Q2 2021 Boeing Co Earnings Call
Yeah.
Could you get.
On muted automatically or is it just moving.
We're on mute automatically cause thank you for standing by good day, everyone and welcome to the Boeing Company's second quarter 2021 earnings Conference call today's call is.
Reported 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 1 followed by the digit zero on your Touchtone telephone again, it is 1 zero for questions.
After pressing 1 zero you will hear that you've been placed in Q pressing 1 zero again will take you out of queue and may prevent you from being able to ask a question.
At this time for opening remarks, and introductions I am turning the call over to MS. Maurita Suite Asia, Vice President of Investor Relations for the Boeing Company. Mr. <unk>. Please go ahead.
Thank you John Thank you and good morning, welcome to Boeing second quarter, 2021 earnings call I'm Maurita as a teacher and with me today are David Calhoun, Boeing's, President and Chief Executive Officer, and Dave Dominic Boeing.
Interim.
Chief Financial Officer, and as a reminder, you can follow today's broadcast and slide presentation through.
Website at Boeing Dot com.
As always.
We have provided detailed financial information in our press release issued earlier today projections estimates and goals. We include in our discussion. This morning involve risks, including those described in our SEC filings and in the forward looking statements disclosed.
Disclaimer at the end of this 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.
Thank you Maurita and good morning, everyone.
I hope, you're all staying well as we continue through.
Of this global pandemic.
Please encourage everyone you know to get the vaccine if they haven't already.
With the onset of COVID-19, roughly a year and a half ago, our world's returned upside down on it.
On industry, we faced it head on and work together every step of the way.
While there is still a ways to go before.
Will recovery, we are encouraged by the continued progress on vaccine distribution and the uptick in domestic travel.
We're also looking forward to further progress on coordinated international travel policies and protocols.
I've said before that we view this year is of critical inflection point.
4 of which proving to be just debt.
We are turning a corner and the recovery is gaining momentum.
Throughout all of this we are continuously learning and adapting how we operate to best serve our customers our suppliers our teammates our communities and other stakeholders and I'm proud of how our team has remained focused on our mission.
And before I go through our business update I'd like to take a moment to recognize and thank Dave Donnelly.
For serving as our interim CFO.
Dave is a proven well respected leader here at Boeing and I'm grateful for his partnership as we transition.
As you know we have appointed Brian West to serve as Boeing's next CFO of its effective.
August of 'twenty 7.
Brian is an exceptional leader with significant financial management and long term strategic planning experience in complex global organizations across the aerospace manufacturing and services industries.
Thanks to Greg Smith legacy he's inheriting a world class finance team here.
Here at Boeing.
I've worked directly with Brian previously in my professional career. He has broad operational expertise and will bring great perspective to our business transformation journey and post pandemic recovery as he joins the team this month.
With that let's start with an update on our business on the next chart.
Overall, we've made important progress in the quarter as our transformation actions began to take traction of our get traction and we focused on improving our performance and driving stability across all of our operations.
Let's start with of 737 program, where we've made significant headway.
We resumed 737 Max deliver.
<unk> in May and of continued to support our airline customers efforts to return those fleets to service.
Excuse me of keeping.
Keep going.
In the second quarter, we delivered $47.737, Max airplanes, including our first 737 cash 8.200 delivery day.
Ryanair.
737, Max 10 also completed its first flight in June marking an important milestone for the largest member of the 737 family.
As you may recall, roughly 9 months ago, we had approximately 450 airplanes in inventory and we are awaiting approval from the FAA to begin returning.
Turning to 737 Max to service.
Fast forward to today and the progress is noteworthy.
175 countries of now approved the resumption of 737 Max operations.
We've delivered more than 130 airplanes are.
Our airline customers have returned more than 1.
<unk> hundred 90, previously grounded airplanes to revenue service.
30 Airlines have returned their fleets to service and those airlines have safely flow nearly 95000 commercial flights totaling more than 218000 flight hours.
Importantly, the fleet as an impressive schedule reliability.
Rate of more than 99%.
Airlines are operating over 1000 revenue flights daily and.
And just last week added nearly $3 million 737, Max seats in the second half of 2021 schedule operations.
A testament to the value proposition the airplane family offers.
And as domestic traffic recovers, we believe we have started to turn a corner from an overall demand perspective.
This is reinforced by 5 straight months of positive net commercial airplane orders driven primarily by the 737 Max.
We are honored by the more than 280 additional orders during the quarter.
Including those from United Airlines, and Southwest Airlines and we appreciate the trust our customers are placing in Boeing.
And of 737 family.
These orders underscore our customers' commitment to continued fleet modernization as well as the accelerating demand for air travel.
These new 700.
<unk> have on airplanes are designed to improve the customer experience, while significantly lowering carbon emissions per seat.
At the end of the quarter, we had over 3300 aircraft and our 737 backlog.
We're currently producing 16 airplanes per month and continue to expect to gradually increase the rate.
To 31, a month it early 'twenty 2.
With further gradual increases to correspond with market demand and importantly supply chain capacity.
We will continue to assess the production rate plan as we monitor the market environment and engage in customer discussions.
As.
<unk> seamlessly communicated the timing of remaining regulatory approvals will shape, our delivery plans and our production ramp a rate ramp.
We continue to work with global regulators and still anticipate that the remaining regulatory approvals will occur this year, including China and as always we will follow global.
<unk> lead and the steps ahead.
Now I'd like to spend a bit of a bit of time on our business transformation efforts.
As we've discussed before our activities in this area are organized around 5 pillars.
Infrastructure overhead and organization supply chain health Port.
Folio on investment and operational excellence.
We've put rigor around each pillar and of detailed projects supporting each 1.
We are implementing these projects to create long lasting change, which will improve our competitiveness help us grow our cash flow and create a foundation to enable.
We returned to healthy margins, even at lower production rates.
Many of the projects that we're executing had been shared previously and are widely visible such as consolidating the 787 final assembly in Charleston.
Optimizing our facilities footprint to reduce nearly 6 million square feet of real estate.
And forming strategic partnerships with vendors accelerating our migration to the cloud.
Other projects may be less visible externally, but they are improving our productivity simplifying our operations, reducing bureaucracy and driving first time quality.
Through our business transforming.
Shouldn't efforts over the past year, we've reduced billions of dollars of costs and our objective is that the majority of the savings is long lasting even when volume returns.
At the same time, we remain focused on identifying new opportunities to further streamline how we operate with.
We've started to see the benefits of these efforts.
And our quarterly financial results, which Dave will go through in more detail.
As we've discussed previously.
We've been adjusting the size of our workforce to align with the commercial market environment reality and lower production rates.
We now plan to keep our overall workforce size roughly consistent.
<unk>, where we are today at approximately 140000.
This will allow us to support the encouraging trends we've seen in the commercial market recovery.
