Q3 2022 Boeing Co Earnings Call
Yeah.
Thank you for standing by good day, everyone and welcome to the Boeing Company's third quarter 2022 earnings Conference call. Today's call is being recorded the management discussion and slide presentation, plus the analyst question and answer session are being broadcast live over the internet to ask.
A question on today's conference. Please press the digit one followed by the digit zero on your Touchtone telephone again, it is one zero for questions.
After pressing one zero you will hear that you've been placed in Q pressing.
Pressing one zero again, we'll take you out of Q and maybe prevent you from being able to ask a question at this time for opening remarks and introductions I'm turning the call over to Mr. Matt Welch Vice President of Investor Relations for the Boeing Company. Mr. Welch. Please go ahead.
Thank you John and good morning, everyone.
Welcome to Boeing's third quarter 2022 earnings call I am that Welch and with me today are Dave Calhoun, Boeing's, President and Chief Executive Officer, and Brian West Boeing's Executive Vice President and Chief Financial Officer.
As a reminder, you can follow today's broadcast and slide presentation through our website at Boeing Dot com.
As always we have provided detailed financial information in our press release issued earlier today.
Projections estimates and goals. We include in our discussion. This morning involve risks, including those described in our SEC filings and in the forward looking 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 certain non-GAAP measures.
Now I will turn the call over to Dave Calhoun.
Matt Thanks.
Hello, welcome to everybody thanks for joining us.
We'll acknowledge upfront that our plans for the Investor Conference Middle of next week.
We're looking forward to them, we hope we can give some guide posts for the forward look in the Boeing company. So many of our comments today will be a little shorter than usual and focused.
Strictly on the quarter this quarter was a big one for us.
We hit a marker by marker we've said since the beginning of our turnaround effort in the beginning of 2020 and that was to generate positive free cash flow.
So we generated $2 9 billion in the quarter that puts us on the path that we projected for 2022, which was positive.
So again, a very important accomplishment for us and I think begins the real turning point.
For the company.
At the same time, we took a charge on our fixed price development contracts. These are contracts that we have talked about now repeatedly on there.
On these calls.
We believe as we as we always do that the charge that we took is meant to complete these contracts ultimately to deliver them to satisfied customers in the in the Air Force for the armed forces.
In a way where we're not embarrassed by them. They are what they are and we intend to deliver against these against these contracts and satisfy our customers.
Without a doubt and you've heard it from all of the earnings calls over the course of the week the supply chain inflation.
Labor shortages macroeconomic challenges are challenging for everybody.
That is reflected in these third quarter calls again the charges in our fixed price development world et cetera, all of that's embedded we're not anticipating or suggesting that the supply chain world is going to get much better in the near term. We expect it will continue to be challenged over the course of 2020.
23.
One of our problems is not demand demand is very strong it's strong across the portfolio of products and it's strong across the world with all of our customers why because their demand is strong bookings and pretty much every geography is strong with the exception of China.
China, but also there are concerns about the very can support the very supply constraints that we're all referring to.
Sort of forced them to want to get in line and get the orders and so that they have the lift they need as the world returns to some some normal state.
What's our job in this supply constrained world what was in the factories, we don't push the system too fast we slow down when we have to when we try not to compound problems that may arise from the supply chain or from our own shops. We've.
We've added more than 10000 people this year.
And we are investing in training and development to accelerate their experience curve and improve our productivity over time.
And we're driving stability in the supply chain, we've introduced all kinds of on site.
Technology digital tools to watch what they're doing but also we've added people to those organizations that are more challenged than others and we've increased inventory safety stock wherever we can.
Truth is it will still take time to normalize and our objective in the Investor Conference that lies ahead is to give you that projection as to how and when we think that is likely to happen.
Despite the challenges I'm very pleased with the progress broadly are eight seven deliveries have returned its a reflection on us focusing on the right things strict conformance with respect to our manufacturing processes is very important.
We've gotten it right and the delivery process has started and so far so good on the 737 Max.
Return to service again philosophy is one at a time.
Revenue flights exceptional schedule reliability, that's what we've experienced and that is why the folks who have leaned into the Max continue to lean into the Max and continue to place orders.
With us.
In total over the quarter 227 orders for airplanes West jet <unk> cargo Lux, China Airlines, just a few.
Again, very strong you probably have seen today, Alaska has is up their commitment to the Max and we greatly appreciate it from all of them.
And the strong demand and yet supply constrained world our inventory the fixed our finished goods inventory that we have is an asset not a liability not a liability and we use it to derisk that delivery outlook.
And as for China, We continued to de risk that's been our objective.
