Q4 2021 Boeing Co Earnings Call
Product as soon as we begin delivery.
Feel very good about about the ultimate recovery.
On Bds.
Did.
I had a bunch of really important milestones.
The M Q2 5, we experienced our first refueling and we began carrier tests.
The <unk> production line, which is based on significantly improved development process in engineering modeling capabilities as.
<unk> is off to a very good start.
<unk>.
The efficiency associated with that development process is being realized.
And then the tanker.
Tanker today.
Despite the charge again, which we don't feel great about by any respect, but the tanker today is an incredible asset for for our customer and now serve 70% of the missions that were intended.
And the development of the tanker and our job is to continue to deliver the tanker.
And to do it more expeditiously as we move forward. The good news is our customer likes the performance of the airplane.
<unk>.
Again, we intend to serve that need.
Global services.
It is recovering like all the service businesses that surround aviation.
So on a great path.
The team is doing a terrific job, we had a small write off with respect to material that ultimately would not be utilized in this recovery.
<unk> is doing quite well and is experiencing the recovery and then.
I feel very good about the free cash flow that we that we generated in the fourth quarter.
As everybody knows we have been focused relentlessly on improving our free cash flow situation. It has been our number one metric can be able to achieve that I think is terrific terrific news.
Sustainability is the one issue every customer wants to talk to us about not with respect to 2050 or 2035, but they want to make sure that we have a program in place that will support them over that timeframe.
And it is very important to the every next order that we achieve so believe it or not the competition for today's airplanes is often build around the future plans that we have with respect to sustainability and.
I Love, where we're going on that in the story.
We have for our customers.
Innovation is strong.
And every way I mentioned, the M Q2 5, the T <unk>.
Future capabilities with respect to the next development program, we've invested a lot we continue to invest a lot.
It's more important to me that we get our development tools, where they need to be demonstrate manufacturing capability and capacity, where we need to be before we call out the spec on the next new commercial airplane. So I remain focused on that as a priority and so far so good.
Talent, we were stable over the course of 'twenty one.
Turnover was managed I think quite well and quite.
Aggressively.
And so I feel good about that and our ability to hire as we move forward, but I will also acknowledge that there are shortages out there and critical skills that we have to be very competitive.
In order to get them.
I'll highlight the priorities, we have I don't think any of them should surprise anybody.
They may look boring with respect to words like stability.
Safety quality management, but that is still our focus and we're going to be relentless about it. This is a very important year as we begin the year and then exit the year.
Where we can predict two customers into all of you there.
Deliveries of our airplanes.
Sure the quality is what it needs to be et cetera, and culturally our team is getting closer to their work than they've ever been we.
We feel good about that and we invest we're investing heavily in the future capabilities of our company. So.
That's it with respect to my upfront comments I'll turn it over Brian We can go through the quarters performance and then little more time for Q&A.
Thank you, Dave and good morning, everyone.
2021 was a year of recovery for our business, we're optimistic about how we're positioned entering into 2022 and have high confidence in the long term strength of the company.
We remain focused on solidifying our business for long term success.
The lessons we've learned in the changes we've implemented in the last two years will help us to do that.
We're driving safety quality and stability into every corner of our operations to enable future growth.
And we've made solid progress against our goals over the last three months in particular as Dave mentioned, we're proceeding to get 737, Max airplanes ready to deliver in China as early as the first quarter and follow the lead of our customers and regulators on next steps.
On the 77, while we can't predict when deliveries will restart we've made meaningful strides in addressing many of the nonconformance as we identified.
We have work remaining to do and we continue to hold detailed productive discussions with the FAA every step of the way.
Looking to our financials. Despite some of the near term challenges, we generated positive free cash flow in the fourth quarter and believe free cash flow will continue to materially improve this year and into 2023.
With this backdrop, we think of 2022 and three parts.
First we will focus on reaching key milestones. So that we can resume 737 deliveries to Chinese customers and restart 787 deliveries.
Then once we achieve these important milestones we expect to see improvement in our performance metrics, including deliveries revenue margin and cash flow and.
And we intend to come back to you with detailed plans for the rest of the year and beyond.
Finally, as we move through the second half of the year, our financial performance should start to accelerate and we think there is a significant opportunity ahead for our company we turn to.
Stable growth.
Net net we are well positioned at the start of the year and encouraged by the hope of return to normalcy in 2022.
Before I get into the detailed financial results I want to make a few points on the current environment on slide four.
Let's start with demand side and the commercial market. We continue to see an overall broadening of the recovery starting with domestic traffic, which rebounded to around 90% of pre pandemic levels in countries, such as the U S and Brazil.
In the U S domestic traffic nearly fully recovered at 94% of pre COVID-19 levels in November .