The growth opportunities in our defense and government services business and increased investments to strengthen engineering and drive quality and stability into our production system where that payback.
With large.
Going forward the pace of the commercial market recovery.
Relations with China.
Production rates and our own performance, our execution will be key factors of our overall employment levels.
Turning to our efforts to drive stability.
With every action.
Hey back we are driving toward engineering excellence.
Production system stability, and first time quality and delivery predictability.
Each holding ourselves accountable to the highest standards.
We're implementing comprehensive quality and productivity initiatives in our factories and strengthening our quality reviews within our.
Our supply chain.
We conduct regular audits internally with suppliers to ensure adherence to approve processes and practices ranging from production methods to documentation standards.
And as part of our process, we proactively and transparently keep the FAA fully aware of our efforts.
Action this enhanced rigor.
Has helped identify areas that we can improve and.
And by identifying and correcting any issue at the source, while our rates are still relatively low we can strength in first time quality eliminate traveled work and drive stability and predictability as demand returns.
These efforts of played a key role in supporting a healthy and stable rate ramp on the 737 Max.
And we're applying the same approach to the 787.
Now specifically on the 787 program.
I understand the difficulties we have caused by the inconsistency in both our production rate.
And our delivery cadence.
The impacts of our felt by our suppliers and by our customers.
I also recognize these uncertainties create challenges for the investment community to forecast our performance.
We are determined to address these issues and we will work tirelessly to do so.
Just like we have and continue.
To do on the 737 Max.
We're fully committed to this methodical approach to driving first time quality and stability in our operations.
The issues that our engineering teams have identified and we are now addressing our part of this purposeful process and we of transparently communicated with our regulators and customers.
Step of the way.
We're progressing through these inspections and rework, including the additional work we shared earlier. This month, we continue to engage in detailed discussions with the FAA on verification methodologies for the 787.
And based on our assessment of the time required we're re prioritizing production <unk>.
Resources for a few weeks to support the inspection and rework.
As that work is performed the 787 production rate is now lower than 5 per month, and we will gradually return to that rate.
The exact timing of returning to a rate of 5 per month will depend upon our progress on production stability.
And delivering airplanes from inventory.
Of the approximately 100.780 Sevens currently in inventory, we expect to deliver of fewer than half of them. This year.
While this has a near term impact to our operations I am confident its the right course of action and we will continue to take the time necessary to ensure the highest levels.
Quality.
Although it's been a long journey, we believe we're closer to the end than the beginning.
Let me touch on the Triple 7 Triple 7 X program before I move to other segments.
The combined triple 7 Triple 7 X production rate is 2 per month.
We continue to see strong freighter demand.
As evidenced by orders for 13 Triple 7 freighters in the quarter, providing a solid bridge to the triple <unk>.
On the Triple 7 X program were subjecting the airplane to a comprehensive test program designed to demonstrated safety and reliability as well as meet all applicable requirements.
We continue to communicate transparently with the FAA and other global regulators about certification and like any development program. We learn every step of the way.
We incorporate feedback from our regulators and we mature and advance our product with every conversation every engagement every test every review.
We continue to make progress to the previously shared schedule.
Including certification work with regulators and conducting Boeing flight tests.
The performance data we've collected to date suggest the airplane is performing as we expected and to our customer commitments.
We will be validating these results in the near future.
Along with continuing to work with the FAA to ensure we meet their requirements prior to beginning certification flight tests.
We continue to expect that we will deliver the first triple <unk> in late 2023, as we shared previously.
Meanwhile, we continue delivering for our defense.
<unk> <unk> and services customers.
Dave will go through the financials in more detail in his remarks, but as you can see from the results both of our defense and services businesses had strong financial performance in the quarter.
Let me highlight a few accomplishments.
Our defense space and security team made history.
As our of MQ25 test asset completed the first ever unmanned aerial refueling of another aircraft the F 18.
We also joined the fuselage of the first production of <unk> with its App section in less than 30 minutes of <unk>.
Testament to the digital advancements of.
Of the U S Air Force first E series aircraft and a demonstration of our model based engineering and 3 D design benefits.
Earlier this month of U S Air Force approve the KC 46, 8 tanker for joint forces operational use of the centerline hose and drove refueling system.
Some of which provides more daily operational capabilities.
KC 46, 8 tanker is a critic of critical importance to our customer.
Moving to space.
We began stacking of core stage of Nasa's space launch system rocket with other Artemis 1 elements at Kennedy Space Center.
And of course, we're looking forward to the unproved orbital flight test of our commercial crew start line on vehicle later this week.
Additionally, in our global services business, we announced that we will be opening 2 new Boeing converted freighter lines in 2022.
We also signed of parts agreement with Turkish.
Technique and received a key contract to support C 17 training from the UK Royal Air Force.
In addition to program milestones, we made key progress on our sustainability innovation and technology efforts.
Just this week, we published Boeing's first integrated sustainability report.
Which is.
Important step on our continued efforts to reinforce our environmental social and governance principles.
Also we recently announced that we're collaborating with Alaska Airlines to fly in Alaska of 737 Dash 9 aircrafts in our eco demonstrator program.
In fact today, our eco demonstrator aircraft is at Reagan.
And <unk> airport demonstrating to key leaders many of the new technologies and improvements, we're making to enhance safety and support a more sustainable future.
Earlier. This month, we also announced a partnership with Sky NRG focused on advancing the availability and use of sustainable aviation.
<unk> fuels or SaaS globally.
As part of this commitment we will invest in Sky NRG of America's first dedicated U S production facility for SaaS to help establish SaaS supply for airports and airline customers.
Largely on the West coast.
Now, let's turn to the next slide to discuss.
The industry environment.
Our government services defense and space businesses remains significant and relatively stable.
While increased government spending on COVID-19 response is adding pressure to defense budgets in some countries others are increasing spending on their security.
Overall, the global defense.
Fence market remains strong and we continue to see solid global demand for our major programs.
The diversity of our portfolio will continue to help provide critical stability for us as we move forward.
Congress has kicked off the annual authorization and appropriation cycle for fiscal year 2022.
President's budget.
It was called for strategic investments and Boeing products and services from across the Bds and Bgs portfolios.
The budget proposal demonstrates confidence in the capabilities of Boeing F 15, <unk> and Apache as well as key commercial derivative programs such as the KC 46.
For Peter and space programs like the space launch system SLS among other platforms.
The FAA 18, and the Chinook block to remain critical capabilities for the Warfighter, both domestically and for non U S customers.
We will continue to work with the administration and work with Congress to ensure the necessary.
<unk> support for these key programs are in place.
In the commercial market, while near term pressure due to COVID-19 remains recovery is accelerating in many of the key long term fundamentals remain intact.
In June we saw global departures approach 70% of.
