The Boeing Company
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Operator: Thank you. [Operator Instructions] And our first question is from the line of David Strauss from Barclays. Please go ahead.
David Strauss : Thank you. Good morning.
Kelly Ortberg: Good David.
David Strauss : Kelly, I wanted to ask how you viewed the restart on MAX, how that's gone. You mentioned some of the – you mentioned KPP’s that you have with the or KPI’s that you have with the FAA. Can you maybe elaborate on what exactly those are? How close you are to hitting what's necessary to get to go above 30 a month? And then, Brian, can you just give us an idea of what to expect for all-in MAX and 787 deliveries in 2025? Thanks.
Kelly Ortberg: Yeah, David. So let me talk about the production startup on MAX. So as you know, we came out of the strike and didn't actually jump right on building aircraft. We spent time training the workforce, getting them all up to speed, but also really as I said, balancing the line, which is really important, starting the lineup in a stable manner, and it already is paying dividends. We're seeing the production process come back very well, and I feel pretty good about where we are right now with the production rate. Remember that we've got a significant amount of inventory, both in airplanes and in supply parts. So I don't see any constraints right now from the supply chain for us in ramping up the 737 to the 38 a month rate. And notably, the work at Spirit during the strike has really paid off. That team has done a great job of improving the overall performance and quality of the fuselages, which are going to help flow through the factory. So as I said, you know its early days, but I feel really good. And I think our deliberate plan is going to pay dividends for us going forward.
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2025-01-28 10:00:00
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The Boeing Company
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A - Brian West: David, a little bit on how to think about 737 deliveries for the year. We're not putting out formal guidance, a little too early for that. But let's just talk about a framework for the year. So January is off to a very solid start, and delivery should be in the high 30’s for the month. Now, keep in mind, some of these airplanes are the benefit of clearing the delivery center ramp that had accumulated in the November or December time frame. So there's an advantage of a nice tailwind entering the year. We expect February will be lighter because there's fewer manufacturing days and also the timing of the factory restart, and then March is likely to be better than February as we begin to get more predictability. So as we've said, the first half is going to reflect our gradual, steady restart of the factory. And the second half is likely going to benefit from achieving higher production rates, which include the 38 per month target and possibly higher based on approval from the FAA, as Kelly mentioned. So, as we sit here today, we've got a lot of work in front of us. You know, 2025 in some ways could look like 2023, maybe a bit better if things go our way.
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704
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2025-01-28 10:00:00
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The Boeing Company
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Kelly Ortberg: Hey David, let me come back also and talk about the six KPIs that you asked about. So, these are KPIs that we've agreed with the FAA on what the threshold is and where the control limits we want to operate. And these are what we've collectively determined will measure the stability of our production system. I'll quickly tell you what the six are. They are NOE, notice of escape hours, shortages, part shortages, employee proficiency, rework byline, travel to work at rollout, and the ticketing performance. And so, I will say it's a little bit early, because we have a lot of inventory yet of planes that were in process that we're going through. But early indications is that all the KPI’s are looking and trending in the right direction. So I feel so far so good, but it will be important to see and continue to measure these KPI’s as we continue to ramp up. And remember, we need to get to 38 and show stability at 38 with these KPI’s and we won’t go to the FAA for a rate increase. We won’t request one if we don’t see these KPI’s performing the way that we want to. And so , I think we’ve got a disciplined approach. As I said in my remarks, I’m pleased that it’s pretty well grounded in facts and data, so there is no subjectivity here as far as what it’s going to take. But we got to perform and Stephanie and the team were clearly focused on performing to these KPI’s.
Operator: Thank you. And the next question is from Peter Arment from Baird. Please go ahead.
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The Boeing Company
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Operator: Thank you. And the next question is from Peter Arment from Baird. Please go ahead.
Peter Arment: Yes, good morning Kelly and Brian. Hey Brian, maybe if you could walk us through a little bit on the free cash flow dynamics for 2025. I know you called out a few things from the moving parts, but just thinking about working capital headwinds or 777X spend or BDS losses. We’ve been estimating about a $5 billion outflow this year. I think it’s a little above the consensus of $4 billion. Anything to highlight that you could help us maybe that potentially could be, you know reduce that outflow or how are you thinking? I know you gave us the first half versus second half dynamics, but anything else that you could provide more color on? Thanks.
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The Boeing Company
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Kelly Ortberg: Yeah, sure Peter. So, 2025 free cash flow is largely going to be consistent with what we'd said at our October earnings call, with the two adjustments that I noted, which is CapEx a little bit higher based on some growth programs that we're anxious to invest in, and the impact of a few hundred million based on the updated BDS charges. So, it's consistent with those two adjustments. Now, in terms of profile, as we've discussed and you mentioned, the first half will be negative. The second half will be positive. It'll be a net usage in the calendar year, but importantly, positive momentum as we accelerate cash flows exiting the year that sets us up very nicely for 2026. Now, in terms of levers, the first half of the year, BCA is going to be negative driven by the working capital usage and continued investment in the 777X program. BDS is going to be negative due to the prior period charges running through, as well as normal seasonality as it pertains to customer receipts. And BGS is going to be nice and steady contributing to the first half. As we go to the second half, BCA is expected to flip positive, because then we'll get the benefit of the working capital as deliveries accelerate while we still invest in the 777X program. Again, it's all going to be a function of our ability to work those higher deliveries in the back half. Now, BDS is going to move positive despite a continued drag from the charges, primarily from the benefit of favorable receipt timing that's natural and seasonal in that part of the business. And then BGS, we tend to have a better second half than first half, so it's going to be a nice steady but growing profile for the second half. And as I mentioned, the CapEx is going to be a bit higher, but for good reason, because that's all about growth. So, in terms of the numbers that you described, that's a reasonable ballpark of what we're aiming at, and we're managing all the levers and keeping you updated as we move through the course of the year.
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707
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2025-01-28 10:00:00
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The Boeing Company
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Peter Arment: I appreciate it. Thanks.
Operator: The next question is from Sheila Kahyaoglu from Jefferies. Please go ahead.
Sheila Kahyaoglu : Hey, good morning. Hey Kelly, maybe on the fixed price development programs within BDS, it seems like the timing to stabilize those keeps getting pushed to the right. How are you actively managing those programs, and what are you looking to change? And then Brian, related to that, you know, how do you correlate those charges? I think you mentioned one-third is now. Can you maybe size that cash outflow for ‘25? Is it $3 billion related to BDS, and then $1 billion in ‘26? Does the business become breakeven in ‘27, and when does it become positive?
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708
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2025-01-28 10:00:00
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The Boeing Company
| 370,857
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Kelly Ortberg: Okay Sheila, I'll go first and then ask Brian to follow up. Yeah, so obviously, the quarter was disappointing here on the fixed price development programs, but as I said in my remarks, we're very actively now working all these programs with our customers. And, you know, we’ve got – the U.S. Air Force is clearly working with us to find a better path forward on these programs, both for us and for them. So, de-risking through this active management process is different, and it's -- we still have to convert it, these MOAs, which are Memorandum of Agreements, we have to convert them to contract changes. So, we're in early stages, but the customers are working with us in that regard. And then I think, just as I said, taking a real clear look at the EACs and the estimates to complete, and making sure that we're, you know reflecting the realities of the risks that we have. And so I'm very hopeful that we're going to see a much more stable performance here this next year. But again, we're not done with these until we're done with these. And they are a fixed price, so we've got to continue to work at this. Our team is very, very focused on program management discipline, making sure we're managing the tasks at hand. But, you know a lot of work yet to do Sheila on these. So I think we're making progress, but I certainly can't claim victory yet.
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The Boeing Company
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A - Brian West: And Sheila, in terms of the cash flow, you're correct. The new charge of $1.7 billion, we characterize. About a third of that is going to be over the next three years. So it's a little bit front-end loaded, so a few million dollars – a few hundred million dollars of pressure that we see in 2025 versus what we said back in October. Now, in terms of your broader question on the full weight of the charges, they are going to tend to flow through. I think BDS for 2025 from cash flow performance is going to look a little bit like 2023. And then once we get through 2025, it'll be in a much different spot, because a lot of that headwind from the charge will be behind us. And when we get exactly to breakeven positive, won't be this year, but can't wait to have that discussion as we move out beyond exiting this year.
Sheila Kahyaoglu : Got it. So breakeven could be possible in ‘26 or maybe ‘27.
A - Brian West: Yeah, for sure.
Sheila Kahyaoglu : Got it. Thank you.
Operator: Thank you. And our next question is from Ron Epstein from Bank of America. Please go ahead.
Ron Epstein : Hey, yeah. Good morning, guys.
Kelly Ortberg: Ron.
Ron Epstein : Kelly, could you talk about how you're thinking about Boeing's portfolio? I mean, there's been a fair amount of press about maybe some things could be up for sale, maybe not. You know, what's core? What isn't? You know, so like the way I've been thinking about it, one of the things that's been talked about is maybe selling Jefferson. But on one hand, maybe that's a good idea. But on the other hand, that puts Boeing's name in pretty much every cockpit of every airplane on the planet. And is that a bad thing? So I mean, how are you thinking about it?
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2025-01-28 10:00:00
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The Boeing Company
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A - Kelly Ortberg: Well, so first of all, Ron, we've been through the through the detailed portfolio review, which was one of my, you know one of my early tasks, and that's complete, highlighted areas that are questionable to our core, and we go through an analysis to look at each of those areas, and we're in process in that. You know, as I look at this, here's how I would think about it Ron. This is not going to be a major restructuring of the Boeing Company. The core business that you see us in, and we're going to continue to be in those core areas. But there are some areas, you named one, there are some areas where we can streamline the organization, or we may be better off focusing our energy elsewhere and we'll be actioning those over the coming months and year. The only thing I would say is that, you know as you look at those, part of that decision process is what do you do with something? You know, in some cases you have potential that you could sell it and there are buyers, in some cases that may not be a viable approach, we may want to just not continue with the next phase of the project or something like that. So we're going through that, but I think, if I give you any guidance, think of it as more pruning the portfolio, not cutting down the tree.
Ron Epstein : Got it. Got it. And you'd expect maybe we'll know more about this in the next 12 to 18 months, something like that?
A - Kelly Ortberg: Yeah, look, I can't really speak about individual portfolio decision areas, but as they come along, obviously, you'll see what we're doing there.
Ron Epstein : Got it. Got it. All right. Thank you.
Operator: Thank you. The next question is from Myles Walton from Wolf Research. Please go ahead.
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2025-01-28 10:00:00
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The Boeing Company
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Operator: Thank you. The next question is from Myles Walton from Wolf Research. Please go ahead.
Myles Walton : Thanks. Good morning, still. So on the supply chain, and maybe the spirit integration, how key is that to your ability to get to 38 and then get above 38? And then if you could just quickly touch on the 787 and the supply chain constraints you are observing there, specifically on interiors, and if heat exchangers are still the issue, and how quickly you expect those to release within the context of 2025. Thanks.
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2025-01-28 10:00:00
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The Boeing Company
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A - Kelly Ortberg: Yeah, Myles. So look, on spirit, I don't view Spirit fuselages as a constraint right now for us to get to rate 38. As I mentioned in the remarks, they've done a really, really nice job of improving the quality of the fuselage and the flow of the fuselages. So we're in really, really good shape on fuselages with Spirit, which sets up a very successful integration. We've got a team of Boeing folks at Spirit working hand-in-glove with them as they improve their production processes. And I think that sets us up well for the upcoming integration, which will happen sometime, still we're projecting middle of the year. Relating to 787 supply chain, as Brian said in his remarks, I think we're working through the heat exchangers. We still need some additional improvement there, but all the improvements look good. Seats remain a challenge for us, and it's not the seat. We call it seats, but it's the monuments really that go around the seats and the integration of the IFE and the certification associated with that. And we're still challenged in getting through cert on some new of type seats on 787. We've got a plan on that. It's really a customer-by-customer basis. One of the things we're looking at for the future is we've got to spread these new seat configurations. We call them code ones. We've got to spread these code ones out to allow ourselves and the regulators more time to get through the certification. These things are complex. They are not a seat. They are a complex monument. And particularly as we move to doors, doors are a real challenge in the certification process, and so we've got to work through some of that. We've got a team really focused on that, but I think it's going to continue to be a challenge for those 787 deliveries, where we have a new seat configuration that needs to be certified. So for example, Lufthansa, we've got a lot of completed airplanes that are held up still on seats, and we're working through that. Hopefully we'll get through that this year, and we'll have a more
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are held up still on seats, and we're working through that. Hopefully we'll get through that this year, and we'll have a more successful seat integration program as we ramp 787 up.
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2025-01-28 10:00:00
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The Boeing Company
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Myles Walton : Okay. And Brian, the delivery number for 787 for this year, 75, 80, is that a doable number?
A - Brian West: Yeah. So as we've said, we're at five per month. We want to get to seven sometime this year, and we've got, call it high teens, coming out of inventory. So when you add all that together, for sure, maybe a little bit better.
Myles Walton : Great. Thanks.
Operator: Thank you. And our next question is from Scott Deuschle from Deutsche Bank. Please go ahead.
Scott Deuschle : Hey, thanks for taking my question. Kelly, can you characterize the pace at which you think the business can liquidate 777X aircrafts from inventory once EIS hits? And then, are you expecting the first class cabin seats to be certified for the 777X launch customers by the time 777X itself is type certified? Or is there any risk of delay there on seating as well? Thank you.
Kelly Ortberg: Yeah, let me take the seating first, and then I'll ask Brian to do the liquidation. So actually, the first delivery, 777X delivery is also to Lufthansa, which is what I just mentioned. We have had seat and continue to have seat challenges. So I guess the good news, bad news is we've had seat challenges, but we do know what those challenges are for Lufthansa deliveries. Now, 777X interior in general is a more complex interior, but that's baked into our overall certification program for the aircraft. So we got time to go work the seat certification issues, and we've learned from our 787 what those issues are. So I think we'll be able to manage that for the initial deliveries.
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2025-01-28 10:00:00
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The Boeing Company
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A - Brian West: And Scott, in terms of cash flows, as is typical on our new program, heavy cash usage the year before EIS, which is going to be for 2025. In terms of 2026, when it goes into service, keep in mind the initial airplanes are going to be changing corp airplanes, which are going to be, you know not high-cal cash flow airplanes. But once you get through those and you get out of 2026 and into 2027, you are really going to start to generate pre-cash flows, and that's going to accelerate as deliveries accelerate. So we're going to be set up very nicely once we get through EIS.
Scott Deuschle: Great. Thank you.
Operator: Thank you. The next question is from Seth Seifman from JPMorgan. Please go ahead.
Seth Seifman: Thanks very much and good morning.
A - Kelly Ortberg: Good morning Seth.
Seth Seifman: I guess I wanted to follow-up on maybe two other items as we think about the cash flow this year. You talked about winding down the shadow factories, but both of them, I guess, that was something that in the past we've talked about as a key enabler of enhanced profitability. How do we think about factoring that into the cash flow improvement that we're seeing this year? And then also the financial implications and cash flow implications of spirit integration in the second half.
