Q2 2019 Earnings Call
Thank you John and good morning, welcome to Boeing's second quarter 2019 earnings call I'm married procedure and with me today is Dennis Muilenburg, Boeing's, Chairman, President and Chief Executive Officer, and Greg Smith, Chief Financial Officer, and Executive Vice President of Enterprise performance and strategy.
After management comments, we'll take your questions in fairness to others on the call. We ask that you. Please limit yourself to one question as always we have provided detailed financial information in our press release issued earlier today.
And as a reminder, you can follow today's broadcast and slide presentation to our website at Boeing Dotcom.
Before we begin I need to remind you that any projections estimates and goals. We include in our discussion. This morning are likely to involve risks, which are detailed in our news release in our various SEC filings and in the forward looking statement disclaimer at the end of this web presentation.
In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of non-GAAP measures that we use when discussing our results and outlook.
Now I will turn the call over to Dennis Muilenburg.
Thank you Maria and good morning.
Let me start with the serving 37 Max.
The accidents that occurred in Indonesia in Ethiopia continue to weigh heavily on us.
We will always be sorry for the lives that have been lost in the families that have been impacted.
These accidents affect all of us personally and reinforce the importance of the work that we do.
We know lives depend on it and nothing is more important to us than the safety of the flight crews and passengers flying on airplanes.
We're also committed to supporting the families and communities affected by the Lion air in Ethiopia and accidents.
Earlier this month, we pledged to $100 million in funds to help support those families and communities and last week, we announced that $50 million from this pledge would be dedicated to providing near term financial assistance to families of the victims.
And we have partnered with renowned experts Kenneth Feinberg and Camille bureaus on disposition of these funds.
Now, let me turn to the latest on the Max Technical updates last month, the Epay directed us to address the specific condition of flight unrelated to MKS with the planned software update did not previously address we agreed with the FDA decision and we're currently working on the software changes to address this requirement.
In addition, we are working with the FDA and other regulators to complete as many elements of the certification process as possible in parallel with the development of the software update.
We will submit our final certification package to the FDA once we've satisfied all of their requirements, which we currently estimate will be in the September timeframe.
However, as we have consistently emphasized it is the FAA and other global aviation regulators that will determine when the 737 Maxs returns to service and we are working tirelessly to meet their requirements. The process is dynamic and involves constant dialogue on outstanding questions and open issues that will continue in the days and weeks ahead.
We are committed to working with these regulators to satisfy all of the requirements and to ensure the 737 Max is safe return to service.
As I mentioned last quarter as part of our commitment to continually improve safety as we have always done we've established a new Board Committee to review Boeing's policies and processes for the design and development of airplanes.
The committee has sought input from outside experts from both industry and government and is working expeditiously to conduct its review and provide any recommendations it deems appropriate.
In preparation for the safe return to the 737 Max to service, we've conducted a dozen customer conferences with Max operators around the world and nearly 225 simulators sessions to develop test and demonstrate to software.
In addition, we conduct weekly technical calls with our customers worldwide to ensure that all the appropriate steps are being taken so that the fleet is fully prepared to return to service when the grounding is lifted.
This involves having the necessary technical kits and expertise on hand, while adopting a new airplane entry into service mindset in partnership with our customers. This also includes a comprehensive package of training and educational resources.
In April we reduced to 737 production rate to 42 per month to accommodate the pause in Max deliveries.
Both within Boeing and our supply chain, we are using this time to improve the production system health and stability.
As we said in our press release last week, our best current estimate is a return to service of the Max that begins early in the fourth quarter.
Based upon this estimate and other factors, we expect to be able to maintain our current production rate of 42 deliveries per month.
To be followed by incremental rate increases that would bring our production rate to 57 during 2020.
As our efforts to support the 737 Max is safe return to service continue we will continue to assess our production plans.
Should our estimate of the anticipated return to service change, we might need to consider possible further rate reductions or other options, including a temporary shutdown of the Max production.
The grounding has also impacted our customers and their flight schedules. The production rate adjustment to 42 per month will also cause associated airplane delivery delays in the future.
We've been in constant contact with our customers to support them. During this difficult time, and we will continue to work closely with all of our customers around the world and deal with the impact individually customer by customer.
As we announced last week, we are recognizing impact to our second quarter results from both the longer than expected lower production rate and also estimated potential concessions and other considerations to customers.
I want to personally thank everyone, who continues to be our partner in this journey.
From our airline customers and their pilots flight attendants and others, who have been impacted by these groundings to representatives from all levels of government, who share our commitment to safety.
To the flying public and everyone in the aviation community impacted by these events, we are grateful for your support.
And we will continue striving to earn and re earn your trust.
Now, let me turn to an overview of our second quarter operating performance followed by an update on the business environment and our expectations going forward after that.
Greg will walk you through the details of our financial results and how we are maintaining financial discipline and prudently managing liquidity as we work through the safe return to service of the Max.
With that let's move to slide two.
During the quarter, we recorded revenues of $15.8 billion and core earnings per share of negative $5.82.
Reflecting the Max charge as well as lower volume of 737 deliveries, partially offset by higher defense and services volume.
We recorded negative.
Point $6 billion of operating cash and paid $1.2 billion in dividends, reflecting a 20% increase in dividends per share from last year.
Now, let's look at the second quarter operating performance for our businesses for the quarter commercial airplanes generated revenue of $4.7 billion, reflecting 90 deliveries and the $5.6 billion pretax Max Church.
We saw solid widebody activities in the quarter and our backlog remains healthy at more than 5500 airplanes worth $390 billion.
Also earlier this month, we launched our latest round of flight testing through our Echo demonstrator program to assess new technologies from enhancing safety and environmental performance to improving the flying experience. We debuted a Boeing triple seven that will serve as the 2019 flying test bed for 50 projects.
The majority of the test flights will fly on sustainable aviation fuel to reduce emissions and demonstrate the fuels viability.
Now over to defense space and security.
Bts reported second quarter revenue of $6.6 billion and booked $4 billion of new orders demonstrating the continued value we bring to our customers across our defense space and security portfolio.
Those orders included contracts for a second lot of MH 47, G block two chinooks for the US Army service life modification for the U.S. navies F 18 fleet Wideband Global satellite communications for the US Air Force.
And a five year extension of joint direct attack munition tail kits spares repairs and technical services for the US Air Force.
Key milestones for Bgs included the first T X trainer program flight test on contract with US Air Force and successful completion of the star liners final parachute tests in preparation for upcoming launches.
We delivered five KC 46 tankers to the US Air force in the quarter year to date, we've delivered a total of 13 tankers.
We look forward to continuing to work with our customer during their initial operational test and evaluation of the KC 46, and we are committed to delivering the highest quality product to our customers.