We still would like to deliver airplanes to China, we continue to support our customers. We continue to support the regulator as we all know the COVID-19 restrictions and policies in China.
Have reduced demand for airplanes in general and we hope that is what is restricting the the acceptance of our of the airplanes that they have on heart carmax.
But we also have clear eyed about the geopolitical risks that are out there and we are not going to.
Part <unk>.
New risks on our investors and we believe we can derisk, what we what we have.
We're progressing on our development programs the dash seven the dash 10, the triple seven dash nine and the dash eight freighter.
All of these are progressing well.
As everybody knows we are up against the deadline here at the end of the year. We remain confident that we can get an extension of that deadline. Because this is the safe answer and we've heard from airlines. We've heard from pilots we've heard from our workers associates and we know that the FAA has been putting in the work.
To certify these airplanes. So we remain not just hopeful but confident that we can get this across the finish line and then those airplanes as many of you know complete that narrow body portfolio in a way that allows us to compete head to head with our.
Porting competitor Airbus.
Bds.
Boeing defense, Yes, we have these fixed price development challenges, but we have a rich portfolio. We delivered four MH 139, Graywolf test aircraft to the U S Air Force.
We received contracts for additional KC 46, eight tankers for both the U S Air Force and the Israeli Air Force and despite the challenges on a real development programs.
The tank car T seven and MQ25, we still remain confident in our long term success and contribution.
Our cash.
Cash flow.
And then Bobby.
Borrowing services Bgs, just another very strong quarter theyre trying to keep up with demand the best they can they delivered their 100 <unk>.
Contracted.
737, 800, Boeing a freighter conversion to aercap.
We've got key awards in both commercial and defense customers and things are going well and the margins continue to expand.
And then finally.
We have not stopped <unk>.
Investing in our foundational capabilities, we had some pretty good examples of that over the course of the quarter.
We opened three advanced facilities across the country composite fabrication additive manufacturing and an important autonomy investment alongside M. I T.
And in Cambridge.
Also very excited about whisks unveiling of the world's first autonomous self flying four seat all electric vertical takeoff and landing air taxi.
There's a very bright future ahead for that and with respect to autonomy and its advancement in this world of certification. It's a very very important part of our strategy.
So, we're making great progress I feel good about our turnaround.
Do you think the cash flow numbers in the quarter or in fact, a marker for us we've been focused on it we will continue to manage the company on the basis of the cash economics that we support our investors with and that'll be that so I'm happy to turn it over to Brian now for for some color on the quarter.
Thanks, David and good morning, everyone, let's jump right in cash flow as Dave mentioned, our primary financial metric and it was positive in the quarter operating cash flow was $3 $2 billion in free cash flow was $2 9 billion, both up pretty significantly versus both prior year and prior quarter.
Essentially driven by higher deliveries and some receipt timing.
Revenue earnings are both impacted by charges in our defense business, where we took a $2 8 billion dollar hit across five of fixed price development programs, which I'll go into.
The macro environment challenges that Dave described required us to make certain adjustments, including a reassessment of future period cost forecast.
These adjustments are important to our go forward momentum as we Derisk, our defense portfolio and move to a more predictable performance.
And we still think about our performance in three parts and are positioning ourselves for an improving trajectory.
First we have reached important milestones across the business and made progress on commercial deliveries with the resumption of the 787 in August .
Also the 737 Max return to service is largely complete and we are derisking, the near term delivery skyline for China.
Next we started to see improvement in our primary financial metric or free cash flow.
This third quarter performance puts us on track to be positive for both the second half and the full year of 2022.
And finally, as we look to 2023, our operational and financial performance should continue to improve.
The acceleration will not be as significant as previously anticipated and our path to recovery is taking a bit longer than expected driven by the challenging macro environment.
But longer term there is a significant opportunity for our company to return to sustainable growth as.
As we liquidate the three seven and the 87 inventory, we improved execution on a derisked bvs portfolio and achieve certification on the Max Dash seven the dash 10, and the Triple seven next developed programs.
We look forward to sharing our plans at our Investor Conference next week.
Before getting into the financials I want to make a few points on the current business environment.
Slide three while the turnaround is taking a bit longer one thing that remains strong as demand for airplanes as the commercial market recoveries playing out better than expected.
We still see overall passenger traffic returning to 2019 levels in the 2023 to 2024 timeframe.
And although the economic indicators point to challenges ahead. This demand has proven resilient.
In August domestic traffic was at 85% of 2019 levels led by the U S Europe and Latin America.
Going forward, the recovery will be driven by China, domestic and international traffic, which remain below 2019 levels at 62% and 67% respectively.
