Q4 2022 Boeing Co Earnings Call
Terrific story.
It is simply following the recovery of our industry in general and everywhere in the world. So we had a great quarter pretty much across the board. We continue to grow we took we continue to invest so that we are prepared to support our customers as a as they bring their airlines back back to where they were.
Before COVID-19.
So we will reaffirm our guidance and with this progress, which we feel good about both the financial and the operational outlook that we shared with you in November and.
And that includes the cash flow the delivery ranges that we set for 'twenty three as well as for the 2025 and 2026 timeframe.
Our realities are still the same a difficult difficult supply chain.
And while average deliveries met our objectives, we continue to face a few too many stoppages in our lines.
Simply so that was so that we do not travel work.
We run into supply chain shortfalls.
So those stoppages, while they are coming down are not where they need to be as we think about stable rates going forward.
I will I will not.
In this discussion and in Q&A highlight any one supplier within the supply chain that we're working with all of them. There is a significant amount of transparency.
In those discussions between between them between us and everybody is focused on the right.
Improvements that we have outlined two to all of you.
All things considered and reflecting on these last few years, we're feeling pretty good about where we stand heading into this year demand very strong portfolio very well positioned we have faced plenty of tests.
Number of orders all around the world with some of our toughest cash customers and we know this portfolio is well positioned.
We have a robust pipeline of development programs, including broadly across our defense business.
And we're innovating new capabilities that prepare us for the next generation of products.
One of the more significant achievements was recently announced by NASA and Theyre sustainable flight demonstrator contract.
This is a set of technologies that is intending to cut fuel emissions by up to 30%. Those are the kind of standards that in our view are required to ultimately launch a new commercial airplane wrapped in sustainability.
We've derisked the major aspects of the business and our performance is improving.
We're embedding lean across our operations to drive productivity.
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Achieve the kinds of targets that we've set out.
We've got work to do but we're feeling really good about our progress we're proud of our team and we're confident in the future.
With that.
Turn it over to Brian West.
Great Thanks, Dave and good morning, everyone.
Let's go to the next page and cover the fourth quarter financial results.
Revenue in the fourth quarter came in at $20 billion, that's up 35% year over year, driven by higher commercial volume.
Core operating margin was negative three 3%.
And a core loss per share was $1 75.
Both the margin and the loss per share were significantly better than prior year and impacted in the quarter by period expenses and abnormal costs.
From a free cash flow perspective, our primary financial metric was positive $3 1 billion for the quarter.
Up significantly versus the prior year on higher deliveries and strong order activity and up sequentially versus the prior quarter and a bit better than our original estimate.
I'll take a minute to go through each of the business units moving on to the next page with BCA.
BCA revenue in the fourth quarter was $9 2 billion.
That's up 94% year over year, driven by higher $787 to 737 deliveries, partially offset by 77 customer considerations.
On the operating margins they were negative six 8% in the quarter seemingly better than a year ago and in the quarter driven by abnormal costs and higher <unk> expenses, including higher R&D spending.
I'll take a minute to go through a few highlights on our major programs starting with the 737.
We had 110 deliveries in the fourth quarter and 387 for the full year slightly ahead of our estimate.
We ended the year with 250 Max airplanes in inventory.
30 of which were dash seven dash tens and we had 138 for customers in China.
We do expect the monthly deliveries from inventory to slow slightly as fewer airplanes will be available combined with some impact from the dash seven dash 10 builds.
We still expect most inventory airplanes will be delivered by the end of 2024.
On the 787, we had 22 deliveries in the fourth quarter and 31 for the full year.
We ended the year with 100 airplanes inventory most of which will be delivered by the end of 2024.
We booked $350 million of abnormal costs in the quarter, taking the total to date to $1 7 billion.
We're increasing the abnormal accounting estimate by about 600 million to roughly $2 8 billion in total as we will be under the five per month production rate a bit longer than expected due to a supplier constraint that has temporarily slowed production.
We still expect to hit five per month. This year are totally year delivery guidance of 70 to 80 is unchanged and there is no change to the 2023 cash flows.
77 orders were strong in the quarter and we've added 100 airplanes to the accounting quantity, which increases our GAAP program margin.
On the Triple seven ex the program timeline is holding and efforts are ongoing.
<unk> costs were $112 million in the quarter and there is no change to the $1 5 billion total estimate.