Turning to global services Bgs reported revenue of $4.5 billion, representing 11% growth year on year Bgs continues to win new business highlighting the value we bring to our broad range of commercial and government customers and the strength of our one Boeing offerings.
During the quarter Bgs won new business totaling approximately $4 billion, which included performance based logistics contracts for age 64, Apache for the US Army and Casey 767 tanker for the Italian Air Force.
Bgs also received commitments from Azbell aviation, holding and GE Cas for up to 45, 737 800 converted freighters.
And as announced at the Paris Air Show, we're excited about Boeing's first off platform components service program with British Airways for the Airlines Athree hundred 20, and Athree hundred 20 Neo aircraft.
Also in the quarter aligned with our targeted vertical integration strategy to strengthen internal capabilities increase innovation and provide greater end to end value for our airline customers. We entered into an agreement to acquire Encore group and aerospace interiors company. Additionally, through Boeing next which leads our future mobility efforts, we announced a strategic partnership with Kitty Hawk Corporation to collaborate on future efforts to advance safe urban mobility.
Progress also continues with the Embraer transaction as we work through regulatory approvals and other closing conditions, we still expect to complete the transaction by the end of the year.
In summary, our priority continues to be the safe return to service of the 737 Max.
And we've continued to prioritize additional resources and focus on this effort.
At the same time, we are maintaining our focus on keeping the business strong and healthy.
As they demonstrated than second quarter. Our team continues to execute on operating performance and capture noteworthy additions to our large and diverse backlog.
With that let's turn to the business environment on slide three.
We continue to see healthy global demand for our offerings and commercial defense space and services. These are sizable sectors that are growing and backed by strong fundamentals.
With a combined market opportunity of 8.7 trillion dollars over the next 10 years, that's up from 8.1 trillion dollars in our previous forecast.
The increase is driven by strong commercial aviation fundamentals airline productivity wide body replacement demand and large stable defense and space markets as well as the need for lifecycle services solutions.
As a global company with customers and 150 countries. We are always mindful of the potential impact of geopolitical and macroeconomic forces.
We continue to track a host of near term issues, including the us China trade discussions.
We believe in the mutual economic benefits of a strong and prosperous aerospace industry.
In commercial aviation.
While we have seen moderation of traffic in the first half of this year global passenger traffic continues to grow faster than GDP and near long term trends in 2018, we saw the ninth straight year of above trend growth for passenger traffic.
So far in 2019 passenger traffic has grown at a solid 4.6% through may.
On the air cargo market, we saw a contraction in the year to date traffic, while we expect cargo traffic headwinds to linger in the near term, we anticipate an improvement in the latter part of the year.
Our view of the demand fundamentals remained robust.
We are highly confident in our industry outlook, which now forecasted demand for approximately 44000, new airplanes over the next 20 years, that's up from approximately 43000 in our previous forecast.
Doubling the size of the global fleet and requiring a sizeable ecosystem of lifecycle solutions to maintain and supported.
We continue to see sustainable long term growth in commercial aviation powered by mature and emerging economies, a growing middle class and continued innovation and business models and products.
The changing nature of travel has fundamentally expanded traffic patterns with improved accessibility and affordability at the same time airlines are maintaining capacity discipline and keeping supply and demand in balance.
There are also a more balanced between airplanes purchase for fleet growth and replacement.
Of the 44000, new airplane demand, 44% will go towards replacing aging aircraft, leading to more stable purchasing patterns. We believe the evolution in these key market dynamics in aggregate continues to drive less signal.
Finally, we are forecasting demand for around 800000, new civil aviation pilots.
And 770000, new maintenance technicians over the next 20 years.
About 80% of them will be for commercial aviation.
Meeting the strong demand will require a collective effort from across the global aviation industry.
The aviation industry will need to adopt innovative training solutions to enable optimum learning and knowledge retention.
The narrow body segment will command the largest share of new deliveries, we expect airlines to need more than 32000 single aisle airplanes. In the next 20 years. These new airplanes will continue to stimulate growth and provide requirements and provide required replacements for older less efficient airplanes.
Our 737 program has a backlog of more than 4400 aircraft and a production skyline that is sold out into early next decade.
Last month International Airlines group, one of the world's largest airline groups signed a letter of intent to purchase 200 737 Max Jets.
We are honored by their trust and confidence.
That AG is placing in the 737, Max and ultimately in the people of Boeing and our deep commitment to quality and safety above all else.
And the wide body segment, we have seen steady order activities for the 787 and the triple seven and have high confidence and a meaningful increase in wide body replacement demand early next decade.
In the near term, we continue to monitor and inform the US China trade discussions China is an important part of the global aircraft market and progress on this front will help support our wide body production rates.
The current generation Triple seven continued its steady sales momentum with two new orders from DHL in the quarter and 12, new commitments and letters of intent from Qatar Airways, which we firmed up earlier this month and also from China Airlines and Turkmenistan Airlines. These provide further support for the Triple seven bridge.
Turning to Triple seven Acs orders and commitments of 364 aircraft provide a strong foundation that supports our plan for ramping up production and delivery of this new aircraft. We continue to focus on further bolstering the triple Sevenx skyline.
On Triple Sevenx development, our first two flight test airplanes are now in pre flight testing.
Overall, the airplane is performing well and foot pre flight tests with intermediate gauntlet and initial taxi tests completed during the quarter.
Our teams are currently focused on final systems propulsion and airplane level tests.
However, the GE Ninex engine remains the pacing item as we work towards first flight.
As we previously mentioned GE our engine supplier is working through some challenges with the engine that are putting risk on the overall test schedule based on GE. His latest assessment on what it will take to address these challenges. We are currently projecting that first flight will occur in early 2020.
Rather than in 2019, as we had previously mentioned.
The schedule slide is obviously disappointing given how well the aircraft has been performing in pre flight tests and that we are on track on non engine activities.
While we continue to target 2020 for first delivery of the Triple seven nine the engine issue has added significant risks to the schedule.
We continue to work closely with GE as well as explore opportunities to improve the schedule such as leveraging our system integration labs and additional airplane ground testing as we strive to meet this delivery target in a manner consistent with our commitment to safety.
We continue to expect triple seven delivery rate to be approximately 3.5 aircraft per month in 2019.
Given the pressure around triple seven ex first delivery timeline, we are reassessing the 2020 skyline in light of the strong demand for our freighter line, we intend to mitigate some of the impact by producing more triple seven current generation freighters in 2020.
Turning to the 787 dreamliner in the quarter, we saw Air New Zealand Korean Airlines and Air lease Corporation announced their commitments to purchase a total of 33 787 dash nine and 77 dash tens.