In aggregate commercial passenger traffic was at 74% of <unk> thousand 19 levels, so even with economic headwinds, we see the strength of demand continuing as air traffic recovers to recovers to its historic levels.
In defence and space, we see solid long term markets, both domestically and internationally in the U S. There is broad support for increased defense spending in Congress to meet current challenges and internationally ongoing global tensions are driving our partners and our allies to announce plans for increased spending and <unk>.
<unk> capabilities for National Defense, and we're working hard to support their needs.
And services, our business is well positioned with a broad set of offerings and will continue to benefit from the growing commercial fleet.
Our robust cargo market and increasing defense budgets.
Turning to the supply chain constraints continue to impact production in both our commercial and defense businesses.
On the commercial side or focused on a few key areas, namely engine deliveries, which is the primary constraint to 737 production rate stabilization and subsequent increases custom.
Customers are counting on us to resolve the situation with our supply chain partners and we will.
We're taking actions to mitigate these impacts and support the supply chain and as Dave described we've increased our onsite presence at first year and sub tier suppliers to support work movement and address industry wide shortages.
And we are utilizing our own internal fabrication for surge capacity and managing safety stock inventory levels, and increasing where necessary to protect risk.
With overall healthy demand in our finished goods inventory and a diverse backlog, we feel well positioned to navigate the current environment and are confident that our product lineup as well suited to meet our customer needs.
With that backdrop, let's turn to the financials on slide four.
Okay.
Third quarter revenue of $16 billion increased 4% core operating earnings were negative $3 $1 billion, resulting in a loss per share of $6 18, largely driven by $2 8 billion of defence charges.
We generated $3 2 billion of operating cash flow a significant improvement from the same period last year, primarily due to higher commercial airplane deliveries and favorable receipt timing.
Also similar to the same period last year, we benefited from a tax refund of $1 5 billion in the quarter.
Let's move to commercial airplanes on slide five.
Third quarter revenue was $6 3 billion up 40%.
Primarily driven by the resumption of the 787 and higher 737 deliveries.
Operating losses of zero point $6 billion, and the resulting negative margin rate reflect abnormal costs and period expenses.
On the 87 program, we delivered nine airplanes in the quarter and have 115 airplanes in inventory.
The pace of deliveries from inventory going forward will be based on finishing rework as well as customer fleet planning requirements. We expect most of these airplanes to be delivered over the next two years.
We continue to produce at low rate and will gradually return to five airplanes per month over time.
Near term the supply chain remains a key watch item 487 production and deliveries longer term with more than 400 airplanes in backlog, we anticipate higher production rates due to the expected wide body market recovery.
As customers returned to medium term fleet planning, we continue to have positive discussions with our customers on the 87.
We recorded $330 million of 87 abnormal costs in the quarter inline with expectations and we still anticipate a total of about $2 billion. The most being incurred by the end of 2023.
These costs are driven by rework and production rates below five per month.
Moving on to the $3 seven program, we delivered 88 airplanes in the quarter below our previous expectations, primarily due to supply chain disruptions, which impacted factory flow time.
We continue to work towards stabilizing deliveries.
However, given our deliveries to date, we now estimate about 375 737 airplanes this year.
The monthly delivery trend is expected to remain in the low thirty's into next year.
We ended the quarter with 270, Max airplanes, and inventory down 20 versus last quarter.
There were 35 deliveries out of storage largely in line with our plan, but we also began to positioning for Max seven deliveries and built 13 airplanes in the quarter.
Of the inventory airplanes 138 are for customers in China.
We continue to explore options to remarket some of these airplanes as we derisk our near term delivery plan.
Based on our latest assessment of China, and the Dash seven Dash 10 certification timelines. We now expect most of the inventory airplanes to deliver in 2023 and 2024 with some moving into 2025.
Moving on to the Triple seven Dash nine program development efforts are ongoing and the program timeline is unchanged from what we shared last quarter.
We still anticipate delivery of the first triple seven dash nine airplane in 2025, and continuing to coordinate with the FAA.
Prioritize resources across our development programs.
We booked a $111 million of triple <unk> abnormal costs in the third quarter in line with our expectations and we still expect to record about $1 $5 billion of these costs through 2023, while the triple seven dash nine production remains paused.
During the quarter, we booked.
227, commercial airplane orders as Dave mentioned, the customers who are proud to serve.
In September alone, we received orders for each of our programs, including the the 737 Max The 767 787 Triple seven Triple seven X and at the end of the third quarter. We had over 43 4300 airplanes in backlog valued at 307 Bill.
Yeah.