December data suggest resilient traffic despite the rapid spread of the omicron Varian, but early 2022 bookings data indicate a more visible negative impact likely extending through February .
Beyond that we expect the recovery for the spring and summer seasons.
Outside of the U S. The recovery continues broadening in Europe , and South America.
However, further lockdowns have stagnated recovery in China, where we've seen traffic decreased considerably.
Despite some near term volatility we are encouraged by airlines plans for the spring and summer travel seasons.
On the international front traffic has improved throughout the year for more than 85% below 2019 levels.
60% as the year ended with a meaningful benefit from reopening of borders and lifting of travel restrictions.
In particular, the trans Atlantic quarter showed improvement due to due to coordinated travel policies between the EU and the U S.
The commercial freighter market continues to be robust with 2021 cargo traffic, 7% above pre pandemic levels we.
We saw record freighter demand last year, driven by both ecommerce growth and demand for faster more reliable transport that airfreight can provide and we're seeing the same steady recovery broadly in our commercial services business as well.
Given this demand recovery our customers are increasingly focused on their medium term flight planning and continue to prioritize fleet modernization as an enabler to reduce carbon emissions and increase operating efficiency.
New airplanes, we deliver will be as much as 25% to 40% more fuel efficient with commensurate reductions in emissions compared to the airplanes, they replace and as oil prices remain high our customers are keenly aware of these benefits.
Overall, our projections for the three phased commercial market recovery remains unchanged and we still assume passenger traffic will return to 2019 levels in the 2023 to 2024 time frame.
We continue to see domestic traffic lead the recovery followed by intra regional and then long haul international routes.
Long term fundamentals that support demand for air traffic remain intact as we continue to project average traffic growth of mid single digits over the long term.
In the defense and space markets, we're seeing stable demand.
We continue to monitor the federal budget process in the U S and see strong bipartisan support for national security, including Boeing products and services.
While governments around the world remain focused on COVID-19 security spending remains a priority given global threats.
On the supply side with our production at relatively low rates and higher than normal inventory levels. The supply chain. It is currently not a constraint however.
However, as we look forward to the industry recovering and future production rate increases our supply chain remains a key watch item due to raw material and labor availability as well as logistical challenges, we regularly monitor supplier health and have risk mitigation plans in place for critical components as.
As we prepare for future rate production increases we will continue to prioritize operates operational stability across the value stream.
Long term the markets. We serve are robust and we remain confident in the fundamentals of our business and the growth of the industry.
With that let's turn to the financials on page slide slide five.
Fourth quarter revenue of $14 8 billion declined 3% and the core operating loss in the quarter was $4 5 billion, resulting in a $7 six to nine loss per share.
We generated positive operating cash flow of over $700 million in the fourth quarter, driven by 737 deliveries and favorable receipt timing and Bds.
Let's now look to commercial airplanes on slide six.
Commercial order activity picked up significantly in 2021 as airlines are positioning for the recovery, particularly in the narrow body and freighter markets.
In total for the year, we booked 909 gross commercial airplane orders, including 749 orders for the 737 Max.
We also booked a record number of orders on a freighter airplanes and we ended the year with 11 straight months of positive net orders.
We appreciate every order from our broad customer base, including do not including United Southwest, Alaska, UBS and Fedex.
We're also honored that our Casa Allegiant and Triple seven partners recently selected Boeing to support their future fleets.
We had over 4200 airplanes in backlog at the end of 2021 valued at $297 billion.
Fourth quarter revenue was $4 8 billion essentially flat, primarily driven by higher 737 deliveries, partially offset by lower wide body deliveries and less favorable mix.
Operating losses of $4 $5 billion were primarily driven by charges on the 787 program, resulting in a negative margin rate.
787 deliveries remain paused and we had 110 airplanes and inventory at the end of the quarter.
As you know last year, we set out on a comprehensive program to ensure every 77 airplane in our production system conforms to our exacting specifications. We resolved many of the non conformance is and we're finalizing our work on the remaining items.
We also continue to focus on fulfilling the requirements and expectations of the FAA and we'll follow their lead on the timing of resuming deliveries.
While this effort has inevitably impacted our deliveries to customers and our near term financial performance. We are fully confident is the right thing to do for our future.
In the fourth quarter, we determined that the activities required to resume deliveries and the rework that will be needed on each airplane and inventory will take longer than previously expected, resulting in further delays in customer delivery dates.
We regret the impact these delays have had on our customers and are working closely with each of them to support their fleet planning needs.
Consequently, we're producing at very low rates and we'll continue to do so until deliveries resumed gradually returning to five airplanes per month over time.
From a financial impact standpoint, we now anticipate 787 abnormal costs will be approximately $2 billion.