<unk> levels up from less than 60% in the first quarter we.
We've seen encouraging signs in some markets, although the recovery continues to be uneven.
In the near term, we expect that the environment will remain very challenged for many of our airline customers and the industry as a whole as they adapt to this <unk>.
<unk> 20th evolving travel demand.
While vaccine dissemination is broadening and some travel restrictions are loosening others are still in place and some even tightening which keeps significant pressure on passenger traffic.
Continuing the positive momentum we saw on the first quarter domestic traffic.
<unk> is leading the recovery.
Domestic traffic was 224% below 2019 levels compared to 50% a quarter before.
Since then it continues to pick up in regions like the U S and Europe, and we anticipate continued improvement this summer.
The U S domestic market is.
Traffic marketable recovery with summer bookings consistent with 2019 levels. According to several airlines.
TSA average daily throughput has already reached over 2 million passengers around 80% of 2019 levels.
Additionally, some regions such as Europe, India Latin America are recently seeing.
Seeing double digit monthly improvements in operations as vaccine rates improve and travel restrictions begin to loosen.
While the recovery in China has wavered at times duty case rates it remains robust with operations above 80% of pre pandemic levels.
However passenger.
Singer traffic in other parts of the world such as Southeast Asia remained significantly lower due to travel restriction uncertainty of new strains of the virus.
International operations remain extremely low and may traffic still 85% 2019.
And concerns about virus.
<unk> variants and limited coordination on cross boarder entry protocols are still significantly hindering recovery in the international segment.
Nevertheless on average roughly 100 aircraft per week of returned to service over the past 4 months, making the active fleet now approximately 80%.
Of its previous size.
With single aisle activity levels slightly above twin aisle.
And although utilization rates and load factors are increasing in some areas. They are still below historic levels, which means airlines are flying around 70% of their normal capacity.
At the global level.
With the toughest impacts of appearing to be in the rearview Mirror airlines are shifting their focus to medium term fleet planning.
The number of aircraft being retired from the active fleet of significant with around 500 airplanes and growing retired or announced to be removed since the onset of the pandemic.
We anticipate this trend will continue as our customers focus on replacing the oldest least efficient airplanes with new airplanes that will be as much as 25% to 40% more fuel efficient with commensurate reductions in emissions.
The freighter market continues to be strong with cargo traffic year.
Year to date through May at 8% higher than 2019.
Limited belly cargo capacity from passenger airplanes has resulted in more freighters flying with high load factors.
In fact, 72% of air cargo is now being carried on dedicated freighters.
That compares to 48% pre pandemic.
This demand as evidenced by orders in the quarter for 31, additional freighter airplanes and strong demand for Boeing converted freighters.
Longer term cargo demand will continue to be driven by global trade and GDP growth.
Both of which experienced improvement in the second quarter.
<unk> shared previously and consistent with IATA and other industry groups.
We expect passenger traffic to return to 2019 levels in 2023 to 2024, and then a few years beyond that to return to long term trend growth.
We still see recovery in 3 phases.
First domestic debt.
Ken.
And we of general markets, such as intra Asia intra Europe intra Americas.
And finally long haul international routes.
Therefore, we expect demand for narrow body aircraft to recover faster as evidenced by our year to date orders for 737, Max airplanes and.
And demand for wide body.
Body aircraft to remain challenged for a longer period.
On the global trade environment, we welcome the agreement between European Union in the United States that all future government support for the development or production of commercial aircraft.
Must be provided on market terms.
We will fully support the U.
Recruitment efforts to enforce this engraving.
We're also monitoring U S trade U S. China trade relations given the importance of the China market to our economy and our industry's recovery.
Well as our near term delivery profile and future orders all of which influence future production.
S government.
We remain in active discussions with our Chinese customers on their fleet planning needs and will continue to engage with leaders in both countries to urge of productive dialogue reiterating the mutual economic benefits of a strong and prosperous aerospace industry.
Ultimately America's leadership in aerospace as.
Right health and stability of millions of commercial aerospace jobs.
Rely on free and fair trade.
And we are confident our leaders understand the importance of this area not just for our business, but for the overall health of our economy and competitiveness.
Turning to the commercial services market we saw.
Improved demand in the second quarter as we are rebounding from the trough and as airlines prepared for the summer season.
We expect this trend to continue near term slightly ahead of our expectations that said, we still anticipate a multiyear recovery that may be uneven.
Overall industry liquidity, which remains.
It's critical for our industry and our industry's bridge to full recovery it.
It's been improving.
Product differentiation and versatility will also be key as airlines adapt to the evolving market realities.
I'm confident our product lineup is well positioned and we're focused on executing to meet our customers' needs.
The impact of COVID-19 has been significant on a number of challenges remain but we are seeing signs of recovery.
More broadly across the economy, we're now seeing positive indicators for economic growth.
We believe bipartisan agreement on infrastructure investment can further support growth across the economy not just for <unk>.
Airports and highways, but also for the tens of thousands of small businesses and suppliers that contribute to industries like ours all across the country with.
With economic activity is picking up labor availability within our supply chain is a watch item.
As we position for a market recovery, we're taking.
Right.
Actions to manage liquidity and drive long lasting change to make our business leaner sharper and more sustainable we.
We remain committed to safety quality transparency and I am confident on our path forward.
And with that let me turn it over to Dave Donlin.
Great Thanks, Dave and good morning, everyone.
Good to be reconnecting with many of you that I know if on lifetime of Investor Relations and throughout my career at Boeing.
I'm honored to be in the role of interim CFO and to help facilitate a smooth transition for Brian.
Now, let's turn to slide 4 please.
Second quarter.
So increased $2.17 billion, primarily due to higher commercial deliveries in commercial services volume.
Positive earnings in the quarter also benefited from lower period costs.
Additionally, several nonrecurring items favorably contributed to the quarter.
Income tax in the quarter.
Primarily reflects benefits from a lower valuation allowance.
Now, let's turn to commercial airplanes on slide 5.
Revenue was 6 billion, reflecting higher commercial airplane deliveries the improvement from the prior year was also due to a $551 million.
737, Max customer consideration impact in the second quarter of last year.
Although commercial airplanes operating margin continued to be end of pressure it improved in the quarter due to higher commercial airplane deliveries and lower period cost.
We delivered 47.
7 Max airplanes in the second quarter. We currently have approximately 390, Max aircraft built and stored in inventory.
We have made significant progress on our efforts to re market some of our inventory airplanes and have now largely address that issue and put it behind us.
Just prior to the <unk>.
737, Max return to service in the U S. We estimated that around half of the approximately 450 aircraft. We had in storage would be delivered by the end of 2021 and the majority of the remaining aircraft by the end of 2022.
Net.
<unk> has not changed.