Let's now move to defense space and security on slide six.
Third quarter revenue was $5 3 billion down 20% and operating margin was negative 52, 7%.
Results were driven by approximately $2 8 billion of losses on certain fixed price development programs.
KC 46, and VC 25 be made up the bulk of these charges at $1 2 billion and $766 million respectively.
We also recorded losses on the <unk>, MQ25, and commercial crew programs and saw pressures across other programs.
These losses reflect a comprehensive review of program financial estimates.
While some changes, resulting from new information or developments during the quarter.
Others were the result of our most recent assessment of estimated future performance.
Adjustments were primarily due to higher estimated manufacturing and supply chain costs as well as technical challenges, which are expected to continue longer than anticipated.
The cash impact of the losses, we've recorded year to date are now heavily weighted in the near term, resulting in a cash flow usage at Bds for both 2022 and 2023.
While current performance doesn't reflect where we'd like to be for sure.
We're focused on driving execution stability. These programs have an outsized impact on Bds margins and will be key to margin recovery in future periods.
On the demand side, we received $5 billion in orders during the quarter, including tanker awards from both the U S and Israel, resulting in Bds backlog backlog of $55 billion. Additionally.
Additionally, the Apache helicopter has been selected by the Polish military.
Now, let's turn to global services results on slide seven.
The global services business had another strong quarter, primarily driven by our parts and distribution business.
Third quarter revenue was $4 4 billion up 5% and operating margin was 16, 5%.
Results were driven by higher commercial volume and favorable mix, partially offset by lower government volume.
We received $5 billion in orders during the quarter, including a tanker support contract for the Italian airports and in F. F. A dash 18 depot expansion contract.
The bgs backlog is $19 billion.
With highly valued commercial capabilities and support for our defense portfolio. Our service business is positioned to see continued growth.
<unk>, what we've seen so far this year, we anticipate healthy total services top line growth for 2022 and similar growth in 2023.
Now, let's turn to slide eight and cover cash and debt.
We ended the third quarter with strong liquidity with $14 $3 billion of cash and marketable securities on the balance sheet and improvement of $2 $9 billion. Since the end of the second quarter driven by free cash flow generation.
During the quarter due to our improving cash flow and business outlook, we chose to reduce the size of our revolving credit facility capacity from $14 7 billion to $12 billion, which remains undrawn.
Year to date operating cash flow was a generation of $55 million and free cash flow usage year to date.
$841 million we.
Specced, our primary financial metric free cash flow to be positive for the fourth quarter and the full year driven by commercial deliveries.
Our debt balance is consistent with the end of the last quarter at $57 $2 billion.
Our investment grade credit rating is a priority and we remain committed to reducing debt levels due to strong cash flow generation over time.
In conclusion, while we have more work to do we are executing on our turnaround and we've come quite a long way over the last three years, we remain.
Focused on our own performance and taking the right actions to drive stability and growth for the future.
We also continue to invest in key capabilities that will lay the foundation for the future and through it all our team is demonstrating exceptional resilience and dedication more work ahead, but we're confident that we're on the right path.
With that over to Dave for closing comments.
Yes ill keep it short and sweet.
Turnaround we've been on a turnaround we've made very important progress with our regulators. We've made very important product progress with our customers and even more importantly, the flying public and now we're wrestling through supply chain constraints and when we get through it all we will get back to normal and ultimately deliver what our shareholders are expecting so.
Leave it at that and open up to questions.
And ladies and gentlemen in the orders that you question be clearly heard we ask that you not easy speaker phone cell phone our 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 senior signal can reach our equipment as a reminder, in the interest of time, we are asking that you limit your.
Yourself to one single part question. Our first question comes from Sheila <unk> with Jefferies. Please go ahead.
Oh good morning, David.
Actually let me turn the call with comments around the supply chain challenges and respond and we talked about it last fall during 2020.
Inventory and it's mostly angle.
So the steps that <unk> pulp mill and can work with suppliers to resolve these threats and how do you expect that tails impactful output and ultimately delivery.
You mentioned low 30 next year on the Max Historically, you said April Pan out of inventory. So how do we think about the production pipeline there.
Well, let me start with steps so I'll, let Brian maybe.
Quantify Betsy Tim but I.
The steps are there.
There is clear as they can be we've been talking about this for quite a while we get on regular calls with our counterparts at the engine suppliers and as you know in our case, it's predominantly CFM and then GE broadly across the wide body fleet et cetera.
So we literally go down through all of those schedules inevitably comes down to castings and.
The support that they get from the two big casting suppliers. So the best thing I can say now is that we are we are clearly on the same page ourselves and our suppliers. We are taking steps to increase and a very gradual and I hope our disciplined way the.