Korean Airlines firmed up their orders last week.
Our 787 backlog stands at more than 550 airplanes similar to the Triple seven acts we will continue to focus on further bolstering the 787 skyline.
On our 767 program, we added six new seven seven freighter orders in the quarter and as previously announced we plan to increase the 767 production rate from 2.5 per month to three per month in 2020.
At defense space and security, we continued to see solid demand for our major platforms and programs.
Looking at the defense and space market for the next 10 years, we see a 2.5 trillion dollar market of opportunities for our business about 60% of that is in the U.S. So there is tremendous opportunity around the world.
Our strategy of global reach with local presence is key to our success.
You see that across Europe , Australia, India, and the middle East to name a few.
The Bts portfolio is well positioned with mature world class platforms to address current needs and innovative capable and affordable new franchise programs to build the future.
We continue to see broad support for our products from the Pentagon NASA and Congress, including for procurement of the Boeing 15, X. and F 18 fighter Jets Apache and V 22, Osprey Rotorcraft, Jay Damn weapons satellite programs the space launch system and key derivative programs like the KC 46 tanker and the PPA.
We have also seen robust support for our future franchise programs, we are maintaining a clear focus on these future franchises, including the ongoing M Q2 5, and TX development programs.
And our NASA commercial crew and space launch system programs at the leading edge of space exploration.
Additionally, we are focused on leveraging our work to date on GBSD to help deliver this essential national security capability.
Turning to the services sector.
We see the 3.1 trillion dollar services market over the next 10 years as a significant growth opportunity for our company. This is a very dynamic and exciting marketplace. One that is driven by new technology, and a relentless drive for greater efficiency reliability and safety.
Bgs provides agile cost competitive services to our customers worldwide.
The future commercial and government aircraft and services will be increasingly centered on technology and data services to drive smarter business decisions in commercial aviation and improve the commercial passenger experience and to enhance war fighter safety effectiveness and mission readiness. We aim to continue growing faster than the average services market growth rate of 3.5% as we further expand our broad portfolio of services offerings and continue to gain market share.
Strong orders of $4 billion in the quarter reflect our customers' recognition of our value proposition and helping them optimize the performance of their fleets and reduce operational costs through the lifecycle.
The market continues to recognize our broad and deep portfolio of digital solutions, which harness the power of big data to significantly expand fleet capability and cost savings for commercial and government customers.
During the quarter, we expanded our global rosters of customers, including announcements at the Paris Air show by Delta Airlines, and Jetblue Airways, who signed up for our crew navigation analytics and other solutions to help optimize their operations.
In summary, with growing markets and opportunities ahead, our team remains committed to growth innovation and accelerating productivity improvements to fuel our investments in the future.
Our one Boeing strategy and offerings across our three businesses are key differentiators that strengthen our position as the worlds leading aerospace company.
With that Greg over to you for our financial results.
Thanks, Dennis and good morning, everyone before we discuss the second quarter results. Let me also touch on the 737, Max and explain how the grounding has impacted our financials to date.
And what we're doing to focus on today and going forward, let's move to slide four please.
As previously announced VCA revenue and earnings were reduced by $5.6 billion of pre tax charge related to our estimate of potential concessions and other considerations to customers or disruptions related to the 737, maxs grounding and associated delivery delays.
As Dennis mentioned, we will deal with the impact individually customer by customer and we will look at various forms of economic value that we can provide.
While the entire estimated amount has been recognized as a charge in the second quarter, we expect any concessions or other considerations to be provided over a number of years. Therefore, you can expect the impact on our cash flow to affect 2019 and beyond we currently see this impact to be more front end loaded in the first few years, but of course, it will depend on individual discussions with our customers on considerations.
We also booked an additional $1.7 billion of program cost on the 737 in the second quarter. This increase is primarily due to higher costs associated with a longer than expected reduction in the production rate.
These include additional fixed costs and other items, such as labor escalation support parts in material.
These costs will be spread across the undelivered aircraft in the accounting block of approximately three 100 units and therefore reduce the 737 program margin.
As you know when the program margin as adjusted it will affect the current quarter and the booking margin for subsequent periods.
Also as Dennis said, we continue to work with the civil aviation authorities to ensure the 737 Max is safe returned to service.
And these authorities will determine the timing and condition of returned to service.
For the purpose of our second quarter financial results, we have assumed that the regulatory approval in the us and other jurisdictions begin early in fourth quarter 2019, while this assumption reflects our best estimate at this time I just want to reiterate that the actual timing and condition of return to service will be determined by the regulatory authorities and could differ from this assumption and our estimate.
Our current second quarter results also assume a gradual increase in the 737 production rate from the current 42 per month to 57 per month. In 2020, we will also assume airplanes produced during the grounding which are stored and included in our inventory will be delivered over several quarters. Following returned to service.
Any changes to these assumptions could require us to recognize additional financial impacts.
With regards to cash lower cash receipts due to fewer 737 deliveries and lower production rate combined with building and storing 737 aircraft adversely impacted operating cash in the quarter.
Looking forward the key drivers are a financial impact related to the 737 continued to be the return to service timeline and conditions.
The delivery ramp up which will be dependent on how fast we can deliver the aircraft once the fleet returns to service and how fast our customers can accept the aircraft.
We'll also the 737 production rate profile I discussed going forward and discussions with customers regarding potential concessions and other considerations.
We expect our financial results to continue to be adversely impacted until we safely return the 737 Max to service ramp up production rates and resumed deliveries to customers.
We continue to perform detailed scenario planning around returned to service and production rates, including analyzing the implications on our supply chain customer fleet and deliveries to fully understand the range of financial outcomes.
We will continue to assess our current production plans and incorporate any new insights such as return to service timeline storage capacity and supply chain in our analysis to help inform us on whether further rate reduction or other options, including a temporary shutdown of the Max production are needed.
As discussed last quarter, we've taken steps to mid current challenges to preserve the future value and growth of this important franchise program for our company and for our customers. The production rate adjustment to 42 per month, we instituted starting in April has helped our factory health and also supplier progress to getting back to master schedule and improving consistency and stability.
We've also taken actions to prudently manage our liquidity and increase our balance sheet flexibility, including raising additional debt. These actions also include even sharper focus on productivity and strategic prioritization of spending we will continue to diligently review all levers available to minimize the financial impact.
As discussed last quarter, given the dynamic 737, Maxs returned to service timeline and activities. We're not in a position today to provide forecast of the impact of the 737 Maxs grounding on our full year 2019 financials. We will provide you with an update full year 2019 financial forecast. When we have returned to service at the Max fleet, our production plans and delivery ramp up profile and corresponding financial impacts.
