Q4 2020 Boeing Co Earnings Call
Yeah.
Okay.
Thank you for standing by good day, everyone and welcome to the Boeing Company's fourth quarter 2020 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.
To ask a question on today's conference. Please press the digit one followed by the digit zero on your Touchtone telephone again. It is one zero for questions. After pressing one zero you will hear that you've been placed in Q3.
One zero again, we'll take you out of Q. It may prevent you from being able to ask your question.
At this time for opening remarks, and introductions I'm turning on the call over to MS. Maurita <unk>, Vice President of Investor Relations for the Boeing Company. Mr. Tangent. Please go ahead.
Thank you John and good morning, welcome to Boeing's fourth quarter 2020 earnings call I'm Maurita feature and with me today on a cartoon President and Chief Executive Officer, and Greg Smith Boeing's.
Executive Vice president of exercise operation cash flow.
As a reminder, you can follow today's broadcast and slide presentation through our website at volume Dot com.
As always we have provided detailed financial information in our press release issued earlier today projections estimates and bolt on.
Our discussion this morning.
All right.
Our detailed and on mutually in our various SEC filings and the forward looking statements.
On the Cleveland at the end on this what room space.
Yeah James.
Where do you see on harvest earnings release and presentation from this closure and the contribution from certain non-GAAP measures.
Now I will turn the call over on today's call.
Yeah. Thank you Maria good morning, everyone.
2020 was historic historically challenging year for our world for our industry for our business and our communities.
Hope you're all staying safe, we are managing our operations each and every day the best that we can to minimize disruption while always protecting the wellbeing of our associates.
A lot has happened in the last few months. So let me begin by sharing some of the highlights starting with the 737 Max on the next chart.
We made significant progress on the 737 program this quarter.
The FAA in the United States enact in Brazil Transport, Canada, and just this morning, the Asa in Europe have approved the resumption of 737 Max operations.
Important milestones on our return to service journey.
Would encourage all of you to read the various reports issued by our regulators regarding the intense scrutiny they put on airplanes through.
This is the culmination of a comprehensive effort, including roughly 400000 engineering hours 1400 test and check flight and over 3000 flight hours completed on the airplane.
Following one of the most rigorous certification efforts in aviation history, we're confident on the safety of our airplanes.
We continue to work with global regulators and our customers to safely return on the airplane to service worldwide.
We've assumed that the remaining non U S regulatory approvals will occur during the first half of 2021, and we will continue to follow their lead and the steps ahead.
Our first priority is assisting our customers with returned to service for their existing parked fleet.
Free airline has different operational considerations for returning planes to revenue service and timelines for training their pilot.
We're supporting each of them as they go through their process.
Next we're focused on safely delivering our 737 Max airplanes that are in inventory, which began in December of last year.
Prior to the delivery teams are performing all of the necessary test and ensuring each airplane received customized care and rolls into a delivery store ready for customer acceptance and FAA review.
Since the FAA approval to return the operations on November 18th we have delivered more than 4700 37, Max aircraft to our customers and five airlines have safely returned their fleets to service.
<unk> flying over 'twenty, 700 flights and approximately 5500 flight hours as well.
January 25.
Based on conversations with our customers passenger load factors to date have been relatively consistent with the airline total fleet averages.
We're encouraged by the progress to date and also pleased with the confidence our customers have placed in us and the airplane highlighted most recently by Ryanair and Alaska Air announcements.
In addition to our 737 progress we continue delivering for our defense space and services customers.
Let me highlight a few of these accomplishments.
Our defense and security and space team achieved first flight of the MQ 25 unmanned aircraft with an aerial refueling store and completed engineering design review for Wideband Global Satcom 11, plus communication satellite.
Our global services team was awarded a performance based logistics contract for the Singapore F 15, SG fleet and selected to provide P. H a training for the Royal New Zealand Air Force.
Now, let's turn to the next slide to discuss the industry environment.
Overall, the government services and defense and space businesses remain significant and relatively stable and.
And we continue to see solid global demand for our major programs.
Nevertheless, the scale of government spending on COVID-19 response has the potential to add pressure to global defense spending in the years ahead.
Broad support for our defense portfolio is underscored by the $5 billion of orders Bds booked in the fourth quarter across key franchise platforms.
Just this month, we also received a contract awards for lot six and lot seven which include 27 additional KC 46 tankers for the U S Air Force.
Additionally, the fiscal year 2021 defense Bill includes investments in products and services.
From across our defense space and government services business.
The diversity of our portfolio will continue to help provide critical stability for us as we move forward.
In the commercial market, while many of our key long term fundamentals remain intact. We continue to see near term market pressure due to COVID-19.
Despite solid progress on the vaccine front.
The next six to nine months will remain very challenging for our airline customers and the entire industry.
COVID-19 case rates continue to be high and travel restrictions remain in place putting significant pressure on passenger traffic.
Similar to the trends, we saw last quarter the domestic market is leading the recovery, albeit at a slow pace.
Domestic traffic in November improved slightly to 41% below 2019.
On the other hand international operations continued to be depressed with November traffic still 88% below the prior year.
Recovery on the international segment has been weak due in large part to the absence of coordinated global policies on cross boarder entry protocols.
The uncertainty in the international markets has meant that the active fleet is still around three quarters the size of its pre crisis level.
Coupled with utilization rates that are below historical averages airlines are flying just about half of their normal operations at the global level.
Regionally, we're seeing case rates and government travel restrictions continue to evolve resulting in different recovery trajectories.
China domestic passenger traffic for example has rebounded significantly although it is not without risk.
Europe is experiencing a pullback because of the resurgence of COVID-19 and related government restrictions and then finally in North America traffic remains more than 60% below our 2019 levels and these dynamics continue to drive a very uneven recovery.
As anticipated the number of aircraft being retired from the active fleet continues to grow.
<unk> hundred and growing.
We expect this trend to continue as our customers focus on retiring their oldest and least efficient airplanes and replacing them with new airplanes.
There will be as much as 25% to 40% more fuel efficient <unk>.
And better for the environment.
The longer it takes to put COVID-19 in the rearview mirror the more retirements, we will see.
As for the freighter market, we're seeing an interesting dynamic with more freighters flying today than before the pandemic due to the limited belly cargo capacity from passenger airplanes.
While overall cargo traffic showed a year on year decline yields have remained elevated.
The dramatic growth of E commerce in the past year has fueled expressed freighter expansion.
This has supported the demand for our cargo aircraft as seen in recent orders from DHL for eight triple seven freighters and for <unk>.
And from Atlas Air for four 747 freighters.
We also added incremental freighter conversion of orders to our global services backlog.
And over the long run cargo demand will continue to be driven by global trade and GDP growth and recovery.