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The Boeing Company
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Kelly Ortberg: Yeah, sure, let me take a stab at that one. So as you know, we've got two shadow factories. The 737 has largely been in Moses Lake. The 787 has been the joint verification work in Everett. And there is a lot of labor to go into reworking those airplanes. As it pertains to the 787, we expect the very early part of this year, that work will be done. Now we won't deliver all the airplanes this year, because we've got some customer fleet planning things we need to fit in with, so that'll bleed over into next year. But the factory itself and the labor associated with that is going to be over the early part of this year. And labor has already started to move towards other first run production. On the 737 equally, Moses Lake, we've begun to take labor and move it from Moses Lake into Renton. We expect to shut that shadow factory down by mid-year. And then the corresponding deliveries will tail off towards the end of this year. So it's been a long journey. We look forward to that. It's all contemplated into the numbers I discussed and described in terms of how cash flows are going to move this year. I would say that over time, the benefit you're going to start to see is a margin improvement at BCA, because you don't have these two very expensive shadow factories up and running anymore. They'll be done. So that'll be something that will be 2026 and beyond. As it pertains to Spirit integration, as Kelly said, we're anxious. One, they are doing a great job. We're anxious to get it closed. We're not really describing what the financial impact on that is until we close. But the good news is that we're on pace. It remains strategically important and the team's holding up really nicely at a pivotal point as we ramp production.
Seth Seifman: Thank you very much.
Operator: Thank you. And the next question is from Noah Poponak from Goldman Sachs. Please go ahead.
Noah Poponak : Hey, good morning, everyone.
Kelly Ortberg: Morning, Noah.
A - Brian West: Hi, Noah.
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The Boeing Company
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Noah Poponak : Hey, good morning, everyone.
Kelly Ortberg: Morning, Noah.
A - Brian West: Hi, Noah.
Noah Poponak: What is it about the T-7A specifically that it keeps having so much cost creep? And I guess, Kelly, as you look at this portfolio, everything in defense is complex and I appreciate the amount of work that goes into these, but I think there's been some investor confusion around the dollar size relative to the perceived complexity of these programs. So what is causing the cost creep and how do you fix it? And you mentioned the updated acquisition approach on that program specifically. Can you detail that a little bit further?
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Kelly Ortberg: Yeah, so the fundamental on T-7 is a fixed price development with a large fixed price production. And we did not have our supply chains back to back in the fixed price production. So it's much larger than what you would normally see, because very rarely do you see where you have, first of all, where you have a fixed price development, but certainly don't have multi-years of fixed price production. We've been burned on that on the tanker program and clearly that's been a challenge for us on T-7A. So we've taken our medicine. We're not going to do that anymore. Now, specific to the MOA, what we're doing is making changes. The Air Force wants some additional test aircraft, that will allow us to eliminate concurrency. And by concurrency, what I mean is we're still – we're building production airplanes while we're testing and certifying the design. And that's a disaster, because every time you come up with a change that comes out of that, you got to go ripple that change back through the production process, either in process or airplanes are complete. So the major milestone with the MOA-1 that we've got with the Air Force, really helps us get more aircraft into the test program, eliminates concurrency risk for us going forward. So it's not necessarily good news from an EAC write-up, but it's certainly going to eliminate risks that we are staring at on the program. And then on MOA-2, which is we're in active discussion with them. It's also on making some changes to equipment purchased by us versus purchased by the Air Force directly, which will also help them with their logistic support plans, but also de-risk our escalation risk associated with those commodity sets. So that's the type of stuff we've got to get better at, is working those things with the customer, but the fundamental to this is a fixed price development, with a fixed price production option, and not having your supply chain back-to-back is not a good recipe. We've learned and we're not going to do that anymore.
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Noah Poponak: So, I appreciate learning that lesson and not doing that again, but if you live with the decisions that were made on the existing programs for until the end of those programs, how do you have confidence in the cash flow improvement in the segment in the near term that you've expressed here?
Kelly Ortberg: Well so, I mean, we do an estimate at complete and look at the estimate to complete. So much of the charges that we're taking are not actual charges for overruns today. They are anticipated charges for increased costs from our supply chain. So we are getting the supply chain back-to-back in fixed price right now. Our goal is to get that 100% done. But as we're doing that, we're having to recognize the cost increases from the supply chain. So that's why I have confidence. We're getting closer to having that all back-to-back. So we've eliminated that large risk going forward. But obviously, it's resulting in pretty significant charges as we reach through that.
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A - Brian West: And what I would say long term, our objective has always been to get the 15% of the portfolio that's wrapped up in these fixed price development programs, including the T-7, to not be a drag, to just be neutral, right, to be at the zero profit and not consume cash. The rest of the portfolio, and we get the 25% fighter and satellites performing as they should, given they are legacy products, and 60% of the portfolio that's doing quite well. If we can get that all moving in the right direction, that gets you to the path to high single-digit margins in BDS, like they should be, even with a 50% of the portfolio that isn't going to do anything for us and that's fine, because long term, outside of the planning period in front of us, those development programs, including Tanker, including MQ, including T-7, there are longer-term opportunities with market demand, particularly internationally, that actually could have us do a little bit better. That we are not counting on, but longer term, those are the reasons why we stay in these programs and deliver capabilities to the customers that absolutely need.
Noah Poponak: I appreciate all that detail. Thank you.
Brian West: Yep.
Operator: The next question is from Doug Harned from Bernstein. Please go ahead.
Doug Harned : Good morning. Thank you. You know, it sounds like you are in a very good position right now to get to the 38 a month level, given that you're already in the 20s on the max. But historically, upward rate breaks have been pretty challenging. And when you look beyond the 38 a month to 42 and subsequent rate breaks, how are you thinking about what you need to get done to make sure that you have the right team in place to make those rate breaks happen, given that a lot of people have left over the past five years or so?
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A - Kelly Ortberg: Yeah. You know, as I look at that, I'm less concerned about our – you know, the people resources to do that. I think we're in good shape. Once we get to these higher rate breaks, the most important thing is that we have the supply chain ready and mature. And one of the things we're doing right now, because we've forecasted rates that the supply chain has built to, and then we haven't met those rates. So I want to make sure that that supply chain isn't making independent decisions on readiness for these out year production rates and continuing to invest in the capacity that they need to supply us. So we've started that, as I said in the open remarks, you know open communication. And what that means is, at various levels, including CEO level, we're making sure that they are investing in their supply chain. And if they are not, they are talking to us about why, and we're working through what we do to make sure that we don't get to a point where we're ready to get to the next rate increase and the supply chain stability is not going to be there. Now remember, these KPIs that I talked about earlier, those are going to stay with us for each rate increase. So we won't make a rate increase if we – well, we won't be approved for it, but we won't request it, if our production system isn't showing that these metrics are indicating stability. So we've got to continue to work that. But I'm not too sure or too concerned about the overall staffing level of the production resources. It's probably more focusing on the supply chain for that growth.
Brian West: And, Doug, the other good news is the facilitation. We're cycling at three lines in Renton as Kelly mentioned, and we've got that fourth line in Everett and that is going to create a lot of flexibility for us as we think about those rate breaks. So not only is it labor, parts, supply chain, etc., but the facilitation is there as well. So we feel pretty confident the tools are all there in place, and of course, the demand is there, which is beneficial.
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Doug Harned : And is there anything you would point to in the supply chain that you particularly want to focus on to make sure you don't run into an issue when you take your next break-up?
Brian West: No, not in particular. I think there's multiple areas that we'll work with all of our Tier 1 OEMs probably have a commodity in their portfolio that we want to make sure. But it's generally more in the commodities where there's long lead components like forgings, castings, that kind of stuff. I'm less worried about electronics. That's a pretty easy area to scale. But it's where you have to invest in that second and third tier of supply chain, that we want to make sure that they are making those investments and they haven't hedged their bets and don't believe we're going to build the airplanes and then we find out that we don't have the capacity there. And you know, one of the things that we're working very closely with GE on is that the overall – making sure they understand our overall market demand, as well as the aftermarket demand for the engines as well, because they've got a big challenge with supporting our rate increases, our competitor rate increases, and managing the aftermarket. And I work very closely with Larry and his team to make sure we stay aligned.
Doug Harned : Very good. Thank you.
Operator: The next question is from the line of Jason Gursky from Citi. Please go ahead.
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Doug Harned : Very good. Thank you.
Operator: The next question is from the line of Jason Gursky from Citi. Please go ahead.
Jason Gursky : Hey, good morning. Brian, one for you and then just a quick one for Kelly as well. Brian, for you, BCA margins, you took some charges this quarter on the programs that were in forward loss positions. I suspect though, that we'll have some impacts on the margins for some of your more profitable programs as well, given all those costs. I'm just kind of curious, you know what does the margin cadence look like for BCA over the next six, eight quarters as you're ramping in production? When do we get the chance to flip to the positive range on margins? And then just kind of a long-term implications of these cost increases coming out of the labor strike, that kind of thing on the financial model and what BCA margins are going to skate to over time once you're up at those targeted production rates. And then, Kelly, just really quickly for you, I – you know I received the company's corporate calendar. It's got the X-66 on the cover. Just wondering if you could comment a little bit on that aircraft and kind of what it means to the company and kind of your general views on that development program for NASA. Thanks.
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Kelly Ortberg: Yeah, let me take the latter part of that first. So you know, it's an important technology development program. It's very challenging. It's taking some dedicated resources that I think, you know are learning new things and exploring new technologies for us. And then we'll look at what comes out of that and how that factors into our next airplane. So it's an important project that we're working on. You know, we've got some funding we're investing, but we've also got some funding there to support us. So you know, we'll continue to explore that exciting opportunity and see what that portends for the future for future airplane. I will tell you, I've sat through the through with the team and there's some exciting stuff that we're learning from that program and so I think we want to continue that.
A - Brian West: And Jason, in terms of BCA margins. So as we think about 2025, your margins will be negative. They'll be less negative as we move through the next few quarters, as we exit the year. And then beyond that, we're going to expect them to get better in 2026. We're not going to try to characterize it quite yet. It's too early. But in terms of the longer term profile, you know, the IAM agreement did put pressure, but keep in mind, we're talking about a cost that's less than 5% of the airplane. Now, it's a little bit of pressure, but I characterize that versus the massive productivity benefit that we're going to enjoy by having two shadow factories behind us and a rate ramp that's going to accelerate productivity naturally. So it doesn't disrupt our margin expectations of the long-term. A lot of work in order to get this pressure behind us, but plenty of levers that we think work towards our favor. It doesn't necessarily disrupt the long-term.
Jason Gursky : Okay, thanks.
Operator: Thank you. The next question is from Gavin Parsons from UBS. Please go ahead.
Gavin Parsons : Thanks, guys. Good morning.
Kelly Ortberg: Morning.
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Gavin Parsons : Thanks, guys. Good morning.
Kelly Ortberg: Morning.
Gavin Parsons : I just wanted to follow up on that BCA margin question a little bit with the price side of that, the price-cost mix. You know, how much of max 10 starting to contribute helps drive the margin up? How much of, you know kind of escalators or realized price increases over the coming years? And then a quick clarification on inventory. Just how much cash is tied up in both completed aircraft and WIP? Thank you.
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Kelly Ortberg: So in terms of the profile for BCA, of course, we've got a backlog that is in place, that has embedded escalation in it. That hasn't changed. That's good. And in terms of our supply contracts, you know they are vastly signed up until end of this decade. So that doesn't really disrupt the near term or even the medium term per se. I will tell you though, as we move forward, we will expect any kind of inflation pressure to be offset by an expectation that we continue to drive productivity. So we think we'll be able to manage that mix. More to come as we move out of this year and get into more of that normal stable position. But nothing right now would suggest it's going to disrupt that long-term margin outlook that BCA's enjoyed historically. And of course, some of the mixed benefits that you mentioned, both the 10 on the 37 and the 10 on the 87 are going to be natural tailwinds, including the consolidation at Charleston that we've always talked about and we still feel very good about as we move towards normal production rates. So more work to do, but no big disruptions that we see as we sit here today. In terms of the inventory, we've got $87.5 billion worth of inventory in the company right now. That is too much. Now, it's been an investment in stability and we are committed to make that investment so that we can get the factories in the right spot. But there will be a point when those inventories will begin to liquidate and not only see the productivity benefit, the word capital benefit will be something that we're very interested in seeing and we'll begin to lower buffer rates that we put in place deliberately as we get to more predictability. So that is the big cash flow benefit that we're going to see over the next couple of years-ish. And it's all because we've been sitting on this big investment that we look forward to having unwind with deliveries, and that's what we're focused with the team on, out in Seattle.
Gavin Parsons : Thank you.
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Gavin Parsons : Thank you.
Matt Welch : Well, thanks Gavin. And Lois, we have time for one final question.
Operator: Thank you. And that question is coming from the line of Gowtham Khanna [ph]. Please go ahead.
Unidentified Participant : Yeah, thanks for the detail on the call. I just wanted to put a finer point on when you expect to be at 38 a month in terms of deliveries on the 3-7, and when realistically you could get to 42. I know you mentioned this year, but if you could put a finer point within the year. Thank you.
Kelly Ortberg: You know what? I'm not putting a finer point on it, both externally nor internally. We're going to go to that rate when the KPIs say that we're going to go to that rate and we'll just see how that plays out. I mean, like I said, things look encouraging so far. We got a lot of work yet to do and we'll make those rate increases, hopefully sometime, so that I do want to get through the rate 38 approval and move to that next rate of 42, get through the approval this year and get to that 42 sometime towards the end of the year. But we'll put exact dates on it once we know and feel better about our KPIs and how the trends are indicating.
Unidentified Participant : Yes. Thank you.
Kelly Ortberg: As part of why we're not providing guidance yet, I think we've got a little bit more work to do to see the system get stable, before I feel like we can provide guidance to you that we have a reasonable expectation that we'll be able to meet that guidance. So more to come as we mature. Things are off to a good start, but we got a lot of work yet to do.
Operator: That completes the Boeing Company's Fourth Quarter 2024 Earnings Conference Call. Thank you for joining, and you may now disconnect.
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Operator: Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's Third Quarter 2024 Earnings Conference Call. Today's call is being recorded. The management discussion and slide presentation plus the analyst question-and-answer session are being broadcast live over the Internet. [Operator Instructions] At this time, for opening remarks and introductions, I am turning the call over to Mr. Matt Welch, Vice President of Investor Relations for the Boeing Company. Mr. Welch, please go ahead.
Matt Welch: Thank you, and good morning. Welcome to Boeing's quarterly earnings call. I am Matt Welch, and with me today are Kelly Ortberg, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer. And as a reminder, you can follow today's broadcast and slide presentation at boeing.com. Projections, estimates and goals included in today's discussion involve risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the beginning of the presentation. We also refer you to the disclosures relating to non-GAAP measures in our earnings release and presentation. Now I will turn the call over to Kelly Ortberg.