Returning Max safely to flight continues to be priority one for us. It has been a team effort that leverages the best talent from across Boeing and also outside experts the operating rhythm in the momentum of our cross functional team has not let up since day, one that team continues to meet daily with our executive Council fully engaged.
We will continue to apply whatever resources are required to return the 737 maxs safely into the fleet and take the time necessary to do so working hand in hand with our customers.
At the same time, we will also remain focused on our priorities delivering results with excellence.
So with that let's move to slide five and our discuss our second quarter results.
Revenue for the quarter was $15.8 billion with core earnings per share of negative $5.82, reflecting lower 737 deliveries and the Max charge, partially offset by higher defense and services volume.
Now lets discuss commercial airplanes on slide six.
Our commercial airplane business revenue decreased to $2 billion to $4.7 billion during the quarter, reflecting the 737, Max charge and lower 737 deliveries, partially offset by favorable mix.
VCA book negative operating margins in the quarter due to the 737 maxs impact partially offset by higher 787 margins.
VCA backlog continues to remain strong at $380 billion in more than 5500 aircraft, creating more than six years of production.
Let's now turn to defense space and security results on slide seven.
Second quarter revenue increased to $6.6 billion, reflecting higher volume across derivative aircraft government satellites weapons and new franchise programs. This was partially offset by lower FY 18 volume.
Our margins of 14.7% in the quarter include continued focus on productivity and a 200 million dollar gain on a sale of property.
Similar to what we saw last quarter. The sale of this excess property is the result of the teams continued market based affordability efforts to optimize our footprint and productivity.
During the quarter Bgs, one key contract awards were $4 billion and our backlog stands at $64 billion with 31% from outside the U.S.
Let's now turn to Boeing Global service results on slide eight.
In the second quarter Global services revenue increased to 4.5 billion, reflecting the acquisition of Capex and higher International government services volume.
Year over year growth of 11% for the quarter continues to outpace the average annual service market growth rate of 3.5%.
Bgs booked operating margins of 15.1% and as I mentioned before bgs margins quarter to quarter, our subject to fluctuations due to factors such as mix of products and services as well as performance on individual contracts.
During the quarter Bgs, one key contract awards worth approximately $4 billion, bringing its backlog now to $20 billion.
Let's now turn to cash flow on slide nine.
Operating cash flow for the second quarter was negative $590 million driven by lower 737 deliveries and production rate offset by solid underlying performance and timing of receipts and expenditures.
As mentioned earlier, we expect continued working capital pressure to adversely affect cash flow until Max deliveries resumed.
Strong operating cash flow from other parts of the business a strong balance sheet.
And future balance sheet levers will help provide adequate liquidity during this period.
In the second quarter, we paid $1.2 billion in dividends and as I previously mentioned until we have clarity on the 737 returned to service we have temporarily paused our share repurchase program. However, our long term balanced cash deployment strategy and commitment remains unchanged.
Let's now move to cash and debt balances on slide 10.
We ended the quarter with $9.6 billion of cash and marketable securities as I mentioned earlier, we raised additional debt in the quarter, increasing the balance by $4.5 billion to help shore up liquidity position as we work through the current Max challenges our strategy of maintaining a strong balance sheet provides us with substantial borrowing capacity through capital markets access and unused credit facility of $6.6 billion.
Our long term goals and strategic objectives remain unchanged, we will continue to use our three business units strategy as a key differentiator in the marketplace.
To make prudent investments and leverage talent and innovation across the company.
So in summary, while focusing on the very important priority of a safe 737, Maxs returned to service and minimizing the significant impact on our customers in the flying public.
Our team keeps the core operating mentioned strong delivering results and meeting customer commitments.
We recognize that we have a lot of work and not in significant challenges in front of us in the weeks and months to come but we are confident we have the right focus.
Team and resources to navigate through them.
We're committed to providing you with additional updates on the Max returned to service progress and production plans as we have more information.
We will strive to continue to keep all of our stakeholders informed through public statements and information posted on our website.
Once we have further clarity, we will schedule, a follow up investor and media call to discuss the financial impacts and provide revised guidance.
So with that I'll turn it back over to Dennis for closing comments.
All right. Thank you Greg.
These are challenging times first and foremost for the families and loved ones affected by these recent events.
And also for our dedicated people who work tirelessly to deliver on our mission to connect protect explore and inspire the world all with a relentless focus on quality and safety and doing so with the utmost integrity.
This is a defining moment for Boeing and we're committed to coming through this challenging time, better and stronger as a company.
We'll stay true to our enduring values, while driving operational excellence across the enterprise.
The safe return to service of the 737, Max is our company's top priority.
I want to thank my bowling teammates who are delivering on this priority and our other commitments of executing on our key priorities for our customers driving growth and operational excellence across the business in close partnership with our customers and suppliers and returning value to our shareholders.
From engineers to analysts to our factory teams and field service reps to designers and planners and to everyone. At Boeing has worked tirelessly to apply our culture of continuous improvement and learn from these events to innovate to challenge and to improve.
You have my sincerest. Thanks.
Im humbled and inspired by the response to the people of Boeing and our many partners. The shared responsibility of safety brings us together and reinforces our purpose and mission as an aerospace leader.
The long term fundamentals for our businesses remain strong and our key priorities are unchanged. Our one Boeing advantage has never been clearer.
And we will leverage this unique strengths to deliver and improve on our commitments to our customers and our partners around the world.
With that.
We will take your questions.
And ladies and gentlemen to ask a question on today's conference.
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Our first question comes from the line of Carter Copeland Smelliest Research. Please go ahead.
Hey, good morning, gentlemen, good morning Carter.
Hi, Craig can you help us understand the relative degree of confidence you had or used to reach the financial impacts you announced last week and maybe how you thought about the variability and outcomes there, especially I guess the context of a temporary line stoppage that you. Both mentioned in your prepared remarks, and then I guess related you said the phasing of those impacts would be front end loaded but can you maybe help us understand how you're thinking about that impact on the kind of higher level multiyear cash flow trend you've talked about in the past. Thanks.
Yes, absolutely, yes look obviously, our booking physician that for the second quarter is our best estimate and Thats, our best estimate based on.
A variety of inputs that we take into consideration and all our engagement with the regulators are software schedule and our production plans the storage that that you brought up all of that coming together.
In the second quarter and again Thats, our best estimate at this time now as I said and Dennis said, obviously some of those assumptions could change from here and if they do they could have financial impact further than what weve than what we booked in the second quarter and we'll keep you up to date, if thats the case, but but again based on all that information. That's the best estimate we've got right now.
As far as the path forward on the customer concessions as we said were working and will continue to work with each of our customers and and talk about how we can help through this period and around the grounding of the aircraft, but also as we move deliveries out and those will be individual conversations customer by customer but.