We expect delivery timing and the production rate ramp profile to remain dynamic given the market environment customer discussions and the remaining global regulatory approvals.
There is no material change in our assumption for 737 abnormal costs or.
Or our assessment of the liability for estimated 737, Max potential concessions and other considerations to customers.
Turning to 787 second quarter deliveries were light as we worked through the activities that Dave just mentioned our.
Later on our latest assessment.
Financial impact of the inspections rework temporary production rate adjustment and delivery delays has been included in our second quarter closing position of.
787 program margin remains near breakeven.
On a cash basis. These additional costs will create.
Of the <unk> in the near term. However, we still expect overall unit margins to hold up relatively well.
Moving now to a triple 7 X as Dave mentioned, we still expect first delivery of the Triple 7 X to occur in late 2023, we are making progress on our flight test.
<unk> activities we.
We still expect that the peak use of cash because of Triple 7 X program occurred in 2020, and net cash flow will improve as we get closer to Eas and begin deliveries in late 2023.
We anticipate the program will turn cash flow positive.
Our head of approximately 1 to 2 years after first delivery.
We're starting to see improvements in commercial airplanes financial performance due to increasing 737, Max deliveries and great efforts by the BCA team to manage costs through our business transformation activities.
We also.
<unk> had strong orders in the quarter, which is a testament to the value of our products and our customers' focus shifting now to fleet planning on.
Although the commercial recovery will take time, and we still have work to do we're on a positive path and we remain and we will remain focused on driving.
Cash stability on the 7 day, 7 to 87 program and across the business.
Let's now move to defense space <unk> security on slide 6.
Second quarter revenue increased to $6.9 billion, primarily due to higher volume on the KC 46, a tanker program.
<unk> <unk> program.
We posted a strong operating margin of 13, 9% in the second quarter.
The margin increase was driven by lack of a charge on the on the <unk>.
Tanker program as compared to the second quarter of 2020, as well as of favorable adjustment on our non U S contract.
And we received 4 billion in orders during the quarter, including an award for 14 Chinook helicopters for the UK Royal Air Force. We also reached an agreement with Germany for 5 P..8 aircraft.
Bds backlog is currently valued at $59 billion.
Now, let's turn to global services on slide 7.
In the second quarter Global services revenue increased to $4.1 billion and operating margin grew to 13, 1% driven by higher commercial services as the market continues recovering from the impact of COVID-19.
Operating margin was also helped by lower asset impairments lower severance costs, and a favorable mix of products and services.
During the quarter Bgs won key contracts worth approximately $3 billion, resulting in a total backlog now of $19 billion.
We saw incremental improvement in commercial services during the second quarter, and we expect the quarterly revenue trend to improve as we support increasing airline flight operations.
That said given the dynamic environment, we can expect to see variability in the revenue and margin trajectory.
<unk> from quarter to quarter at Bgs.
Now, let's take a look at cash flow on slide 8.
Operating cash flow for the quarter improved significantly to negative 0.5 billion, reflecting higher commercial deliveries higher order receipts reduced expenditures.
Yours on lower wide body production rates and benefits from our business transformation efforts.
While we saw cash flow benefit from order activity in the second quarter keep in mind that we continue to expect the advanced payment burned down to be of headwind for the rest of this year and into next.
Now, let's move to slide 9 and discuss our liquidity position.
We ended the second quarter with strong liquidity, including $21.3 billion of cash and marketable securities on our balance sheet and access to $14.8 billion from our bank credit facilities, which remain undrawn.
Our debt balance remained stable at $63.6 billion at the end of the quarter.
We expect to have lower total debt at the end of the year due to the pay down of maturing bonds and potential early pay down of our delayed draw term loan.
Given the dynamic environment, we maintain.
<unk> vigilance and managing our cash thanks to actions taken throughout the business to enhance our cash balance. We believe we currently have sufficient liquidity, we remain focused on reducing our debt levels and actively managing our balance sheet of.
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.
Moving to the next slide.
In summary, we operate in a dynamic business environment, we are seeing the commercial market recovery accelerating however, it continues to be uneven across.
Different regions in the near term path remains challenging.
Given this backdrop, we will continue to diligently cultivate opportunities and monitor risks are key enablers include vaccine distribution and travel protocols U S. China trade relations.
<unk> 737, Max regulatory approvals and resumption of 787 deliveries.
Our financial performance in the second half of this year will largely be driven by these key enablers.
On cash flow, we still expect full year 2021 to be of use of.
Cash despite additional pressure from the updated 787 delivery schedule of our expectations for cash flow of this year have not deteriorated due to timing of advanced payment burned out and favorable order activity.
With respect to the quarterly trajectory for the remainder of.
We expect continued variability in cash flow quarter over quarter due to timing of deliveries as well as receipts and expenditures such as expected cash tax benefits and Max customer settlement payments, we still expect to turn cash flow positive in 2022.
The key drivers of cash flow in 2022 as compared to this year include continued improvement on the 737 program due to lower customer considerations and higher delivery payments as well as recovery in commercial services.
However, advanced payments will still be of headwind.
In 2022.
While our delivery expectations are now higher next year due to some 787 deliveries moving from this year into 2022 the related additional cash flow will be largely offset by the burn down of advanced payments next year.
To close while focusing.
<unk> on safety quality and operational excellence our team continues to closely examine all aspects of our business simplify and streamline everything we do drive stability in our operations and make long lasting change I'm honored to be of part of such a strong team and look forward.
To our bright future.
With that I'll turn it back to Dave Calhoun for closing comments, thanks, Dave I appreciate it.
As we continue to transform our business, we remain committed to quality.
Safety integrity and transparency in everything that we do in every action we take.
I'm extremely.
Proud of the resiliency and dedication of our team and I remain confident in our future.
Dave and I are happy to take your questions.
And ladies and gentlemen in order or is that your question be clearly heard we ask that you not use a speaker phone cell phone or phone headset. Please use your handset to ask a.
Question, if you're on a speaker phone. Please be sure. Your mute function is switched off some of your signal can reach our equipment. As a reminder of the interest of time, we are asking that you limit yourself to 1 single part of question. Our first question comes from Noah <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
I know I know of.
I wanted to ask about margins given the performance in the quarter and you talked a lot about the business transformation.
Is there any way to quantify what youre gaining in the in the aircraft business, whether it's a structural cost out or.
No.
We're of the Max and 87 production rates need to be to achieve the margins that you had last cycle or anything along those lines and then.
Can we expect Bds and services margins to continue to March higher from the levels of achieved this quarter. Thanks.
Yes, no of thanks for that question, so, let's start with maybe Bds and bgs.
Bgs before the pandemic was sort of a.
Mid teen margin business and I think you saw some significant progress towards debt this quarter to 13, 1%. So.
So I think that will depend from quarter to quarter on mix.