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Kelly Ortberg: Thanks, Matt, and thanks to everyone for joining today's call. Let me start by saying that it's an honor to be leading the Boeing Company. I've spent my entire career in the aerospace and defense business and one constant has always been the critical role that Boeing plays, not just to the A&D industry, but to our national security and the overall global economy. But we're clearly at a crossroads. The trust in our company has eroded or saddled with too much debt. We've had serious lapses in our performance across the company, which have disappointed many of our customers. But by the same token, we have great opportunities ahead. Our company backlog is roughly $0.5 trillion. We have a customer base that wants us and needs us to succeed. We have employees who are thirsty to get back to the iconic company they know, setting the standard for the products that we deliver. So my mission here is pretty straightforward, turn this big ship in the right direction and restore Boeing to the leadership position that we all know and want. Now to do this is going to require changes in four particular areas. And let me introduce them, and I'll come back and discuss each one. First, we need a fundamental culture change in the company; second, we must stabilize the business; third, we need to improve our execution discipline on new platform commitments across the company; and fourth, while doing the first three, we must build a new future for Boeing. So let me start with arguably the most important, changing the culture at Boeing. I spent the last two decades working with Boeing in the supply chain. So I have an outside-in view of Boeing, which is very helpful. That experience, combined now with seeing things from the inside the company, has helped provide an informed view of some of the actions we need to take. Much has been written about how we got to where we are, but most also recognize that Boeing was once a benchmark for what good culture looks like. And I believe we can return to that legacy. I know culture
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that Boeing was once a benchmark for what good culture looks like. And I believe we can return to that legacy. I know culture change starts at the top. Our leaders from me on down need to be closely integrated with our business and the people who are doing the design and production of our products. We need to be on the factory floors, in the back shops and in our engineering labs. We need to know what's going on, not only with our products, but with our people. And most importantly, we need to prevent the festering of issues and work better together to identify, fix and understand root cause. I've already introduced a much more detailed business cadence to drive this across the organization, and this process of change is underway. Culture's driven by values and we'll redefine those for the company together. This has to be more than the poster on the wall. These values will be used to hold leaders accountable in how they lead our teams and delivering safe, high-quality products and services to our customers. I recently had a meeting with our top executives in the company, and we talk specifically about this culture change. I see this more as a continuous process improvement rather than a milestone. We will be relentless in changing the Boeing culture through action, not just words on a page. Now let me shift to the second item, which is stabilizing the business. This has been central to my focus since starting the job in August. We have some really big rocks that we need to get behind us to move the company forward. The first and foremost on everybody's mind today is ending the IAM strike. We've been feverishly working to find a solution that works for the company and meets our employees' needs. I've met with the union leadership the first week on the job and let them know that I was committed to resetting the relationship. And I remain committed to getting the team back and improving our relationships, so we don't become so disconnected in the future. I'm very hopeful that the package we put forward will allow
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relationships, so we don't become so disconnected in the future. I'm very hopeful that the package we put forward will allow our employees to come back to work so we can immediately focus on restoring the company. Once we get back, we have the task of restarting the factories and the supply chain, and it's much harder to turn this on than it is to turn it off. So it's critical -- absolutely critical that we do this right. Our safety and quality management system will guide us through the restart, and we have a detailed return to work plan in place, and I'm really looking forward to getting everybody back and getting to work on that plan. One additional area of focus that is critical to our stability is the implementation of the safety and quality plan. As you know, this is a plan that we have reviewed with the FAA and will be part of the criteria we use to measure stability of our production system, which is necessary to gain authority to increase 737 rates. I'm encouraged with the progress we're making already, and we need to continue that momentum. Another big rock to stabilize the company is managing our balance sheet to best support retaining our investment-grade credit rating. We have a plan, and we're executing that plan. And I'm confident that we have a good path forward to manage the realities of our business and retain our investment-grade rating. So I've talked about culture and stability. Third area is improving the execution discipline on our new platforms, whether this be the commercial derivatives of the 737 MAX and 777 or the series of programs in our BDS business. We have to be better at understanding and managing the risk on these projects more proactively. This includes disciplined program and risk management in all phases of the project, including the bid phase. Again, this is an area where we need the management team much more focused on their programs and much more active working with their customers on ensuring success and anticipating risks before they happen. Supply chain management
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more active working with their customers on ensuring success and anticipating risks before they happen. Supply chain management improvements will be critical to this effort. Clearly, we have some difficult contracts in our defense business, but we have to do a better job of executing on the things that we can control. So lastly, the fourth area to discuss is building a new future for Boeing. While we're somewhat consumed with the challenges of today, we need to be setting the foundation of the future for Boeing. Boeing's an airplane company. And at the right time in the future, we need to develop a new airplane but we have a lot of work to do before them. This includes stabilizing our business, improving the execution on the development programs, streamlining the portfolio to do what we do well and restoring the balance sheet so that we do have a path to the next commercial aircraft. We need to reset priorities and create a leaner, more focused organization. We've recently announced a workforce reduction, which will focus on consolidation of areas where we're not efficient, and we need to continue to focus on reducing nonessential activity. So before I hand it over to Brian, let me summarize by saying that we have a lot of work to do. We have a plan and changes already underway. This is a big shift that will take some time to turn, but when it does, it has the capacity to be great again. This is a company that ushered in the new era of air travel and helped plan the first man on the moon. Getting back to the values that help define this legacy is what will define our future. I'm excited about the opportunity, and I look forward to working with all of you. So with that, let me hand it off to Brian to cover the financials, and then we look forward to coming back and answering your questions. Brian?
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Brian West: Thanks Kelly, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $17.8 billion, down 1%, primarily driven by lower commercial wide body deliveries, including impacts of the IAM work stoppage. The core loss per share was $10.44, primarily reflecting impacts from the IAM work stoppage and previously announced charges across certain commercial and defense programs. Free cash flow was a use of $2 billion in the quarter with results impacted by lower commercial wide body deliveries and unfavorable working capital timing, including impacts associated with the work stoppage. Improvement versus prior expectations was driven by better-than-expected BCA advanced payments. Turning to the next page, I'll cover Boeing Commercial Airplanes. BCA delivered 116 airplanes in the quarter. Revenue was $7.4 billion, and operating margin was minus 54%, primarily reflecting previously announced -- tax charges of $3 billion on the 777X and 767 programs, the IAM work stoppage and higher period costs, including R&D. Backlog in the quarter ended at $428 billion and includes more than 5,400 airplanes. Now I'll give more color on the key programs. The 737 program delivered 92 airplanes in the quarter. As noted in mid-September, we had been making good progress on stabilizing production and preparing for 38 per month by year-end, but those objectives will now take longer due to the IAM work stoppage. Given the strike and our need to conserve cash, we've made near-term adjustments to broadly stop supplier shipments. We continue to manage supplier by supplier based on inventory levels and for certain suppliers, this will allow them to catch up. We maintain our objective to position the supply chain to support our ramp post-strike. The quarter ended with approximately 60 737-8s built prior to 2023, the vast majority for customers in China and India, down 30 from last quarter. Additional progress on shutting down the shadow factory has been impacted by the work stoppage,
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down 30 from last quarter. Additional progress on shutting down the shadow factory has been impacted by the work stoppage, which will now extend into next year. On the -7 and -10, inventory levels remained stable at approximately 35 airplanes and the certification time lines remain unchanged. On the 787 program, we delivered 14 airplanes in the quarter. And as previously noted, we continue to work through production recovery plans on heat exchangers and delivery delays associated with seat certifications. The program is currently producing at 4 per month and still plans to return to 5 per month by year-end. We ended the quarter with 30 airplanes in inventory built prior to 2023 that required rework, down 5 from last quarter. Our ability to finish the rework and shut down the shadow factory has also been impacted by the work stoppage and will now extend into next year. Finally, on the 777X program. As previously announced, the $2.6 billion pretax charge primarily reflects our latest assessment of the certification time lines to address the delays in flight testing of the 777-9 as well as anticipated delays associated with the IAM work stoppage. We'll continue to follow the lead of the FAA as we progress through the certification process and now expect first delivery in 2026. Year-to-date, 777X inventory spend has averaged a bit below $800 million per quarter. The cash profile will look similar to prior development programs with the year prior to first delivery, typically the largest use of cash driven by inventory build associated with the production ramp, which will unwind as deliveries commence. Moving on to the next page, Boeing Defense & Space. BDS booked $8 billion in orders during the quarter, including definitizing a $2.6 billion award from the U.S. Air Force for 2 rapid prototype E-7A Wedgetails aircraft and the backlog ended at $62 billion. Revenue was $5.5 billion, stable year-over-year, and BDS delivered 34 aircraft in the quarter, including the first production MH-139A Grey Wolf, to the U.S. Air
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year-over-year, and BDS delivered 34 aircraft in the quarter, including the first production MH-139A Grey Wolf, to the U.S. Air Force. As previously announced, BDS recognized $2 billion of pretax charges on the T-7A, KC-46A, commercial crew and MQ-25 programs in the third quarter, and operating margin was minus 43.1%. In September, we indicated that margins would again be negative due to two things: First, on the 25% of the portfolio, primarily comprised of fighter and satellite programs. Our fighter programs recognized losses in third quarter due to disruption as the F-15EX ramps up on a shared production line as well as additional cost pressures and winding down F-18 production. Second, additional cost pressures on fixed price development programs. The magnitude of these losses expanded as we close the books, primarily reflecting higher estimated production costs on the T-7A program, mainly on contracts in 2026 and beyond and an updated assessment of impacts on the Case 46A program associated with the IAM work stoppage and the decision to conclude production on the 767 freighter. Given the fixed price nature for these contracts, we'll continue to be transparent about impact as we work to stabilize and mature these programs. While acknowledging these are disappointing results, these are complicated development programs, and we remain focused on retiring risk each quarter and ultimately delivering these mission-critical capabilities to our customers. The plan to improve BDS margins in the medium to long term remains unchanged. Our core business remains solid, representing about 60% of our revenue and generally performing in the mid-to-high single-digit margin range with commercial derivatives experiencing margin compression in 3Q due to the disruption in Puget Sound factories, including the work stoppage. Broadly, the demand for our defense products remains very strong, supported by the threat environment contracting our nation and our allies. We still expect the business to return to historical performance
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the threat environment contracting our nation and our allies. We still expect the business to return to historical performance levels as we stabilize production, execute on development programs and transition to new contracts with tighter underwriting standards. Moving on to the next page, Boeing Global Services. BGS continues to perform well in the quarter. The business received $6 billion in orders and the backlog ended at $20 billion. Revenue was $4.9 billion, up 2%, primarily on higher commercial volume. Operating margin was 17%, up 70 basis points compared to last year on favorable volume and mix. In the quarter, BGS secured several key services agreements with ANA as well as a KC-135 spares contract from the U.S. Air Force. It's a terrific long-term franchise focused on profitable, capital-efficient service offerings and executing well with mid-single-digit revenue growth, mid-teen margins and very high cash flow conversion. Turning to the next page, I'll cover cash and debt. On cash and marketable securities, we ended the quarter at $10.5 billion, primarily reflecting the $2 billion use of free cash flow in the quarter. The debt balance remained stable, ending at $57.7 billion. Last week, we entered into a new $10 billion short-term credit facility and now have access to credit facilities totaling $20 billion, all of which remain undrawn. We expect 4Q free cash flow to be a usage driven by the timing of return to work, the pace of our production ramp and the unwind of inventory in the balance sheet. While we expect 2025 to be another use of cash, we anticipate a significant improvement over this year. Importantly, we expect to exit next year with real momentum in the business as we return to normal production rates. We continue to take a tough but necessary actions to preserve cash and safeguard our future. We've worked across our supply chain partners to significantly reduce expenditures while balancing the associated trade-offs. We shared plans to reduce our workforce to align with our financial reality
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while balancing the associated trade-offs. We shared plans to reduce our workforce to align with our financial reality and a more focused set of priorities. We're decisively implementing reductions to our discretionary spending across the company. As we move through this process, we'll maintain our steadfast focus on safety, quality and delivery for our customers. We remain committed to managing the balance sheet in a prudent manner with two main objectives: First, prioritize the investment-grade credit rating; and second, allowing the factory and supply chain to reset, which will take longer as a result of the work stoppage. We're constantly evaluating our capital structure and liquidity levels to ensure that we could satisfy our debt maturities over the next 18 months while keeping confidence in our credit rating as investment grade. The actions we've recently taken, including establishing the universal shelf registration, which is now effective, directly support these priorities, and we have a plan to comprehensively address the balance sheet in the near term that could include an offering of equity and equity-linked securities. We're confident that overtime, the business performance and capital structure will return to levels fully aligned with an investment-grade profile. Near term, we're focused on reaching an agreement with our representative workforce to allow our factories in the Puget Sound area to resume and then ramp production in a stable fashion for years to come. Stepping back, the markets we serve are significant, and our product portfolio is well positioned, demonstrated by our backlog of more than $0.5 trillion. Long-term, these fundamentals underpin our confidence as we manage the business with a long-term view built on safety, quality and delivering for our customers. With that, Matt, let's open up for questions.
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Operator: [Operator Instructions] Your first question comes from the line of Myles Walton from Wolfe Research. Please go ahead.
Myles Walton: Thanks good morning. Nice to speak with you again, Kelly. In your remarks, you talked about Boeing as an airplane company. And so I just want to understand what is core and noncore outside of Boeing Commercial Airplanes as you see it and specifically, significant portfolio shaping and simplifying the business is in your turnaround you're describing looking forward?
Kelly Ortberg: Yes. So first of all, good talking to you again, Myles. Look, as I look at the portfolio, and I've made this comment, I think that we're better off being -- doing less and doing it better than doing more and not doing it well. So we're in the process of taking an evaluation of the portfolio. It's something a new CEO always does when you come into a business and looking at those things and asking in the filter of what do we want this company to look like 5 and 10 years from now. And do these things add value to the company or distract us? So I'm in the process of going through that. Clearly, our core of commercial airplanes and defense systems are going to stay with the Boeing Company for the long run. But there's probably some things on the fringe there that we can be more efficient with or that distract us from our main goal here. So more to come on that, Myles, but I don't have a specific list in my hand today, and I'd ask everybody don't get ahead of me on this I don't have a specific list of things that we're going to keep, and we're not going to keep. That's something for us to evaluate and the process is underway to start that.
Myles Walton: Thank you.
Operator: Your next question comes from the line of David Strauss from Barclays. Please go ahead.
David Strauss: Thanks. Hey Kelly.
Kelly Ortberg: Hey David.
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David Strauss: Thanks. Hey Kelly.
Kelly Ortberg: Hey David.
David Strauss: So wanted to ask you about the balance sheet and the plan there. So how you're thinking around the parameters in terms of the size and timing of a potential capital raise? I'm sure this is a function of your discussions with the lead agencies as well as your ability to generate cash over the longer term. So maybe some color on what you're hearing from the credit -- from the rating agencies as well as your thoughts, maybe initial thoughts around the ability of the company to generate free cash flow in the future relative to that $10 billion target that's been out there? Thanks.
