Q1 2023 Boeing Co Earnings Call
Okay.
[music]. Thank you for standing by good day, everyone and welcome to the Boeing Company first quarter 2023 earnings Conference call.
Today's call is being recorded the management discussion and it's by presentation plus the analyst question and answer session are being broadcast live over the Internet.
Good question on today's conference. Please press the one followed by the.
Zero on your Touchtone telephone again, it's one zero part question. After pressing one zero you were here that you had been placed in Q.
One zero again would take you out of Q. It may 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 <unk>, Vice President of Investor Relations for Boeing Mr. Welch. Please go ahead. Thank you and good morning, welcome to Boeing's first quarter 2023.
Earnings call I am not 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 at Boeing Dot Com as always detailed financial information is included in today's press release. Furthermore, projections estimates and goals included in today's discussion involve risks, including those described in our SEC filings and in the.
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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.
Thanks, Matt Good morning, everyone and thank you for joining us.
We had a solid first quarter and we continue to make real progress steady progress in our recovery.
<unk> remained theres more to do but overall, we feel good about the operational and financial outlook shared last November including cash flow and delivery ranges set for 2023 as well as for the 2025 2026 timeframe, where we can see $10 billion in annual free cash flow.
Let's start with an update on our 737.
Our team has been working hard over the last week.
Been progressing in our early inspection of the affected airplanes.
The issue is understood.
It is isolated to two specific fittings.
And we know what we have to do.
The work will impact the timing of our deliveries over the next several months. However, we still expect to deliver 450 737 airplanes. This year. Unfortunately, the timing of these delivery shortfalls will impact summer capacities for many of our customers, but we feel terrible about that.
Deliveries and production will be lower near term, but we will recover over the coming months and we plan to increase our rate to 38 per months later this year.
As mentioned last week, we're also not changing the supplier master schedule to ensure that they can keep pace.
We're comfortable adding parts inventory.
Stepping back.
We appreciate that spirit properly notified us of this issue.
They are an important partner.
Working closely on our recovery plan and we are working in a very constructive way.
We will continue to work transparently with the FAA as always as.
As well, we will work transparently with our customers to support their fleet planning and scheduling requirements.
As we mentioned last week, there's no immediate safety of flight issue and the fleets and continuing to operate safely.
We will work diligently through this process together, we will prioritize safety, we will prioritize quality and transparency every step of the way.
Taking a wider view.
I couldn't be more proud of the Max team and the progress that we have made.
We now have over 1737, Max airplanes flying in the fleet.
And since our return to service the fleet is safely flown.
More than 4 million flight hours with exceptional reliability.
And with respect to China.
Our focus has been and is on supporting our customers and they were returned to service.
All Max operators have returned to flying airplanes in service and 45 of their 95 airplanes are back in the Sky.
In addition to.
C AAC released their 737 aircrafts evaluation report.
It's an important step towards the delivery of aircraft that are currently in boeing's possession.
We will follow the lead of our customers.
Moving to BCA.
I'll start with orders demand remains very strong across all of our product lines.
We booked a 107 net airplane orders in the first quarter and on top of this we were proud to announce major customer commitments earlier this year.
Air India.
190, 737, Max 2700, 87, and 10 Triple seven axis.
And Riyadh are the newly established airline in Saudi Arabia and Saudia.
Ordering up to 121 787 airplanes.
On the subject of deliveries with strong demand.
We're working to meet our customer commitments.
<unk> delivered 130 commercial airplanes in the quarter, including a strong month in March with 64 deliveries.
However variation in monthly deliveries remains high and we still have work to improve stability.
Of course that starts with the 737 as I mentioned earlier.
The subject of production. We are also steadily increasing rates across key programs to meet the robust demand.
And we will prioritize our stability and not push the system too fast and yes, we will pause when we are notified of defects.
On development.
We're progressing across all of our key development programs and certification timelines have not changed on the 737 dash seven dash 10, or the Triple seven X.
Now, let me switch to Bds Boeing defense.
Defense and space, we still have more work to do to improve our operating performance, but our portfolio is well positioned and our products are performing well in the field.
First quarter results were impacted by the added cost on the KC 46, eight tanker program driven by a supplier quality issue that we previously shared last month.
The good news is we understand it and we're progressing through that rework.
On the operational side, the tanker is continuing to perform its mission well.
Customers decision on the KC why is a great opportunity for us and.
And it reflects the capabilities to tanker is delivering for the United States Air Force.
On the demand side.
We're continuing to see solid order activity in the quarter, we booked two orders on the take or the.
The Apache and <unk> seven in.
In addition, we are accelerating the delivery of missiles and weapons in response to our customers' needs.
It's in line with our expectations at our portfolio and capabilities are well positioned to support the needs of the nation and our allies, both in the short and the long term.