There is variability in many many programs in bgs, but I think we're seeing positive trajectory, there and we see a path to getting back towards those.
Those mid.
Teen margins over time.
In Bds strong quarter on margins with.
With 13, 9% now some of that was due to as we mentioned.
Higher benefit from a non U S program.
Adjustments.
The benefit of the quarter, even if you.
Sort of strip that.
Out of.
Bds performed well in the kind of the low double digit margin territory that they've been in.
In good times, when we were not taking charges. So clearly the fact that we didn't take any significant charges in the quarter and performed well across the programs.
Of that turned out.
It very well and so you know.
Then back to BCA.
We are still on.
Negative margin territory, although much better than we've been.
Certainly in recent quarters and compared to the same quarter last year I think a lot there will be driven by rate.
We are.
Ram.
And the 7.
787, Max program at <unk> 16 per month now moving to 31 per month at the beginning of next year.
And we intend to go higher obviously driven by what we see in the market.
Beyond.
Early next year and some of that you know the key enablers that we just talked about.
China being 1 are important and that in addition to just overall traffic trends. So I think for BCA, it's going to be.
Production rate driven in addition to.
Getting additional traction on the.
The business transformation efforts, we've had cutting costs and then of course as Dave.
Amping on achieve.
Achieving stability.
Especially in the 787 per.
Program as we work through our.
Final issues there.
Yes, I'm optimistic to get to or beat our prior.
Margins you were accustomed to with respect to BCA biggest part being transferred.
<unk> mentioned in the leverage we can get by reducing our sort of breakeven rates.
And that's what we're working on it's been quite effective.
The key will be to keep it when the market turns back so I'm looking forward to net so.
So David it sounds like you believe you can have.
The margins you used to have in BCA.
Even before you're all the way back to the production rates you had.
Well, yes, I mean, our initiatives are definitely intending to do that we'll see when the measures come but if.
If you think about the dynamics with respect to that.
All of about that underlying infrastructure cost and the consolidation of a couple of plants and a few things like that that that has.
<unk> shipments benefit at similar rates.
From where we were before so yes, leverages in the rates, but when we get to those similar rates.
I feel good about where we're going to be.
Can you just quickly give us the millions of dollars of the contract adjustment on Bds.
Yes.
Don't.
Has to get at a specific number that we're disclosing but again it would be even if you strip that out youre above 11% margins of Bds.
Which is a.
Sure.
Happy about the progress there got.
Got it thank you.
Our next question is from.
Have Myles Walton with UBS. Please go ahead.
Thanks, Good morning.
Good morning, Dave.
Day.
Calhoun and some of the order activity in the last 6 months would seem to be opportunistic.
As you are back filling some of the skyline.
From the 3.7 and repositioning some of those.
So a lot of questions. We get is is this more just a surge.
Of opportunism or is this really significant demand that's turning to the positive maybe you can frame. It for what you expect over the next 6 to 12 months of an order activity.
No I don't view this as opportunistic either on my.
Side or on the customer side.
When you make decisions to order 270 airplanes and expand your capacity and get aggressive in the marketplace that is fundamental of decision as it gets and it was very little with respect opportunism. The good news when I just evaluate the United Order is they.
Sit or all of their routes all of their operations and then they as you know solve for the for the lowest cost most efficient delivery of of passenger.
Route of of passenger and then they make choices around the airplanes of good news is they of history with both manufacturers.
I like the way our product line.
Of the competed with our competitor I mean, it was straight up.
Out of the $2.70, we got 200.
Models and the routes that they are intended to satisfy their.
They are optimal for United.
Anyway, so I'm quite pleased with how that went and was quite in my view.
<unk> and long term and in the case of <unk>.
Southwest it's the same.
Southwest we benefit from it being an all Boeing fleet and day benefit from it being all Boeing but on the other hand, there doing the same thing as United. These are 2 very strong airlines, who are staking out the future and making big strategic.
On stringent to do so they are extending their reach or improving their route structures et cetera. So I cant Cds in any way as being opportunistic I do think and expect as domestic markets return recovery is robust.
The retirements stay retired and I believe most of them.
Will.
That we're going to end up in that same real estate play going forward, meaning.
Airlines, who get aggressive in our balance sheets, and our strong who want to improve their improve their route structures and grow into the market. They will be the first 1 to play I can't predict exactly when that happens just like I couldn't predict.
<unk> decided would step forward or southwest.
But I know I think these 2 are of strategic as it gets and we held our ground in posture.
And we like the airplanes performance sell itself, that's really the way it happened.
Okay. So you would expect of backlog on a $3.7 Max to continue to build even a stronger deliveries in the second.
Half of the year, Yes, I do I do again, I can't predict timing and I certainly can't.
Predict the scale of each and every order, but I like the way these were let and I like the way we competed.
Thanks.
Next question is from Cristina <unk> with Morgan Stanley. Please go ahead hi.
Hi, good.
When you're not Dave and Dave.
Hi, good morning Christine.
Can you help us understand the drivers of our free cash flow through the rest of 2021 and how we should think about the run rate of 737 Max.
Concession payments I mean, ultimately is there a path to positive free cash flow for.
Of that remaining quarters of the year.
Yes, so kristine I think.
Number 1 the.
Burned out of advanced payments as I mentioned is going to be lumpy.
Lumpy, obviously dependent on delivery schedule, and we're going to see that effect second.
Any of this year and also of 2022, so that is a headwind.
Certainly the tailwind you see are.
Expected higher airplane deliveries.
Certainly 737, Max's and as we worked through 787.
Higher deliveries there too once we complete the work.
Half of it are able to deliver again.
Think of.
Well, we're not predicting.
<unk>.
Which quarter or this year might be cash flow positive I think it will be variable.
We certainly made a lot of progress from Q1.
Q2 cash flow.
<unk> performance.
I think the rest of the year.
It will be a balance of higher a higher deliveries.
And some headwinds from advanced payments, but also benefits from as Dave mentioned continued.
Work on the business transformation efforts.
And also.
And on.
We expect expectation that we should be receiving a cash tax benefit sometime in the second half could be in Q3 could be in Q4, so that would be of benefit to the year as well on cash, but we're not we're not predicting Christine.
Not giving.
On a quarter for cash.
Cash flow level, but we see we do see some.
Some tailwind for.
For the rest of the year.
The underlying trajectory is good.
And we're making really solid solid ground on that basis. So I feel good we always have our quarterly.
<unk> guidance, but but but anyway I do think this quarter is indicative of the underlying underlying trend.
Thanks, and if I could squeeze 1 more on the 787.
Earlier. This month, we saw on news on Chinese willingness to conduct flight tests has there been any feedback on what you need to do to get the aircraft certified.
Oh yeah.
<unk>.
But let's just say the dialogue with the C. AAC first of all of which remember they of 100 airplanes on the ground in China.