On the customer settlement front, we continue to make good progress resolving contractual issues on the three big programs.
The 737, Max is near the finish line with the vast majority of customers settled.
Of the original nine 3 billion set aside there's only 3% left.
On the 77, a year ago, we included a significant provision in the program, which has been very stable.
There are far fewer customers in the Max and we've already reached agreement with several all in line with our estimates.
On the Triple seven X there are even fewer customers and discussions are ongoing.
Keep in mind that the revenue and cash impact of these settlements will be over several years and all contemplated in both the near and long term financial guidance.
Finally on the orders front for BCA, we booked 376 orders in the quarter and have over 4500 airplanes in backlog valued at $330 billion.
Moving onto the next page I'll cover Bds.
Bds revenues in the fourth quarter were $6 2 billion up 5% year over year.
Operating margins were one 8% and if you include services defense margins would be 200 basis points higher to 4%.
There are two things impacting bds margins of the quarter.
First we felt the operational impact of supply chain constraints and labor instability.
Second we saw adverse timing of certain cost accrual true ups, including higher pension costs that flowed through the P&L in the quarter.
It's a big focus for the Bds leadership team to improve execution stability, both in the factory and in the supply base.
Some additional highlights as Dave mentioned, we're very proud of artists one successful mission to the Moon last November and.
And we delivered 45 aircrafts in the quarter, including the first <unk> to New Zealand as well as three satellites, including the first two <unk> and power units.
We received 7 billion in orders during the quarter, including a contract for two KC 46, eight tankers from Japan.
And an award for 12 Schnook helicopters from the Egyptian Air Force.
The Bds backlog is at $54 billion.
Moving onto the next page global services.
Bgs had another strong quarter, primarily driven by our parts and distribution business.
<unk> revenue was $4 6 billion up 6% year over year and operating margin was 13, 9%.
Commercial volume was very strong partially offset by some softness in the government space.
We received $5 billion in orders during the quarter, including an F 15 depot support order for the U S Air Force and we opened up the Germany distribution Center.
The bgs backlog is $19 billion.
Moving onto the full year.
The next page full year financial results revenue came in at $66 6 billion.
That's 5% up year over year, driven by higher commercial volume offset by lower defense revenue.
Core operating margin was negative 7% in the core loss per share was over $11, both a bit worse, reflecting the impact of defense charges taken earlier in the year.
And our free cash flow, we generated $2 3 billion.
Positive free cash flow in the year up significantly from the prior year, driven by higher deliveries and order activity.
Moving on to the next page.
I just wanted to put that $2 $3 billion of free cash flow in perspective.
As you can see from the chart on the left we've made a lot of progress over the last three years 2020 was a usage of $20 billion of cash <unk>.
2021 improved but was still a usage of $4 billion of cash in 2020 to $2 3 billion positive as Dave mentioned a lot of work that's been done and more work to do the team is pretty proud to get back to positive territory.
It's been the 737 return to service and the deliveries that are ramping it's been the 787 has been restarted.
The commercial market recovery, that's been a benefit along the way with a very strong order book, reflecting our customers' confidence in our product lineup and of course, our service business has held up incredibly well.
It was a good exit to 2022, and we expect momentum to continue for 2023.
Moving on to the next page cash and debt.
On the cash and marketable securities front, we ended the year with $17 2 billion up.
Up $3 billion versus the third quarter, and we had $12 billion of revolving credit facilities, all of which remain undrawn.
On the debt side, we finished the year with $57 billion in debt and as a reminder, our investment grade credit rating continues to be a top priority.
Our liquidity position is strong and we're very comfortable satisfying near term maturities and the overall plan continues to be deliver airplanes generate cash pay down debt.
Moving on to the next page.
2023.
Our financial outlook for 2023 is unchanged from what we shared in November .
Operating cash flow in total will be between four five and six 5 billion.
We'll reinvest about 1 billion and a half in capex.
For a net free cash flow of $3 to $5 billion in 2023.
As we start the year overall demand remains strong.
Global passenger traffic increased almost 70% in 2022, and we're at 75% of pre pandemic levels globally, and if you take out China that number goes to over 90%.
So demand is pretty robust and reflective of our order book.
Our priority continues to be execution stability.
And while we still see some disruptions in the factory and in the supply chain. We're hard at work with our partners to address these issues and ultimately focused on meeting our customer commitments.