We're encouraged by the speed of vaccine development and efficacy rates.
These trends bolster our medium term outlook and support our belief in the long term trend strength of the market.
Consistent with what we've shared previously as well as IATA and other industry groups.
We expect it will take around three years for travel to return to the 2019 levels and a few years beyond that to return to our long term growth trends.
Again, we see the recovery in three phases.
<unk>.
We're seeing domestic traffic improving in places like Brazil, the United States, India and other large domestic markets.
Next regional markets should begin to recover such as intra Asia intra Europe and intra America's flight.
And then finally long haul international routes, which required the most coordination will be the last to bounce back.
Therefore demand for narrow body aircraft is expected to recover quite a bit faster while wide body demand will remain challenged for a longer period.
As we move forward testing mechanisms progress on vaccine distribution and coordinated government interactions will be key drivers of the recovery.
We will continue working with the industry through our confident travel initiative.
Industry and academic studies continue to demonstrate that with multiple layers of protection, including hepa filters enhanced cleaning procedures and the use of personal face coverings that the risk of transmission, while flying is quite low.
Collaboration between government is an important element for implementing new screening protocols, which can even further reduce the risk of transmission.
In the commercial services market, we saw a modest incremental demand improvement in the fourth quarter on.
Though we are starting to see some stability. The recovery has been slow and we continue to anticipate will take multiple years to reach our previous demand levels.
Accelerated retirements will also result in newer fleet.
When we emerge from the pandemic.
We'll reduce service demand and prolong their recovery.
Given the challenging environment managing liquidity continues to be vital for the aerospace industry.
Bridge Bridge us to recovery.
Despite the unprecedented situation Theyre generally continues to be liquidity in the market for our customers and for Boeing.
Today, its ears and investors understand the long term value proposition of aircraft and the fundamental need to connect the world.
This has been demonstrated by the broad global interest in the space and the new entrants into the market over the past several years.
We supported the Covid relief and stimulus packages passed by Congress last year and similar efforts are underway globally.
These relief programs, including access to financing have been helpful to our customers as well as a number of our suppliers and.
And we believe that support will help enable a faster recover recovery for the industry as we are navigating the pandemic.
As we see airlines adapt to these market realities product differentiation and versatility will be key.
Our product lineup remains well positioned to meet our customer needs and support airline plans to gain efficiencies and reach emission goals.
For example, our digital solutions continue to provide important capabilities to our customers.
As highlighted by Frontier Airlines recent decision to sign a 10 year digital services agreement with us for their fleet.
Our attractive portfolio on the diversity of our backlog provide a strong foundation as we prepare to recover and grow in the future.
Now, let's turn to commercial airplane production rate on slide four.
We're closely coordinating with our customers to understand their fleet needs.
While monitoring the broader market environment to ensure we're aligning supply with demand.
We provide some key updates across our programs.
Starting with the 787 program as we've shared we're conducting comprehensive inspections on undelivered airplanes.
Both an average and in South Carolina.
Since last quarter, we've expanded the scope of those inspections, including worked on at our supplier partners.
Our assessment shows that none of the issues identified represents safety of flight concerns.
Nevertheless, we remain committed to taking the time to ensure each airplane meets our rigorous engineering specifications.
Although this work has a near term impact for us in terms of both schedule and cost. It is the right thing to do and we continue to be in coordination with the FAA and our customers throughout the process.
Transparency is clear.
Through our analysis, we've been able to determine the resolution for the majority of previously identified areas, including our major joined sections.
In some cases this requires inspections and rework while on other areas no further action is required.
We've made good progress and are now completing analysis on a few remaining areas to validate the next steps.
As we see it today. This work may take a few more weeks, but we will provide our engineers the time they need to complete that analysis.
We are implementing changes in the production process to ensure newly build airplanes meet our specifications and do not require further inspection.
This is consistent with our determination to eliminate rework from our production systems to position us on stronger footing when the market recovers.
We're looking forward to resuming 787 deliveries to our customers, but as I discussed there is still work to be done.
Based on what we know today, we expect 780 sevens deliveries to resume later this quarter. However, it will be backend loaded with no delivery. This month and most likely very few if any in February.
Also based on what we know today, we still expect to deliver the vast majority of the 787 aircraft inventory by the end of the year.
We will keep you updated on our progress.
As we've previously shared given the wide body market environment. We're in the process of transitioning to a rate of five per month in March at which point 787 final Assembly will be consolidated to Boeing South Carolina.
On the Triple seven Triple seven X programs, we now anticipate that the first triple seven X delivery will occur in late 2023.
This schedule and the financial impact to the program this quarter reflect a number of factors.
Including an updated assessment of global certification requirements. The latest assessment of COVID-19 impacts on market demand.
And discussions with our customers with respect to delivery timing.
We're working closely with global regulators on all aspects of the Triple Seven X development.
This involves listening to all their feedback and applying lessons learned from our experiences on the 737 Max program re certification and.
And applying to our triple seven X certification plans.
It also involves making prudent design modifications as necessary to meet the various global regulators expectations.
As part of our assessment, we've made the decision to implement certain modifications to the aircraft design.
Our decision to make these modifications, which will involve firmware and hardware changes to the actuator control electronics.
Reflects our current judgment of global regulators compliance expectations.
This decision has led to these revised schedule assumptions.
COVID-19 has had a significant impact on passenger traffic, particularly.
Particularly international long haul routes serviced by large wide bodies, such as the Triple seven X, which has shifted the anticipated replacement wave and overall demand for wide body airplanes to the right.
Additionally, the challenging business climate is impacting our triple seven X customers.
These broader market factors, coupled with our conversations with our customers about preferred delivery timing informed our current assumptions.
As a result of these updated program assumptions, we booked a $6 $5 billion pre tax charge in the quarter.
A significant component of which is driven by a reduction in the programs initial accounting quantity.
Greg will go through the financial impact in greater detail a little later.
Despite the challenges we and the industry are facing we are confident in the triple seven X airplane and the unmatched capability it will offer our customers.
With the most payload capacity and lowest operating cost per seat of any wide body. The triple seven X completes our market leading wide body family with a distinct competitive advantage.
Across the total widebody market of more than 8000 projected deliveries over the next two decades we.
We see replacement demand for over 1500 large wide body airplanes, which are well suited for the Triple Seven Act.
We also continue to see strong freighter demand and good delivery pace for our current triple seven freighter.
Production rate expectations for the combined Triple seven Triple Seven X program remains at two per month in 2021.
We continue to assess our production plans to efficiently transition to the Triple seven X.
Turning now to the 737 program. We're currently producing at a low rate and expect to gradually increase the rate to 31 per month in early 2022.