The airlines want to get into the year.
They've got the Olympics coming and they want to move down that path.
I have a lot of natural incentive to want to do it.
We've been working closely with them from the beginning.
It's constructive technical issues are being resolved and in fact I for the most part of think they're all behind us.
And yes, I anticipate there will be a test flights of conducted and certification as we said we expect that we will get.
Get that before the end of this year, so anyway I'm very encouraged about the constructive nature of that of how that's going on.
Anyway, hopefully bigger trade issues don't get in the way and I.
I don't believe they will both sides of incentives for this industry to move forward.
Our next question is from Doug Harned with Bernstein. Please go ahead.
Thank you good morning.
Hey, Doug.
Yeah on on the 787, the the new issue that you're addressing of it appears to be the same type of structural nonconformity problem you've.
You know you've been addressing elsewhere in the airplane.
Since last like on.
Yes.
No.
How do you get comfortable to know Theres not a next place where this issue could come up and then because it appears to be occurring across multiple suppliers. How do you resolve that for the long term and sort of this is of production process.
<unk> several of them of quality control problem or maybe even an over specification of tolerances. I mean can you describe a little bit of what's going on here.
Yeah, Doug I really appreciate the question.
Because it outlines the heart of what we're trying to accomplish here. So let me start by saying this.
Isn't that the FAA getting tough on Boeing this is Boeing getting tough on Boeing.
We launched a program to inspect because we did find some issues by way of notice of of escape out of our out of their supply chain early on we decided we would do a nose to tail inspection of all of it tier 1.
Tier 2.
And we did exactly all the things you are describing our our specs to type of the process controls of our suppliers, where they need to be is the rework operations that we've now put into our operations in Charleston are they necessary and are they getting the job done and.
In every case, we look for even the smaller.
Smallest exception to the tolerances that we've designed and in every case, we then take a step to 1 identify it we immediately talk to the FAA about it too we fix it 3 we make sure. It wont happen again, how do you do it while you have of teams inside of our suppliers working on process control development.
All of his understanding of exactly why that spec as necessary of where it is.
And on our side, we start putting discipline disciplines in place.
That make it cleared of the supply chain that we're not going to keep our line running if we get 1 that isn't right.
That's a little bit of what's going on here.
Here's the good news.
If we ever out of window to get this behind us once and for all it's now.
We're producing at the lowest rate ever customers are not knocking down our door to get their airplanes in light of the COVID-19 impact on international traffic.
And so we're very determined to see our way through this good news the inspections are done.
Right told of tail.
So those inspections are done.
Does it mean somewhere along the way of suppliers that are going to raise their hand, and tell us there's an escape somewhere along the way, but it's not going to be as a result of this big effort that we've put forward here.
And each and every 1 of these issues that we find we always have a decision to make with respect of compliance.
<unk>, which is that each and every part in every airplane is built precisely to the drawings that we've created and it's our job to rework the issue and that is what we're going through I view. This as a courageous moment for Boeing I my hats off to our team believe it or not.
All of these conditions were preexisting.
My leadership team so the work they're taken on and the readiness that we're getting in place for what I think is of second half recovery in the wide body World of next year and that's why when I believes it.
Border protocols are going to begin to get understood and predictable predictability will return to the market when that happens in.
Orders come we will have to be able to respond of rate increases in a very stable form and fashion.
And I think the actions we're taking right now are the most important part of that puzzle. So I really do apologize to investors and I apologize for that.
<unk> net the last issue was our last.
But we're getting close and most importantly, the underlying causes or are getting understood and resolved.
Then there's this latest this latest issue which seem to be somewhat of a surprise or was that the result of just the completion of inspections, which are now done and this 1 was turned up or.
Or is there more to go here so that there's still some risk that remains I mean, I know, there's always a tiny bit of risk, but how would you characterize that the former it was part of our inspection process. This 1 happened to be of tier 2 issue.
So you go through your supplier then you go through your supplier supplier to.
Define that process control that needs to be implemented.
Clearly and correctly and the rework work that needs to be done is largely done on in on.
And their premise so again we.
We don't have a like a big inspection program from here forward.
This 1 is for the most part complete.
And I expect things to change dramatically, but most importantly, the amount of rework will eliminate in our factory and the predictability of our supply chain on on all of these fronts as is that much better off.
Doug 1 other comment I want to make just just to make sure everyone knows how important 87 is.
During this COVID-19.
Period. During this COVID-19 period, no wide body passenger airplane has been flown more aggressively than the 87.
Everywhere, 90% of that fleet is up and active and being worked as hard as it can be worked so despite the low numbers with respect to all of this international traffic et cetera. The 87 is a prized.
Asset it is getting worked hard.
Okay. Thank you yep.
Our next question is from Seth <unk> with J P. Morgan. Please go ahead.
Thanks, very much on a good morning, everyone I'm, Dave a bottleneck I was wondering if you could talk a little bit about.
The advanced balance you mentioned that as a headwind to free cash flow in the second happened and through 2022 on the.
51 billion right now it hasn't really come down very much at all since the since the pandemic started is.
Is there is there kind of a back of the envelope way that you can help us think about how.
Such that liability balance needs to come down.
Yeah. Thanks, Seth so, it's that's going to be lumpy from quarter to quarter and obviously depending on the.
The delivery schedule, which we've talked about is going to.
Very.
From quarter.
On the quarter.
We also saw orders come in right. So you've got <unk>.
Deliveries happening you've got orders coming in so you've got.
Adding and subtracting at the same time so the.
The bottom line for you to think about is that we still do see.
Yes.
PDP.
Or advances as a headwind.
Through the second half of this year and into next year.
It's a headwind we think we will more than overcome because you know we were predicting.
<unk> cash flow to be positive in 2022, but just just so it's not off your radar screen. This.
It will be with us for the next number of quarters as we work through these deliveries out of inventory and apply.
Advanced payments.
This by case customer by customer so, it's really hard to predict or give guidance there, but net net again 2022, we expect to be positive cash.
Cash flow in.
We would have tailwind of more than offsetting that headwind.
Okay.
Okay. Thanks, very much aspect of 1.
Thank you.
And next go to Rob Spingarn with Credit Suisse. Please go ahead.
Hi, good morning.
Good morning, Robert.
Clarification.
First Dave Calhoun for you and then a question on R&D, but do you need to do any rework on delivered 780 Sevens. That's the first question. The second question on R&D.
Is it I think it's down about at least for BCA at about half the second COVID-19 level. So when does that trough.
And when might you expect to start investing in R&D again growing head count there and what would be the focus of that incremental investment.
Yes, I'll start.
Yes, with the underlying premise on R&D I mean, we are.
View is we are fully funded.
<unk> on the importance of R&D efforts that will support BCA broadly.