Likely be multi year type.
I'll say financial outcomes, and particularly around cash.
As we see it today, probably be a little more front loaded into 2019 and some of the early years, but then phase out over that period, but again. This will be this will be based on individual conversations and we'll we'll pull that together as those conversations become more mature.
As you look at the cash profile.
Going forward I would maybe step back a little bit and take the Max.
Out of the equation for a second and tell you that the balance of the company and I'd say the key puts and takes that we saw pre Max remain intact.
So all those fundamentals are still intact. The real obviously outlier here is the Max and if the Max returns to service based on the estimate that we have right. Now then you'll obviously see significant cash in 2020 that.
That will really be driven by those airplanes being delivered off the ramp at a higher rate, but as well as the production rate increases that would that we've talked about but until we have complete clarity on exactly that returned to service date.
And.
Then the associated deliveries and production plan. It's a it's obviously TBD at this point, but again the fundamentals remain the remain intact. In the objective is certainly remains intact as well of having this year over year long term cash flow objective and like I said the operating engine.
Outside of Max continues to achieve the results, we expect and can lots of puts and takes as we move into the future years, but that those are bounded.
Very similar to where they were pre Max so it really is dependent on Max returned to service and then that ramp up from there and as I said, we'll continue to keep you posted on that.
So if they basically just sounds like the working capital reversal and the phasing of the.
Settlements are the two big moving items for 20.
Yes, certainly yes, if you think about 20% like I said delivering off that off the ramp in not only our ability to deliver off the ramp at the higher rate, but as I said, the customer's ability to take those the concessions and considerations as you said, obviously lower advances at this lower production rate that you're seeing currently and you'll continue to see and then the triple seven triple Sevenx schedule that Dennis talked about so yes, there's lots of moving pieces within there but were clear eyed on all of those and were running various scenarios around those and and taken a lot of action as as we indicated.
On the prior call.
To try to mitigate some of that risk. So all this effort in the factory and all this effort in the supply chain to get stable to get folks back on schedule and get productivity initiatives that we had planned for the year and using these additional resources to get those mature and ready. So when we do go up in rate and we do start delivering off the ramp we're doing that and the most efficient way possible. So thats kind of the investment I'd say, we're making currently to ensure and minimize that risk as we as we get returned to service and start putting the airplanes back into the hands of our customer.
Great. Thanks.
You're welcome.
Our next question is from Taiwan, Roulette with Cowen and company. Please go ahead.
Yes. Thank you very much so the seven triple seven Acs schedule slip.
One is what is the financial impact both in terms of.
What does your skyline for.
For next year look like can you hold the classic three and a half per month and what does it mean in terms of when the cash outlay for the Triple Sevenx will change. Thank you.
Yes, Cai, let me jump in on that first of all as Greg Bill to add on first of all just to give you a little additional context on triple Sevenx schedule on the airplane so.
We've been very pleased with the progress and over the last quarter. We mentioned we did the.
The final gauntlet test so think of those as the airplane level system integration tests in the factory and we also did our initial low speed and high speed taxi tests under power.
All of that was very effective we're very pleased with the results. So the the airplane side of the equation here is progressing on plan and.
One of the cleanest development programs that we've seen.
We are disappointed by the the slip in the engine schedule and.
GE is steadily working through that challenge and getting their arms around the the precise schedule for recovery will be proceeding through engine testing as that.
Solution becomes clear, but that does push our first flight out into into early 2020 as are currently.
Projecting.
We still expect this year to be our our peak expenditure level on the Triple Sevenx development program, but youre going to see the cash profile.
Where we had hoped to get into the tailwind part of the program next year, you're going to see that extend out as first flight is extended out.
Greg you want to add some additional color on the cash.
I think I think Dennis trained up perfectly and obviously looking at triple seven opportunities and obviously, we're seeing continued demand for that product and particularly around the freight market and so were feathering that in with this current revised schedule CPI and really that is an opportunity to meet the demands of our customer, but minimize the financial impact to us so lots of moving pieces in there, but we're continuing to work it and like I said the Triple seven continues to remain strong it's certainly helping us through this period and in a triple Sevenx Skyline, we talked about.
Our priorities and when it comes in on wide bodies in the market and certainly triple seven axis 787.
Continue to be high priority of filling in filling in that skyline. So.
Like Dennis said disappointed considering the progress that's been made on the program and these investments we made to de risk the development phase of the program. We're seeing the benefit of that today, but we are disappointed by where we are with that with this engine. So we're trying to get ahead of this cai and putting mitigating actions in place and really again minimize the impact on us and ultimately on our customers and as Greg said the encouraging thing is that the current triple seven.
Continues to do well in the marketplace. So we still expect our factory to be running at a five per month production rate next year as we said our delivery rate of about three and a half per month this year.
And we will be looking at the exact delivery mix next year within that production rate the exact delivery mix of triple Sevens and triple seven axis. So that's work that still underway some work to do.
Thanks, so much to welcome.
And next we'll to Hunter Keay with Wolfe Research. Please go ahead.
Thank you everybody good morning.
Good morning Hunter.
Regarding the comment around potentially extending the maxlinear and when will you need to make a decision on that what are some of the gating factors and then once you resumed deliveries what's the bigger concern between the customer's ability to accept in your ability to deliver it. Thanks.
Yes Hunter first of all when we take a look at the overall Max plan and returned to service plans. We set our current best estimate is that we returned to service early in the fourth quarter and as long as we remained solid on that assumption.
We believe we can maintain our current 42 per month production rate and as we said incrementally step back up to 57, a month as we as we go into 2020.
Now if that estimate of returned to service substantially changes that we have to consider alternatives and everyday we are doing scenario planning working through every dimension to this program were looking at the ongoing software update development regulatory approvals the certification process.
The return to service process working hand in hand, with our customers supply chain health production system health.
Every dimension of the program and we have that knit together, we understand it we understand the ripple effects of any changes to the schedule and we're going to continue to monitor that on a day to day basis.
Currently.
And as I said daily we're working with the FAA Yasser and other regulators.
As we step through certification process headed back to on grounding the fleet.
We have a clear understanding of the work that has to be done, but there is still uncertainty in the timeline and we do have to go through a multi regulator approval process and its a complex process and one that will take time to get done.
The important thing here.
And so everything is based on.
Safety of the airplane. We are we are confident that when the 737 Max returns to service it will be one of the safest airplanes ever to fly.
That is the most important thing we're going to take the time necessary to ensure it's safe.
And as I said, if any of the timeline assumptions change significantly from a from a.
Start of the fourth quarter returned to service that we'll have to evaluate alternatives and those alternatives could include different production rates. They could include a temporary shutdown line not something we want to do.