And we expect further gradual increases to correspond with market demand.
We will continue to assess the delivery profile for 2021 as it will help inform our 737 production ramp.
Our ramp plan and we will continue to communicate transparently with our supply chain to ensure stability.
At the end of the quarter, we had approximately 3300 aircrafts and our 737 backlog.
There is no change to our production rate planned for the 747 for the 767.
The market continues to be dynamic and we will monitor closely as we prudently balance supply and demand across all of our programs.
Although this remains an unprecedented and uncertain time, we are confident air travel will return and when it does we will be ready to support our customers with a well positioned family of airplanes.
Now lets quickly look at our 2021 priorities on slide five.
As youll see our priorities remain consistent.
Navigating through this global pandemic and rebuilding stronger on the other side continues to be a key focus.
Along with safely returning the 737 to service worldwide building on our efforts over the past two years.
We remain committed to working closely with all of our stakeholders to rebuild trust one day at a time one airplane at a time.
And we'll do that by living our values demonstrating transparency every step of the way and delivering on our commitments.
As part of our continued commitment to safety, we recently announced our first chief Aerospace Safety Officer.
Consistent with these values as our focus on sustainability.
We continue to make great strides in our efforts innovating and operating to make the world better.
We achieved net carbon net zero carbon emissions at our manufacturing and work sites in 2020 by expanding conservation and renewable energy use while tapping into responsible offsets for the remaining greenhouse gas emissions.
Additionally, we've committed that our commercial airplanes will be capable and certified to fly on 100% sustainable aviation fuels by 2030.
Operational excellence is about how we work to deliver safe products and services to our customers while continuously striving for first time quality.
We are also taking steps to restore the health of our production system.
As we calibrate our production rates to the market impacts of COVID-19, we're taking the opportunity to implement quality.
Workplace safety and productivity improvement projects to bring stability to our factories.
And as Greg will cover later this also extends to our engagement with suppliers.
And last but not least we will not lose sight of our future and the innovations that will reshape air travel.
We continue to invest in are areas that are critical to our business focusing on design practices and manufacturing technology that will position us for growth.
We're also continuing to invest in our people.
We recently announced that we will be providing most of our employees a one time stock grant that will vest in three years as we recover and grow the business.
To close our guiding.
Principle here is that every decision we must mark that we make must help us navigate through this difficult period, while not diminishing our future competitiveness.
We will take action to protect our business and our people by closely managing liquidity and driving lasting transformational change to make our business stronger and more resilient than ever.
With that let me turn it over to Greg Greg.
Great. Thanks, Dave and good morning, everyone, Let's turn now to slide six.
Our revenue of $58 2 billion and core earnings per share of negative $23 25 reflected lower commercial delivery and service volume primarily due to COVID-19, as well as 787 production issues, partially offset by lower 737 Max cusp.
<unk> consideration charges when compared to 2019.
Full year earnings were also impacted by the $6 $5 billion pre tax charge on the Triple Seven X program additional tax valuation allowance and abnormal production costs related to the 737 Max program.
Operating cash flow of negative $18 4 billion reflected lower commercial deliveries and service volume as well as timing of receipts and expenditures.
With that let's turn to slide seven for our fourth quarter results.
Consistent with the full year results revenue of $15 3 billion reflected lower commercial airplane deliveries and commercial service volume, partially offset by a lower 737, Max customer consideration charge.
Earnings in the quarter were also impacted by the charge on the Triple Seven X program.
$744 million charge related to the previously announced agreement between Boeing and the U S Department of Justice and 737 abnormal production costs.
Income tax in the quarter reflected the impact of an additional valuation allowance on deferred income tax assets parse.
Partially offset by the five year net operating loss carry back provision in the cares Act.
The $2 5 billion of noncash valuation allowance booked in the quarter was based on a required accounting analysis to assess recoverability of our deferred tax assets against future sources of taxable income.
This is an accounting assessment, which places a lot of weight on our recent losses, leading to the charge this quarter.
Important to note that this valuation allowance does not limit our ability to utilize deferred tax assets in the future periods.
Does not change our outlook on future company results and has no impact on cash flows or future tax returns when income generation returns to more normal levels. We can expect to see the allowance reverse and increase reported earnings.
Let's now move to commercial airplanes on slide eight.
Revenue was $4 7 billion driven by a lower wide body delivery volume, partially offset by higher 737 deliveries and a lower 737, Max customer consideration charge in the quarter compared to the same period last year.
Operating margins declined driven by the charge on the Triple Seven X program lower delivery volume and a $468 million of abnormal production costs related to the 737 program again, partially offset by lower 737, Max customer consideration charge.
As Dave mentioned, we began to receive regulatory approvals from resume 737 Max operations in the fourth quarter and we restarted 737 Max deliveries in December last year.
Last quarter, we shared with you that we had about 450 737, Max aircraft built and stored in inventory.
With deliveries of 27 aircraft in December and now 40 to date. This number has been reduced to approximately 410 aircraft in inventory as.
As we previously communicated we expect to have to remarket some of these aircrafts and potentially reconfiguring.
Deliveries from storage will continue to be our priority after assisting our customers with their return to service as we continue to work closely with our customers based on their fleet needs.
Our estimated timing of 737 deliveries from storage has not changed since last quarter that said, we expect delivery timing and production rate ramp up profile to continue to be dynamic given the pandemic.
There are no material change to our estimate total of abnormal costs of $5 billion. During the fourth quarter, we expense $468 million of abnormal production costs, which brought the cumulative abnormal cost expense to date to $2 6 billion. We expect the remainder of these costs to be expensed.
As incurred largely in 2021.
Our assessment of our other liability for estimated 737, Max potential concessions and other considerations to customers and the expected cash impact timing did not change significantly in the fourth quarter from a previous assessments.
Cumulatively, we've accrued a $9 6 billion dollar liability for the estimated potential concessions and other considerations too.
Date, we've made $3 7 billion of payments to customers and cash and other forms of compensation, including $600 million, we paid this quarter.
We have settlement agreements covering approximately $3 billion of the remaining liability balance.
$5 billion.
Turning now to 787 as we've discussed we continue to complete the inspections on our 787 program in our factories and in our supply chain. We have approximately 80 undelivered 787 aircrafts in inventories based on what we know today, we anticipate that we will unwind the vast majority of these aircrafts.
During 'twenty, one and are working with our customers to facilitate this.
But as Dave mentioned, we still have some work ahead of us on this and we will keep you posted on the progress.
Our latest assessment of the financial impact of this effort and delivery delays have been included in our fourth quarter closing position.
As we've previously disclosed the 787 program has near breakeven gross margin due to the previously announced reductions in production rates and program accounting quantity.