On the segment operating cash flow same numbers November Bds, we expect to be a usage of between $5 billion and $1 billion of cash.
Bgs will generate between two five and $3 billion in BCA will generate between two five and $3 1 billion.
On the commercial delivery front 737 deliveries are unchanged.
And between 400 450 airplanes 77 deliveries are unchanged between 70 and 80 airplanes.
And we've added a couple of items on the expense front, we expect R&D for 2023 to come in at about $3 2 billion versus $2 9 billion in 2022. The vast majority of this increase will be in BCA.
We also have unallocated eliminations and other which would be relatively in line with 2022 at $1 6 billion.
One important thing to note is on the quarterly phasing. It will look very similar to last year as both deliveries and the financials will improve throughout the course of the year.
On the first quarter specifically.
<unk> will be an improvement over <unk> 2022, but remain in a loss position.
And cash will still be a usage in the first quarter, although an improvement from the first quarter of 2022.
Overall, we're squarely focused on free cash flow and it's so far so good as we enter 2023.
Okay.
Moving on to the last page.
2025, 2026 long term guidance.
Same pains, we showed you in November $10 billion of free cash flow is still our.
Objective and it is important to note that margins and EPS are important but they will be uneven over the next two years as we unwind the BCA inventory, we put the BCA abnormal costs behind us and we get the Bds margins back on track to its normal trajectory.
We're still confident at this plant is underpinned by things, we largely control one productivity to the commercial rate ramp three services growth and for the transition of key defense programs from development to production.
Overall, we're as confident today as we were back in November and we feel good about the way 2023, starting with that I'll turn it over to Dave for any final comments.
Yes, I think Brian the numbers speak for themselves, we couldnt be more pleased with the way the year closed with very few surprises we're heading into the year. We know the supply chain is going to be tough and constrained, but we also believe that we control that environment and it's our job to get ahead of it. So thank you we'll be happy to take some questions.
And ladies and gentlemen, and or does that your question be clearly herd. We ask that you would not use the speaker phone cell phone or phone headset. Please use your handset to ask a question if youre on a speaker phone. Please be sure. Your mute function is switched off so youre signal can reach our equipment as a reminder, in the interest of time, we are asking that.
Do you limit yourself to one single part question. Our first question will be from Peter Arment with Baird. Please go ahead.
Yes, good morning, Dave and Brian .
Yes.
Hey.
So congrats on the progress in the fourth quarter and the free cash flow generation and you reiterated obviously the long term free cash flow target of $10 billion mid decade, and the $3 5 billion in 'twenty three so Brian I guess on 23 can you just maybe talk around confidence levels around that expected free cash flow target, specifically at BCA and Bds like kind of what are the key risks to.
Call out I assume its supply chain around the guidance ranges and then just Dave unrelated question, but can you comment broadly on the pickup in Max flights in China, and our checks show 220 revenue flights that are scheduled in February and there is already 60 quite that occurred this month, so clearly theres Max activity, that's picking up in China.
Yes, Peter why don't I start with.
China your numbers are within the within the range of my numbers that is what's going on I think as everybody knows.
The opening up of China is going to be a major event in aviation in the aviation industry was already stressed in terms of demand broadly in the world. So this is this is a serious bump for everybody, but most importantly within China, they need to match supply to satisfy those demands. So we're going to do there what we do.
Here in the U S and <unk>.
Focus on the airplanes they have on the tarmac today, which is close to 100 airplanes, but readiness of each and every one of them and ultimately they are getting into full revenue service. So for six months I think thats. The course for all of US to stay focused on and then we're going to take up the question of deliveries and is there a moment in time or that begins to come back.
I don't want to predict that date, Peter but the odds go up every day, our Max gets back into service.
The airplanes that we have on our on our climax.
Hopefully, we get ready and delivered to our customers. So.
There's a reason to be optimistic we will not change guidance and or predict those outcomes until they actually occur.
And Peter on the cash flow the three to five again, we feel very confident with that range.
The key underpinnings will be the deliveries that we talked about the three seven.
At the low end assumes that we don't get much better through the course of 2023 than we did this past year, which is low 30 for the whole year.
At the high end it actually says we do low thirties first half and then low 42nd half.
So I think that all of that is within the mix.
Recall, we had a big December one caution is that December was kind of over 50 on the on the Max's, but October was not quite that high in an indication that we're still not stable, it's still bumpy, but we still feel good about the overall trajectory in terms of being able to hit the 400 to $4 50 and on the 87. Similarly.