But a alternative that we have to prepare for I think is a smart part of our thorough and disciplined process here to make sure we're covering all scenarios.
Thank you.
Next we'll go to David Strauss with Barclays. Please go ahead.
Good morning, Thanks for taking my question.
Dennis you talked about a software fix for this latest issue that the same identified can meet it are you Proassurance software fix at this point and not also potentially a hardware fix.
And then.
It's also being reported that he also has.
All five major requirements before on lift the Max grounding.
Is that is that in fact accurate it seems to be more to come clean on what the phase talking amount. So is that accurate. They have these five requirements and if so does meeting those line up with the September timeframe that you've outlined thanks.
Yes, David Let me give you a little context, there. So first of all on the on the software update that's going on we we are confident that as a software update not a hardware update our process here as we step through certification is we have the the regulators come in and fly at our simulator and we test out a number of different conditions that are all part of final certification and during those simulator sessions we identified.
This additional scenario.
That with the FAA.
We decided that we would make this the software update to mitigate a potential risk and this was a a simulated.
Failure in our in the microprocessor the airplane as previously reported.
That is a software update to address that risk area. It's a it's a understood update and we're we're in the middle of working our way through that.
The timeline for approving that update and finishing up the certification is still uncertain as we're working through the details with the regulators. The FAA has also convened a number of multi regulator boards and reviews and venues to bring in yasir.
Transport, Canada, Brazil.
Other regulators from around the world and those convening sessions or are bringing all of the questions. The table that any of the regulators have so the reports that you mentioned about the five questions from Yasir.
All of the questions from all of the regulators around the world are being brought together convened in integrated.
With the FAA days leadership.
So all of those inputs have been considered in our current timeline analysis and are all consistent.
With the timeline that we've laid out here for submitting our certification package in the September timeframe and a return to service in the October timeframe.
Now again that's.
A timeline that weve baseline for the moment, but there is still uncertainty and the exact process with the regulators will step through.
Next question is from Seth Seifman with Jpmorgan. Please go ahead.
Hi, Thanks, very much and.
Good morning.
Follow up on a couple of questions.
That have been asked already and hopefully not be too repetitive, but just in terms of how you think about the rate.
And.
Yeah, where the line should be.
I appreciate the fact that you guys have to be very disciplined and thorough and you're planning, but as we've seen over the past few months, it's not surprising to see the date move around here and there and when you balance some of the risks of continuing to produce at 42 without delivering versus the risks that would.
Emerge in the supply chain, if you were to.
If you were to cut the rates significantly.
I mean is it safe to say that the type of the type of slips that we've seen already which is a couple of months here in a couple of months there don't.
Don't necessarily affect the rate.
Yes, so I guess the way to think about that is we're continually assessing all of these different pressure points in the system and and supply chain. Holt is certainly one of the key considerations for us as we think about the production rate. We're also taking a look at storage capacity and our ability to.
Take care of the airplane for the field are returned to service timeline.
In the.
The.
The effect that will have on our customers and work that needs to be done and preparing the airplanes.
So we're taking a look through all dimensions of.
Of these these pressure points around the schedule and.
No no one item is going to drive the schedule. This is balancing all.
Perspectives so.
I went.
I wouldn't make any dramatic assumptions around any one.
It's more of a balancing act as we continue to look at all these dimensions.
Thank you.
Next we'll go to Rob Spingarn with credit Suisse. Please go ahead.
Good morning warning or Rob you Dennis you've said, it's a couple of times on the call now that you would have the fix and you think by September and hopefully recertification in October given that the phase.
In the building and working with you on this what are what are the mechanics of what happens in that one month is the idea here that they will have already vetted. Most of this before they even received the official submission and then the other part of the question is are you is discovery over here and we're just implementing and testing or is discovering new discovery still ongoing thanks.
Yeah, Rob I would characterize this as an energy process. So we are in daily communication with the FDA and other regulators. Our teams are daily working on software updates running through simulator sessions Theres, a great deal of certification documentation.
That needs to be completed so all of that engineering work is underway as we complete that work and complete the documentation on what's called the system safety assessment that will lead into the final formal certification process, which will include a certification flight test.
And then subsequent to that flight test will submit the final documentation that will go through the phase normal approval process.
In parallel to that we have a number of pilot evaluations that will be done.
Theres a joint operational evaluation board that we'll look at the training dimension of bringing the Max backup and flying So all of these are parallel activities that were working jointly with the regulators, but it is an iterative process and as we go through those iterations. It's possible that we will discover new items. So our goal is over time to close out uncertainty answered questions that are coming in from the regulators, we're making good steady progress on that we see convergence. So we know we're making progress but until we complete all of the certification activities. There's always some risk of new items opening up and so that's why we're trying to be very disciplined about.
The engineering process here, but also our scenario planning to account for any of these these potential uncertainties.
And until we get through the final certification step and we all confirmed that the airplane safe.
We will return to service so that's really the pacing item.
Thank you.
Our next questions from Jon Raviv with Citigroup. Please go ahead.
Hey, thanks, everyone.
Hi, guys can you give us some perspective on the on the wide body market players some thoughts on why you're not oversupplying. Some of your competitors Mercer gesture and also how you're achieving some have suggested are very aggressive crisis and then it's a little bit also in the near term versus long term dynamics in that market, including China why is that a near term driver some of the more on replacement dynamic in the 2000 twentys. Thank you.
Yes, you bet, John well a couple of things one as you look at our current market outlook as I mentioned in my comments, we continue to see strong overall growth and if you look at the next.
20 years, the world needs about 44000, new commercial airplanes.
Up from about 43000 in our previous forecast. So directionally. The market continues to expand the fundamentals are solid and passenger traffic in particular continues to expand.
A key part of that future demand is the wide body marketplace, we continue to see a significant.
Wave of replacement demand early in the in the next decade, as we've said before and we believe our 787 and Triple seven ex families are perfectly positioned for that replacement wave that's coming and you can see that our products are winning in the marketplace. Despite.
A fairly tough marketplace in terms of overall orders so far this year our wide body segment has been doing well and we've been winning in the marketplace with both the 787 and the Triple Sevenx and I think that speaks to the value that we're providing customers. So I can't comment on our competitors comments that you mentioned, but I can comment on the fact that our customers see value.
In the 77, Dreamliner and Triple Sevenx, that's showing up in orders and while we still have work to do on the skyline as we noted for both Triple Sevenx in 787.
We feel confident in the production rates that weve laid out and you've seen that with the 787 currently running at 14 a month.
We're continuing to gain efficiency on that line and thats, allowing us to be even more competitive in the marketplace. So we're going to be mindful about filling the future skyline. We're mindful of those risks and we will continue to pay attention to that but the long term marketplace for wide bodies is solid and our family of products is well positioned to compete and win.