If we are required to further reduce the accounting quantity <unk> production rates or experienced other factors that could result in lower margin. The program could reach a reach forward loss in future periods. However on a cash basis from 787 unit margin has held up relatively well.
Even with these lower production rates and many of the underlying productivity and profitability drivers remain in place.
Dave as Dave mentioned, we expect first delivery of the Triple seven next to now occur in late 2023, and we recorded a $6 $5 billion reach forward loss on the program.
Our decision to implement certain modifications to the aircraft design is added time to the schedule and result in additional costs. In addition.
In addition to that factor other key elements contributing to the reach forward loss include the following.
One an updated assessment of the market demand and customers' preferences on delivery timing based on continued dialogue with our customers.
Two resulting adjustments to planned production rates and reduction in program accounting quantity to 350 aircraft.
As a reminder, initial accounting quantity doesn't represent the long term potential size of the program. We see replacement demand for over 1500 larger wide body aircraft, which will be well suited for the triple seven ex the approach we use to establish the accounting quantity is consistent with what we've used on another program.
And as part of our closing process, we always evaluate the initial accounting quantity on a quarterly basis, even in program development to test that the program is not in a reach forward loss position.
And lastly, other cost elements include increased change incorporation costs, along with the associated customer and supplier supply chain impacts.
The combination of these factors created significant pressure on the Triple seven X programs revenue and cost estimates, resulting in the reach forward loss for the program.
We still expect peak use of cash for the Triple seven X program to be in 2020 net.
The changes to the Triple seven X program timeline from result in some cash flow headwinds in 'twenty, one and 'twenty, two but we expect cash flow to improve as we get closer to <unk>.
And begin deliveries in late 'twenty three we anticipate the program to turn cash flow positive approximately one to two years after starting initial deliveries.
Commercial airplanes backlog included more than 4000 aircraft valued at $282 billion.
The decline in backlog in the fourth quarter reflected aircraft order cancellations and removal of aircraft orders from our backlog due to ASC 606, accounting standards, including our most recent assessment of Triple seven X backlog due to the revised schedule give.
Given the significant headwinds that remain in the market BCA margin progression will be highly dependent upon future production rates and will take time. However, we are taking action today to make foundational lasting change through our business transformation efforts in order to help offset those headwinds.
As much as possible.
Let's now move to defense space <unk> security on slide nine.
Fourth quarter revenue increased to $6 8 billion, primarily driven by higher volume as well as the <unk>.
<unk> on the commercial crew program in the fourth quarter of 2019.
Fourth quarter operating margins of seven 4% included $275 million pre tax charge on the KC 46 tanker program, primarily due to production efficiencies, including the impacts of COVID-19 disruption.
We received $5 million in orders in the quarter, including a contract for two KC 46 aircraft from Japan a.
<unk> W and see upgrades for the Republic of Korea Air Force and key proprietary space programs, bringing the backlog now to $61 billion.
Let's now turn to global services results on slide 10.
In the fourth quarter Global services revenue declined $3 7 billion driven by lower commercial services volume due to COVID-19.
Operating margin decreased to three 8% due to lower commercial service volume and $290 million of pre tax charges related to asset impairments primarily to reflect the updated fleet retirement assumptions driven by Covid.
During the quarter Bgs won key contracts worth approximately $7 billion, which brings its backlog now to 21 billion.
Although we saw a slight uptick in commercial service demand in the fourth quarter. We continue to expect the recovery to take multiple years.
We continue to position our services business for the future taken actions to rightsize. Our operations. In addition, we are shaping our portfolio to ensure that we have the right solutions to help our customers and industry navigate the downturn and prepare for market recovery.
<unk> of our efforts have already started to positively impact our operating margin performance.
Let's now turn to cash flow on slide 11.
The disruption caused by COVID-19 on our airlines and global economy continues to put significant pressure on our cash receipts operating cash flow for the quarter was negative $4 billion driven by lower commercial airplane delivery volume advanced payment timing and commercial service volume.
Let's now move to slide 12 to discuss our liquidity position.
We continue to proactively manage our cash position and assess our liquidity throughout this pandemic. We ended the fourth quarter with strong liquidity, including $25 6 billion of cash and marketable securities on our balance sheet.
And and have access to our $9 $5 billion bank credit facility, which remains undrawn.
As well continued access to capital markets.
Our debt balance at the end of the quarter was 63.6 billion, reflecting our $4 9 billion dollar bond issuance as well as debt repayments in the quarter.
As we've discussed previously we've been taking many actions to enhance liquidity, including suspending our dividend, reducing reducing discretionary spending match.
Matching 401, K contributions and stock pre funding pension with stock and most recently awarding most of our employees a one time stock grant that will vest in three years and Lou.
<unk> increases this year.
These actions reflect our continued derisking strategy and are part of our balanced approach to ensuring we're proactively meeting our obligations.
We worked hard in the past to maintain disciplined cash management, while seeking opportunities to strengthen our balance sheet.
And we will continue to do so.
Once cash flow generation returns to more normal levels, while reducing our debt levels will be a key focus area.
We believe we're currently have sufficient liquidity and are not planning to increase our debt levels. However, we will continue to actively manage our balance sheet, including refinancing debt maturities.
Our investment grade credit rating is important to us and we will continue to consider all aspects of our capital structure to strengthen our balance sheet.
Let's turn to the next slide.
As we look forward into 'twenty, one I would like to provide you with some insight into some of the key drivers, which are informed by the current mark recovery expectations and in customer discussions to date.
Q1 will continue challenging year that set debt.
Expect upward trends from 2020.
Based on what we know.
Expect to see 2021 revenue improved from 'twenty 'twenty. This.
This will be driven mainly by higher 737, and 787 deliveries as we plan to unwind inventory and deliver from the production lines.
We expect Bds to generate low single digit growth in any one revenue compared to 2020 exclude.
Excluding one time events, we anticipate modest revenue growth.
As for BCS, while we anticipate solid growth in our government services business in 'twenty one.
Commercial services will continue to be challenged due to COVID-19 impacts.
We expect <unk> revenue to be relatively stable.
Versus 2020.
On the P&L side, we also expect.
From 'twenty, one drove higher commercial deliveries absence of form 20 charges improved performance benefited from continued business transformation efforts.
Is it that.
Merrily offset by higher interest expense also.
VCA will continue to book significant abnormal production costs for the 737 program in 2021.
Moving to cash flow, we continue to expect 2021 operating cash to be much improved from 2020.
Driven mainly by inventory burn down associated with 737, and 787 programs, while higher deliveries will be a tailwind the timing of advanced payments and burn down of excess advance payments, along with 737 customer settlement payments and higher interest payments will continue to be headwind.