Our defense business is well positioned and will continue to improve operational performance to more normalized levels.
The services business is now fully returned to pre pandemic levels are very proud of the team and the progress that they've made.
All things considered across the businesses.
We remain on the right path.
Well worked through most recent Max issue transparently and in partnership with our customers and our suppliers.
We're focused on the long term and we will continue to drive stability across the business and the supply chain.
In our November guidance, we did not predict significant supply chain improve it until well into 2024.
We remain in the same place today and share that same view.
That said, we've seen improvement in our line of sight is getting better every day.
Demand is strong and our portfolio is well positioned.
We have a robust pipeline of development programs and we're innovating in new capabilities to prepare for the next generation of products.
Lots of work to do but we're on track to restore our operational and our financial strength and.
And we still feel good about the outlook that we've shared both for this year and for our longer term.
With that I'll turn it over to Brian .
Great. Thanks, David and good morning, everyone.
Let's go to the next page and cover the total company results.
First quarter revenue was $17 $9 billion, that's up 28% year over year, primarily driven by higher volume in both commercial and defense.
Core operating margin was minus two 5% and core loss per share was $1 27.
Both big improvements versus last year due to higher commercial volume and improved operating performance.
Margins and EPS were negative driven by expected abnormal costs and period expenses as well as a charge on the KC 46 tanker program that I noted last month.
Free cash flow was a usage of $786 million in the quarter.
Significantly better versus last year, driven by the higher commercial deliveries as well as an advanced payment tied to lot nine on the tanker program. Another important award for the KC 46 franchise.
As we noted in our last earnings call cash was lower this quarter than the fourth quarter due to lower wide body deliveries and expected seasonality.
Turning to the next page I'll cover commercial airplanes.
Let's start with orders.
BCA booked 107 net orders in the quarter, including Zhao and if times are and we have a backlog of over 4500 airplanes valued at $334 billion.
Moving to the figures on the left.
Revenue was $6 $7 billion up 60% year over year.
Driven by 130 airplane deliveries with increases on both the 87 and the $3 seven programs.
Partially offset by $8 seven customer considerations.
Operating margin was minus nine 2%, which was significantly better than last year, but margins are impacted by expected abnormal costs and expect a period expenses, including higher R&D spending.
Let's take a minute on the 737 program.
The $3 seven had 113 deliveries in the first quarter up 31% year over year.
<unk> 53 deliveries in the month of March.
Picking up where Dave left off regarding the supplier fuselage item.
We founded the issue, we booked a non material financial impact in the quarter.
We understand the rework steps required and we've started repairs on several airplanes.
And although near term deliveries will be impacted.
We still expect to deliver between 400 and 450 730 Sevens this year.
April and <unk> deliveries will be lower.
But the first half monthly average will be about 30 airplanes per month in line with what we said previously.
The second half deliveries are expected to be around 40 per month with sequential quarterly improvement in the back half.
While the high end of the delivery of range is pressured ultimate performance will be dictated by the pace of the few slides recovery.
Regarding inventory.
We ended the quarter with approximately 225, Max airplanes in inventory, including 138 that were built for customers in China.
And roughly 30 dash sevens and dash tens.
Within these 225 inventory airplanes, roughly 75% or acquire the fuselage rework and the number of inventory airplanes will likely increase in <unk>.
And we still expect most to be delivered by the end of 2024.
On production.
We're completing airplanes and final assembly and expect to recover in the coming months.
<unk> bye fuselage availability.
We're supporting spirit through this recovery.
The manufacturing and engineering resources as well as a cash advance.
To support overall supply chain stability, we're not changing the master schedule, including anticipated production rate increases and we've contemplated any near term parts inventory builds into our forward look.
Within final Assembly as Dave mentioned, we expect to increase our rate to 38 per month later this year and 50 per month in the 'twenty five 'twenty six time frame.
Moving on to the 77 program.
We had 11 deliveries in the first quarter and still expect 70 to 80 deliveries this year.
We're producing at three per month.
And still plan to reach five per month by year end.
We ended the quarter with 95 airplanes in inventory most of which will be delivered by the end of 2024.
We booked 379 of abnormal costs in the quarter inline with expectations and Theres no change to the total estimate of $2 $8 billion.
We still expect abnormal to be largely done by the end of this year.
Finally on the Triple Seven X program efforts are ongoing both the program timeline and the abnormal estimate of $1 5 billion are unchanged.
With that let's turn to the next page and go through defense and space.
Including awards from the U S Air Force for 15, KC 46 tankers and an E seven development contract as well as 184 Apaches for the U S Army.
The Bds backlog is $58 billion.
Moving to the figures on the left.
Revenue was $6 $5 billion up 19% year over year, driven by the KC 46 tanker award.
Program milestone completions and underlying volume.