<unk> feel good about where we landed and where we're headed to hit the 70 to 80, which underpins pretty much most of the cash flow for the BCA. Those two product lines and then Bds no change to what we thought things playing out pretty much as we expected.
Appreciate the color. Thanks.
And next we'll go to Doug Harned with Bernstein. Please go ahead.
Thank you and good morning, Doug.
When you look at the.
The Max right now the good news is you don't have a demand problem.
And then as you guide to 31 month's production in 2023, and our assumption is that if you had an engine deliveries higher you can move up from there, giving given that your facilities and staff for 38.
And if you look at the 2025 for 2026 timeframe when Youre guiding to 50 a month.
You were $1 57, a month, so that would not be new territory.
So what I'm trying to get at is when you look at these two years.
Clearly there are supplier issues in 'twenty, three but is it feasible that you could see that production rates go higher.
And if so what would you want to see and I look at 23% and 25 differently since 25, I'm, assuming we'd be out from under a lot of the supplier issues.
Yes, Doug again now.
I don't want to conjecture too much but the two essential things too.
Achieve that kind of objective.
Number one are we facilities at that kind of rate and the answer is as we progress through this year will be yes.
Number two and by far the more challenging is our.
Are we going to be stable month to month quarter to quarter.
Predictable, where the supply chain and the buffers that we put in place with respect to that supply chain are adequate.
As a harder tougher putt.
It's going to take us all year to all.
<unk> demonstrated.
Right that stability can and will be achieved.
If I get to that and I hope I do we do.
Then I'll take on that conjecture, but for right. Now we are just squarely focused on that question of stability as Brian said, our fourth quarter was was good we finished well we didn't have a lot of surprises in December but if you look at the month to month in the quarter you can't be happy with that we are just a few too many stoppages along the way as you know our philosophy is we're not.
Travel anything anymore, we're not going to compound issues that occur.
And we're going to maintain that philosophy. So watch the month to month, that's going to tell you a lot about our willingness to consider the rates youre talking about.
Is that true and when you look out to the $25 26 timeframe obviously this.
Long way to go before we get there.
How do you think about just flexibility given there may be a number of scenarios.
Could come out here in terms of production levels.
Said.
Will we be facilities to handle that kind of volume at that stage, yes, we'll stay well ahead of that and Youll see things that occur.
This year that will demonstrate that so that's the part of it I am not so worried about again its stability questions and <unk> and then there will be a factor.
But we'll have to apply with respect to China.
We're going to have to believe we're back and we're back for good.
Okay. Okay, great. Thank you.
Our next question is from Noah <unk> with Goldman Sachs. Please go ahead.
Hey, good morning, everyone.
Good morning.
Yes.
I wanted to ask about supply chain can you.
I heard you, Dave that youre not going to mention any specific supplier here that in respect that but if you could provide any more detail on what's happening on the 787 is our new quality control escape or is it just pure timing delays visibility into that getting better any incremental detail. There would be really helpful. And then what's the latest from.
From the engine Oems.
You sounded a little better yesterday, but what are you guys here.
Let me start with the latter the engine discussion.
Again, what I'm really happy with is the transparency with which we are planning for rates.
With our engine suppliers and you know who they are predominantly one.
And I'm feeling good about that and we have plans to do it I don't think any of us are yet at the high confidence moment on that but we will and that progression.
Occur over the course of the year. When we are at high confidence then we're going to get to the kind of rates that are built into our guidance. We've got a low end at a higher end and.
We'll find out where were going to fit on that depending on it but the transparency transparency is amazing no one's out guessing each other because this market has been so strong no. One is second guessing the rates everybody knows these rates if we get to them will achieve them and then we can continue to move forward. So.
There's a lot of good but until we see it month to month and until we get to that high confidence moment.
We're going to we're going to.
Hold our production rate steady.
You are up to date on the 87 discussion yet so on the 87% so.
The fourth quarter was our first real full quarter in a while have been able to deliver airplanes both.
It's still at a low rate and also for amendments.
It feels pretty good and as we go into 2023 remember the scope of work is pretty clear what we have to do in terms of.
<unk> the inventory airplanes, but remember our suppliers have a part of that responsibility.
And there are scope, so bringing the suppliers the big suppliers along to make sure that they are conforming and they've got all the.