Crease in rate with respect to castings, and then ultimately from engines to us.
I don't want to predict outcomes on that front I think the most important thing is we're not being surprised as frequently as we used to be and I do think the <unk> engine suppliers are getting there.
Arms around things in a much better way than they had previously so.
That's really the situation as it is I am confident that the industry will step up but it will take more time than that I, probably had hoped when we started these conversations and I suspect it won't be till we get to the sort of end of next year before we can really make sizable rate increases.
With respect to that constraint.
And what I would say is that my comment on being in the low Thirty's you know year to date, we've been in the low thirties and as we turn the quarter into next year that all of a sudden is going to snap up to 40 type number so it's going into the year.
Going to be constrained as Dave mentioned, largely by the engines and it'll be that low <unk>, but as we get through next year.
That rate will go up and we'll talk a lot more about that next week.
Great. Thank you.
Next well to Myles Walton with Wolfe Research. Please go ahead.
Thanks, Good morning.
I'm wondering on the defense charge, obviously, you've gone through a number of these but they sort of keep growing in magnitude and was there anything different tripwire wise that triggered the size and the expansiveness of this charge and I know you gave more color on the slip out of the tanker, which seems to continue to happen, but maybe it.
Was there a tripwire number one number two this.
This for.
<unk> losses that accumulate on the balance sheet the size of the headwind in 'twenty three versus what you experienced in 'twenty two would be helpful. Thanks, Yeah. Thanks, Myles, let me get the last part it's going to be about the same in terms of the headwind to answer your last comment.
No.
Our bds portfolio of the 85% of the of the business is doing pretty well. It's it's these.
Fixed price development programs that.
Unfortunately, we're working our way through.
We had a count for recent performance, including a reassessment of our forecast cost to complete there's no doubt about it.
The biggest impact was the tankers you mentioned at $1 2 billion and it was driven by two things.
The supply chain constraints, and specifically part shortages.
It had been persisting and they likely will assist longer than we had contemplated and then two this labor instability as you know all airplane programs contemplate a learning curve improvement over time, and we adjusted our assumptions because labor stability as an issue that is likely to continue into the future we can hire.
It's getting the workforce trained and up to speed and then we had account for in this particular period.
We applied the similar framework to the VC 25, B, where the labor stability issues are magnified because of the requirement to get secured.
Security clearances.
And Thats also contributes to schedule shifts so those are the two big ones.
And it's just at this moment the provision reflects what we think is likely to happen in front of us. The other bucket really relates to what I would call true development, which is <unk> 25 to seven and commercial crew, we did adjust for similar macro constraints where needed but there is also a recognition there is technical challenges there were.
Organized through and sometimes impact schedule, but overall, we feel very confident about those programs long term and the benefits that we'll accrue once we get them out in the market.
So there is no doubt that we derisk these programs on the two big ones.
For the next two years and I'm, not suggesting perfection, but we've definitely lowered the risk profile for the smaller programs in some cases, we derisked even longer.
I think that the thing we got to keep in mind is that our mandate is to stabilize and now deliver very important products to our customers who need them.
Anyway.
Okay, and then just a quick clarification on the tax refund you've had one last year. This year do you anticipate another one next year no no.
No.
Okay. Thank you.
Our next question is from David Strauss with Barclays. Please go ahead.
Thanks, Good morning.
Brian you made the comment that.
I believe the recovery is not accelerating as fast as you expected I'm sure you'll you'll give us a lot more on this next week, but maybe maybe some broad strokes as to what that means in terms of.
The trajectory of free cash flow generation from here and your ability to Delever as you have a fair amount of maturities coming due in the first half of next year.
So I'd answer that question, we are confident that we will be able to satisfy the maturities in front of us and we'll talk a lot more about that but given.
Given the fact that where we ended the quarter.
With our cash balance 14 plus billion dollars.
Plus being able to be cash flow positive in the fourth quarter.
That's not a concern.
In terms of the rate of change.
We have a supply chain.
Dave mentioned that we've been dealing with and its been reflected in our commercial deliveries through the course of the year and we're working our best to stabilize and get more predictable.
But.
While it may not be quite the rate of acceleration going forward momentum is going to improve.
Just could take a bit longer and we're going to share a lot more about that with you next week, but in terms of our liquidity position and what's in front of us.
High degree of confidence.
Okay quick follow up Lee.
The airplanes that you have in inventory for China, how many of you how many of those have you re marketed at this point.
While there are active discussions with customers about that topic more to come in terms of things getting finalized, but it's an active discussion so that we can.