Brian West: Thanks, David. I'll take a shot at that. We are in active engagement with the rating agencies, and it's a constructive dialogue, and they help inform the plan that we have. And we do have a plan to address the balance sheet. From a timing perspective, we've done everything necessary to be in a position to raise capital, and we're monitoring events closely and we'll access the markets whenever we determine it's the right time. In terms of the size question, here's what's important to us on size. We're focused on maintaining $10 billion of cash in addition to our revolver capacity as we historically have. And we're anticipating our near-term cash flows to be usage driven mostly by timing, both in the fourth quarter and next year as we ramp production. And the third piece of this is that we have debt maturities in the next couple of years. All of that is contextual for how we would think about a funding raise to address the capital needs and ensure sufficient liquidity as we execute our recovery game plan. So we have a plan. We're focused. And again, it's all on the priority to protect our investment grade.
David Strauss: Okay. And Kelly, maybe if you could take that question around the $10 billion target that's out there. Is that a realistic target to think about any time over the next several years for this company based on what you've seen so far?
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Kelly Ortberg: Yes, it's too early for me to answer that. I would just say all the financial forecast, the long-term outlook are under review. And I need some time to assess that. And certainly, we need to see some stability in the business to be able to put any kind of target out there. So I'm evaluating that. But today, I'm not ready today to provide any update to that.
David Strauss: Got it. Fair enough. Thank you.
Operator: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Please go ahead.
Sheila Kahyaoglu: Thank you. Kelly, nice speaking with you again. And Brian, thanks as always. So Brian, you mentioned free cash flow usage in Q4 and in 2025 as a total. Obviously, that assumes the vote is positive today. Can you talk about some of the drivers that were more positive in Q3? How do we think about the Q4 outflow? And what are you assuming for BCA delivery ranges in your free cash flow outflow next year in BDS losses? And does it become positive anytime in 2025?
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Brian West: Thanks, Sheila. So earlier in the third quarter, we had expected working capital to be a drag in line with the first two quarters. And as we closed the quarter, we had a timing benefit from BCA customer advances that cut the expected working capital about half -- working capital drag about in half. So as we look into the fourth quarter, a lot is going to depend upon the timing of the return to work and the pace the production ramp. But you could see a fourth quarter working capital drag similar to the first two quarters as we've essentially had a shift of deliveries to the right as we're building inventory. So net-net, free cash flow for the fourth quarter could look similar to the second quarter depending on a lot of things coming together as we move through the course of the end of the year. As it pertains to 2025, 2025 free cash flow will be significantly better than 2024. And we expect the first half to be a cash usage and the second half to turn positive and then build real momentum as we exit the year and return to more stable production rates. So the calendar year is likely to be usage, but the profile is important as we set ourselves up for the recovery and then for 2026 and beyond. In terms of the divisions, there's no doubt that BCA will be driven by those production rate ramps, which is too early to call those as we stand today. And then BDS is going to be impacted by some of the cash implications of some of the charges that we've announced, but we've got a good handle on that and we'll be more descriptive as we get in towards the end of the year.
Sheila Kahyaoglu: Thank you.
Operator: Your next question comes from the line of Doug Harned from Bernstein. Please go ahead.
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Sheila Kahyaoglu: Thank you.
Operator: Your next question comes from the line of Doug Harned from Bernstein. Please go ahead.
Doug Harned: Hi, good morning. Thank you. Kelly, you've referred to the idea that Boeing was once a benchmark for culture. And that was a long time ago. I mean if you look over the last 5 years, Boeing's lost many experienced leaders from senior management to the factory floor, who were part of that culture. And you're also initiating a large headcount reduction. So how are you thinking about rebuilding leadership talent in this environment to make your goals for cultural change, stabilization of the business and execution achievable? And should this involve internal and external approaches?
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Kelly Ortberg: Yes, Doug. So first of all, I'm still in the process of traveling around, meeting our people, particularly 2 and 3 levels down. My first impression is we've got great people in the Boeing Company. Fantastic people. We just got to get everybody in the right position, running the right place, focused on the right things. And I think we've got some work to do there. Of course, I'll supplement the team as needed if we see that we need some additional resources from outside. I do think some outside view also helps us think a little bit when we're looking at culture change. But you're right, the culture I'm referring to at Boeing, probably most of the folks who lived in that culture have retired or moved on. So our culture change here is really going to be for the entire company. We've got to come back and reevaluate the values that we have. This starts at the top. I know that it starts at the top. I've had a meeting with the top leaders in the company, and we've talked explicitly about what we're going to do to change the culture. But it's going to take time, as I said in my prepared remarks. This isn't something that there's just a light switch that flips. We'll continue to work this. It's a never-ending process. We got to get to a point where the organization itself holds itself accountable to the cultural aspects and the values of the company. And I know what that looks like. I've been in a company where the values and the culture is very, very strong, and it becomes self-policing and self-developing as you bring new people in. So I think this is something that we can do. I think we may have to supplement in certain areas with some additional outside resources. But in the main, we need to turn the culture around with every employee here. We've got a large employee base. Now let me come to the 100 -- or the announcement on the workforce reduction. Look, as I've commented, we're inefficient. And one of the things I've heard from a lot of employees is there's just too much overhead. It slows them down
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inefficient. And one of the things I've heard from a lot of employees is there's just too much overhead. It slows them down in being able to get their work done. So we're going to really focus this workforce reduction in streamlining those overhead activities, consolidating things that can be consolidated. And I wouldn't think of it like we're going to take people off the production or out of the engineering labs. That's not our intent here. It's about around getting ourselves more efficient and have a more lean and mean machine going forward. And I think that's going to be really important as we ramp up the production, as Brian talked about, over the next year.
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Doug Harned: Thank you.
Operator: Your next question comes from the line of Ron Epstein from Bank of America. Please go ahead.
Ron Epstein: Hey good morning Kelly. Nice to talk to you again.
Kelly Ortberg: Hi, Ron.
Ron Epstein: When you sit back and you think about where you want the Boeing Company to be in 5 years, how do you think about that? I mean this kind of addresses some of the questions we've already hit. Where do you think you could feather in a new airplane? And where -- really, where could this company be? And as outsiders looking in, what should we expect that it will be?
Kelly Ortberg: Well, look, I'm still -- as I said before, I'm still going through that process of, in detail, understanding what do we want to look like. But it's clear, I want to be the leader in the aerospace and defense market. I want to be setting the standard for the products that we deliver. I want our customers doing our marketing for us, not us doing our marketing. And we've got to get to a point where our engineering capability and our production capability is actually -- is doing the talk. So execution is going to be extremely critical. I do think we need to focus on the things that we can be good at. This is not a situation where we have to figure out what market opportunities are we going to go pursue. They're right in front of us. Our backlog is so strong. Our demand for our products is so strong. This is about getting ourselves focused on the things that we can do well and executing on those things. And what comes out of that? You can run the numbers. I mean the demand is fantastic for our product lines. And if we're efficient as we deliver those into the market, the sky is the limit for us.
Ron Epstein: Yes, thank you.
Operator: Your next question comes from the line of Seth Seifman from JPMorgan. Please go ahead.
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Ron Epstein: Yes, thank you.
Operator: Your next question comes from the line of Seth Seifman from JPMorgan. Please go ahead.
Seth Seifman: Hey, thanks very much and good morning. And good to speak with you, Kelly. Maybe if I could do a question and a clarification. Kelly, I wonder if you could talk a little bit about the defense business. I think a lot of us have been surprised by the magnitude of the charges there in recent years. There's obviously some tough contract terms, but the fact that the charges are so persistent suggest that there's an estimating problem there as well. And so what do you see as kind of the core of the problem at BDS? And what does it take to get to an acceptable level there? And then maybe, Brian, you talked about the -- getting to an acceptable production rate by the -- or normal production rates by the end of next year. What are those normal production rates?
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Kelly Ortberg: Okay. Let me start with the BDS portfolio. So everything you said is true. We've got some tough contracts, and there's no magic bullet to that. We're going to have to work our way through some of those tough contracts. Having said that, the discipline about what we can control on those contracts needs to get better. Our EAC process needs to get better. Our risk management -- this is the thing that I think is so important is that we're not admiring these risks, but we're acting on them. So we've been carrying risks in these programs. And I don't think we've been doing enough work with our customers to figure out how to derisk these things before it turns into an EAC overrun. So that's what I've got the team focused on doing, a lot more deep dives, a lot deeper look at the programs, a lot more looking around the corner, not just dealing with what today's problem is going to be because as you pointed out, we've gone from today's problem to today's problem to today's problem, and that's because we're not looking around the quarter enough on these programs. And some of that means that you've got to be better at working with your customer to define success on these programs going forward. So look, it's going to take a lot of work. We're not going to be able to just wave a wand and clean up these troubled contracts. We signed up to some things that are problematic. But we're also, I will tell you, really focusing on our bid and proposal activity, putting discipline around that to make sure that we absolutely understand the risks that we're taking on as we enter into new contracts as well. So burn down the tough ones, get better execution on the future, and I think the opportunities are there. We know how to run these programs. We just have lost a little bit of discipline. And I'll tell you, I don't think our people are close enough to the people in the labs, on the factory floor, identifying what's keeping us from being successful. And so we've started -- we've made some changes in that regard, and
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floor, identifying what's keeping us from being successful. And so we've started -- we've made some changes in that regard, and there's more to come to focus on these EACs. We just got to get better.
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Brian West: And Seth -- your BCA question, prior to the work stoppage, we had a plan in place to get to 38 per month on the 737. We were making very nice progress. We were starting to bring up that third line in Renton [ph] and then the work stoppage happened. So our expectation is, once we get back to work, we ramp production and move through next year, we'll get back on track. And then we'll be having discussions with the regulator about increasing beyond 38 per month. All that is not specific in timing, but those are kind of the milestones that we look forward to getting through as we go through next year.
Seth Seifman: Okay, thank you.
Operator: Your next question comes from the line of Peter Arment from Baird. Please go ahead.
Peter Arment: Yes good morning. Nice to talk to you again, Kelly. And Kelly, you spent a few decades in -- as a supplier and are very familiar with Boeing from the outside and now you're inside. Can you talk a little bit about -- you've got a -- Boeing has a deal to acquire Spirit and [Indiscernible] house, how you're thinking about kind of that and being vertically integrated and what kind of capabilities? I know you've got a lot on your plate still evaluating lots of things in the portfolio and things, but could you maybe address that point? Thanks.
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Kelly Ortberg: Yes. First of all, just to be clear, there's no change in our commitment to the Spirit acquisition and the integration. And that's clearly one of our major activities here in terms of stabilizing the business as they're a big part of the supply chain. Now the deal won't close until sometime next year. So it's very important that we work closely with Spirit, and we are in improving their performance so that they support our ramp-up. And I like what I see there, Peter. We're making good progress pushing the defects back into the system to where they're originating and then getting that root cause to fix those. And prior to the strike, we were starting to see some pretty good improvement in the overall quality of the fuselages coming back in. So no change in our strategy with Spirit. I think once we get that under our belt, it will be easier for us to integrate and tightly couple the improvements there. And I think that will be even a step change improvement from where we are today. But we've got a lot of work to do with Spirit. We've got several hundred people on their site every day, helping them work through some of their challenges. And that's going to be critical to our ramp-up.
Peter Arment: Appreciate the color. Thanks Kelly.
Operator: Your next question comes from the line of Noah Poponak from Goldman Sachs. Please go ahead.
Noah Poponak: Hey good morning everyone.
Kelly Ortberg: Hi, Noah.
Noah Poponak: Just to be 100% clear, you guys are saying you expect negative free cash flow for full year 2025?
Brian West: Yes.
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Brian West: Yes.
Noah Poponak: So Brian, can you talk maybe a little bit more about the pieces of that? Because I guess I would have thought if you could have a little bit of MAX production rate recovery momentum exiting 2024 into 2025, you could certainly get that to a cash flow positive place. 8 7, it sounds like is on pretty decent footing exiting the year. You still have a ton of inventory to unwind. I guess I don't know where you stand with the advances relative to being behind schedule. And I guess, I don't know what you're assuming for defense? And maybe the MAX ramp back up post labor dispute takes -- is a lot tougher than I'm appreciating. But maybe you could just talk more about those moving pieces that roll up to that.
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Brian West: Sure. So first of all, we'll be significantly better as our expectation versus 2024. And the moving pieces are exactly that you laid out in terms of the commercial side of our business, in addition to the 777X which is going to be at that cash flow, most investment as it gets ready for an EIS in 2026, which is going to put further pressure on the cash flows. But broadly speaking, we have to have a return to work. We didn't have a ramp. We didn't have a ramp beyond 38, all things that we don't have clarity on as we sit here today, but one we're making some general forecast of what that might look like. And we know that the first thing we need to do is get back to work in the factory. So we'll get more specific as we move through the end of the year and into next year. and appreciate that all that is going to be that profile that I described, which is we typically have a first half cash usage clearly, first quarter but then it's going to turn in the second half, and then we're going to exit with more momentum as the production in the factories heal and recover. In terms of BDS, we've got charges that have been announced. Some of those charges are going to be more near-term focused and we have to acknowledge and we look forward to that team operating a game plan to execute with a much different level of performance as we exit next year. So it's all in the mix. It's hard to call at this moment, and we'll keep you posted on how all these levers are going to move as we get towards the early part of the year.
Noah Poponak: I guess what's your best guess of number of months it takes to get the MAX back to what that first half of September was looking like once you have a labor resolution?
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Kelly Ortberg: Yes. Noah, this is Kelly. Let me -- I'm not going to give you an exact month because I don't know what the exact month is going to be. Let me tell you kind of some of the steps that we have to take that we've got in our plan. So first of all, it will probably be a couple of weeks to bring the members back. We have a recertification effort and a retraining effort that we're going to do. For those who haven't been -- who were trained on their job and didn't get enough time on an airplane before they went out on strike, we're going to go through a retraining activity. It is so much more important that we do this right than fast coming out of the chute. As you know, we've got the supply chain right now that we've turned off in many cases. So I'm anticipating we're probably going to have a little bumpy return from the supply chain. We've tried to manage that as best we could and keep folks like Spirit, for example, on fuselage, keep them funded and moving forward. But there are some folks who had to stop and are going to start back up. And so we've got to be realistic about some schedule issues associated with bringing the supply chain back on. The other thing that I think is really important is you know we have this 38 a month cap with the FAA. We've got a safety and quality management plan in place. We've laid that flat with the FAA, and that monitors a lot of key metrics within our production system. And those metrics have to be trending in the right direction and they have to be meeting certain thresholds for us to achieve a rate increase. And we actually won't take it to the FAA if we're not achieving those rate increases. We're going to make sure that we take care of that. But I'm anticipating the first rate increase. This is going to be the first time that we've done it and the FAA has done it. And so I think the first one's probably going to be the hardest going beyond rate 38. And so we just can't be overly aggressive in how we're forecasting that because anything in aerospace, the first time
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rate 38. And so we just can't be overly aggressive in how we're forecasting that because anything in aerospace, the first time you do it, it's hard. And this will be the first time. There's a lot of dynamics around both the technical part of rate increases and the political dynamics around our rate increases. So we absolutely have to make sure that we're not increasing rate when we're not ready. And I'm in direct lockstep with the FAA on that. So those are things -- I think the first rate increase is something for us all to watch. I think they'll get easier for the sequential rate increases after that throughout the year. And as Brian said, we should exit next year in a much more, I'll call it, normal or recovered fashion.