The protocols in place to get that done on there and it's something that we're working our way through.
It's going to take us a little bit longer than originally expected, which is why we are going to shift out going to five per month a bit later in the year, but we still see 70 to 80 in the cards and so far so good what you'll likely see is some good liquidation of the inventory as we go through the year and then obviously ramp up the factory as we get deeper into the year.
But net net the 70 to 80, we still feel good about.
Next question is from Myles Walton with Wolfe Research. Please go ahead.
Thanks. Good morning, just wanted to clarify a couple of things one Brian I think you mentioned 600 million higher abnormal costs and the 787 is that cash has had absorbed now in the 'twenty three unchanged free cash flow guidance and then also for defense. If you can just touch on your margin profitability expectation in rough magnets.
<unk> for 'twenty.
2023.
Sure.
So in terms of the first question.
We.
Yes.
77% abnormal.
There is no cash impact.
Part of that is just because part of that is just fixed cost absorption, but there is no change in the in the cash.
Outlook, it's not.
Not significant in that regard so we're holding on the defense margins so in the quarter as I mentioned.
We had some bump around from the supply chain constraints in some of the labor not just in the in the fourth quarter as well as some of the timing of accruals as I mentioned as we move our way into 2023, we clearly expect those margins to get better.
It's not going to be all the way back to what normal might look like but it's going to be improved sequentially and we feel pretty good about the lineup in terms of the product portfolio and as we.
Remind you is that the products are performing incredibly well with the customer. So we feel good about the underlying base. There's the Bds margins will get better and we're positioned for that as we head into the year.
Alright, thank you.
Next we'll go to Kristina <unk> with Morgan Stanley . Please go ahead.
Hey, good morning, everyone, Yeah, Hi, Christine.
Dave You mentioned the milestone order from United Despite the macroeconomic uncertainty in the near and medium term. So when you look at COVID-19, now approaching a rearview mirror, China reopening I mean, the demand for air travel has been pretty strong can you talk about what your customers are saying about.
New aircraft orders should we anticipate more airlines, making landmark audits like United and could we see BCA at a positive book to bill for the year.
Yes.
Again, I always hesitate to forecast specific orders.
I will say that we're involved in more big orders now.
Now than we've been in a long time I think last year was a big indicator for folks that big orders are out there.
The United One is in fact indicative.
Delta earlier.
There is just there are some.
Big interest in aviation I would say the majority now outside the U S as opposed to inside the U S and we're considering some big some really big things.
And we're in the midst of all of those so yes.
Yes, I have I am pretty optimistic I am not going to forecast numbers, because that's never healthy, but I do think over the next couple of quarters Youll see some big decisions made.
Both both manufacturers.
And Youll see some new new entrants.
Into the aviation World.
Aimed to make a real difference and again largely in the global markets.
Thanks, David if I could do a follow up.
With that environment that you described it sounds pretty robust can you describe the pricing environment for these order from Harvard compared to pre Covid levels, yes.
Well when you are in the midst of.
Of any one deal it feels ruthless.
But if you if you really do balance it out and.
I guess.
I credit both both manufacturers, it's been pretty disciplined through this whole COVID-19 moment.
And so you see very few reaches.
Sort of Crazy things that are out of the norm and now we're in sort of that supply chain constrained world, where people simply want to get positions.
So that they know they have airplanes. When the time comes recessions don't seem to get in the way because remember we're competing for deliveries out four and five years from now so they're not they're not really computing recession into that.
So anyway.
Again, I feel good and I also.
I'm going to guess that because it's always a guess that.
Pricing will stay disciplined.
Thank you.
And next we'll go to Seth <unk> with Jpmorgan. Please go ahead.
Okay. Thanks very much.
Good morning, and really I guess, just a little bit of a quick clarification. This morning, rather than a question just making sure to understand the difference between production.
And deliveries this year on 737.
Say the high end of the guidance is assuming low thirties and moving to high Forty's.
We're talking deliveries there and then with regard to production. When you say that you are kind of hoping to get to a place where you see some stability this year.
That's with regard to production in the factory and so that would make it very make it seem unlikely that the production rate is going higher than 31 this year.
Fair way to think about things, regardless of where that delivery shakeout.
You're right on characterizing.
Delivery.
Framework.
And I would say that as we move through the course of the year and we will have fewer inventory airplanes that will put a little bit more opportunity on <unk>.