The revised Triple seven X schedule also creates headwind to our current cash profile versus our prior assumptions.
Bringing this all together based on what we know today, we continue to expect 2021 to still be a use of cash.
And to be cash flow positive in 2022, we expect cash improvements from 'twenty, one to 'twenty two to be driven by continued improvement on the 737 program due to lower customer considerations and higher delivery payments as well as commercial services.
And as I, just outlined our commercial delivery volume is a key driver for improvements from 2020 to 21. Therefore, the drivers clearly hinged on the pace of commercial market recovery.
Given the dynamic environment, we will continue to diligently work opportunities and monitor risk factors and keep you posted on further developments.
Now, let's move to the last slide.
Since the beginning of the pandemic, we have taken prudent and decisive action to get ahead of us to preserve cash so that we can navigate this crisis and also reshape our business. So that we can emerge as a sharper resilient leaner enterprise.
In addition to taking actions to Derisk, our portfolio and bolster liquidity. We have also made operational changes to lower our production rates and adjust our work force to align with the new market reality.
We've taken production rates from the 787 and triple seven programs down by approximately half due to Covid impact and also moderated the ramp of the 737 production rate.
We continue to take steps to reach our previously shared plan to bring our overall staffing levels to approximately 130000 by the end of 'twenty one.
As you know we are progressing extensive business transformation efforts.
That are introduced net orders ago.
The financial objectives, we have established our measured in billions of dollars and we expect them to be executed over a multiyear period, we expect.
The majority of our efforts will result, an enduring lasting changes that will enable us to be more efficient in the long term laying the foundation for recovery future margin expansion and cash flow generation as the market recovers.
Combination of all of our actions in 2020 helped us generate more than $10 billion on liquidity, which was.
As we navigate this very challenging environment.
Approximately half of our transformation efforts are focused on reducing structural costs versus variable.
We continue to make progress across all five pillars as we utilized a low production environment to transform and improve our business processes Prague.
Projects to improve operational stability implement first time quality initiatives shape our portfolio.
Alright, simplify our organizational structure and reduce bureaucracy. All examples of efforts meant to create meaningful and lasting change to how we operate as well as our cost structure.
Through our portfolio and investment prioritization reduced our capex by one three.
From the prior year.
So over $1 billion on indirect and a 20 on.
On reducing expenditures in areas, such as freight and logistics purchased services.
And as part of our footprint optimization, we sold or closed over 240 thousands.
And Scott.
Bob.
Sure.
Index.
Over the next year.
There are a number of other initiatives.
And that's obviously each.
Well I talk often about our transformation at the operational production level every support organization or company is on this journey.
Moving to human resources finance and more are all recalibrating their structures and operating models to simplify processes eliminate unnecessary spending reduced bureaucracy and improve long term performance and competitiveness for example, with the tier.
<unk> opportunities to form or expand strategic partnerships with vendors that allow us to simplify and optimize our operations and reduce overall costs.
We're also evolving the way we put our thousands of suppliers just began with our Boeing supplier.
Bowls, which state expanded.
On corporation can strength of completion chip.
Chip yield improvement in quality affordability performance on time delivery. These principal built on success feedback and lessons learned in the.
Throughout our supply chain.
And as we take action, we're ensuring every step on me further drives key.
And efforts in safety quality and delivery on building on our commitments. We've got the right team in place and we're confident that we have the right actions put together on.
All supporting our future and our competitiveness with that I'll turn it back over to Dave for some closing comments.
Yes, Thanks, Greg.
Listen 2020 was a year like no other.
Our world our industry, our business and our communities, we're facing unprecedented challenges and we're still in the midst of it.
In addition to navigating COVID-19, we also made important progress on the 737, as we engage transparently and comprehensively with regulators government leaders customers suppliers and our teams.
Having done that will be that much more prepared for airplane certification efforts going forward.
The return to service of the 737 was a key step for us as we make fundamental changes to how we operate and rebuild trust one airplane one interaction one day at a time.
We're proud of our team.
Thank them for the resilience and dedication that they've demonstrated as we've navigated through this really difficult moving together.
2021 is an inflection point for our industry and certainly for Boeing.
We have been through tough times before we know how to overcome challenges and to adapt and we will stay on by our customers throughout this process.
Driven by our values and with a focus on quality safety integrity and transparency, we will emerge from this moment stronger more competitive for the long term.
And with that Greg and I'll be happy to take a few questions. Thank you.
And ladies and gentlemen in order that your question be clearly heard we ask that you not use the speakerphone cell phone or a phone headset. Please use your handset to ask a question if youre on a speaker phone. Please be sure. Your mute function is switched off so your signal can reach on our equipment as a reminder, in the interest of time, we are asked.
That you limit yourself to one single part question. Our first question comes from Carter Copeland with Melius Research. Please go ahead.
Hey, good morning, guys.
Good morning, Greg I wondered if you could just give us some more color on the net.
Six 5 billion on the Triple seven acts.
How much of that was the accounting quantity you mentioned 350 units, but I don't think you've mentioned what that changed from I don't know if that was 500 or you know what that number was so just give us a sense of how big that was and how it compares to the other pieces be it.
Change in Corp, and the modifications that you mentioned or customer settlements. Thanks, Yeah, Yeah, absolutely yeah.
I kind of put it into four major categories certainly the planned production rates.
Associated with the schedule moving as you said the reduction in the accounting quantity and as I as I mentioned every quarter. We go through this assessment, but as a result of what we're seeing in the marketplace.
And with.
With the current pandemic as well as kind of how we're seeing the market shift in the near term.
We reduced our assumptions around the accounting quantity for for this quarter, but again pretty consistent from certainly consistent process, but pretty consistent with what we've seen on on some of the other programs. When we've established an accounting quantity and then of course, we talked about changing corp cost for the aircraft that are currently.
Built as well as we will have the rate much lower through this period between now and 'twenty three and the changing corp associated with those and I'd say last one would be you know customer and supply chain impacts considering.
Considering considering the delays single largest one in there Carter is around the accounting quantity.
Okay. So those were in order.
Rank order and then just can you give us a sense of how much of a decrease in the accounting quantity that the move to $3 50 represented yeah. Yeah from prior quarter. We had 50 additional units in there. So we had a quantity of 400 million assumed.
Okay. Thanks, it's the only other point is it's really important to know that the 50 to move out are the ones at the tail end and those are where cash margins are significant. So you end up you end up with a little bit of a double whammy there.
Understood. Thank you.
Yeah Youre welcome.
Our next question is from Myles Walton with UBS. Please go ahead.
Thanks, Good morning.
On the 707, Greg I think in early December you were looking for a restart of deliveries into year end and obviously there must have been some incremental discoveries.