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Noah Poponak: Okay, thank you.
Operator: Your next question comes from the line of Scott Deuschle from Deutsche Bank. Please go ahead.
Scott Deuschle: Hey good morning.
Kelly Ortberg: Good morning.
Scott Deuschle: Kelly, just following up on supply chain. Can you provide more detail on how you're managing supply chain through this work stoppage? And also what specific steps you're taking to ensure that supply chain remains in a position to ramp up once the strike is over? And I asked because last time, there was a broad-based work stoppage and getting things back on track was clearly a challenge and frankly, we're still seeing the ghost of that 4 years later. And so just looking for some more clarity here on how we kind of avoid mistakes of the past. Thanks.
Kelly Ortberg: Yes, the answer to that is we have to work with every supplier on each commodity relative to what their current situation is. Now I think in some cases, we've kept people hot, as I've said, either because we felt that they were behind or there was a need for -- there was too much risk associated with turning them down. Some of the larger companies, they're going to use this time to actually get in a healthier position themselves. So I think that will be okay. It will be the ones or twosies things that we have to deal with. You need all the parts to build the airplane. So as we bring that on, I'm not expecting a major issue. It's not like we've been out on strike for a long period such that someone's decommissioned a factory or changed a foundry or shifted a balance of their workforce. We have seen some furloughs but furloughs are temporary. That's why they furlough them because they want to be able to call those folks back. And we've done some furloughs ourselves. So we're managing that supplier by supplier, day in, day out, trying to keep close communication with all of our supply chain as we bring this back on.
Scott Deuschle: Thank you.
Operator: Your next question comes from the line of Jason Gursky from Citi. Please go ahead.
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Scott Deuschle: Thank you.
Operator: Your next question comes from the line of Jason Gursky from Citi. Please go ahead.
Jason Gursky: Yes. Good morning and Kelly, welcome back to the fun of quarterly earnings calls.
Kelly Ortberg: Thanks, Jason.
Jason Gursky: Let's see here, I want to just talk a little bit about the bigger picture turnaround here and particularly as it relates to the balance sheet. It seems to me like you're getting ready here to deploy a pretty well thought out plan. You've got some cost cutting that you're doing here. You've talked about you're going to look at the portfolio, there might be some divestitures potentially there. Brian's talked about the capital raise and you've talked about better execution. I think the one thing that may be missing from that list, I just wanted to try to get a sense from you on is the potential of just exiting some programs or some contracts that you've got absolutely no path to profitability or free cash flow on over the longer term. And whether there's an opportunity for you all to get out of some of these contracts or get out of some of these programs and how you go about doing that. And just want to get a really good sense of whether that is kind of on the menu of options that you have because I think we're all looking for ways on how you can kind of increase the pace of this turnaround. I know you say it's going to take a long time, but just kind of what are some of the tools at your disposal here?
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Kelly Ortberg: Yes. So look, I think if you're talking the big defense programs where we've got EAC problems, I don't think that's a viable option to us. I don't think we can just -- even if we wanted to, I don't think we can walk away from these contracts. These are our core customers that need this capability. We've got long-term commitments to them. So walking away isn't an answer to this. In my prepared remarks and comment to an earlier, we do have to work with the customers and see if there's areas where we can trade things off with them and help us and help them too. And I don't think we've been doing enough of that in the trade space with the customers. So we can come up with some win-wins and we don't sit here with these risks that are unmitigated going forward. So I think that's more the -- where I would focus on these things. Now there are some things that we can just stop doing that we're currently doing. And those are on the table in the streamlined effort that I'm talking about. There are some areas where we may be at one contract phase and do we want to go to the next contract phase that will sit and evaluate. And we've got to get it -- we do have to get in a position where we've got a portfolio much more balanced with less risky programs and more profitable programs. And we're going to be working that. But again, I don't think a wholesale walk away is just in the cards.
Jason Gursky: Okay, that’s helpful. Thank you.
Kelly Ortberg: Okay.
Operator: Your next question comes from the line of Cai von Rumohr from TD Securities. Please go ahead.
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Kelly Ortberg: Okay.
Operator: Your next question comes from the line of Cai von Rumohr from TD Securities. Please go ahead.
Cai von Rumohr: Yes, thanks so much and welcome back, Kelly. So two questions for you. First, would you consider hiring from the outside to fill the BDS head slot because obviously, the folks there have really not been getting the job done? And secondly, if we look at your portfolio, you have several properties in Global Services on the commercial side that looked like they could be very highly valued, specifically Jefferson, you could argue are not directly required to build planes successfully. So would you consider divesting any of those because that would significantly reduce the amount you'd have to raise via equity?
Kelly Ortberg: Yes. So Cai, I would say, I'm not going to specifically address the BDS position, but I'll just say generically, as I look at any of these positions and any changes we'll make, we'll take a look at internally. Do we have the right candidate? And if so, that's the way we'll head. If we need to supplement from the outside and bring some outside skills in, then we'll head that direction. So as I said before, I'm certainly not averse to bringing in some additional resources to help the team. And I don't think the teams are averse to that as well. So we'll see where that heads on specific positions. The second part of his question -- Jefferson...
Cai von Rumohr: Yes, on the properties in Global Services that you've got things like Jefferson that arguably could command a very high price and don't look like they're totally required to build planes successfully. Would you consider divesting any of those to supplement an equity raise?
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Kelly Ortberg: Yes, I think that's what I'm talking about when I'm talking about looking at the portfolio and deciding what do we need for our future. I'm not going to specifically comment on Jefferson. But looking at all of our activities like that, whether it's in our services business or in either the core businesses, looking at what we're doing there and asking the question, does that really fit in our long-term strategy? Or would that property be better off somewhere else, and we could get more value -- we're destroying value by holding it in the Boeing Company. So those are the things that we'll look at as we do this portfolio review. And my guess is there'll be some things that we want to take action on. I just don't have that list to tell you right now what am I going to do?
Cai von Rumohr: Do you have any time frame to make that decision? Like are we talking 3 months? Are we talking 9 months?
Kelly Ortberg: Yes, I want to have a good feeling internally by the end of the year as to what I want that. We've got a process underway where we do our long-range planning, which will facilitate that. Now Cai, that some of these things can be actioned quickly. Some of these things are not actionable. Some of these things take a long time. So it sort of depends on what the opportunities are, can things be separated? Can we just stop doing work? An example, just the 767 freighter. We looked at that and said, hey, look, there's an incoming on the 767 freighter. It's coming soon. Let's make the decision now and get that distraction out of the way. We'll finish the deliveries, been a fantastic airplane and we'll continue to support our customers and support the mill variants of that. But let's declutter our minds with some of this stuff and get our resources really focused on what's going to make a difference for us going forward. And that's the type of stuff I want to really focus on.
Cai von Rumohr: Terrific. Thank you very much.
Matt Welch: And Greg, we have time for one final question.
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Cai von Rumohr: Terrific. Thank you very much.
Matt Welch: And Greg, we have time for one final question.
Operator: Okay. That question comes from the line of Richard Safran from Seaport Research Partners. Please go ahead.
Richard Safran: Thanks, Kelly, Brian good morning. Kelly, great to be speaking with you again. So I thought I'd ask also about Global Services, but I think you may have some better visibility. We've seen some modest growth this year. We had about 70 basis points of margin improvement this quarter. I thought you might talk about your near and long-term outlook for the segment, how you see sales and margins trending? And Kelly, is there any read-through to Global Services from your core part structure? Or you're pretty happy with the way things are going there?
Kelly Ortberg: Well, let me just say that that's not my focus right now. They're doing really well. Chris Raymond and his team are executing. And the one thing I want to do right now is just help them make sure they get all the support from the corporation they need to continue to execute. Having said that, absolutely, there's parts in this 4-part strategy that flow through our global service, particularly the cultural aspects of this. So that's a company-wide activity, and it has to permeate through our Global Services business as well. And there's areas in Global Services, they're doing well, but there's areas we could do better. There's areas we could get closer to our people and have better outcomes for our customers. So they're in this together, but I would just say Chris' team is doing really well, and it's not my priority right now. We want them to continue with their head down and delivering the results that they're delivering.
Richard Safran: Thanks very much.
Matt Welch: And that concludes our call today. Thank you, everybody, for joining.
Operator: Ladies and gentlemen, that completes the Boeing Company's Third Quarter 2024 Earnings Conference Call. Thank you for joining. You may now disconnect.
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Operator: Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's Second Quarter 2024 Earnings Conference Call. Today's call is being recorded. The management discussion and the slide presentation plus the analyst question-and-answer session are being broadcast live over the Internet. [Operator Instructions] At this time, for opening remarks and introductions, I'm turning the call over to Mr. Matt Welch, Vice President of Investor Relations for the Boeing Company. Mr. Welch, please go ahead.
Matt Welch: Thank you, Lois, and good morning, everyone. Welcome to Boeing's quarterly earnings call. I am Matt Welch, and with me today are Dave Calhoun, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer. As a reminder, you can follow today's broadcast and slide presentation at boeing.com. Projections, estimates and goals included in today's discussion involves risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the beginning of the presentation. We also refer you to the additional disclaimers related to the Spirit AeroSystems transaction at the beginning of the presentation as well the disclosures relating to non-GAAP measures in our earnings release and presentation. Now, I will turn the call over to Dave Calhoun.
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Dave Calhoun: Thanks, Matt. Good morning to all, and thanks for joining us. First, you saw the news that the company has announced the appointment of Kelly Ortberg as my successor commencing August 8 of this calendar year. As you know, the Board conducted an extensive search process. It was led by Steve Mollenkopf. I am incredibly grateful to the way in which he conducted it, the extent to which he conducted it. And I'm extremely confident in their selection of Kelly as the next leader for Boeing. He's had more than 35 years of experience in aerospace and is tremendously respected in the industry. I look forward to working with him to ensure a smooth transition. I want to focus my upfront comments on the progress that we are making on our recovery as we strengthen our quality management systems and position the company in best possible way as we move forward. Brian will cover the financials following my remarks. As a company, we've been on a multiyear path to strengthen our safety and quality management systems. We've stressed our commitment to transparency every step of the way. The January accident obviously sharpened this focus, leading us to take multiple additional steps to improve the stability of our operations, including major elements of our supply chain. First, among our actions was to slow things down and control travel work, allowing our supply chain to catch up and provide the buffer we need to improve quality and stabilize deliveries going forward. Our second quarter financial results reflect the reality of that continuing recovery post the Alaska accident. We're committed to doing all of the work necessary to ensure Boeing is the company the world needed to be, safe and predictable. Over the last seven months, we have made meaningful progress toward that goal. At the end of May, we provided our comprehensive safety and quality plan to the FAA, which continues to provide strong oversight of the delivery process. The planned notes are key performance indicators, by which we and our regulators will
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strong oversight of the delivery process. The planned notes are key performance indicators, by which we and our regulators will monitor the health and the quality of our production system. These measures include employee proficiency, notice of escapes, supplier shortages, rework hours, travelers at factory rollout and ticketing performance. All of these key performance indicators, KPIs, are established and operationalized across our BCA employee programs and they provide real-time insight to support stability, quality and safety. We are seeing improved performance across the majority of the metrics and remain confident in our ability to meet these KPIs as we expand production. An important element of this plan is the control limits we've established by which the FAA and more importantly, our own team hold ourselves accountable. Furthermore, our plan doubles down on four key investments; workforce training, simplification of manufacturing plan and processes, eliminating defects and elevating our safety and quality culture. We continue to seek feedback from our employees, from our customers, our regulators, policymakers, shareholders and many others as we move forward. One of the most important actions we took was the transfer of our rent in fuselage inspection process to Wichita. On-site Boeing inspectors at Spirit increased by almost three times, the number that we had before January. And defects we initially caught and reworked in Renton are now caught and reworked in Wichita. While this dramatically reduced the number of clean fuselages coming from Spirit in the first few months, we have seen steady improvement ever since. The improvements in quality have significantly improved our rent and flow times over that same period. While our focus remains on our factories to ensure we can meet our customer commitments, we are also making important progress on our development programs, including the 737-7, the -10 and our 777X. Most notably, this month, we received type inspection authorization, TIA, for the 777-9 and
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the 737-7, the -10 and our 777X. Most notably, this month, we received type inspection authorization, TIA, for the 777-9 and began cert flight testing with FAA personnel on board the aircraft. Our team has put the 777-9 test fleet through more than 1,200 flights, 3,500 flight hours across a wide range of regions and climate condition. And the certification of flight testing will continue validating the airplane safety, reliability and performance. In addition, we've identified an engineering solution for the engine anti-ICE system for in-production aircraft that will be implemented and certified in 2025 to support the first delivery of our -7 and -10 in MAX family. A comment on Boeing Defense, Space & Security performance. Clearly, the results this quarter are disappointing. Brian and I have mentioned before that we expected the fixed price development programs to remain bumpy until we complete the development phase and transition to mature long-term franchise programs. Based on the lessons that we've learned in taking on these fixed-price development programs, we have maintained contracting discipline for all future opportunities. We remain cautiously optimistic about the long-term prospects of our defense business, and we believe we can progress toward a more historical level of performance over time. Finally, Global Services remains a bright spot and continues to deliver solid results. We have a strong franchise and the team remains dedicated to supporting our commercial and defense customers. Before turning it over to Brian, let me touch on the recently announced agreement to acquire Spirit AeroSystems. This is an important shift in strategic direction, and it would course correct as -- made decades ago. This planned acquisition is a very significant demonstration of our resolve to invest heavily in quality and safety and to take the additional actions needed to reshape our company. As we have said, we believe this proposed deal is in in the best interest of the flying public, the best interest of our
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As we have said, we believe this proposed deal is in in the best interest of the flying public, the best interest of our airline customers and the employees of Spirit and Boeing and the country more broadly. By bringing in critical manufacturing work back within our four walls, we can unify our safety and quality management systems and ensure our engineers mechanics are working together as one team day-in and day-out. I'll close with a comment to our employees. Thank you for all that you do every single day. You care deeply about our mission, about our company and about each other. Your passion, your resilience and commitment are inspiring. This is a challenging period of time for all of us. There is no doubt, but I am confident, maybe more confident than I've ever been in our future because of you. And thank you, and Brian, I'll turn it over to you.