With most being incurred by the end of 2023.
This estimate increased by approximately $1 billion from last quarter due to the additional rework requirements and lower production rates continuing longer than previously expected.
We recorded $285 million of these abnormal costs in the fourth quarter.
Additionally, we recorded a $3 5 billion noncash charge in the quarter to write down unamortized deferred production costs, primarily due to estimated customer compensation for the longer delivery delays.
It is important to keep in mind that from an economic standpoint cash margins on the 787 remain positive.
While the additional costs and customer considerations will put some downward pressure on cash margins in the near term.
Cash margins are expected to remain positive and significantly improve overtime.
We remain very confident in the future success of the 787 and it remains one of our most compelling programs.
Importantly, none of the issues, we were addressing have raised immediate safety of flight concerns or impacted the capabilities of the in service fleet.
We received gross orders for 21 airplanes last year and we see a long runway ahead. We are working diligently to ensure that we are well positioned as demand recovers and accelerates in the future.
Moving onto the 737 Max program.
The Max is now approved to fly in over 185 countries as mentioned, we continue to prepare airplanes for deliveries as early as the first quarter subject to customer and regulatory approvals in China.
Yes.
We also delivered $245 737, Max airplanes last year, and we've steadily ramped up production and we are now producing at 27 airplanes per month on our way to 31 per month early this year.
As you look to ramp both our production rate and delivery cadence. This year, we will continue to monitor the impact of omicron on resource availability.
We currently have 335, 737, Max airplanes and inventory and still anticipate delivering most of these airplanes by the end of 2023.
Timing and pace of deliveries to Chinese customers are also critical assumptions to our delivery outlook.
737 abnormal costs in the liability for 737, Max customer considerations are largely behind US. We expect the majority of the remaining $2 9 billion dollar liability to be liquidated this year with less than 10% of the total estimate left to be negotiated.
On the Triple seven X, we continue to progress through our rigorous and comprehensive test program.
We have flown over 800 flight hours through the end of 2021.
We also completed engine an airplane performance testing and the airplane continues to perform in line with our customer commitments, our customers recognize the compelling economics and sustainability benefits. This airplane offers.
We remain engaged with the FAA and other global regulators throughout this process.
We're working towards reaching type inspection authorization or TIAA, which is a pacing item for us to begin FAA certification flight testing, we are still anticipating delivery of the first airplane in late 2023.
Also we are currently offering the freighter version of our Triple seven X airplane to customers and we will keep you updated as we progress on sales campaigns and conclude our launch timing evaluation.
As a result of increasing freighter demand we plan to increase the combined triple seven triple seven production rate from two to three per month. This year and expect 2022 deliveries to be relatively in line with last year.
Let's now move to defense space <unk> security on slide seven.
Fourth quarter revenue was $5 9 billion down 14% and operating margin was negative four 4%. These.
These results were primarily driven by lower volume and less favorable performance across the portfolio, including a $402 million pre tax charge on the KC 46 tanker program.
The charges, primarily driven by evolving customer requirements for a remote vision system as well as factory and supply chain disruptions, including the impact of Covid.
On the commercial crew program as previously shared we and NASA anticipate the second on crude orbital flight tests to occur in May.
We received $7 billion in orders during the quarter, including an award for modernization of Airborne warning and control system to Royal Saudi Air Force the.
The Bds backlog increased to $60 billion.
During the quarter Bds also delivered on critical customer milestones overall, we remain optimistic about our defense business.
Now, let's turn to global service results on slide eight.
Fourth quarter Global services revenue was $4 3 billion up 15% and operating margin was nine 3%.
<unk> were driven by higher commercial services volume and favorable mix.
Earnings were impacted by a $220 million inventory impairment in the fourth quarter.
We received $6 billion in orders during the quarter, taking the <unk> backlog to $20 billion.
We also delivered the 50 767 300 converted freighter and announced plans to add 10, new converted freighter lines. Our services business has shown great resilience and part due to the balance of both defense and commercial offerings.
Let's move to slide nine and cover the full year financials.
Full year revenue of $62 3 billion improved 7% versus prior year.
The core operating loss was negative $4 1 billion, an improvement of $10 1 billion.
The resulting core loss per share was $9 44.
Primarily driven by the charge on the 787.
Operating cash flow was negative three four.
$4 billion.
An improvement of $15 billion in your cash usage was driven by 787 inventory build 737 customer considerations and interest payments, partially offset by commercial deliveries order activity favorable timing of cash receipts at Bds and tax refunds related to the cares Act.
Now, let's turn to slide 10 to cover cash and debt.