I wanted to just I want to separate that from development funding, which is the.
Ongoing certification work associated with the Max cash 10, 730, 770, <unk> and I hope.
In the relatively near term of freighter version of that of that airplane. So.
We are going to be very busy and have been very busy on the development front and spending a fair amount of money on it.
I don't expect that number to go up significantly it any different at any point in time and even the relatively near term not because we're not going to take.
The old stuff just because.
And it's and then and then the next comment.
I I would make on just the research front and what is the likely technologies that will surround that next airplane.
It's not going to be dramatically different with 1 exception and that is everything sustainability.
On that next airplane will have to meet some serious sustainability test.
I do think that sustainable aviation fuel is going to be a big part of that in our propulsion suppliers with respected of packages that they are now promoting you may have seen the CFM package, most recently with the with.
With the.
With the fan.
Anyway.
I think it's gonna be of.
Oh.
A fight between sustainability.
Paulson packages and.
And meeting that spec and then for Boeing it's to make this the most efficient airplane that can possibly be and you may have heard me say.
Our investments in the underlying modeling technologies that have to be deployed applying the digital thread that we have on our defense programs to the commercial programs.
That is critically important to this next development it will shorten the cycle on development it will improve the productivity on the program itself.
And that's critical and then finally, just our production system will be quite different.
As we think about it and we have very active programs on both the modeling and production system.
To be ready for that moment.
That's a lot, but I'm quite actually quite confident that our R&D budgets are what they ought to be.
And quite robust relative to the needs of our BCA business.
Okay, and then just on that 787, any retrofit needed Oh, yes, I'm sorry.
Look that's a determination that has to be made with the FAA.
And.
Most of this in light of the fact that the.
The safety.
Kind of structural elements of our airplanes is huge.
So it's not the world's easiest set of analysis to go through and our teams have taken their their shot at it. They go through the FAA with it in great detail and so I don't really know the answer to that but.
Deal for all of us as to what just incorporate it into ongoing maintenance.
Schedules of the of the airlines so.
That is that's our hope and desire and sort of anyway, but I'm going to leave it to the FAA and our ultimate conclusions.
Between those 2 teams.
So just what happens on that front.
Thank you Dave Yep.
And next we'll go to Rob Stallard.
<unk> on vertical research. Please go ahead.
Thanks, so much on good morning.
Morning, Rodney Robert.
I really can't keep track of the number of times, you mentioned, China on the call, but this is clearly a very important issue.
Dave Calhoun, you said that you expected certification by the end of this year.
That affects you the.
Drop dead date, but if we're sitting here on the 31st of December and you haven't got certification. Then you would have to then say the 737 ramp for example, and maybe some of the pushout of the recovery on the 7.8 was actually an earlier date, because you need to give notice to your supplies. Thank you.
It's a great question you know if we get to the end of the year.
I often use the beginning of the following year, but doing it but I'll start thinking about it very hard and then by the end of the year, if we get to that moment and importantly, we're not within a minute of getting certification in some way we do have to consider real actions with respect to what the future rate ramp looks like.
So yes.
Some of your premise is right.
So that still give supply of enough notice to effectively double production in that timeframe.
Yeah, I mean, but we.
We put some margin into that in other words, we may have to take some risks ourselves with respect to their readiness and the production rates of inventory that we might accumulate.
That's on US we understand that but yes. The answer is yes, we will have to give them notice and I think theyre going to be there'll be okay with that largely because of the risks we take.
That's great. Thank you very much.
Our next question is from Sheila kind of yellow.
With Jefferies. Please go ahead.
Thank you good morning, guys.
Just a follow up on Bob's point Ax maintenance work on the net.
Can you talk about the ramps of 31 of them on production in the beginning of 2022 from 6 pulled today and burning down half of the inventory our inventory of aircraft at the beginning of the year implies a 165 deliveries and assuming 16 per month production rate through year end of that implies our delivery.
I think 1.4 so how do we kind of think about that visibility on a regional basis.
What kind of assumptions do you make on China and other regions and then also just on that last point you made Dave on profitability, what does that kind of mean for BCA profitability on when you hit breakeven.
Well he's.
Oh.
Anybody of you throw a dart and be that precise with respect of the day, we're at profitability, but.
We have a real rate ramp scheduled for the remainder of our year on the subject of deliveries.
Not so much production.
I think we get as high of 50 as we exit.
I took a year.
And then that begins to make a big Denton and I'm on I'm pretty confident we can do that we have de risked our year largely for China.
So they become next years.
Risk with respect of delivery.
So we'll run that that play and that ramp is as hard as we can we will have.
Exit holes with respect to where China is well before that.
And if we have to make adjustments, we will but I do think we are prepared for that delivery rate.
And I think we're close to have already demonstrated we I think we delivered over 30 I don't think I know over 30 in the month of June.
We've got a big teams.
They know how to do it the FAA has granted us on authorities and we are running full speed. So.
And as I said the performance of the airplanes have been fantastic. So.
Again, it's your premise is right.
China is mostly derisked for this year, but we will definitely be part of next year as a risk as we talked earlier.
Again, I remain confident on that prospect, but well know when we know.
Thank you.
And our next question is from Ron Epstein with Bank of America. Please go ahead.
Hi, Randy.
How are you.
Okay.
Just maybe on.
And on the engineering front and there's there's been some press that we've seen some of the engineering ranks sitting out at Boeing and how do you think about that particularly at the maybe the more senior level that you know some of the senior technical follows taken off are.
Are you worried about a bit of of brain drain in in the engineering ranks Boeing and how are.
A question of addressing that.
You know with every first of all of US as you well know ive been an engineering businesses most of most of my life.
With every with every retirement of a seasoned veteran and Boeing and engineering Theres always Oh, my gosh, what's going to happen.
Because they carry an awful lot of knowledge.
Hum.
I accept that as of as norm on the other hand there.
Those very same people worked as hard as they could to train the best engineers, the aerospace industry would ever see behind them and.
And when moments like this happen, where we've had a few more and mostly just out of natural voluntary actions on their part.
<unk>.
All good for them, all and good relation to us.
These folks that they've trained all of these years step up and they step up big and they are impressive.
And there are good and so in many ways. There are always 2 sides to that coin.
And I loved the side I'm seeing which is an.
Part of Italy qualified highly motivated group of younger engineers, who studied under these folks and I promise you. These folks who left we'll never not return on those kids phone calls.
Life goes on and we continue to improve I have been.
Travel on the engineering function of across the Boeing company.
And credit of the highest profile projects.
Some of the most of amazing technologies I've ever ever seen.
I can't I don't ever come away.
Unimpressed. These folks are great I really don't worry about it I do worry about input, meaning we are now in a ruthless competition with everybody.
Not just on aerospace industry, which is getting bigger but also all of the all of the folks in the cyber and Silicon Valley World.