Thanks, I'll stick to one.
Next thing Ron Epstein with Bank of America Merrill Lynch. Please go ahead.
Hey, good morning, guys.
One of them.
So one thing that really hasn't come up too much on the call is.
Where do we stand on enemy and and on and I May let me kind of stand back and look at it.
Given the difficulties that we run into on the Max and the difficulties on Saturday.
And the difficulties in some Florida and the difficulties on Capex.
See 46.
How do we get comfortable around that and can you just talk about that.
Yeah, Ron first of all.
Put it in context, we continue to have a dedicated team that's working on enemy working through our business case, our assessment of the market opportunity hasn't changed we see a potential market there for four to 5000 aircraft.
And we continue to see significant customer interest in that marketplace, but in terms of relative priorities is clear that our top priority is getting to 737 Maxs returned to service safely and so we have prioritized in terms of Resourcing and focus for our company.
And that that will be first and that is ahead of our M&A work.
That said, we are continuing to progress on building, our business case, and when and if that business case closes.
We would make make a launch decision we still see it as a two step decision process as Weve described previously.
And we're not going to run to any artificial timeline, we're going to make decisions based on disciplined data and does the business case closed part of that business case is addressing development program risk as you noted and we are investing significantly in proving development program performance. We know it's an area that needs continued improvement going forward.
This gets into all the work we're doing on things like model based engineering or digital transformation.
Production system of the future. These are all important elements of reducing development costs and also de risking development programs for the future. That's all part of what goes into the business case for M&A and our confidence in the maturity of those new tools.
And the ability to implement them at scale on a development program will be part of the decision process.
Okay. Thank you.
Our next question from Doug Harned with Bernstein. Please go ahead.
Thank you good morning.
Morning, Doug.
On the Max.
As you as you look toward presumably the September timeframe.
One of the issues that's been out there has been training requirements and.
If you look across a number of aviation authorities there.
Appeared to be very different views.
Also across airlines.
When you consider.
Different scenarios for what training requirements will be whether their full simulator computer based.
How could that affect your ability to deliver even if we get certification in the timeframe that you're hoping it will occur.
Yes, Doug that is another area that we're paying close attention to and working daily So as part of our ongoing work not only software update on the Max. We've also made a comprehensive update to the training materials and expanded educational resources and that is being done in concert again with regulatory authorities and with our customers around the world. In fact, we've conducted as I mentioned earlier hundreds of simulators sessions.
With customer pilots around the world to get their inputs on the training packages and some of the updates that we're making so that work is going on in parallel.
The next significant waypoint in that process is something that is called the joint operational evaluation board that is a convening of regulators and.
Government pilots that will fly the airplane with the updated software.
They will evaluate the training curriculum and will make final recommendations on the overall training requirements.
We have prepared a comprehensive set of computer based training modules.
That were confident will will address the training needs for the Max but in addition to that we have also prepared options and are continuing to work through options for simulator based training.
Airlines that may want that where regulatory.
Agencies that may require it.
And we do expect in the end that will have a consistent set of computer based training.
That all airline customers will use and there will likely be some selective use of simulator based training depends on.
On the maturity of the fleets and whether they already have Max aircraft or whether Max's are new to their fleet.
It depends on their pilot training curriculum. Some airlines, we use simulator training as part of their normal recurrent training.
Some may want training upfront before they fully returned the fleet to service so that can be a pacing item Doug as you noted.
And it's another one of those uncertainty elements that we're working our way through and that's why when we when we say returned to service early in the fourth quarter.
We have to work through all of these uncertainties.
The software update and the certification of the airplane itself as well as the training curriculum as well as preparation for all of our customers to get the fleet back up and running and we have.
Good understanding of each of those workflows, we know the work that has to be done.
We are on it on a daily basis, but the exact timeline for completing all of that and getting regulatory approval across the board is still uncertain and Thats why we keep saying we've made our best estimate of that timeline, but were also protecting for uncertainty of that timeline with our scenario planning.
All right. Thank you.
Next we go to Myles Walton with UBS. Please go ahead.
Thanks, Good morning, I was hoping that you could comment on what the new updated timeline.
If you have made changes to the suppliers you are maintaining at a higher than 42, a month rate and then also if you can maybe talk about the logic between a temporary shutdown versus just to a more significant.
Leg down in your production rate of 42. Thanks.
Yes, Myles couple of things one is our our solution on the supply chain plans and the scenario planning we're doing varies by supplier. So we have some that are.
Supplying at our production rate others that are continuing to run at a higher than our 42 a month production rate.
It's really tailored.
Supplier by supplier in some cases.
We had suppliers who were behind schedule and Weve used the opportunity here to to catch up to master schedule, It's as Greg mentioned.
Obviously, a CFM with the engine.
Spirit on the fuselage as examples there where we've been able to increase increase improve our production health and stability by having them run at a higher than 42, a month production rate.
With CFM for example, we're also working to sustain that higher production rate to make sure. We have sufficient engine spares available when we return to service. So each of these are our tailored plans and it's all part of the supply chain health that we're thinking our way through with more than 600 suppliers on a on the Max program.
Regarding your latter question as we think through production system planning going it depends depends on the timeline and our understanding of the timeline. If we are able to maintain our early fourth quarter returned to service again, we hold at 42, a month production rate. If we have a significant change we would consider alternatives.
Stepping down to a lower production rate below 42 a month.
Present, some challenges more broadly to our supply chain synchronization of our workforce as well a learning.
How you would consider ramping back up later and the impact of that.
So in some cases, depending on timeline, a temporary shutdown of production line could be more efficient.
Then a sustained lower production rate and that's what we're thinking our way through.
If you had a temporary shutdown if it was necessary.
That is one way to reduce the outflow of airplanes and the storage requirements, while to a degree maintaining supply chain health and.
And workforce learning.
For consistency in the production system. So what we're thinking through all of those parameters and making sure we have all those scenarios available.
Thanks, Operator, we have time for one more analyst question and we'll go to Sheila Kahyaoglu with Jefferies. Please go ahead.
Thank you good morning.
Sure Sheila.
Just kind of lockdown, the global demand environment, a little bit more.
What are your thoughts on air traffic decelerating close soon enough water to 5% long term rate, what our watch items, there and as it relates to that how do you think about the service business implications from the Max.
Okay. Thank you.
Yes, Sheila on the on the overall market.
The fact that we've been operating at a 4.6% passenger traffic growth through may.
It's not surprising to us we expected some slowdown in the early part of the year. Some of this has been driven by local effects.
The Max to a degree has played into this local airport shutdowns in a couple of key locations have impacted it. So we don't really see a macro driver behind that passenger traffic numbers year to date.