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Brian West: Thanks, Dave, and good morning, everyone. Before jumping into the financial results, let me take a moment on our planned acquisition of Spirit AeroSystems. On July 1, we announced a definitive agreement to acquire Spirit in an all-stock transaction worth approximately $4.7 billion with a total enterprise value of approximately $8.3 billion. As our materials indicated, we expect the transaction to close mid-2025, subject to the satisfaction of customary closing conditions, including regulatory and Spirit shareholder approvals as well as the sale of Spirit operations related to certain Airbus commercial work packages. This agreement contemplates us acquiring substantially all Boeing related commercial operations primarily consisting of the Wichita, Kansas, Tulsa, Oklahoma and Dallas, Texas facilities as well as other commercial, defense and aftermarket operations that would further augment our capabilities and offerings across the portfolio. Regarding the defense programs, we're committed to working with Spirit, its customers and the DoD to ensure continuity in order to support these critical missions. We continue to believe that this reintegration leverages and builds on our capabilities, support supply chain stability, integrates critical manufacturing and engineering workforces that allows for the ultimate unification of safety and quality management systems. Fully aligning to the same priorities, incentives and -- centered on safety and quality is in the best interest of our customers, the aviation industry and all stakeholders, including the flying public. All of this demonstrates our ongoing commitment to aviation safety, quality and stability. Turning to the next page, I'll cover the total company financial performance for the quarter. Revenue was $16.9 billion, primarily reflecting lower commercial delivery volume. The quarter loss per share was $2.90, reflecting lower commercial delivery volume and losses of $1 billion on fixed price defense development programs, which I'll get into later.
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commercial delivery volume and losses of $1 billion on fixed price defense development programs, which I'll get into later. Free cash flow was a usage of $4.3 billion in the quarter, which was generally in line with the expectations shared in May. Results impacted by lower commercial deliveries and unfavorable working capital timing. Turning to the next page, I'll cover Boeing Commercial Airplanes. BCA delivered 92 airplanes in the quarter. Revenue was $6 billion, and operating margin was minus -- 11.9%, primarily reflecting lower deliveries and expected higher period costs, including R&D. The backlog in the quarter ended at $437 billion and includes more than 5,400 airplanes. Last week's Farnborough Airshow continue to highlight the robust demand for our product lineup as we announced orders and commitments for over 150 airplanes, including nearly 100 widebodies. Now I'll give more color on the key programs. The 737 program delivered 70 airplanes in the second quarter, including a meaningful step up to 35 in June. July will be more or less in line with June levels despite normal seasonality. On production, we gradually increased during the quarter and still expect to be higher in the second half, as we move to 38 per month by year-end. We've reactivated the third line in our rented factory and monthly production improvement from high single digits at the end of the first quarter to roughly 25 in June and July. As Dave noted, the factory is currently operating within or near the KPI control limits laid out with the FAA as part of the safety and quality plan. The factory is operating with all fully inspected fuselages today and near-term production will continue to be paced by fuselages from Wichita. More broadly on the master schedule, we continue to make adjustments as needed and manage supplier by supplier based on inventory levels. Our objective remains to keep the supply chain paced ahead of final assembly to support stability and minimize traveled work. The quarter ended with approximately 90 737-8s built
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ahead of final assembly to support stability and minimize traveled work. The quarter ended with approximately 90 737-8s built prior to 2023, the vast majority for customers in China and India. This is down 20 from last quarter's value, and we expect approximately 10 more delivered in the month of July. We still expect to deliver most of these airplanes by year-end as we work towards shutting down the shadow factory. Regarding the -7 and the -10 models, inventory levels remained stable at approximately 35 airplanes and the certification timelines remain unchanged. On the 787, we delivered nine airplanes in the quarter, although the quarter was impacted by lower production, seat delays and other delivery timing items noted previously. We're starting to work through these issues and delivered six airplanes in July. The program produced below five per month in the quarter as expected and still plans to return to five per month by year-end. We ended the quarter with around 35 airplanes of inventory built prior to 2023 that required rework, which continues to progress steadily. We still expect to finish the rework and shut down the shadow factory by year-end with most of these airplanes delivering this year. Finally, on the 777X program, as Dave noted, we took a very important step on the certification timeline earlier this month as the program obtained type inspection authorization and began FAA certification flight testing. We'll continue to follow the lead of the FAA as we progress through the certification process and still expect first delivery in 2025. Inventory in the quarter grew approximately $800 million in line with recent quarterly trends and will continue to grow as we move towards entry into service as we've previously contemplated. Moving on to the next page, Boeing Defense & Space. BDS booked $4 billion in orders during quarter, including capturing an award from the US Air Force for seven MH-139 helicopters and the backlog ended at $59 billion. Revenue was $6 billion, down 2%, driven by fixed price
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Force for seven MH-139 helicopters and the backlog ended at $59 billion. Revenue was $6 billion, down 2%, driven by fixed price development losses and BDS delivered 28 aircraft in the quarter, including the first CH-47F Block 2 Chinook to the US Army. We took a $1 billion loss on certain fixed-price development contracts in the quarter and operating margin was minus 15.2%. In late May, we indicated that margins would take a step back and be negative due to a couple of things. First, the deliberate slowdown of the Puget Sound factories has impacted the derivative programs, specifically, a $391 million loss on the KC-46A Tanker, as well as margin compression on the profitable P8 program. Second, we've seen additional fixed price development cost pressures, resulting in additional losses on T-7A, VC-25B and commercial crew, primarily related to higher estimated engineering and manufacturing costs and inefficiencies associated with meeting certain technical requirements. Given the fixed price nature of these contracts, we continue to be transparent about impacts as we work to stabilize and mature these programs. While acknowledging these are disappointing results, there's a complicated development programs, and we continue to put milestones behind us and remain focused on retiring risk each quarter and ultimately delivering these mission-critical commitments to our customers. Stepping back, the game plan to get BDS back to high single-digit margins in the medium to long term remains unchanged. The core business remains solid, representing approximately 60% of our revenue and performing in the mid to high single-digit margin range. The demand for these products continue to be very strong, supported by the geopolitical threat environment confronting our nation and our allies. And the 25% of the portfolio primarily comprised of fighter and satellite programs, the quarter again saw improved margin trends as we continue to make important progress including delivering our eight F-15EX aircraft to the US Air Force, which
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trends as we continue to make important progress including delivering our eight F-15EX aircraft to the US Air Force, which enabled the program to achieve its initial operating capability milestone in July. We still expect to return strong historical performance level as we roll to new contracts with tighter underwriting standards. Overall, the defense portfolio is well positioned for the long term. There's strong demand across the customer base, the products are performing well in the field, and we're confident that our efforts to drive execution and stability will return this business performance levels that our investors will recognize. Moving on to the next page, Boeing Global Services. BGS continued to perform well in the second quarter, delivering very strong results across a globally deployed team that is focused on supporting its customers on both the defense and commercial sides. They received $4 billion in orders and the backlog ended at $19 billion. Revenue was $4.9 billion, up 3%, primarily on higher commercial volume. Operating margin was 17.8%, down slightly compared to last year, but still strong performance. In the quarter, BGS secured an Apache performance-based logistics contract from the US Army and captured FliteDeck Pro service contracts with Hainan Airlines and Ryanair. Importantly, BGS continued to deliver very strong operating margins for the first half of the year, matching the record levels from 2023. It's a terrific franchise that's set up for years to come. The team is focused on profitable, capital-efficient high IP offerings, and we still expect it to grow at solid mid-single-digit revenue levels and throw off mid-teen margins with very high free cash flow conversion. Turning to the next page, I'll cover cash and cash and debt. On cash and marketable securities, we ended the quarter at $12.6 billion, reflecting the $10 billion issuance of new debt in May, partially offset by the use of free cash flow in the quarter. The debt balance increased to $57.9 billion driven by the new debt
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offset by the use of free cash flow in the quarter. The debt balance increased to $57.9 billion driven by the new debt issuance. We continue to maintain access to $10 billion of revolving credit facilities, all of which remain undrawn. The deliberate actions we're taking demonstrate our commitment to improve safety and quality, and we continue to manage the business with a long-term view. We acknowledge the impact these actions are having on calendar year cash flows. So let me provide some additional context on near-term expectations. While commercial production and deliveries are improving, additional losses in BDS and working capital timing continue to weigh on near-term cash flow. Inventory will remain a near-term headwind as we prioritize supply chain stability to support future rate increases and advanced payments will take time to improve as we stabilize production and improve profitability of deliveries to our customers. Given these near-term working capital pressures, third quarter is expected to be another use of cash. We expect these working capital timing impacts will be -- unwind as deliveries and production stabilize later this year. On the free cash flow outlook for the year, we are now expecting a larger use of cash than previously forecasted. As you know, operating leverage in our business is meaningful. And as we ramp up deliveries, free cash flow will grow. We are deliberately investing today and taking the time necessary to get it right to ensure we're positioned to ramp -- in a more predictable and stable fashion. We remain committed to managing the balance sheet in a prudent manner with two main objectives: First, prioritize the investment grade rating; and second, allow the factory and supply chain to reset, both of which were supported by our decision to acquire Spirit with all stock financing. We'll continue to actively monitor our liquidity levels and as needed, we'll supplement our liquidity position with these two objectives in mind. We're confident that over time, the business
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needed, we'll supplement our liquidity position with these two objectives in mind. We're confident that over time, the business performance and capital structure will return to levels fully aligned with an investment-grade profile. Looking forward, we're taking the time now to ensure that our BCA factories are positioned to ramp production in a stable fashion for years to come. We'll also continue make progress on other important objectives, including shutting down the shadow factories, maturing and derisking the defense fixed-price development programs and building on the continued strong results and services. Entering 2025 will be in a much stronger position because of the work we're doing now. As noted in the commercial market outlook published this month, we continue to see robust demand and the fundamentals are there for the next 20 years, where we expect the global fleet to almost double as nearly 44,000 new airplanes are delivered with about half of those full replacement demand. The commercial and defense markets we serve, along with our product portfolio underpin our confidence as we manage the business today with a long-term view built on safety, quality and delivering for our customers. With that, let's open it up for questions.
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Operator: [Operator Instructions] And our first question will come from the line of Doug Harned from Bernstein. Please go ahead.
Doug Harned: Good morning. Thank you. I wanted to understand a little bit about the -- so the process, the production process on the 787 and the 737 because you're saying this inventory build, and it appears both from suppliers supplying it 38 a month for the MAX and five to six a month for the 787. On that end, I expect you're having inventory build. And then on the other end, difficulty with seats, so you would have things coming off the line and some of the inventory to China as well. It's difficult to get out of there. Can you talk about how you think of managing this inventory on both ends, given the production process or ramp that you're on right now?
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Brian West: Yes. Thanks, Doug. So the question, the inventory build is right in front of us as we make this investment for stability. The way I would think about going forward, we were on the 737 to start with. Our delivery rates in April, May were in the mid-teens. June, we did 35. July, we'll do somewhere in that ZIP code. So we are seeing demonstrated progress as we continue to move forward and rent in to stabilize and get better. So the progress evidence is there, and we expect that to continue as we move through the second half and, of course, then the inventory will begin to unwind. But it's really predicated on the continued progress. And as I mentioned, that third line in Renton is a very big deal for us to get moving as well resuming deliveries to China. So all those indications suggest that production is moving in the right direction, we're making progress and the inventory will unwind. On the 87, similarly, as I mentioned, second quarter, we had nine deliveries. In July, we've already got about six. So again, good progress, despite having some real supply chain constraints, as you mentioned. Those constraints aren't going to go away immediately, but they're going to get better. We've got a game plan in place. And we do believe that we'll get to that five per month as we get to the end of the year. And again, that inventory will liquidate as production performance improves.
Doug Harned: If I can just follow up on that. The -- you all have talked about the bottleneck -- chief bottleneck, I believe, being the fuselage deliveries from Spirit. So as you bring that third line on, how does this work? It didn't seem like it was final assembly that was the bottleneck before. So how does that help you with Spirit at a point now where -- is your capacity that is limiting factor?
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Brian West: So Spirit has done a very nice job. We watch it very closely, but Dave had a nice steady improvement. They're ramping their way up. We've got confidence, Pat and the team. And we believe that we will be able to fill that third line, and we believe that that we'll be able to get to 38 per month as we get to the back half of the year.
Dave Calhoun: The only thing I would add, Doug, is the third line, it also helps us with unforeseen issues, because it gives us flexibility across three lines as opposed to having to close two if we end up the nonconformance somewhere. So we are simply trying to over-capacitize accommodate things that appear and steady our production.
Doug Harned: Okay. Very good. Thank you.
Operator: Thank you. Our next question is from Peter Arment from Baird. Please go ahead.
Peter Arment: Yes, good morning Dave and Brian. Dave, thanks for calling out some of the KPIs that you were talking about. Obviously, they're all super important. You said you're getting some real-time insights on some of these metrics. Maybe is there any color you can give us on what you're seeing so far on the progress, whether it's the notice of escapes or shortages, or you about employee proficiency? Just trying to get at ultimately what the metrics that -- is there anything that's a long pole in the tent that is holding back for rate increases and just the confidence around getting to that rate 38? Thanks.
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Dave Calhoun: Peter, thanks. Every metric gets better when you slow things down. So yes, I don't want to kid anybody. The step we took to slow things down, it was very deliberate, very straightforward and every metric benefits from that moment. So we've had a step change improvement, traveled work, of course, being the big one. And the way to measure traveled work in my view, I think the view of our production team is when we get a clean fuselage and we move it through less than half the float time it would have taken in its prior state that reduces everything. And the reason is you don't have traveled work, you don't have defects moving down the line, you don't have any of that stuff. So we've been a beneficiary of a step change on that front, and we're now at the stage where we're only getting clean fuselages where, as you know, in the first two quarters, we were managing a mix of the prior regime and what we're getting now. So anyway, that's the big proxy for the way things are going to move forward and are moving forward. You’ll know when we get out of kilt on any one of those metrics. I don't think any of them are going to stop us from the plans that we've announced and our expectations as we approach year-end. Probably the one we'll all just keep our eye on is the traveled work scenario where we cannot allow ourselves to get back into a scenario where we're traveling things too far down the line. And we got a lot of controls in place. So that won't happen.
Peter Arment: Appreciate it. Thanks Dave.
Operator: Thank you. Our next question is from Sheila Kahyaoglu from Jefferies. Please go ahead.
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Operator: Thank you. Our next question is from Sheila Kahyaoglu from Jefferies. Please go ahead.
Sheila Kahyaoglu: Thank you guys, and good morning Dave and Brian. Brian, this one's for you. Maybe if we could just think about what's the buffer on free cash flow and the cash balance? How do we think about tapping that RC if cash falls below $10 billion, which is what you're suggesting in Q3? And do you think about Q4 as cash usage or generation? And what's the cadence of inventories and advances maybe over the next two to four quarters, if you can?
Brian West: Yeah, sure. Thanks, Sheila, for the question. So the working capital drag has been pretty meaningful in the first and second quarter, and it's the inventory as well as the advances as deliveries have been lower. Now the third quarter is going to be a similar working capital drag as it was in the first and second quarter. Inventory will still be a headwind, albeit a smaller one. And the advanced timing will be an additional headwind, which, again, that will gradually improve over time with deliveries. And we're seeing that customers are applying excess advances and lowering advanced payments as they want to see delivery performance improve. So, we've just got to deal with that timing because once the factory moves and we start delivering, all of that will unwind on both the advances and the inventory. But it is going to take us time to do that. Now, in the third quarter, deliveries will be better, but we still have these working capital headwinds. In the fourth quarter, we're going to have stronger deliveries. We're going to have real working capital improvement. And I'd also mentioned that we're going to have tanker 11 that we expect. So, the -- these cash flows can move fairly meaningful quarter-to-quarter and it's all predicated on our ability to deliver and get the factory stable and getting it improved. So that's the way we're thinking about the back half on cash.