Free checking so just curious what's the level of confidence now versus then and then also is there any FAA requirement for for sign off on what you're looking to do and approve a prior to the restart of deliveries. Thanks.
Yeah.
I'd put it into a couple of categories, one of which is the sum of the inspections have taken longer and they've also expanded for complete thoroughness across not only our factories within the supply chain. So that's taken longer.
Look from day, one we've been engaged with the FAA and continue to be engaged as we work through this process and we will continue to write up until.
We're ready to resume deliveries so.
<unk> transparency there of course and clarity around what we're what we're doing how we're doing it and the path to recovery again.
We've resumed deliveries on Dave's, yet and you wanted to add while there is there is there won't be a formal sign off in that regard, but without a doubt we will make sure. The faa's comfortable with every act we've taken in.
I'll only add the comment that this expansion of inspection quality assurance on all those things, maybe maybe I'll take a hit on that one but this is a moment, where we get to fix some things and do some things.
You know the way, we would like to do them.
So I have put very little pressure on on the production with engineering team to resolve things too quickly I want it to be so on done and I want to prevent future rework around this stuff.
To tell you. These specs are incredibly exactly so.
So I'm proud of the design the design principles that we've used it but anyway, we're just probably takes stepping it up a bit.
Okay alright, thank you.
Next question is from Noah <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
Good morning, good morning.
Greg there's a lot of debate out there about.
The aircraft unit margins.
A few years down the road when things are a little bit more normal.
The Triple seven is in a is obviously going on in a unique situation.
But.
You know what the with the Max on the 707.
There are questions about if you are having to give on price on the Max and then if these really impressive cash margins you had for a while I mean southern can hold it at the lower rate so.
I Wonder I Wonder if you could spend a little bit of time on that I mean, how can we think about where those airplane margins can be a few years down the road at more normal rates compared to you know.
Pre pandemic pre grounding.
Yes, I mean, clearly as you said volume is going to play is going to be key on that so as we as we've talked about is we see 737.
Increasing in production and delivery that's going to play right into clearly you know the unit cash margin and debt profile pretty much aligns with <unk>.
Delivery profile on rate projections that we have.
On the 787 as I mentioned, you know even at these low rates on a unit basis.
Cash cash is pretty good and that's the efforts of the past for sure and having a good product mix between eight nines and tens and again, that's going to go up with volume.
On that honestly not taken into consideration the advances that will come with that increased volume on both of those programs, but by far those are the two.
Called drivers too.
To the cash flow positive in particularly in 'twenty, two and beyond and then beyond that it's the triple seven axis, we talked about getting out of use of cash and into a positive cash as I. Just mentioned those three elements again are going to be key to the cash trajectory.
Between now and 23 and 'twenty four and beyond.
So I mean, if we're if we're in 23 on the Max.
As you know hypothetically in the low $40 a month on the eighth seventh hypothetically.
Six a month can those unit cash margins actually be fairly close to where they were pre pandemic pre grouting based on all the cost action.
And keeping pricing pretty similar or is that unrealistic.
Well I mean, certainly the objective and a lot of part of the transformation effort that we're doing is trying to lean ourselves okay.
And and what work to that profile, but you know volume is going to be key so.
If if you get to those rates like I said, the cash is going to the cash is going to follow that.
And if you know that the environment, we're in today and how that recovers assumptions that our customers have and therefore, we have that.
It's got to stick and if it sticks, then youll see the trajectory on cash on.
So with those production ramps bet Bye Bye no question, but at the same time these transformation efforts.
He said they go over multiple years and that's that's the objective you know certainly you know lean ourselves out get ourselves.
Even more competitive on the other side of this and and really reduce the structural costs.
Within our company. So we can be more efficient all of that also is going to play out on the cash profile over that time period.
Yes, maybe if I could just comment on the pricing question, which is an important question.
I do anticipate us being through our inventory and 22 on the on the Max.
I think we can stay disciplined every step of that way and indications are that we can.
And then when we get into 'twenty, three which is where the question is I see no reason why the competitive dynamics are any different I really don't value of these two.
On airplane competitors the value of their airplanes is not much has changed we will have demonstrated performance on the Max that is very good for the applications that it competes for.
And there are airplanes will have advantages on other applications, but I'm confident in that competitive dynamic and believe we'll get right back to where we were if not something better and I know, Greg I'm not sure. If his restructuring discussion broke up on you like it like it did for me when I was listening to it little bit, but the structural changes that we are.
Making and cost advantages.
That we intend to get from it at something in that $5 billion range. These will accrue to the to our airplanes and anyway.
I'm optimistic I'm quite optimistic and there's nothing about the market right now that has me switched.
Switched off on that but we are talking about 2023.
It's going to take that long for us to sort of work our way out of the Covid World.
Thanks, Thank you.
Our next question is from Cai von rumor with Cowen and company. Please go ahead.
Yes. Thanks, so much. So you said 5 billion and abnormal production costs, you've done two non in to date.
And yet sequentially those abnormal costs came down throughout the year I think they ended at 330 in the fourth quarter. I mean, if you have $2 $1 billion to go which is what the math suggest it would suggest it moves up so can you give us some idea.
The profile moving forward and secondly, some idea in terms of the delivery cadence I mean, I could understand that maybe you have some very strong Max deliveries now because people haven't gotten them and then maybe they fall off in 'twenty two 'twenty three thanks.
Yeah.
So kind of on the on the abnormal cost Cai.
It it can be bumpy or lumpy from quarter to quarter, but.
Like we said we're on a profile okay.
To wrap that up.
As we increase rate so it's directly tied to the rate, where we will stop the book booking abnormal costs from it'll move back into the program.
I think on the on delivery profile.
Certainly we've got a delivery profile laid out in detail for the balance of the year and going into 'twenty, two and 'twenty three.
We don't see a reduction taking place there as Dave indicated on the production rates.
That we've that we've established not only delivering out of inventory.
Which as you know is our priority one but also increasing those rates.
As we go forward so that debt profile continues and deliver on off like I said the backlog, but also delivering off the inventory that we've got on the ramp and I don't know whether it was picked up earlier or not but.
All of the deliveries we've had to date. The 40 aircraft have all come out of inventories. So again it'll be a combination but the priority will continue to be on those inventoried aircraft. So.
We see strong demand for the aircraft and again tied to the recovery.
And the teams are positioned to deliver at debt at high rates.
Certainly got the capital on the capacity and the capability to do that it will really be informed by our customers' ability to take them in a specific time period.
Thank you.
Youre welcome.
Our next question is from Seth <unk> with Jpmorgan. Please go ahead.
Okay. Thanks, very much on good morning.