And it is consistent with the longer term trend of continuing to grow at faster than than GDP. So.
Our overall confidence in the market and our 20 year.
Growth outlook, our current market outlook remains solid and I wouldnt read anything more than that into the passenger traffic stats that we've seen so far this year.
And the second half of your question was service business on the services business.
So on the Max impact, we have seen some impact of the of the Max.
Grounding on our services business things like engine Overhauls for example have been pulled back a bit as we have customers who are keeping existing airplanes in service longer because of the the the less capacity in their fleets, they're there they're deferring some engine overhaul work. So some ripple effect into our services business I Wouldnt say, its extensive but but some impact that we've seen but again, we expect that to be localized and temporary nothing that we're seeing is a long term trend changed.
Ladies and gentlemen that completes the analyst question and answer session for members of the media. If you have a question. Please press the star key followed by the digit one on your Touchtone phone I will now return you to the Boeing company for introductory remarks Bank Miss Antilles, Senior Vice President of Communications Miscellaneous. Please go ahead.
Thanks, John Good morning.
Continue with question for Dennis and Greg for those media. If you have additional query following the session. Please call our team at 31254 420 here too.
Operator, we are ready for that first question and then the interest of time, we ask that you limit everyone to just one question.
And first go to Julie Johnsson with Bloomberg. Please go ahead.
Hi.
Got a few you've talked in the past about how.
The next experience has been the last few months have been Tiering for you personally and that just an enormous challenge for Boeing.
And there's been some discussion of lessons learned and I think a lot of people would like to actually.
Here, a little bit more about what those are and what's changed in terms of how Boeing operates and.
And how it approaches designing and certifying aircraft.
Yeah, Julie let me, let me make a few comments on that and appreciate the question certainly it's been a challenging time for us as a company, but more broadly across cross the aviation industry and one I think this whole situation has certainly reinforced the importance that we place on safety and quality and reminded us of the importance of the work we do and.
We know that lives depend on the work we do and this is just further reinforcing that and reinforcing our commitment to safety and quality and in the end that is going to make us a better stronger company.
We are taking a look at all of our airplane design and certification processes end to end.
You know we have a board committee that we've.
Stood up and they're doing a lot of hard work right now looking through all of our processes. We also have a number of external government reviews that are ongoing looking at certification processes any learnings from that.
We will certainly incorporate.
Going forward.
And then we're also taking a look at things around communications and integration and how we can make sure.
Safety issues, if if if if found or recognize those quickly come to the surface can be dealt with that we have effective communications with our customers and all the constituencies that are involved.
And those are changes that we'll be making as well for any any lessons learned that this is all about ensuring that we have the right safety and quality culture for the future.
We have a very solid foundation of that today, but we also know we can always get better and Thats our focus.
Our next question from Eric Johnson with Reuters. Please go ahead.
Hi, Thank you guys.
So do I understand that correctly that you have to sell more triple seven.
Freighters.
To avoid a slowdown in triple seven output due to the triples on an ex delays.
And how easy is that.
At a time of global trade sanctions.
Yes, Eric as I said as we look at the the skyline mix through through 2020 with.
With the delay in first flight of the Triple seven axis, obviously going to put pressure on the entry into service timing, we're still holding.
2020 for first delivery, but we know there's clear clear pressure on that given the delays in first flight.
So we are taking a look at.
Production Skyline mix in the in 2020 and as we mentioned earlier, we anticipate that means we'll probably build more.
Current generation Triple Sevens Triple seven freighters in that timeframe. The good thing is the market signals are positive there we've made progress on.
Continuing to sell Triple seven freighters, including during this last quarter, we continue to see strong demand signals, there and so our ability to to maintain the production system at five a month and altered to the the delivery mix between Triple Sevens and Triple Sevenx. We're confident we can do that we have work to do to fill out the specific orders and delivery slots, but the good news is that the the triple seven bridge is strong and we continue to see a lot of demand for the triple seven freighter.
Next we'll go to Dominic gates with the Seattle Times. Please go ahead.
Good morning.
They usually have delivered today.
Gives us too.
Very different scenarios for production in rent.
The one.
Scenario, there is a possible shutdown and the other scenario you're ramping up from 42 to 57, a month in any year basically.
I just wanted you to address.
Hi, there looked like vector some optimistic.
Assumptions in there you're going to fly.
The plan in September is your hope, but usually after a flight test it takes weeks for the F 38 to process, the documentation and all that and analyze all the data from the flight test.
So it does seem optimistic that you would then enter service in October .
And then it seems equally optimistic that you could ramp up from 42 to 57 in a year you normally take.
A lot of incremental.
Pieces that take half a year to get from 42 up to 57.
So.
What is the trigger for which scenario happens in Renton.
If if you slip into next year for entry into service does that mean a shutdown.
Yeah, Dominic there there's no one specific trigger again as I said, we're laying out of a multitude of scenarios given all the variables in the in the schedule here.
Our current best estimate as we said is is to deliver our certification package, including the certification played in that September time frame.
And then returned to service in the early in the fourth quarter and you're right.
Post certification flight, it's typically a process it's measured in a number of weeks for the regulators, including the epay to evaluate all of that data to confirm it and to give us approval to underground the fleet and returned to service or we have taken our best estimate at that and factor that into the analysis and numbers that we shared with you today.
And we are assessing that on a daily basis, and working hand in hand with the FDA in this process and we are dependent on the epay and other regulators for achieving that that timeline and we're going to work very closely with them to do that.
If that timeline changes significantly we will have to evaluate these these other scenarios and there's no one specific trigger but know that we're going to continually look at this is what is the optimum solution for our customers to ensure first of all safety of flight.
And to help them return to service in a healthy way and while we do that maintain production system health, both within our own factory in rent and as well as our supply chain health that includes a very close focus on our workforce the health of our workforce stability of our workforce.
As well as all these other parameters around storage and other factors that play into the schedule.
We're going to continue to balance all of those.
To your point about our ability to ramp up later I I will.
To remind you that we are we have Bennett higher production rates previously so we have experience not only up to 57, a month, but at 52, a month and that experience that learning that understanding gives us confidence in how we can rate back up and we factored that into our analysis as well.
And I think you've also noted that even though we have stepped down to 42, a month and our production rate. We have held our workforce in Russia, and we place incredible value on our teammates there and the incredible work that they do and we're we're working.
Every dimension, we can to preserve that workforce and maintain that learning for future production system ramp up. So all of these things are factoring into our decision process.
Oh, that's going to conclude our earnings call. So again, if you are a member of the media you have an additional question. Please call our media relations team at TV, one to 544 200 too. Thanks.
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