Units come out of the factories, so production rate at the right moment could get higher we'll wait and see we're just going to stick to the range for now.
Alright, and then as a reminder, that we're not shooting for the low end of the range.
Right right and as far as that.
Stability that you are looking for how much at this point would you say it needs to come from improvement in the supply chain versus any improvement that's necessary and internal productivity.
Yes.
I don't want to suggest that we don't have our own opportunities internally we do.
Mostly driving cycle out and creating buffers in the right positions et cetera, all things that you would attached to a company that really practices lean. So we will we will make improvements there, but the lion's share of the rate discussions is going to be built around the supply chain and the capacity literally the capacity and capability of that supply.
To meet the new rates.
And as I said very transparent discussions it's almost entirely built around labor availability trained labor available ability as we move through.
Through the course of the year.
Hiring is not a constraint anymore people are are able to hire the people.
It's all about the training and ultimately getting them getting them ready.
Ready to do the sophisticated work that we demand.
Great. Thank you yes.
And next we'll go to Cai von <unk> with Cowen. Please go ahead.
Yes. Thank you very much could you update us on your efforts to certify the Max seven and 10 as well as the Triple seven X and as part of that.
The agreement to allow you to push out the certification dates of the 7% in the 10 I think you agreed to some to backfill some software changes on the existing Max fleet could you tell us how much that's likely to cost when did you take the accounting impact.
I'll take the last part of that to get that off the table.
The provision to retrofit the fleet was taken in the fourth quarter, that's behind US It was small.
Okay and there is a reason why it's small but.
I just I.
Hope everybody knows and understands how important it was to get those extensions in place in the legislation.
The argument was purely a safety argument.
We got a lot of support on both sides of the aisle and we got it done. So this gives us all the flexibility we need to get these airplanes certified under the existing applications and.
And we feel good about that we think first flights for the seven will be this year and probably for the 10 the next year.
So we like where that stands everybody's com the FAA nobody ever put pencils down. So we're just we're just going to progress and like always we're not going to tell you exact dates as to when we expect we expect those certifications. So all feels good and then yes. The legislation that was approved included some improvement.
That we put into our <unk>.
Our cockpit on the on the Dash 10 that.
That everybody agrees.
Our useful and helpful to pilots.
And those those.
Largely software adjustments will be incorporated into the entire Max fleet over several years as Brian said, it's not a large number but we provided for it. We're confident we can meet those objectives provided this chart and those improvements are are accomplished here in the next year year or two.
And the triple Southern ex Im sorry, Everything's on a course for the Triple Seven X.
And I think the only.
Issue that has created some concern over the last couple of years has been our agreement with the ASO and some of the design principles that we think we're making terrific progress with the answer and I think we will have a coordinated regulator regulatory approach to this and so we're staying on our targets.
Thank you.
And next we'll go to David Strauss with Barclays. Please go ahead.
Thanks for taking my question good morning.
Could you could you touch on the large pickup in 77 deferred the balance in the in the quarter.
What that means going forward for the cash outlook on the on the 87 and also Brian If you could just touch on the big pickup that we saw in <unk>.
BCA unit losses that is that just related to the higher higher 787 deliveries in the quarter.
Yes.
Deferred production balance that's basically the 787 cost base extension that I mentioned has an impact on program margins and Thats amplified by all of our finished goods inventory that's sitting there on the under the airplanes. So that's driving the increase.
And.
Your last question basically it is impacted by customer mix and the impact of customer concessions and considerations.
Okay, and a quick quick follow up on the.
I think you said 138, China airplanes in inventory are you still looking to to remarket those.
Okay.
Yes, but only partially.
<unk>.
As of now.
When you see the.
The results of that effort you can assume that we'll be on pause with respect to that until we get until we understand completely where China wants to go so.
The answer is yes, and Youll see progress.
But you'll also see a pause.
So that we can discern what China wants to do and hopefully thats good news.
Thank you.
Our next question is from Jason Gursky with Citi. Please go ahead.
Hey, good morning, everybody.
Brian just a quick clarification question and then one over on the services business on the clarification, you mentioned that margins at Bds tick up in.
In 2003.
But they will get back to the long term.
Margin rates that you expect on a normalized basis.
Just curious what the milestones are going to be for us to be watching out for on getting back to those normalized rates and then on the services business, maybe just a little bit more color on expectations for 2003 with regard to your expectations on growth rate and margins. Thanks.