Wanted to ask about 787, and I think Greg you mentioned about 80 aircraft and inventory, what's sort of the normal level of aircrafts on inventory and as we think about continuing to produce over 60 aircraft. This year.
And the state of the wide body market.
How do you not end the year with still having aircrafts and inventory and going into <unk> into 'twenty two.
Yeah, you're right. So it will have some that that's what I when I was mentioning earlier debt, we expect to deliberate on the majority.
Of that 80.
Through the balance of 'twenty, one and it'll be Backloaded as day indicated on our current assumptions of when we believe we can start deliveries. So there'll still be some burn off in 'twenty, two but like a simple majority of that will be in 'twenty, one and be backloaded associated with that.
But does that mean or does that mean, the vast majority of the 80 plus all of what is produced.
Yes.
Yeah.
Our next question is from Peter Arment with Baird. Please go ahead.
Yes, good morning, Dave Gregg.
Hey, Peter Good morning, Hey, Greg maybe just if you could just highlight <unk>.
Your assumptions are or at least.
Trying to understand the dynamics of the use of cash in 'twenty, one I mean, the cadence too.
Do we expect it to kind of improve throughout the year or maybe just any color there and as we get into 'twenty two.
Now as you kind of look at it over a quarterly basis Q1 will be the more challenging quarter really again tied to the.
The inventory burn off on the 787 in particular.
And then just the I'll say the cadence of deliveries on the Max. So so Q1 will be the biggest use them a little bit less in Q2, and then it will start to moderate through Q3 and Q4. So look for you know look for a big use of cash in Q1, but again all tied to those two those two programs.
<unk> predominantly so abbvie resume deliveries on the 787 will start to burn that inventory down and you'll see the benefit of that in our in the second third and fourth quarter.
Appreciate it thanks.
Youre welcome.
And next we'll go to Doug Harned with Bernstein. Please go ahead.
Thanks.
Good morning, Doug.
If I go back a year ago on this you know on this call. Dave you talked about that's when you put the MMA kind of aside on hold and we're really looking at how to think about development.
Right now you talked about the competitiveness of the Max versus the competition on the <unk> hundred 20, Neo and certainly can see that certainly at the Max eight to look for Transcon flights, you know very competitive airplane.
But Airbus has been very successful with the.
321, XLR, which can do a lot of the 757 missions and.
I can't really see how the.
How the Max can compete up on on those missions. So when you look forward.
Are you ready to see that market now how do you think of these sort of narrow trans Atlantic routes.
Situations like that how how would you approach that over the long term.
Over the over the near term it is what it is and again I think about our portfolio of airplanes, not just any one and while we take all of the face offs that we go through in order and in those routes that you described for the <unk> hundred 21.
I get it completely so does our team broadly speaking on on balance across the portfolio, we like where our portfolio plays with a Max at the lower end at the end the 87 at the higher end and very very successful airplane. So that just says that what that means is we're going to take our time.
I'm pretty sure you are in the right space, although I'm not going to appoint designed today.
I think you are pretty much in the right space with respect to where next development efforts leanne, but I don't want to call. It out just yet and I'll go right back to the comment I made on the in the beginning we are really progressing really progressing well on our.
Engineering and manufacturing.
Forward technology development, so that we're ready when that moment comes to offer a really differentiated product.
I'm sure it's not a lot of rocket science free to add add up and guess where things end up but we're not going to call at that point design. This isn't the moment, we're going to take a little time, and we don't feel significantly disadvantage with our our portfolio versus their portfolio.
So anyway, that's how we think about it and we are thinking long term that's for sure.
Any timeframe you can suggest I mean, given the cash pressure now.
Near term seems hard but.
What kind of timeframe in the future or how it intends play into that timing.
Yeah, well engine's always play into it I don't think theyre going to play into it anywhere near the extent to which they used to.
Simply because the demands on that propulsion system and then next go round I don't think theyre going to be as significant.
And now I'm, just I'm going to I think speak to the industry and what I know there are capable of doing or not.
So therefore, our differentiation at the airframe level itself is really really important index next run.
Which means that these technologies that we are working with.
And tried to demonstrate to ourselves at scale with determinant of assembly. Those are the things that will differentiate and believe it or not that becomes the most important criteria for us with respect to debt announcing that next airplane. It's got it depend on these advanced technologies and it will so and I don't feel in any way shape or form that.
One year or two years more in the market to learn more is going to hold us back in any way shape or form or.
The Boeing company in any way shape or form so that's the perspective I'd put on it.
Now.
We're getting no pressure as you might imagine from airlines to run forward as fast as we can.
And that's a bit of a luxury on this subject, but the most important thing for me on the Boeing team is to get these underlying technologies proven demonstrated at scale. So that when we call that point that point design, we're ready and we will deliver.
Okay, great. Thank you.
Yes.
Next we'll go to Hunter Keay with Wolfe Research. Please go ahead.
Thank you good morning, everybody good morning, Scott.
Hey, Greg as you think about free cash flow beyond 'twenty, one how old orders over the next 12 months impact your decisions on rates, which of course also inform the cadence of advances.
So all other things constant like the concession payments and the timing of the <unk> can you help me better understand sort of on what your expectations are for order activity and how that will dovetail into production rate decisions on advances through the cash flow on yeah.
To your point I mean, we've taken that into consideration with the current rates that they've talked about you know through that period. So the advance timeline associated with that is tied right to how we see at least near term.
Those production rates. So obviously, if we modify those in any way it will have an impact on on advances, but I would say separate from that.
On the delivery profile.
Of the 87 and 737 are going to be the biggest contributors to the to the growth of cash flow.
Now certainly advances will help as we get lead time away on on rate increases, but delivery profile alone will be will be one of the more significant drivers. So you know as I said before looking from the outside.
You know watch Washington delivery profile on both of those programs in particular in yellow line.
Right right to our to our cash flow profiles on projections, we need to have going forward.
And then advances will be a little further out.
From from.
From this time period, just because of the rate increases, particularly on $3 seven as we burn off some of the access advances and then the advances on the 87 will be again tied to the rate increases beyond the 'twenty one 'twenty two time frame.
Right.
Yes.
And maybe.
Add on ounce a color.
Of course, we we expect and believe that the.
The demand for our current Triple seven freighter is still significant and we hope and believe that we'll continue to see ordering activity broadly on that one.
Seven six similarly.
Theres, an awful lot of freighter demand for the seven six and then when you get to the eight seven the only wildcard that has more upside than downside is if if there is a.
On a daytime if you will with respect to the trade agreements between the United States and China.
And the agreements are in place. It's just a question of whether the posture change.
Changes in any way that allows for that phase one deal to move forward.
It's a big plus for any administration in light of the number of jobs that supports of the United States.