We ended the fourth quarter with strong liquidity comprised of $16 2 billion of cash and marketable securities on the balance sheet and access to $14 $7 billion across our bank credit facilities, which remained undrawn.
Our debt balance decreased by $4 3 billion from the end of the third quarter to $58 1 billion driven.
Driven by the early pay down of the delayed draw term loan we remain committed to reducing debt levels and our investment grade credit rating is a priority.
Please turn to the next slide for a look at 2022 and key drivers of the business.
As you look ahead 2022 performance will be driven by the commercial market recovery.
Turn to delivery for the 787% and 737 Max in China.
Production system and delivery stability and U S China trade relations.
Our efforts to stabilize our production system, including the supply chain and improve our delivery predictability remain top priorities. These activities will be paramount to our success.
Looking broadly across our enterprise, we're maintaining and in some cases expanding key investments in our people technology manufacturing capabilities and strategic partnerships.
We're advancing our development of the Max seven Max 10, and Triple seven X programs, all while continuing to invest in digital capabilities to support our next commercial airplane program.
And Bds were progressing on the M Q2 5, <unk> commercial crew and several other key development programs.
As we invest we continue to be laser focused on our business transformation efforts to drive quality productivity and cash flow.
Now, let's take a look at the key drivers of 2022 revenue and cash.
We anticipate revenue increase primarily driven by higher commercial airplane deliveries on the 737% and 787 programs.
That said revenue will be impacted by 787 customer considerations and delivering 737 airplanes that were previously remarketed.
We are forecasting stable revenue in our defense business and solid growth in our services business as the commercial market continues to improve.
Moving to cash we still expect to generate positive free cash flow in the year. The key driver remains higher 737% and 77 delivery volume.
Keep in mind, the working capital benefit from delivering airplanes from inventory will be partially offset by a lower advances and progress payments balance we still anticipate a significant burn down of our advances balanced this year, which we expect to be more front end loaded in line with customer discussions.
Additionally, cash flow will remain impacted by timing of receipts and expenditures as you may recall, we booked orders last year that filled near term skyline positions and those unique receipts may not continue at the same levels. This year.
From a phasing standpoint, we anticipate the first quarter to be our lowest quarter of the year for deliveries revenue earnings and cash flow.
First quarter cash flow could look similar to the usage, we saw in <unk> 'twenty, one driven by unfavorable receipt timing excess advanced payment burned down resource availability due to the omicron variant and normal seasonality.
We remain confident that our free cash flow will improve in the second quarter and will meaningfully accelerate in the back half of the year as we achieve the key delivery milestones as I previously outlined.
As you look to the future we expect 2023.
Cash flow will be materially higher than 2022, we look forward to sharing more details on our plan as soon as we can.
In closing the business environment remains dynamic, but we've made important progress were confident that were on the right path, we're taking the right steps to drive stability and making the right investments to ensure the business is well positioned for future growth.
With that.
Closing comments, yes, no further comments I would like to turn it over to questions.
Get all our time to that thanks.
Certainly and ladies and gentlemen in order that your question be clearly heard we ask that you would not use the speaker phone 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 youre signal can reach our equipment as.
As a reminder, in the interest of time, we are asking that you limit yourself to one single part question. Our first question comes from Sheila <unk> with Jefferies. Please go ahead.
Your line is open bank. Thank you.
Maybe can you help us understand the $3 5 billion of charges tied to the 77.
And to the abnormal cost of coal volumes.
2023, that's up $1 billion.
Brian what does this imply for the future profit and cash.
Pam how do we think about those Jonathan back up to five.
Then timing of deliveries will starting with some of your customers have talked about in April timeframe.
Yes, thanks, Sheila so.
On the $77 5 billion.
We've previously described a pretty labor intensive reworked solution on the door surrounds and in the quarter. We determined that this rework was going to be needed to be formed on all of the airplanes of inventory.
So the abnormal as $1 billion higher and will mostly go through 2023, because of this higher rework costs and the production rates being lower for longer.
This in turn has our delivery slide to the right.
So more airplanes will be impacted not just the ones in inventory and we've provided for estimated customer concession.
Concessions because of these delays, which drove the $3 $1 billion charge.
Well this hurts in the near term we still believe is the right thing to do because long term all were going to sell a lot of these 77% for decades. So.
So we just got to work our way through this in terms of getting back to five so we got our first get cleared to deliver and then we're going to gradually work our way to point, we're going to get back up to five we don't have the timeframe, but we think that the first step is getting the first one first one out the door.
On the April timeframe, Dave maybe you could comment on the customer implications on that one.
The April timeframe is all I'll say is the customers know everything that we do we share the same regulator. They are in our factories looking at the airplanes every day. So they know exactly what's going on and where it is I am not I don't want to.