Yes, sure on the Bds so.
Yes, as you mentioned long term high single digits is what we've talked about.
But in the near term the same kind of supply chain constraints and labor availability that we've talked about in the BCA world.
Impact the Bds world as well so.
When the current environment is less constrained and stabilizes that'll be a benefit and we expect it to happen partly in 2023, but the key thing to watch is just the stability of the supply chain is going to be a big big deal that we're keeping our eye on and thats going to be important as margins will tend to.
To accelerate.
The timing of the pace remains to be seen but it will get better in 2023.
On the services side, So we had a big year for the services business.
It's going to have to and part of that was based on the commercial recovery and we enjoyed the benefit of that in 2022.
Bgs.
Are there revenue.
They finished the quarter.
At a pretty good spot pretty clean basis, and if you just kind of think about that as how you would extrapolate into 2023 by quarter gives you a pretty good view of where we see that growth coming forward. So it will grow margins will be just fine right within that mid teen levels that we've enjoyed so we feel pretty good about the prospects.
The service business very stable continue to grow no surprises.
Great. Thank you.
Next we'll go to Ron Epstein with Bank of America. Please go ahead.
Hey, yeah.
Good morning, everyone.
Just circling back on.
About product development, and so on and so forth.
Like you mentioned at the Investor Day.
Boeing wouldn't be going forward with.
Middle of the market product probably sometime.
Sometime in the 2030.
How should we think about that in light of the recent win.
With NASA.
You Trust based.
The trust.
Transonic wing program and what that means because that could that be.
Some really technology on a new platform.
What are you looking forward to happen in the technology world to feel confident about doing something new.
So Ron.
Highlight three things that I think are going to.
Contribute to a truly differentiated new product.
One of them is the trust wings. So I'll refer to that now as you know that that is technology. That's been worked on for the better part of a decade decade alongside of NASA and the program that we've embarked on here is how do you commercialize it.
How do we put it through the right set of tests et cetera. So that in fact can be incorporated into new airplanes. So there's real intent there to be able to do it I am not sure it is going to be as good or applicable for <unk>.
Middle of the market <unk> wide body, but it will definitely have a role to play someday in the in the narrow body.
World. So that's number one number two you've heard us talk about the digital thread being able to create the digital model not just for the airplane, but for the factory and for the servicing but we are really cutting our teeth on a couple of defense programs.
That frankly, we're learning a lot every day all day, so that whatever we do on that next commercial airplane will incorporate the digital threat and it will be way more mature than than what it's been so far in <unk>.
Our discrete defense programs, so anyway, I feel very good about that and then the last major element has been the one that usually carry the day, but in this case I think we'll simply contribute to a better day and Thats propulsion technologies.
Bigger bigger bypass ratios and you probably know trust wing setup Trust wing setup will create that opportunity to a far greater extent than today's wing.
Because of the distance from the ground. So there are lots of reasons why I think.
These technologies can and will be proven and ultimately adapted and when you are considering a 50 year kind of program for any new airplane you have to think about this.
In our view the objective has to be somewhere between 25% to 30% better than it is today.
And that's what we're focused on and I think we have the time to do it.
And the technologies two to play out.
Got it and if I can just a quick detailed follow on.
What are you thinking about head count productions as we go head to head count projections as we go into 'twenty three.
How has it been in the labor market.
Kind of across the supply chain, which you hear is everybody needs more people and how has it been for Boeing and what are you doing to try to cross that bridge.
Yeah, Hey, Ron.
I want to be clear.
We have had no trouble hiring people none.
We're sort of at or a little above where we were in the days you guys all remember.
Because we've got so many of these rework apparatus is going on and there are a lot of people required to do it. So our job is to actually just take what we have incorporate all the learning from the folks who are doing the rework that will displace whatever retirements.
Or demographic issues that we have over the next couple of years, we have a pretty good setup on labor and a pretty good mechanism Ironically with these.
<unk> returned to service aircraft and the joint verification.
Pretty good mechanism to train mechanics train our people to do the job and on the engineering front man.
We've had a real good run.
Hirings over 10000, our job is to make sure that we just train them right get them involved early.
And get all the way so we are not facing a big demand or supply chain, probably still is working to hiring a bit but it's nowhere near as important as they're the training of the people that they're bringing in.
I've seen this thing really ease up in the last year like really ease up tier ones.