And so we're optimistic on that front, but if that pans out and panned out are reasonable.
Reasonably quickly that's more more up and down.
Thank you yes.
And next we'll go to Jon Raviv with Citi. Please go ahead.
Okay. Thank you on good morning.
Good morning, you mentioned that defense is a critical source of stability here I noticed we had talked about too much because I agree that's on where a lot of the delta is these days, but nevertheless.
What is your perspective on the underlying growth there and then your perspective on why Boeing defense at least from our from externally looking at it has not participated on the same growth that others have seen and others have been growing mid to high single digits still looking at maybe low to mid single digits growth in 'twenty and 'twenty. One you guys are still looking at maybe blow them up.
Very modest growth.
So what's your perspective on that and then also looking forward is there an opportunity for sales growth too.
Accelerate perhaps based on some of those big new wins that you've launched over the last few years and what would the impact on the margin be.
As those programs ramp up thank you.
Greg can I start with.
Fill in as you see on.
Sure thing, yes, yes.
So it has been and we continue to believe that we're going to have stable growth admittedly admittedly at the lower end of the single digits and that's all that's the best guidance. We can talk about because we do think there is pressure that will ultimately come down as a result of all the COVID-19 spending here in the United States, but a large part of our business now is international.
Markets in the order.
Activity in those international markets is pushed to the right somewhat and almost entirely because of COVID-19 related stuff not because of any competitive issue one way or the other.
So we still like our position.
Because we have an awful lot of <unk>.
Ongoing programs that.
The military and of course, our defense bills have been kind to in each and every one of their.
Moments in this last bill was a good one for us.
Pretty much every respect so it's hard to commit to a.
A big uptick in any way on on.
Growth rates.
Anytime soon in light of what I think other pressures.
The only other comment I would make is there is there is a big segment of work that we do.
In the classified world that is incredibly encouraging and incredibly important to us.
<unk>.
Anyway, I I believe not just for our defense World, but also ultimately derivative technologies for the commercial world, but that's going to be a big source of.
Competitive advantage for Boeing.
<unk>.
Hi on it but I'm very reticent to want to.
Suggest the market is going to get any better or that we're going to differentiate ourselves any further than what we have been.
Yeah.
Thank you.
And next we'll go to David Strauss with Barclays. Please go ahead.
Thanks, Good morning.
On it.
I just wanted to go back and touch on on on.
77.
Could you just talk about the.
These 80 aircraft that you have in storage how many at this point if any have been reworked what exactly is involved in that the cost involved is there any sort of customer compensation.
Debt, you're assuming given the given the delays on these aircraft.
Yes.
Cost associated with it David we've provisioned for in our books. So I think we've got well understood and covered I don't have the specific number of aircrafts that have been reworked, but there's a number that are complete as Dave said, we still got some work to do our engineering team does with final dispositions net will inform.
Whether we have additional rework or or or not and we will adjust the schedule.
Accordingly, but we've made a provision in there for what we think are associated costs related to the delay until the end of any rework associated with these inspections.
Okay, Greg can you give a little bit more detail on what exactly is involved in a in the rework is it is it just exterior or is there a fair amount of the interior work, that's got to be done as well too.
Get the airplanes back to to spec.
Yeah, I mean, it's it's it's around the structure.
As you as we've talked about you've seen around certain areas of the join the team's Gotta go back go in and inspect and potentially rework.
Within the structure and that's primarily it so it's it's nothing outside of that as far as interior. It's around some of those joins and like like we talked earlier.
We have been expanding the expansion back into the supply chain as well, but all kind of around the joined areas, where we've got multiple honestly buildups of different materials.
And do we have the appropriate appropriate shims in there and if we need to do any any additional rework or inspection. That's what that's what's the sanction me what's taking place.
Okay, and I I think there were some airplane the handful of airplanes on were grounded but do.
Do you think there are any additional implications to the installed base from what you have what you found.
Not at this time no.
No and that those those ones that we're grounded in ultimately proven okay involved more than what we're working on now.
A combination of factors and we know we know one of those factors has been eliminated.
Alright, thanks very much.
Youre welcome.
And next we'll go to Rob Spingarn with Credit Suisse. Please go ahead.
Hi, good morning.
But it wasn't going to that was going to ask on product development, but your answer to Doug makes it somewhat more compelling now when you distinguish between entered advances in airframe and production advances does this mean that the next aircraft does not necessarily a platform to introduce a future propulsion technology like there.
Talking about in Europe, and therefore that the next plane would be conventionally powered.
Yes, I believe that yes, and I'm on the record of saying that.
Hydrogen power.
I just believe is a much longer timeline the timeline that at least I've read like you did.
I have a fair amount of experience with hydrogen our company has an incredible amount of experience with hydrogen at least in that size of airframe that we're all talking about we can experiment down at the very low end.
But that's not that's not going to be a meaningful market.
Here and the advent of sustainable fuel already already.
We're capable of living with that sustainable fuel I believe that's going to be the <unk>.
<unk> 15 year answer to 2050 guidelines and approaches.
Because we've all worked with it experimented with it we know it works and now we've got to develop a supply line for it but I believe it's the only answer between now and 2050.
Okay. Thank you very much very helpful.
Operator, we have time for one more question.
And that will be from Sheila <unk> with Jefferies. Please go ahead.
Hi, Good morning, everyone. Thank you for the time.
On our Sheila.
Greg you mentioned last quarter, our PDP significantly impact 2021 free cash flow just in light of the additional 787 build that we're seeing here and the Max on wind is it fair to say you unwind on majority of the 780 sevens, they're sitting there right now and 200, Max's you've got an $8 billion inventory benefit.
And then the advances are the PDP as are a similar offset in 'twenty, one and then how does that look into 2022.
Yeah, Yeah, you're right I mean, if you look at 'twenty to 'twenty, one certainly the largest driver of the improvement in cash flow there will be 77 deliveries.
And as we talked about and then it'll be more back loaded.
We'll obviously have the increase in the 737 deliveries, but it's as you indicated we.
We have access PDP so.
They're being utilized and will be utilized on some of these deliveries. So you really wont see the I'll say true up of that until you move from 'twenty one into 'twenty two.
But when you look at the growth profile.
'twenty one to 'twenty. Two again 7737 is is a key driver to that so back to my comments earlier around the right profile and the delivery of the aircraft off the ramp that is the single biggest driver as you look at 'twenty one to 'twenty two as it sits here today so.
And the advance and start to true up in that time period, as well and I'll say kind of get more to a normalized level of other dances, but those are ultimately the key drivers year over year.
Okay. Thank you.
Welcome.
That completes the Boeing company.
Thank you.
Thank you.
We're sorry your conferences ending now please hang up.