Get ahead of anybody with respect to speculating the day, we ticket.
That's up to the FAA and we're going to let them do what they have to do otherwise I think Brian described this discharge exactly exactly the way the way it is.
Okay, great. Thanks.
Next we'll go to Cai von <unk> with Cowen. Please go ahead.
Yes. Thanks, so much so maybe to follow up on Sheila's question of the $3 5 billion, you mentioned that non cash how much of it turns into cash how much of it is the abnormal in the $1 billion increase and how much of it is customer considerations and when do you.
Those to be paid out.
Yes, sure Cai so the $1 billion increase on the abnormal or separate from the three 5 billion.
And in terms of the $3 5 billion that'll play out over a longer period of time, particularly as we have discussions with customers some of that might be accelerated in the near term, but overall, it's going to take us time for that cash flow to go out and it will take years.
In terms of how much is customer concessions.
We're not going to.
<unk> talked about all of the pieces trusted we closed the quarter. We took all of the estimates in terms of what we think was going to happen both for contractual and non contractual concessions and it's embedded into our closing position and we feel good about that and I always have to work through with our customers to and then start delivering in terms of the abnormal.
That cash flow will likely go out over the next two years is most of that will be behind us as we get out of 2023.
The only other context is that.
Unlike in the case of the Max we do have an experience. Unfortunately that we can draw from in setting. These estimates in and most importantly, the management of the concessions with our customers over time.
What we've what we've posted in the way we think about it is largely based on that historical experience of course with the Max So I feel like we probably bounded pretty pretty reasonably.
Thank you.
Our next question is from Myles Walton with UBS. Please go ahead.
Thanks, Good morning on.
On the 37, Max given the lead times in the supply chain I know that you are evaluating the timing of further increases but can you get much above 31, a month before the end of the year. If you haven't made that decision yet and obviously suppliers are thinking that you are looking to their 40 level as your needs.
Two maybe a little clarification there.
I'll leave the supplier and the.
Increased to Dave I want to take the near term production delivery.
<unk> question.
Head on because it's largely unchanged for where we were last quarter as what we expect to happen in 2022.
We've got 335 units in inventory and that will liquidate through the year at a quarterly rate is pretty similar we did last quarter and then the production ramp as you as you know miles is going to go from 26 to 31 fairly soon.
So we all think thats going to play out and again, it's similar to what we had thought last quarter.
One watch item that we have in the first quarter is any disruption on omicron it might have a bit of a slower start, but we'll work our way through that the total profile is largely unchanged and we're quite confident of the demand and maybe in terms of further rate increase supply chain I'll, let Dave comment on that well just the prognosis that we can move.
It up based on what everybody.
Seems to want to believe we are going to be very aggressive with our supply chain to get buffers at every at every corner. So that we can do it.
And then the question is do we do it so right now we have fewer supply constraints probably than the industry simply because we've got this big finished goods inventory that's going to carry us for the better part of the calendar year.
Even though a little bit into next year. So we will take advantage of that and then we will ask the supply chain to build buffer both on our premise and in there is to protect upside that's the way we're thinking about it.
Can you talk about that next release the next uptick this quarter.
Can I talk about the next so go into 31.
Above 31, you announced that.
Is that a <unk> decision basically I know the company is evaluating further increase yes, no no no.
I'd say no its not a <unk> decision for us as I said, we will work our supply chain and work with our supply chain transparently to protect.
Upside on rate as we as we get through the second half of the year et cetera, and the minute. We are ready to do it we'll do it but I don't want to I don't want to get ahead of myself on that front is certainly not now okay. Thank you.
Our next question is from Noah <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
Good morning, Alright, just going back to 787 timing so.
So to make sure I have this correct. So American airlines is up to speed, it's an estimate but their estimate is missing an update from you. They said last week that there's been nothing new for them in the last few months so.
Today's updates from you are marking to market additional rework future concessions as you've determined them over the last few months.
As opposed to an additional realized preliminary start yes, I agree with what you just said.
Okay.
Then David can you, maybe just get a little more specific in what is left to do it sounds like you were kind of iterating back and forth on inspection and rework, but you've agreed to that so what is actually left to do to resume delivers well.
So we will have to complete the rework on orange.
A large fleet of airplanes.
So that in and of itself is it takes some time to do but then we have to update <unk>.
Analytics that we provide to our regulator based on every next rework so to just again corroborate the case that we have with respect to conformance. So you have a lagging that you collect that data you included the analytic and then when it gets to be sufficient you provided to the FAA and then Theres a work.
Through it with them, but that is that is the sort of the process that we have to go through and there is no way to shortcut it and I can't collect data on on the airplanes I havent reworked yet I have to get through it simply worked my way through that.