No longer defer that decision and actually start to think about how we liquidate that.
And in terms of our.
Working capital improvement and cash flow.
More to come.
And we'll keep you updated.
Thanks very much.
Next we'll to Peter Arment with Baird. Please go ahead.
Yeah, Good morning, David Brian .
Hey, Dave maybe I could just circle back on the China question that David was just talking about have you seen any kind of.
Positive movement from from customers over there regarding you know wanting to Max and right now you're up to 51% of the store fleet.
It is tied to China with a 138 aircraft and just how youre thinking about that because that obviously that percentage is going to continue to grow.
Yeah, So I'll start with my hope my.
My hope is that.
That these two big geopolitical forces get together and endorsed free trade again in the Covid policy ultimately lightened sometime in the future in China. So that they can take more deliveries of airplanes. So we're going to keep supporting our customers keep support in there. They're regularly later every step of the way.
But we're also going to take steps to Derisk I have not gotten a single signal and I am surprised by it theyre going to take deliveries in the near term. So we are going to continue we're going to we have begun and we're going to continue to re market.
Airplanes as we move forward and we're confident that there is a market for it not a little market, but a big market in some ways. There are a lot of ways. We can take advantage of it I would prefer not to take advantage of it I'd prefer to just reinstate deliveries with our China customers, but anyway. That's the course, we're on it it hasnt really changed much.
But it's it is really hard for me to find signals that things are going to change in China and move in our direction. So so hopefully that will give you everything you need here in terms of the way we're likely to move.
And just as a follow up Brian just the eight to 10 out of storage is that still a good number on it on a monthly basis, yes.
Yes.
Yeah.
Thank you.
Our next question is from Ron Epstein with Bank of America. Please go ahead.
Yeah, Hey, good morning, guys. Thanks for thanks for the time.
You mentioned on the call that your primary focus metric is going to be free cash flow.
In the past focusing on free cash flow got the company to where it is today that didn't and very pretty high.
How are you viewing that differently than how it was viewed in the past.
Dave you were on the board when the auditor's decisions were made in the past so.
What's how are you going to view this cash focus different then.
Than you did.
Call it.
Ryan I'm not going to comment on the past I'm not sure that is helpful to anybody.
Our need to focus on free cash flow as a result of having taken a significant amount of debt on in light of the crisis that we that we had some self inflicted some definitely COVID-19 related as it relates to the marketplace and all the things that we've had to contend with as we took on a lot of debt shareholders.
So it would be great. If you got rid of that debt sooner rather than later and so we've been focused on free cash flow. It is a great metric period in terms of how we measure that all of our people and the work that we're doing it does not suggest that we have stopped investing in new capabilities that will ultimately differentiate this company and bring it right back to the.
Leadership role, it's always enjoyed so.
I'm, probably not going to take the bait.
I do have confidence that we are doing exactly what we need to be doing in the free cash flow metric is a very clear indicator of performance not just in the near term, but also the medium and long term, so I'm sorry, but that's the answer.
No that's fine and if I may just a quick follow on of the 77 do you have an inventory could you give us a sense on how many are ready to be delivered you know how many I have to be deep pickled how complicated process that is.
Well.
Thanks, Rod they all have to go through a prescribed set of rework or we've been very clear on that and we've contemplated.
What that is going to take and now it's up to our great team.
Charleston in an effort to get that work done and it's going well, it's early innings, but its going well and we have high confidence that they will get done what they need to do to get those inventory inventory airplanes.
In the customers' hands over the next two years.
Great. Thank you.
Yeah.
Next we'll go to Seth <unk> with Jpmorgan. Please go ahead.
Thanks, very much and good morning.
I just wanted to dig in a little bit more on this issue of engines and and castings leap deliveries were up significantly in the third quarter and it sounds like they see things getting better.
Haven't gotten the impression from Airbus that they're expecting quite they are pressures next year that you are it seems like they expect that things are getting better.
Is that because most of the leaves are going there.
And you guys have to wait longer or is there.
More to it or or are these increasing CFM deliveries is that not really enough to to help you guys.
Yeah. So.
Just in context things are getting better they are getting your hands around things and theyre beginning to project <unk>.
Forward.
The real issue for us is simply when I refer to constraints, it's because we have such huge demand for the airplanes that we wish we could do double the rates.
That is that is why we will refer to this as a constraint and the difficulty the measurement of where engines are going with respect to Airbus versus us easiest thing in the world that measure and so we're well aware of it and we don't see any indication that one's being favorite over another and then with respect to maybe suggestions that theyre not have.