But I like our chances we've got a great mission most engineers start their career and start your jobs based on the mission of the company, we got a pretty good 1 in any.
Anyway so.
Look I read it I've seen it I understand the concern from the outside in but from the inside out I'm quite confident in our technical team.
So this is a logical follow on them what are you doing to recruit the best.
There's a lot of choices out there like you highlighted and in fact, there's even a lot of startups.
Now on aerospace, which is an interesting time, how are you getting the best folks to come to Boeing.
Big Internships, we got we got a lot of them.
Active internships, we never slowed them down during COVID-19.
I personally participate in the discussions with many of the in terms of this virtual world of allows you to do that so that's something we.
We will continue.
It's the mission.
It's really the mission most.
Most of these engineers in these highly qualified data analysts and software engineers, they like what we do they want to go to deep space.
They are they want to help protect the country. These are meaningful things.
So we try to attach.
Our mission our vision and then we try to give them the best set of assignments. They can get moving around of the things that with the Boeing can do because of our big footprint.
Some of them just go as deep as they can go because there is of particular technology, we might be a world leader on those are easy for us to recruit because they just want to go deeper.
Hum.
So anyway I.
We're active on it I personally am active on it and on.
Confident in what Boeing brings to them.
Alright, thank you.
Yep. Thank you.
Our next question is from Carter Copeland with Melius Research. Please go ahead.
Hey, good morning, gentlemen.
1 of them occur.
Quick question on on the 87.
For either 1 of you actually you know I know you.
Sure.
We've been pretty close based on their previous disclosures to a forward loss on the program just given given where that stood and given that you've now taken of delivery rates lower I was kind of surprise.
You didn't actually tip that line was that related to.
The efficiency that you talked about earlier, Dave in terms of on the back end, you'll be better I just any color you could help us on how you guys avoided that despite the lower production would be helpful. Thanks.
Yeah Carter.
The price of the question you know certainly there are some additional costs associated with the rework.
Production rate adjustment delivery timing et cetera.
But there also are other.
Puts and takes that go into this as you know.
That debt have enabled us to maintain.
Thanks.
Positive margin there and so.
We it's still you know near near to zero it's.
Is that where you want it to be we've got work to do to get it.
To keep moving north.
And higher.
But.
And we obviously you examine this thing every quarter.
<unk> of detail approach, along with our auditors et cetera, and so we just have some additional benefits on the cost side.
And that are offsetting.
Enough. So that we don't find ourselves on the RFS position and obviously as Dave said, it's all about achieving stability.
But starting in March back up that margin.
We have not made any.
Outlandish forward assumptions with respect to productivity that we don't know is there.
Because we don't do that so.
So anyway.
It's not half baked is fully baked.
Great. Thank you for the color gentlemen.
Thanks Robert.
And next 1 or 2 of rich Safran with Seaport Global. Please go ahead.
Everybody. Good morning, how are you good.
Rich how are you.
Excellent so.
Dave I wanted to know if you could expand on your opening remarks about freight and your strategy there.
How much about current freight demand I would think drive an improvement in your long term outlook and wondering if that's the case.
Second am I correct. It there of new emission standards coming that might impact of 67 and triple 7 freighters.
Was wondering if you could comment on how youre going to address and meet those standards and then finally Airbus is talking about of 3.
You're kind of afraid or any plans to address this threat David I'm, just trying to get to your overall product strategy here per freighters.
Yes, I am I am.
It's quite confident.
In the freighter market.
I think I think some secular things have happened there that are.
<unk> continued to make that a very important market. As you know we are significant in that market and have long standing customer relationships and especially in the next couple of years prior to the <unk> standards being implemented.
Implemented.
I'm confident it'll drive some additional 706 and additional triple 7 demands.
We need to develop a new <unk>.
Complaint freighter version opportunity.
I circled the triple 7 axis of the logical place for that in a smart place to do that so as I said.
Without suggesting that we've already launched.
On <unk> and or that we have 1 planned by the day, we're confident and I'm confident that that might be the next of our next of our programs.
And it'll be an incredible freighter with incredible long term advantages for our major customers.
So anyway, that's where we stand and in the meantime, there are exemptions.
Et cetera that exist within the language that have to be.
Accommodated by our U S government in some way shape or form that allow for a transition strategy of that new kind of opportunity that is on kayo compliant because youll recall or maybe you know or don't know the 7.6 when it moves into it like a.
Fedex or of UBS.
<unk> this opportunity is.
Displaces airplanes that are 40% plus less efficient and most importantly <unk>.
40% less environmental friendly. So there is I think some transition strategies that can and should be implemented.
That will help us in that but we need to we need to step.
You pay on a airplane itself and yeah. So I don't mind tipping my hand, that's what Scott My greatest interest.
Great. Thanks for the color of I'm, sorry for 1 of our analyst question.
Certainly and that will be from Cai von rumor with Cowen. Please go ahead.
Yes, thanks, so much for squeezing.
Forward on so Dave I was a little surprised by your comment on expecting China approval by year end, because while I get it that the airlines want it and that to me.
You're making progress with with testing.
Nothing in China of happens without political okay, and everything I read.
With me that situation has been going downhill. So the question is are you seeing any specific signs either from the Chinese government through your contact or from the U S. Government that would give you confidence to make a prediction that you expect to see those.
The approval by year round. Thank you.
But let me just in some way to state the obvious.
Don't want to imply that anything is risk free on this front is not and never will be especially as it relates to China relations, which are real and that we see all of the strains as well.
The advantages and the needs on both sides with respect the need for the.
<unk> equipment again 100 airplanes on the ground.
On.
An economy that has been the fastest to recover from Covid.
And economy and preparing for the Olympics and for a substantial amount of traffic to and from and the debt that domestic market.
So all of those needs lineup and the support to airlines.
<unk> to accommodate that traffic is where it needs to be there is nothing that prevents this trade from happening. So theres no theres nothing written it says you can't do it I mean, so there's nothing to prevent it and our government of fully understands and appreciates. The fact that our industry is a leader in the world.
World and that leadership in China is critical to that.
And the employment that is of course hold so.
Then having a sort of a.
Launched this as some big new opening 2 of structural agreement with just going to stay on course and continue to support free trade between these.
2 players both of whom understand the importance and there are plenty of trade partners that exists between China and the United States I mean, all I have to do is look at all of the sort of important numbers in this country.
And vice versa, it's a big corridor.
We just want to be part of that and we want to do it the right way and support our customers.
Things have been constructive if they werent I would tell you. So anyway, that's that's where we are.
Thank you yeah. Thanks.
That completes the Boeing company second quarter of 2021 earnings conference call and thank you all for joining.
We're sorry your conferences ending now please hang up.
We're sorry your conferences ending now please hang up.