I have confidence in the rework programs.
We have no new discoveries with respect to how we do the rework.
Theyre getting perfected just like in the case of standard work and building an airplane. The first time, we have to do sort of the same thing with rework processes and that's what we're doing so I wish it could go faster and I can't.
I can't accelerated.
I need them all to take their time and go through their learning curves and post the data to the analysis.
Why can't you deliver a new one clean off the line that doesn't have any of the historical errors as opposed to waiting to rework what's already built.
Yes.
Again, I'm not going to speak for my regulator, because that's up to them on how we do it and maybe maybe that's how things end up working on the other hand.
They are going to ticket that airplane and theyre going to want to know everything there is to know about everything and were still posting data with respect to what we find in our fleet.
So.
Don't know what more to say I wish it was perfectly predictable its just not.
Okay. Thank you.
Our next question is from David Strauss with Barclays. Please go ahead.
Thanks, Good morning.
Good morning, good morning.
Dave.
Sure.
In terms of Max deliveries can you can you give us kind of an ebb.
Estimate of what we should what we should think about the actual deliveries in 2022, given the rate and given the inventory liquidation you're talking about and then.
Brian a follow up on on free cash flow just given what you are implying that Q1 burn it like $4 billion to $5 billion seems like a long path to get to free cash flow positive for the full year. I mean are we talking about closer to up low single digit billions and mid single digit billions in terms of positive free cash flow.
Yes so.
In terms of the.
Free cash flow.
It's really going to be driven by three specific things there is seasonality like every first quarter.
Is going to be Bds phase really that doesn't repeat and theres going to be some assumption around excess burn down but.
But I think that we have.
Handle around all of that and we do think it is in and out of the first quarter and the second quarter does get favorable.
In terms of I don't think is going to be quite as high as the number you were thrown around but it is going to be in the small billions.
In terms of the your question on Max deliveries. So I go back to where we were.
Last quarter.
We kind of had a ballpark of what that would look like that hasnt changed and again, if we continue to liquidate the.
Inventory at about the rate that we did last quarter and you then have the production ramp go from $20 to 31 that kind of gets us to a spot where we have a pretty good profile of what thats going to look like through the year with the one caveat is that the first quarter is probably going to be a little slow one because it usually isn't too because we like others are.
Wrestling with is <unk>.
Somewhere around 500 deliveries what we're looking at.
Ballpark seems pretty good.
Thank you.
Next we'll go to the line of Seth <unk> with JP Morgan. Please go ahead.
Okay.
Thanks, very much and good morning.
I guess.
It seems a little bit of a shame to task. The question about the next aircraft customers I know theres a lot of.
More imminent stuff for the company, but.
You did discuss at Dave and so.
When you think about that just maybe your updated thoughts because you did mentioned the work that youre doing there and I also ask the question.
Of.
The success that Airbus had.
This past quarter with some of them.
737 customers.
Any evolution in your thinking number one about market share.
And number two about the.
About where the value comes from many aircrafts because I think you've said in the past that it is going to come from Boeing and not the propulsion system and that suggests a pretty big investment for Boeing and so maybe Brian can also chime in on thinking about how the balance sheet plays into that.
Yes.
Yes, Jeff I appreciate the question.
<unk>.
We are as you know.
Have a reasonably full pipeline with respect to airplane developments with the with the Max.
<unk> and the Triple seven X, which I again.
I will highlight.
As a.
A true differentiator in the marketplace as it displaces not just a $4 seven but also a 380 overtime.
<unk>.
So I feel good about that and if we're fortunate and we get customers interested in our freighter version of it we will move aggressively along those lines. So.
We have a pretty good product.
Our family and development.
Pipeline ahead of us.
Just don't think that should be lost on anyone and then secondly, the much longer term and much bigger.
<unk> program for me is the one.
We refer to as our IPP integrated product team, where we're going to revamp the development process itself.
And anyone who has been our and our industry for a long period of time knows that the big variables in our financial performance over time, usually relate to shortfalls in the development process.
And my intent and my hope in light of all the new tools that are available to us both in terms of digital modeling.
On the original design, but then also being able to use that same modeling to perfect manufacturing processes at scale and ultimately service ability that is where the action is that is where the next airplane is going to differentiate itself more than any other in my opinion.
So we are invested and continue to stay invested we've allocated much of our top talent across the company to that effort.
Can't wait to update everybody on again that progress it won't be as exciting because it doesn't fly away, but it is in my opinion. The most important thing that we can do and we remain totally.
<unk> focused on that.
With respect to the competitiveness of our product portfolio I still feel very good about it I never will look at any last deal and suggest that were losing to this moves into somebody or not you have to take the totality of the last couple of years.