Any trouble that's not not what the industry tells us and frankly, that's up for them to explain and to all of you and I'm sure. They will so I'm not worried about this is as the industry favoring one over the other it's too easy for both sides to measure and to hold people accountable.
And yes, it's improving but it's nowhere near where we all want it to be because the demands are demand on our airplanes is just so so strong.
Alright, Okay, and then just just to be clear then it is the engine that is preventing Boeing from delivering 730 sevens off the line.
Between let's say the expected pace of 20 months.
To be at a total delivery pace of low thirties.
First is the nominal production rate of 31 months, so they're only able to get you engines to deliver at roughly 2020 planes per month or so yeah. We're short of engines.
We have a clear picture of what its going to take to make it up and we'll get back on rate, but yes. The answer is yes.
Okay. Thanks very much.
And next we'll go to Noah <unk> with Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
No.
A lot a lot to work through but.
It seems like what underpins some large portion of your challenges is labor availability.
Both for yourself for the supply chain it seems like its behind a decent amount of the defense charges can you put some numbers on it how many people do you need to hire.
How far into that have you broken when you say you know it takes time to get somebody trained and seasoned how long does that take and do you have those numbers in the casting as part of the supply chain I mean, how many people do they need to hire and how far along are they in.
And where are all these people are going to come from given the macro level.
Openings versus workers gap.
Well, that's a big complex and macro question I'll start with us.
We have brought on 10000 people we are at our head count.
Level that we think can handle rate increases in all of the things that we that we need inside our own shop, we have significant training and development programs and investments that are being made as we speak so that we are productive with the introduction of all of these new people.
I don't have a number with respect to all of the supply chain constraints and labor shortages that they might have.
But a lot of our constraints.
And with those suppliers that represent constraints are labor related.
<unk>.
Like in the casting world.
A little more labor and experience related because you may know in the casting world that is not a simple process. It's not just.
Bring in people and start them up there is a real learning curve and cycle is needed to sort of ramp up capacity. So.
I can't I don't have a sort of a big number for you I wish I did.
I know this all.
All of US all of US in this industry are wrestling through these constraints, we try to compare notes, we're trying to help our suppliers on.
On the commodity side with our own contracts and the application of those contracts to their needs.
And then on the labor side anything that we can do to help them find people that that's what we do and we often second our send our own people out there to help them.
So it's this is just what we're in.
I think it's going to take probably all of next year before things really do begin to stabilize because we begin to see layoffs and other industries.
We definitely feel that in the software world.
We're not having any kind of trouble, bringing in the engineering resources that we need, particularly as it relates to software development because the rest of the industry that competes with US is beginning to soften considerably so.
I wish I had a big specific number and an easy resolution I don't this is what we're going to we're going to struggle through all year next year.
Okay.
Our next question is from Rob Spingarn with Melius Research. Please go ahead.
Hi, good morning.
Rob Dave a couple for you you've said numerous times today that demand is not the issue. So I was going to ask if you could talk about the developing wide body cycle and the environment for that and could mitigate some of the narrow body issues in China in other words selling wide bodies into China, and how might that influence your rate plan for 87% and triple <unk>.
And freighter.
It's a great question.
Number one I.
The wide body world is heating up there are some significant orders out there that we're all competing for.
So that's just a reflection of the markets that they that are returning.
Largely international base, but a lot of domestic carriers as well so anyway, a big robust.
The answer.
On China is just as you're suggesting in the premise that underlies it which is that as the airplane.
We're going to likely need from us more than any other they don't have a domestic alternative.
I don't believe there are singles provider from France can.
Meet those requirements, so and we do get orders, but they are.
I'd put them in the incremental category four airplanes large wide bodies freighters in particular from China.
Does that ramp up it's not something we're counting on but it could and if it does that will compete for a very crowded skyline. So.
Again, if you try to really does rebound and we can get the geopolitical tensions to come down somewhat.
That's going to present, another challenge for us on the demand and the supply front.
But one we would welcome and probably be upside to whatever guidance, we provide next week.
Okay, and just to clarify slightly different topic, how does this bds review differ from prior reviews. How confident are you that you've captured everything here.
Yeah, well it can I I'll start and then I'll, let Brian its Diane to talk.
Right.
So the best.
In fact set that we can give is number one were getting closer to the end of these programs. So we're getting work done we know more we see more.
We're also running out of time with respect to learning curve. So there is no time to develop learning curves. They take a couple of years. We don't have a couple of years. So we don't have any baked in learning curves anymore. We are simply saying the supply constraint supply constraints that we're facing today will not end until we finish.