I doubt I doubt any of them are really fighting for talent any more.
And underneath that I think the supply chain are filling out it's all about now that training and development.
Got it thank you.
And next we'll go to rich Safran with Seaport and research partners. Please go ahead.
Dave Brian Matt Good morning.
Youre not going to be surprised I'd like to ask you about defense.
I wanted to know first could you broadly discuss your defense portfolio or the opportunity set and what we should be focusing on.
Just by example.
Noticed that AI double that you were discussing is C 17 C 130 recap.
Second to that could you also discuss the <unk> program in terms of expectations for deliveries production rates and also with margins on the program might be comparable to what we saw when you were selling the older models under Fms. Thanks.
Yes, So let me take this one let me address it at the portfolio level.
In light of the difficulties, we've had with the fixed price development contracts, which I consider more of a contracting.
Exposure as opposed to a portfolio exposure.
I feel really good about the portfolio broadly and there are reasons why.
That way.
We're fully invested as you know.
Autonomy I believe autonomy and teaming are going to be one of the real drivers with respect to airplane development Air Force Navy requirements going forward and we're already invested and we're making real progress with both of those.
Members of the fighting forces and I'm sure you know the programs that we talked about and there are others, we can't talk about which we're as excited if not more excited about so the long portfolio and the development that we have sustained over all these years I feel really good about we have the T seven trainer.
Way more important than just that market for trainers itself. Ultimately we think it can be used as a derivative to do other other things.
For the Air Force and I'm sure you know you know what that's about but maybe even more importantly, it's absolute poster child for our digital thread.
And it keeps teaching our customers how to think about the use of the digital thread and it's teaching us how to perfect. All the production technologies that we need to.
<unk>.
Take full advantage of the digital thread. So if I look at our just our sort of our wing fleets.
I feel very good about where we are and as you point out the F 15.
The new derivatives.
Boy are they are they are really important to our to our customers.
We feel great about the future it feels like a new platform frankly from my perspective.
I am not going to hand out production rates at this stage, but.
We're feeling pretty good about the international demand as well as our U S demand.
And you know in light of the only other choices.
This gets us.
Frankly more valuable.
Over time until until they're really new classified work ultimately is completed and brought to the market.
Anyway.
I feel quite good about the portfolio its development, where we stand in it.
And.
I am sorry, some of the contracting methods that we used in the early going here, but.
Anyway, we are where we are.
And I can't get off the page without talking about the tanker, which we all still believe very very strongly and again difficult contracting moment for us on the other hand utility to the to the Air Force has been fantastic.
The vision system.
Our commitment to it and then technologies beyond that allow for even autonomous refueling. These are these are things, we're fully invested and we believe in the growth of the.
Industry and the need with our customers so anyway.
There are other things in and you probably know a lot of that but there is a reason to feel good frankly on the development front with respect to Boeing's defense business.
So that Dave Yep.
John we have time for one more question.
Certainly and that'll be from Sheila <unk> with Jefferies. Please go ahead.
Good morning, guys and thank you.
I know, it's been asked a thousand different ways, but I don't know if I know the answer yet so.
Can you give us an idea of how.
Where you are on the Max and Stephanie that then from a cash per aircraft perspective, or how far that is below prior peak and is there a cadence of that profitability free cash flow as we think about production rates increasing supply chain impacts.
And just pricing as you get aircraft out of inventory.
Let me, let me take a shot at the <unk>.
Cash margins and let's start with the 787, so near term, they're pressured but positive and we've got to work through all of the things that we've been describing and long term.
Going to be higher than they were back in 2018, driven by productivity pricing and the dash 10 model. So the 87 feels like it's on the verge doing some real special stuff over the long term on the three seven.
Near term pressure because of all the supply chain things, we've talked about some customer mix things that we're going to battle through and possibly some impact of remarketing and then long term, it's going to be more or less in line with what it was before and the benefit being the productivity and the rate ramp. So that's kind of how we think about those two programs over time from a cash.
Perspective.
Sheila you really have to get through calendar year 'twenty four and then.
A lot of the cloud is a lot of the things that we've been wrestling with but things that impact.
Our margins in the Lumpiness, along the way that all begins to clear as we get to the tail end of 'twenty four and then as we think about 25% on I think that clarity will be apparent to everybody.
Thank you.
And that concludes our fourth quarter 2022 earnings call. Thank you for joining.
Thanks, everyone.