They have airplanes that absolutely outperformance in certain applications and we have some that outperformed them in applications and our customers are really good discerning to differences in making their choices. So.
Apologize I'm sure I sound like a broken record.
But we think we have our priorities right here.
There will be a next airplane.
As I as I did say and I will acknowledge I don't think the propulsion system is going to add as much value to that next airplane either ours or theirs.
As it has historically, which means that the that the air framer.
Has to add more value to it in order to make it compelling.
Compelling.
Compelling sale to our customers.
I look forward to that moment anyway. So we're doing our very best to get ready for it.
And on the balance sheet side of it.
For us.
Over time.
One priority is to take leverage down but also our priority is to make sure we're going to be ready to invest in that next airplane at the right moment and we do various scenario plannings and we think we've got options and things to make all that happen, but again at.
Little bit of a longer look but.
Nothing would suggest we wouldn't want to be investors for the right airplane.
Okay. Thank you very much.
Yes.
Next we'll go to Ron Epstein with Bank of America. Please go ahead.
Hey, good morning.
Right.
Just maybe following up on.
On that previous question.
When you looked at.
The market share dynamic in the narrow body market.
The charges that have been taken on 787.
790.
<unk>.
Why was this the right time to put.
<unk>.
$5 billion.
Well Ryan I appreciate the question.
This is definitely the right time to put $5 billion into wisc.
Sure.
Number one it's a very innovative product and a very innovative product team.
I didn't create it.
Our partners did a Kitty Hawk.
Couldnt be prouder of the work Theyre doing.
Sure.
The world wants autonomy in the World wants electric and this is going to be our application of those two technologies and to put it into a real service.
By way of certification.
So.
Everything about this program, we like technically innovative and it will serve a niche we don't serve today and Thats really not necessarily why you do it. If you don't think there is a long term.
Avenue for both autonomy and electric and.
And a lot to learn in the process. So again.
<unk> view this as a high priority it does not compete.
For the discussion we just had with respect to the next large commercial airplane.
By way of financial resources, we will have plenty of financial resources and wherewithal to be able to do both and then some.
I I am enthusiastic about about our risk investment in the airplane and the experience to date.
It is incredibly innovative.
And Ron one thing to note. So we've made this commitment to be investors, but that cash is going to happen over time, and it's capped at any given quarter. So.
We're not really going to see it disrupt anything in the near term.
Got it got it and and Dave do you see that.
The autonomous technology, that's being developed there potentially with an application on one of your larger product.
There's a lot to be learned and applied yes.
Okay. Thank you.
Next question is from Doug Harned with Bernstein. Please go ahead.
Good morning, Thank you.
And then Dave you talked you've talked a lot about China and how important it is from the demand side, but if you look at the other side of this you've got a lot of content in China like the Tianjin composite center structures from S. AMC.
Given the heavy border restrictions and Lockdowns there.
Aside from the political things that.
Keep getting talked about how are you managing.
That part of your supply chain and any potential risks there.
Yes, I don't.
I don't we don't our team doesn't see any near term or even medium term risks there.
And performance has been outstanding.
Yes, Im never going to say never the big disruption can occur I don't.
If those kinds of disruptions occur we got a lot of other issues were going to have to contend with.
And so.
Honestly, it's it's not the highest thing on our list it.
It performs quite well.
We do have options admittedly they take time to take.
Take time to.
Put into put into gear, but no I think we're in an okay place there.
Can you highlight them.
You do see.
Most.
<unk> constraints as you try and ramp up from us from a supply chain point of view.
Today.
It's going to go back to the old.
Engine questions in castings and forgings.
That is already.
Constrained our outlook.
I think as I mentioned, the last time where altogether.
I wish.
We could have done.
<unk> rates, even faster than we had acknowledged but it has always been a supply constraint that is that has done that and its mostly.
It's mostly forgings and castings and mostly through our engine suppliers. So.
That is what it is I do think they are under control and being managed very effectively in that that the the.
<unk> side of this is that everybody has put their cushions in place to be able to take care of it.
And then the only other medium term I haven't been asked maybe I will.
I won't call. It short term medium term question of courses.
Titanium and as long as the geopolitical situation stays tame no problem. If it doesn't we're protected for quite a while but not forever.
Okay, great. Thank you.
Next we'll go to Rob Spingarn with Melius Research. Please go ahead.
Hi, good morning.
Dave I wanted to go with a high level question here now that you've been in the seat for a while and recognizing that you've spent most of this time, putting out fires, but when we discuss the Boeing investment thesis after a decade of fairly extreme swings and performance. We're often asked particularly by investors that are returning.
To the story after an absence, how the culture is changing at Boeing.
Should investors think of you and your team as agents of change and in what ways are you improving the culture at Boeing.