So we're trying to assess these programs with real clarity and realism with respect to what we're experiencing now and not projecting significant improvements improvements in the future. So it's for me that sort of the set around it it's definitely the way we went into it and of course, Brian has been through every little detail. So Brian I'll, let you.
Add and how much to add other than you know.
We sit in this environment and you can't ignore these macro constraints and how they impact these programs and.
That's just what happened this quarter.
But the thing that we've done our best to do is de risk and de risk as Dave mentioned.
These assumptions and future cost forecast so we.
We like where we closed a quarter of our position.
We do it every quarter and we feel we feel confident this particular quarter. It really was to recognition of the very rapidly changing environment that it's persistent and can't assume it's going to get better anytime soon.
Thank you Paul.
Our next question is from Cai von <unk> with Cowen. Please go ahead.
Yes. Thank you for taking the question so.
I guess I kind of get the $2.8 billion on the development program, although that seems large.
Confuses me is that excluding the $2 8 billion all those mature programs.
<unk> F 15.
Patchy et cetera looked like they're a breakeven theyre, making no money when Lockheed and GE have their issues, but basically the mature stuff is doing okay how come.
Yeah.
Brian you probably ought to grab that one.
We saw across some of these other programs similar disruptions in terms of both.
Factories stability part shortages labor so those weren't immune at all it's just that they're not magnified in the sense that there are these big.
Fixed price development programs that have these reached forward losses embedded in them.
Okay.
Got it.
Sure.
You know in making comparisons across our companies. Our Bds is programs only it's not including the government services part of our business, which continues to run at reasonably healthy margins and does its thing. So I know you know that but I just wanna pointed out.
And then so I mean, we've seen sort of a whole sat here, we thought first quarter 900 million got it.
Now we have 2.8 billion what should we be looking for to see to feel confident that in fact, you guys really are out of the woods with Bds.
Better numbers better performance better everything so [laughter].
I don't I.
I don't want to tell you anything other than that our objective is to make sure. These tankers are doing the job for our military customer. That's that is it. That's all we're focused on and they are doing that and they are now permitted to do all the missions that they that are required. So we are knocking down risk and we are.
Implementing these programs and so.
So.
I am confident we're going to get where we need to get and you'll be confident when you see the numbers play out the way I expect them to play out.
Yes.
As you know better than anyone these are complicated programs lots of assumptions lots of moving parts.
Backdrop of a volatile environment.
We did our very best to Derisk.
Great. Thank you.
Operator, we have time for one last question.
And that will come from Doug Harned with Bernstein. Please go ahead.
Good morning, Thank you.
Hey, Doug.
Hi, I wanted to I wanted to go back to the Max.
Right and in engines because.
On the earlier <unk>.
Question earlier.
<unk> talked about.
Beliefs out there and you know we're looking at G. Just reported 347 leap deliveries for the quarter.
We are seeing Airbus finally, and they've struggled but finally that the leap powered.
<unk> hundred 20 seemed to be coming through.
When I look at if we look at the numbers and you at sort of the targeted production rate of 31, a month and look at what Airbus is doing it seems like CFM is finally, getting there and then on top of it.
We know that you know well over 100.
Leaps were delivered ahead of production before.
So I'm just trying to understand how the engines can be the main constraint here is there. Another issue. That's also slowing down the delivery rate or the I'm sorry, the production rate.
Hi.
Doug No.
I can try to reconcile numbers all I can tell you is I.
Personally witnessed alongside my counterpart at GE.
A reconciliation of our of the engines, we need to deliver the airplanes and the engines that are producing on weekly rates.
And so we just have we have a gap when we got we got room to make up and.
Yes, we're going to get there, but it's going to be it's going to be at a constrained rate and we know that and that's what we're trying to factor into our forward looks and that is what you will see when we get together next week. So there is no. There is no other constraint Doug with respect to our rate projections as others. There are.
Lots of weekly.
Constraints that just simply impact of stability of the line, but they are not going to be rate limiters, either either short term or long term it will boil down to <unk>.
<unk> and the competition for castings between Pratt and CFM.
And then if I can just follow on with one one more thing, which when you guided early in the year to positive free cash flow for the year was that including the assumption of this tax benefit that we saw this quarter.
Just wondering if you're thinking about positive free cash flow still in the absence of that sort.
One 6 billion additional benefit here.
It was contemplated Doug.
Okay. So that that that's part of the of the outlook you had okay sure.
Okay, Great alright, thank you.
Thanks, Doug.
Alright that completes the Boeing company's third quarter 2022 earnings conference call. Thank you all for joining.
Yeah.
We're sorry your conferences ending now please hang up.