Sheila Kahyaoglu: What's the cash balance you feel comfortable with?
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Sheila Kahyaoglu: What's the cash balance you feel comfortable with?
Brian West: So, we've always said 10, but at any given moment, if that kind of moves a little bit given what's in front of us, we can be comfortable. I think there's a broader question around we're constantly looking at liquidity. You saw that with what we did in May. You saw that in how we treated the Spirit transaction. So, right now, we're comfortable with where we're at and how we get to the end of the year.
Sheila Kahyaoglu: Thank you.
Operator: Thank you. The next question is from of Myles Walton from with Wolfe Research. Please go ahead.
Myles Walton: Thanks. Good morning. Maybe to follow up briefly on that. Brian, can you comment on the abnormality of those advanced payments? You mentioned some are applying previous prepayments to the current profile and some are basically deferring their payments until they see better performance. Can you categorize where you are on advances? Have you over-collected in the past and therefore, we're in a divot? Or are you under-collecting now an actual beneficial recovery, if you will, at some point in the near-term?
Brian West: So, both, to answer your question. We do have the excesses that people are applying as well as people are withholding the PDPs until they get that delivery structure -- delivery schedule more stable. So, it's both. I mean, what you saw in the quarter that we had a pullback of about $1 billion on the advance balance. Those two things are both happening in that balance, and we expect that in the second half to continue. But when we start to deliver with predictability, all that will begin to unwind. So, this really is timing. And it's timing over quarters is our best guess, and it's all, again, predicated on our ability to get deliveries in a different position.
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Dave Calhoun: And the overarching opportunity for us is still the shortage of airplanes and the demand scenario. So, this isn't a soft spot in the market where people are trying to sort of get something, create a fundamental change. This is short-term management, which we all understand and we're trying to accommodate. But the demand is still so strong for airplanes that, that provides the incentive for everybody to want to get us money so they can get their plane.
Myles Walton: And on advances on 777X to offset that $800 million quarter inventory growth, is that a material offset to the $800 million? Or is it $800 million more or less the net 777X performance that we're seeing?
Brian West: The $800 million is really the inventory specifically. The advance was not meaningful at this moment. It's the inventory that is the real one that we're dealing with, which, again, is the investment in the entry into service.
Myles Walton: Okay. Thank you.
Operator: Thank you. The next question is from David Strauss from Barclays. Please go ahead.
David Strauss: Morning. Thanks for taking the question. Brian, I know it's difficult to put a fine point on the cash burn. But I guess for the full year, are you looking at a number closer to a $5 billion order burn or a $10 billion order burn? That's the first question. And then, you've obviously said you're prioritizing your investment grade rating. To the extent that you need more funding, do expect the rating agency to allow you to issue debt again in key 5G? Or are you potentially thinking about having you to do an equity offering? Thank you.
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Brian West: Yes, David, I'm just not smart enough right at this moment to say whether it's 5 or 10. As you know, as we ramp deliveries, it's pretty meaningful movement in our cash balance. So I'm going to steer away from trying to get more specific. It will be a usage and we're working our way through it. And as we work through the timing elements, we know as we move forward, that's going to go in the right direction. In terms of the question around rating agencies, we are in regular conversations with all three rating agencies. They like us, are all focused on the operating performance of the company, our ability to generate free cash flow and the absolute debt reduction. And we tell them what we consistently said to everyone, the investment grade is the number one priority. And as we regularly monitor our liquidity, if we were able to bump up against maturities or do what it takes to protect that rating, period. And we've been consistent since April 2020 on that front and evidenced by the Spirit financing decision. So, we stay ready, we stay agile. That rating is the priority.
David Strauss: Thanks very much.
Operator: The next question is from Jason Gursky with Citigroup. Please go ahead.
Jason Gursky: Good morning everyone. I just want to go back to the 777 for a minute. And Brian maybe ask you to talk a little bit about the expected future burn on that program from a cash flow perspective in the quarters leading up to certification and initial delivery. And then -- and I know a lot of that's being driven by inventory, of course. So maybe as well, talk about what the inventory burn looks like on back side of that and kind of what you are expecting at this point from production and we get out in that '25, '26 time frame and kind of what you're thinking on deliveries out in that '26 time frame, given the backlog, assuming that you get the certification done there in 2025 and first deliveries get started? Thanks.
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Brian West: Well, the good news on the last part of the question is the backlog is pretty robust and we just had some terrific performance of the air show on the wide-body front. I would say, in general, 777X cash is going to look similar all of the other development programs. We used cash prior to the entry in service. You've seen that. I talked about the $800 million this quarter. That's been consistent. And that is all driven by the natural inventory build as we prepare for that entry and service. Now, we also know that it will turn positive about a year after EIS as deliveries begin to ramp. And that will play out in a very normal way that most development programs play out. And yes, it's going to be underwritten by that robust backlog that we have a high confidence in and the customers love the airplane. So, we feel pretty good, and these are just investments and timing. And over the long term, it's going to be a great payoff.
Operator: Thank you. And our next question is from Kristine Liwag from Morgan Stanley. Please go ahead.
Kristine Liwag : Hey, Dave, Brain, on the IAM labor negotiations, can you provide an update on where you are? How far apart are you in the union economics? And what operating contingencies are in place in case the union were to go on strike? Thank you.
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Dave Calhoun : Well, we're definitely not planning on a strike for starters. I can't really -- it's too early to call out a gap analysis with respect to the puts and takes, because we're too early in the process. And I like the framework. I like investments that we want to make with respect to training and development of people. We know that ASKs will be big. We know wage ASKs will be big. We're not afraid to treat our employees well in this process. So we're just going to work as hard as we can, not to have a strike. And anyway, I -- this will be in Kelly and Stephanie's backyard by the time we get to that negotiation. But as you know, as well I do until the last week is in play, don't know much. So I'll just leave it at that and try not to predict. Other than to tell you, we have an expressed intent to not have strike.
Kristine Liwag : Great. Thank you.
Operator: And thank you. The next question is from Cai von Rumohr from TD Cowen. Please go ahead.
Cai von Rumohr : Yes. Thanks our much. So production in July looked like it remained pretty depressed. In August, you basically have vacations. So how should we think about the recovery in terms of production and deliveries, because it looks like August isn't that great? And so the related a number of your suppliers who are going at higher rates than you are producing are talking about -- they're keeping on inventory there because you don't pull it yet and they're asking you for advances. So what are you having to do with your suppliers in terms of giving them a lifeline of some advances, so that they can continue to produce won't have to cut back and then ramp up later? So yes, so what -- maybe talk about those two issues.
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Brian West: So in terms of your question around the 737 rate ramps, keep in mind, beginning part of this year, we were very, very low production, like single digit. And now we're getting to the point in June, July where we're kind of mid-20s. And August will likely be an improvement ahead of that. But then we're going to have a nice steady ramp through the back half of the year, again, predicated on a successful Line 3 being brought to bear and also the China resumption. So everything we see, we've got the labor, we've got the inventory, we've got the fuselages, it's all lined up for us to continue to improve our delivery ramp. And that's on us to go execute it. So we feel good about the progress we've made, and we've got proof points that says, a real ability to hit our 38 per month as we exit the year. In terms of the discussion of the supply chain, they're all unique. It's one-by-one. We're very careful to make sure that the way we're trying to protect stability in our own factory, we're trying to protect stability across the supply chain. And we do make certain moves here and there. Probably Spirit is the best example. And we have to do that that so when we move through the course of this year and going forward, we do it in a very stable, predictable way with the supply chain that's right there with us. Nothing that we see gives us any pause or concern. We've got all the assets and resources. We just have to start working our way through and delivering these airplanes for our customers.
Cai von Rumohr: But -- so collectively, if you add all of your advances to suppliers, have those peaked? Or are they continuing to move up?
Brian West: There's not really a material change, Cai. Here and there, there might be some differences, but nothing material and that's not contemplated in our forward look.
Cai von Rumohr: Thank you very much.
Operator: And our next question is from Seth Seifman from JPMorgan. Please go ahead.
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Cai von Rumohr: Thank you very much.
Operator: And our next question is from Seth Seifman from JPMorgan. Please go ahead.
Seth Seifman: Hi. Thanks very much. Good morning. Wanted to ask on Spirit, which you mentioned on the last question. When you think about their ability to fund themselves through the close of this transaction in mid-2025, is that -- are you contemplating having to -- any additional action to fund Spirit through close? And then secondly, when you think about the investment plan for Boeing into Spirit when Spirit is part of Boeing, what can you tell us qualitatively or quantitatively to characterize that investment plan to prepare Spirit for the rate ramp ahead?
Brian West: So I'd be careful not to speak for Spirit too much. On the other hand, they're performing well. We expect them to continue to perform well, and we've got confidence that we're going to get clean fuselages that helps coincide with our delivery schedule. So we feel pretty good about where they sit and their continued performance. So nothing there gives us any concern at the moment. And in terms of investing, we look forward to closing this acquisition. We look forward towards bringing them into the Boeing world. And we will not be shy or bashful with any investments that are needed in order for long-term stability. We feel really good about what is in front of us on that front, and we can't wait to close.
Seth Seifman: Okay. Thanks very much.
Operator: Our next question is from Noah Poponak from Goldman Sachs. Please go ahead.
Noah Poponak: Hey, good morning, everyone. Can you talk a little bit more about the leadership decisions that you've made? I know Kelly has had a lot of experience in the industry, but kind of out of an operating role for a bit. What's the potential -- hit the reset button on a lot of the transitions you're in middle of right now versus ability to hit the ground running? And how should we think about Pat, Stephanie, other roles as you move forward here?
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Dave Calhoun: Well, I'll take a crack, and I'm not going to divulge anything that I'm not perfectly aware of. The Board made this decision. Over the last nine months, when I think about the number of people they've called around the industry, the supply side, the buy side, side, the regulatory pretty remarkable, thorough discussions. And at the end of the day, a couple of names surfaced and they landed on Kelly and I could not be happier with the call because I know Kelly. Kelly. I've been around He's a seasoned operator he's got experience. He knows what we do for a living and he'll bring that experience immediately to bear. So I wasn't really in the decision-making process, so I don't want to kid you about that. On the other hand, where it ended up is, in my view, a very, very strong place. And then with respect to Kelly, Kelly was quite informed about everything going on at Boeing, leadership team, et cetera. And anyway, I don't think he's coming in with a notion he want to change a lot of folks. And my guess is he's going to put his arms around Stephanie and the rest of the team in a big way and just try to support their work. He knows full well that we're in a recovery mode. And he knows full well we got to complete the recovery mode, and we got to get this stable and move forward. So that's me talking. And anyway, I don't think Brian can add much to this. But don't think this is intended to be a large leadership overhaul.
Noah Poponak: Okay. Brian, just a quick one. Do you have a number whether billions of dollars or number of airplanes how much inventory you hold that specifically from having the supply chain stay ahead of you?
Brian West: It's not a number that we disclose. It's not immaterial. The good news is, is that you see it right there in the cash flow statement total. That's a big driver, and the good news is that this is timing. This will unwind as we deliver airplanes for our customers, which we look forward to being able to do more predictably.
Noah Poponak: Okay. Thank you.
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Noah Poponak: Okay. Thank you.
Matt Welch: Lois, we have time for one final question.
Operator: Thank you. And that will come from Ken Herbert from RBC Capital Markets. Please go ahead.
Ken Herbert: Hey, good morning, Dave and Brian. Thanks for squeezing me in. I just wondered, Dave, maybe if you can provide a little bit more color on certification timing on the -7 and -10. I know it's now 2025 you're confident in the deicing certification, but can you give any more granularity on how we think about that timing and some of the next milestones for those two particular variants on MAX?
Dave Calhoun: Well, really, the milestone is to complete the engineering work and make sure that it passes the certification tests, et cetera. And it literally is that one discrete item that is choke point. But high level of confidence that we're going to complete that and probably complete the engineering well before the end of the year. Then we've got to get through the test certification work and then we're off. I don't think there are any other sort of issues that we have to contend with other than to get that done and prove it out.
Ken Herbert: So first half 2025 sounds realistic?
Dave Calhoun: Sounds realistic to me. But they're in charge.
Matt Welch: All right. Lois, everybody, that concludes our call. Thank you for joining.
Operator: Thank you. That concludes the call. Thank you for joining the Boeing Company second quarter 2024 earnings conference call.
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Operator: Thank you for standing by. Good day, everyone, and welcome to The Boeing Company's First Quarter 2024 Earnings Conference Call. Today's call is being recorded. The management discussion and the slide presentation plus the analyst question-and-answer session are being broadcast live over the Internet. [Operator Instructions]
At this time, for opening remarks and introductions, I'm turning the call over to Mr. Matt Welch, Vice President of Investor Relations for The Boeing Company. Mr. Welch, please go ahead.
Matt Welch: Thank you, and good morning, everyone. Welcome to Boeing's quarterly earnings call. I am Matt Welch, and with me today are Dave Calhoun, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer.
As a reminder, you can follow today's broadcast and slide presentation at boeing.com. As always, detailed financial information is included in today's press release.
Furthermore, projections, estimates and goals included in today's discussion involve risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the beginning of the web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of certain non-GAAP measures.
Now I will turn the call over to Dave Calhoun.
David Calhoun: Thanks, Matt. Good morning, and thanks for joining us. Although we report first quarter financial results today, I will direct my comments toward the dramatic actions we've taken since the Alaska Airlines accident in January.
First, we began with taking responsibility. We immediately and transparently began supporting the NTSB to identify the cause of the accident. We supported the FAA investigation of the 737-9 fleet in its entirety to do comprehensive airline inspections, and the aircraft were cleared to go back into service.
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We immediately acted, working alongside our supply chain, to ensure the door plug depressurization event doesn't ever happen again. We held quality stand-downs across all of our production lines in BCA, and sought the advice and counsel of more than 70,000 employees to improve our factory disciplines and adherence to our quality standards. All in all, we collected over 30,000 ideas, and the list continues to grow. We have categorized and prioritized all.
Employee engagement has been energizing for all. Actions are being taken across all of our factories, and areas of focus include: training, particularly on the job, taking advantage of our slowdown and adding hundreds of hours of training for each of our manufacturing employees; tooling, more of it and improve maintenance; work instructions, simplify, simplify, simplify; compliance checks, discipline; traveled work controls, don't travel work; incentive structures; employee listening; and maybe above all, culture improvement.
We transparently engaged with the FAA and immediately went to work on a 90-day plan of quality action to drive improvements throughout our production system. We completed our 30-day review, and we're regularly checking in with the FAA as we complete our 90-day plan.
We engaged a team of independent quality experts to systematically review our quality control process and bring forward long-term recommendations. They are roughly 60 days into their work beginning with Renton and Spirit. And we expect them to stay for several years.
We have appointed several new leaders into critical BCA leadership roles in the last couple of months. All have jumped in with both feet, alongside our world-class workforce. They are seasoned operators and all with a critical eye.