Yes, I mean thats the.
That's the million dollar question and I appreciate you asking it and that's what we work on every day all day.
I think investors those same investors what frustrates them is the unpredictability of.
Our performance in light of those those few instances that caused severe.
Severe pressure on our company.
And I will be the first to admit that they were not events caused by the outside world, but unfortunately miss steps inside so we're doing I think what they would want us to do our culture is focused on getting as close to our work as we possibly can from the very top of the company through the engineering ranks all the way down through all of the support functions that ultimately.
You have to help mechanics on the line stay disciplined.
Create standard work Thats predictable repeatable et cetera.
Ft in quality systems that are re inculcate. It in every way I can think of into every nook and cranny of the company and that is literally what we have been working on so I. Appreciate the question I think we're getting much better in fact, we're getting really good at it and I think someday, we'll all point to it as a as a real advantage for the Boeing company.
But I know, where we're coming from and <unk> to again I do appreciate the company, sometimes are our vision and our priorities look boring to people, but when you stop and think of where we came where we came from.
Proud of this team for rallying around exactly that.
Thanks, Dave.
Yes.
Next we'll go to Peter Arment with Baird. Please go ahead.
Yes, good morning, Dave and Brian Hey, Dave maybe just to put a finer point on China, Max kind of deliveries resuming you sound pretty confident that this.
It could be a first quarter event, so what do we specifically need to see from the Chinese regulator. It sounds like you're doing some test flights over there already.
What should we be looking for thanks.
Yes, Thank you yes.
<unk>.
Again, I don't think this is necessarily in the geopolitical realm as much as it is in the needs of the customers and operations inside of China. What I will say is it has been perfectly predictable and methodical way in which they've returned their fleet to service. So they went through the search process. They reauthorized.
The airplane to fly the airlines are warming up the airplanes. They already have as you said theyre taking test flights in a very methodical intelligent way than they are.
They are beginning to notify us around when they intend to bring it into revenue service that all has to happen with the airplanes. They own and then deliveries in my view will commence in it is quiet methodical and as effective way as it has been to date.
There is nothing.
We're involved in that would suggest otherwise.
So anyway I do feel confident only because of every <unk> I've been able to watch here.
And they are following through on frankly every commitment they have made.
Appreciate those details.
Next well go to Kristina <unk> with Morgan Stanley . Please go ahead.
Hey, Thanks, guys, Brian . Thank you for providing the puts and takes on free cash flow by 2022, but can you quantify some of these pieces for the year and the key variables that depends on ultimately the questions. I'm getting is is 2022 free cash flow net zero or is it closer to something like $5 billion.
Yes.
For zero I promise, you that and we're not going to be as descriptive as you might want however.
As we begin to deliver on these milestones and we start to be able to have the volume improvement from the 730 777, we know we're going to have accelerated cash flows.
As I mentioned, the first quarter, we know it's going to be usage, but we do expect that there'll be a relatively sharp acceleration in the back half of the year as we begin to liquidate this inventory and then as.
As we exit the year, we're going to be moving to a much more normal as I state and then have a meaningful acceleration of cash flow in 2023 and <unk>.
Again, what number of billions.
Too close to call, but its more than zero I promise you.
Operator, we have time for one last call one last question.
Certainly and that will be from Ken Herbert with RBC. Please go ahead.
Hi, Good morning, David and Brian .
Hi, Ken.
Just wanted to see if we could put a finer point on the 787 and where you are with the production today in the inventory draw down it looks like you are producing at a lower rate, perhaps one or lower of months than the two you were at coming out of the third quarter.
And obviously the uptick to five sounds maybe a little more cautious than before can you just comment on build rates on the 87 and then what's the free cash guide implies in terms of the inventory reduction this year.
Yeah.
Let me just start with the the.
Right.
There is not going to be a finer point other than to reemphasize, our priorities, which is we don't like carrying a bunch of inventory that's for sure. We will run our rate as low as we can while we burn our inventory as fast as we can I think is the way to think about it and then as the as the order books fill up in the market.
It's very active and I happen to believe it will.
Then we're going to sort of monitor production rates to make sure. We stay ahead of that delivery cycle.
So.
Again, I can't give you a finer point on exactly when and how I will suggest we have a clear priority which is.
Is to burn down that inventory.
<unk>.
Brian anything you want to and there is an assumption that we're going to have some liquidate.
The liquidation of inventory for sure on the 77%.
Stay tuned for the specifics.
Okay, Alright, thank you very much.
Thank you.
And that completes the Boeing company's fourth quarter 2021 earnings conference call. Thank you for joining.
Appreciate it.
Yes.
We're sorry your conferences ending now please hang up.