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Effective March 1, we moved inspection and rework teams to Wichita. Since then, we have only allowed fully inspected fuselages to be shipped to Renton, which has dramatically reduced our nonconformances entering the Renton factory. This started as a trickle, and it has been slowly improving as time goes on.
The visibility in Wichita will help the Spirit team prevent nonconformances from being created in the first place. We are already beginning to see signs of more predictable and reduced cycle times in our factory as a result of these enhanced quality control standards. We expect this will continue to improve.
We've extended our commitment to reduce traveled work across all of our assembly lines and deep into our supply chain. While near-term delivery shortfalls hurt and will affect our performance during our first half of the year, the long-term benefits from a synchronized supply chain will be substantial.
We are absolutely committed to doing everything that we can to make certain our regulators, our customers and most importantly, our employees and the flying public are 100% confident in Boeing. And while I have shared my plans to step down as CEO by the end of the year, I will be very focused every day on seeing that commitment through.
As we move through this period, it is important that our people and our stakeholders understand how promising Boeing's future looks. Demand across our portfolio remains incredibly strong. Our people are world-class. There's a lot of work in front of us, but I'm proud of our team and remain fully confident in our future.
While this effort will slow our recovery timing, we are now seeing these proof points that give us confidence that we'll begin to stabilize and improve performance moving forward. By the end of this year, we expect to have largely delivered our 737 and 787 inventory, effectively shutting down our 2 large shadow factories.
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Our commercial business will be more stable. Our defense unit will be progressing towards more historic levels of performance. And our services team will continue to deliver exceptional results. And most importantly, we will have embedded all of the important lessons we've learned in the last few months and over the last several years.
During that time, I've had the opportunity to speak to many of our frontline team members, engineers and mechanics. I continue to be amazed by the pride they take in their work, their commitment to getting things done the right way, the safe way, their willingness to raise their hands and offer ideas for how to do things better.
With that, I'll turn it over to Brian.
Brian West: Thanks, Dave, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $16.6 billion, down 8% versus last year, primarily reflecting lower 737 delivery volume. The core loss per share was $1.13, a slight improvement versus last year, also reflecting lower 737 deliveries.
Free cash flow was a usage of $3.9 billion in the quarter, a higher usage than last year and in line with the expectations shared last month. Cash was impacted by lower commercial deliveries and unfavorable timing of receipts and expenditures.
Turning to the next page, I'll cover Boeing Commercial Airplanes. BCA booked 125 net orders in the quarter, including 85 737-10s for American Airlines and 28 777Xs for customers, including Ethiopian Airlines. The backlog grew to $448 billion and includes more than 5,600 airplanes.
BCA delivered 83 airplanes in the quarter. Revenue was $4.7 billion, and operating margin was minus 24.6%. These results were significantly lower than last year, primarily reflecting lower 737 deliveries and the 737-9 grounding impact for customer considerations of $443 million.
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Now I'll give more color on the key programs. On the 737, we delivered 67 airplanes in the first quarter as we deliberately slowed production below 38 per month to incorporate improvements to our quality and safety management systems, including reducing traveled work and addressing supplier nonconformances. These continued efforts will cause April deliveries to be more in line with February levels as we complete our work.
Production [ ordering ] below 38 per month for the first half of the year and will be higher in the second half as we move back to 38 per month, with the timing of rates beyond 38 predicated on the work we're doing with the FAA. We've recently made adjustments to the master schedule, and we'll continue to manage supplier by supplier based on inventory levels and rate ramp readiness.
Our objective remains to keep the supply chain paced ahead of final assembly to support stability and minimize traveled work. The quarter ended with approximately 110 737-8s built prior to 2023, the vast majority for customers in China and India. This is down 30 airplanes from last quarter and in line with our plans.
We still expect to deliver most of these inventoried airplanes by year-end as we work towards shutting down the shadow factory. There were [ approximately ] 95 additional airplanes in inventory, about 35 of which were -7 and -10s, and the remaining are WIP airplanes impacted by factory and supply chain constraints.
On the anti-icing, the timeline is unchanged, and we're making good progress towards resolution. As it pertains to the certification of the -7 and the -10, we coordinated with our customers and added more 8s and 9s into the skyline in the near term to mitigate impacts to their fleet needs and stabilize our production plans. And the program margin has been updated to reflect these impacts as well as the slower production ramp.
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On the 787, we delivered 13 airplanes in the quarter. We're slowing near-term production and plan to return to 5 per month later this year. We expect to achieve rate increases, including 10 per month by 2026. We ended the quarter with about 60 airplanes of inventory, about 40 of which require rework, which continues to progress steadily and in line with our expectations. We still expect to finish the reworked airplanes and shut down the shadow factory by year-end, with most of these airplanes delivering in the year.
Finally, on 777X. We continue to progress along the program time line and still expect first delivery in 2025. We'll follow the lead of the FAA as we progress through the process, including working to obtain approval from the FAA to begin certification flight testing.
Moving on to the next page, we'll go to Boeing Defense and Space. BDS booked $9 billion in orders during the quarter, including awards for 17 P-8 aircraft for the Royal Canadian Air Force and the German Navy and securing the final F/A-18 newbuild production contract from the U.S. Navy.
The backlog grew to $61 billion. Revenue was $7 billion, up 6% on improved volume, and BDS delivered 14 aircraft in the quarter. Operating margin was 2.2%, another quarter of sequential improvement, but still more work to do.
First quarter results were impacted by losses on 2 fixed-price development programs totaling $222 million, $128 million on the tanker and $94 million on the T-7A. Our game plan to get BDS back to high single-digit margins by the '25, '26 time frame remains intact. We've made important progress in 1Q.
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Our core business, representing about 60% of our revenue, is seeing solid consistent performance in the mid- to high single-digit margin range with strong demand across the board. On the 25% of the portfolio, primarily comprised of fighter and satellite programs, operational performance further stabilized in the quarter, which drove improved margin trends. We still expect to return to the strong historical performance levels as we roll into new contracts with tighter underwriting disciplines as we move into the '25, '26 time frame.
Lastly, we have our fixed-price development programs that represent the remaining 15% of revenue. Despite the relatively modest updates in the quarter, we continue to retire risks and remain focused on maturing these programs quarter in and quarter out.
Importantly, on the MQ-25 program, the program was awarded a cost-type contract modification from the U.S. Navy that included 2 additional test aircraft, demonstrating our progress and our commitment to stronger underwriting disciplines in the area of the development programs. The program also delivered the first static test article to the Navy, and the airframe is ready to begin stress testing.
And on the Starliner, the program continues to progress towards a May 6 crew flight test as the spacecraft was recently integrated on top of its Atlas V rocket, and prelaunch testing is underway.
Lastly, the T-7A test aircraft completed climate lab testing in February, and the program continues to progress with Air Force flight testing. Overall, the defense portfolio is well positioned.
As seen in the initial FY '25 presidential budget, there's strong demand across the customer base. The products are performing in the field, and we're confident that our efforts to drive [ execution stability ] will return this business to performance levels that our investors recognize.
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Moving on to the next page, Boeing Global Services. BGS had another strong quarter. They received $5 billion in orders, and backlog is at $20 billion. Revenue was $5 billion, up 7% primarily on higher commercial volume and favorable mix. Operating margin was a strong 18.2%, an expansion of 30 basis points compared to last year. In the quarter, BGS opened a maintenance facility in Jacksonville, Florida, supporting our military customers. And the U.S. Navy exercised options on a P-8 sustainment modification contract.
Turning to the next page, I'll cover cash and debt. On cash and marketable securities, we ended the quarter at $7.5 billion, reflecting the debt repayment activity and use of free cash in the quarter. The debt balance decreased to $47.9 billion as we paid down $4.4 billion of the $5 billion of maturities due this year.
We continue to maintain access to $10 billion of revolving credit facilities, all of which remain undrawn. While we're still not in a position to provide a more detailed 2024 outlook today, I want to provide some additional context on the path forward.
The 2024 free cash flow outlook I shared last month is still expected to be a generation in the low single-digit billions. Cash flow should improve as we move through the year and be back-end loaded, driven by BCA deliveries and receipt timing, including an expected Lot 11 award on the tanker.
Second quarter free cash flow is expected to improve sequentially but be another sizable use of cash. We're committed to managing the balance sheet in a prudent manner with two main objectives: one, prioritize the investment-grade rating; and two, allow the factory and supply chain to stabilize for a stronger trajectory as we exit this year.
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As we operate at these lower production rates, we're actively monitoring our liquidity levels and believe we have significant market access, and are continuously monitoring and evaluating opportunities should we decide to supplement our liquidity position. Longer term, we remain confident in our ability to achieve $10 billion of free cash flow.
However, given our continued focus on safety, quality and stability, we continue to expect that this goal will take us longer than we originally planned and later in the '25, '26 window, primarily tied to the 737 and 787 production delivery ramps of 50 per month and 10 per month, respectively.
Moving on, discussions with Spirit are ongoing. As with any large and complex deal, there are a number of terms and issues we need to work through, including price, financing and other key items and the best approach to handling and potentially divesting certain work that Spirit does for other customers. We believe in the strategic logic of a deal, but we'll take the time needed to get this right before we decide to enter into agreement.
In the meantime, the focus is on factory stability in Wichita and in Renton. And as you saw yesterday, we agreed to advance Spirit $425 million, virtually all of which will be repaid in the third quarter. This will be accounted for as investing cash.
Looking forward to the balance of the year. We're taking the time now to ensure our BCA factories are stable and positioned to ramp production. We'll also continue to make progress on other important objectives, including shutting down the shadow factories, maturing and derisking the defense fixed-price development programs and building on the continued strong results in services.
Our backlog of nearly $530 billion speaks to the breadth of our portfolio, and this demand backdrop underpins our commitment to drive long-term results, all enabled by the everyday execution of 170,000 incredibly talented and dedicated team of Boeing employees.
With that, why don't we turn it over to questions?
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With that, why don't we turn it over to questions?
Operator: [Operator Instructions] And our first question will come from the line of Myles Walton with Wolfe Research.
Myles Walton: You gave color on the April MAX deliveries similar to February, but I'm really more interested in the production output, how it's going on the line, where you are relative to where you were when you started to give the no traveled work policy, how that's improving or not? And what specific metrics you're looking at to allow you to go higher over the next 6 months?
David Calhoun: So why don't I start this off? It is going to stay sporadic through 2Q. The real pivot for us is the number of clean fuselages we get out of Spirit with the new inspection protocols. It started slow.
In the meantime, we've been working on all the fuselages that were already trapped in the pipeline that did not go through that inspection process. So that's why it's slow and lumpy here in these couple of months, but we will be through that process within the next 60 days. And then we will just be dealing with clean fuselages out of Wichita.
So far, we're quite encouraged at just how clean they are and how quickly they move through our production cycle, substantially better, faster than before. So as we exit 2Q, we will know exactly what numbers are coming out of Wichita and what expectations are.
We are not going to rush it. We're simply going to demand that they be clean. But I like all the signals. I was walking through the factory yesterday. When we get a clean one, it whistles through the factory, and that's the most important thing.
Operator: The next question is from Doug Harned from Bernstein.
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Operator: The next question is from Doug Harned from Bernstein.
Douglas Harned: When you look at production on the 737, when you talk about going to $10 billion in free cash flow maybe by late -- by the end of 2026 or even 2027, this seems to be very much contingent on getting to this 50 a month rate. But when you look at that process, if I go back even pre-grounding for the MAX, Spirit had never successfully done a rate break to 50 a month before.
And given the restart mode that they're in right now, how do you see the pathway to getting up from where they are today, getting through the quality issues and getting to 50 a month there within 2 years?
David Calhoun: We do. Spirit's committed to it. I think the acquisition of Spirit will factor in significantly into that prospect. Clean fuselages in Spirit and in Wichita and fix on all those nonconformances will reduce their cycle and improve their output. So there's a lot of things that contribute to it, Doug. If we get ourselves to 38, which is our first objective, and we do it in a steady fashion moving up another 12 in my view, is doable in the window that we're talking about.
So that's the bet we're making, and I'm confident we can get there. But job 1 is the 6 months that commenced post Alaska and the inspection protocols and the nonconformance fixes that are then embedded into the Wichita facility.
Operator: The next question is from Cai von Rumohr from TD Cowen.
Cai Von Rumohr: Yes. So as a result of the production slowdown, you've had some -- presumably, you'll have late deliveries to customers. And traditionally, late deliveries require compensation. Could you give us some color in terms of what sort of a number we're going to look at? And basically, where are we going to see it? Is that going to be front-loaded, back-loaded? How should we think about that?
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Brian West: Cai, I'll take that one. Why don't we talk about in the context of 737 overall margins? The program booked about 300 basis points of impact in the quarter. And that was primarily driven by the delayed rate ramp that you're describing as well as mixing in more 8s and 9s for 10s in the near term so that we can support our customers in their fleet planning.
So that will all roll through, and the timing will be expanded over the next couple of years. What our expectation is that over time that while these program margins won't get back to the 2018 levels, they will expand. And that will largely be driven by the rate ramps that Dave described.
And the reason why they'll be different from where they were in 2018 is largely, as you know, is because of the customer mix and these delayed considerations. So all in all, when we step back and think about long term, structurally, particularly on the cash margin front, not a lot has changed. We just have to work through getting from here to those higher levels, including the consideration that we've described that we booked in the quarter. Overall long term, we still think we get there.
Operator: The next question is from Seth Seifman from JPMorgan.
Seth Seifman: Brian, you talked a little bit about the cash balance and liquidity. I don't know if this is necessarily the right way to think about it, but I feel like there's this conventional wisdom out there that Boeing should have roughly $10 billion of cash on the balance sheet. Maybe that can dip a little bit lower intra-year as we see now.
But burning cash in the second quarter, kind of how low can that cash balance get before you have to do something? When you talked about additional sources of liquidity, what were you talking about? And how much room do you think you still have with the rating agencies to avoid getting put on a negative watch?
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Brian West: Thanks, Seth. First and foremost, I remind everyone that we do have $17 billion of liquidity today, comprised of the cash on hand as well as our credit lines. What we're focused on is a first half cash usage that is resulting from all of the actions we're taking to stabilize both the factory and the supply chain to set ourselves up for success as we move to the second half and into 2025.
And to that end, any supplemental funding that I talked about would do two things. First of all, it would restore our cash balance to the historical level that you point out, that $10 billion-ish. But it also means that we want to continue our practice to stay well ahead of our near-term maturities. And by near term, I mean roughly the next 12 months.
So that's what we're thinking about as we sit here today. We will be prudent and thoughtful. We believe the market would be open to us. And as we've said consistently, the most important thing is our investment-grade credit rating that we think a lot about, and it is a priority.
Operator: Our next question is from Sheila Kahyaoglu from Jefferies.
Sheila Kahyaoglu: Can we talk about the 737 rate again? How much of that is self-inflicted versus the FAA processes that are in place? And when we think about the 90-day time line that comes to a head with the IAM negotiations over the summertime, I would assume. So how do we think about the IAM progressing as well? And how much was incorporated into the $10 billion free cash flow target?
David Calhoun: Okay, Sheila, that's like a 3-parter.
Sheila Kahyaoglu: Sorry about that.
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