We delivered 39 aircraft and three satellites in the quarter.
And also began production of MH 139 Graywolf.
Operating margin was minus three 2% significantly higher than last year, but still negative driven by a $245 million pre tax charge on the tanker program, which I noted last month.
Let me give you a little bit of context on the overall bds portfolio.
Remember, 15% of the revenues in the quarter are the firm fixed price development contracts.
These contracts get a lot of attention and there is a commitment to derisk. These programs as much as we can as we move through the development cycles and into full scale stable production.
Next and importantly over 60% of revenues in the quarter collectively delivered double digit margins. We have many important programs that are performing to historical performance levels.
The balance of the <unk> revenue is made up of a small number of established programs that are experiencing negative margins on certain contracts due to specific near term supply chain and factory stability pressures that we've highlighted previously.
It'll take time to work through these issues and we fully expect that these programs will improve through the course of this year and returned to normal margin levels over time.
The Bds team is fully committed to delivering the development programs to our customers.
We've implemented new contracting disciplines accelerated efforts around lean manufacturing and we're investing in innovation and in our people all of which underpin our plans going forward.
Overall, the defense portfolio is well positioned theres strong demand across the customer base. The products are performing in the field and we're confident that our efforts to drive execution and stability will return this business to performance levels that our investors would recognize.
Turning to the next page I'll cover global services.
As Dave mentioned Bgs had another very strong quarter.
We received $4 billion in orders during the quarter and the backlog is $19 billion.
Looking at the figures on the left revenue was $4 7 billion up 9% year over year, primarily driven by our commercial parts of distribution business.
Operating margin was 17, 9% in.
An expansion of 330 basis points versus last year with both our commercial and government businesses delivering double digit margins.
Operating margins in the quarter were higher than expected due to favorable mix and we don't assume that will repeat.
In the quarter Bgs announced the first Boeing converted freighter line in India.
Delivered Eric caps 50 at 737 Dash 800, Boeing converted freighter and broke ground on a new component operations facility in Jacksonville, Florida.
Turning to the next page I'll cover cash and debt.
We ended the quarter with $14 $8 billion of cash and marketable securities and our debt balance decreased to $55 $4 billion. We.
We paid down $1 7 billion of debt maturities in the quarter and absorbed the expected cash flow usage driven by seasonality.
We also had $12 billion of revolving credit facilities at the end of the quarter.
All of which remain undrawn.
Our liquidity position is very strong.
The investment grade credit rating is a priority and we're deploying capital in line with the priorities we've shared Jeff.
Generate strong cash flow invest in the business and pay down debt.
And flipping to the last page on our outlook.
The 2023 financial outlook is unchanged from what we've previously shared including $3 billion to $5 billion of free cash flow generation.
Commercial demand remains strong across our key programs and services.
Traffic in February increased over 55% year over year and is at 85% of pre pandemic levels comprised of 97 domestic and 78% international.
Defense demand is robust and the initial FY 'twenty four presidential budget is in line with expectations.
As Dave mentioned, our portfolio and capabilities are well positioned to support the needs of the nation and of our allies.
On the supply chain front as Youll recall, when we set out our 2023 framework last November we predicted the supply chain instability would likely continue.
The good news is that we planned for it within our financial and delivery guidance.
There is progress in many areas of the supply base, but we will likely face pockets of variability through the rest of this year.
We continue to make key investments, including higher inventory buffers and forward deployment of resources as we take appropriate actions to mitigate impacts and improve predictability.
From a quarterly perspective, we continue to expect financials to improve throughout the year.
On <unk>, specifically, we expect core EPS will be roughly in line with <unk> 23 performance absent the tanker charge as the 737 delivery impacts would be largely offset by higher wide body deliveries.
We expect free cash flow to be breakeven to slightly negative as we work through the $3 seven recovery.
All things considered we feel good about what's in front of us and we remain on track to achieve our long term guidance, including $10 billion of free cash flow in the 25 2006 timeframe with that I'll turn it over to Dave for any closing comments.
Yeah, not much to add just a reminder that in November when we did finally set out guidance.
For all of our investors.
We we described an environment that would continue to be strained through 2023 and through most of 2024, we still see the world exactly that way demand is as robust if not if not more than what we had thought back in November and so we remain confident so thanks for your time and let's take some questions.
Thank you.
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From Wolfe Research. Please go ahead.
Thanks, Good morning.
Dave.
All of these slip or escape at spirit. It sounds like it's been going on for several years actually so I think the natural question. We've been getting is why did it take so long to discover.
And how should we be comfortable that things like this won't continue to pop up, particularly with the F. A as a sort of renewed.
Zero tolerance for Noncompliant deliveries. Thanks.
Yeah Myles I appreciate the question.
You know this.
This particular defect.
I happen to take a look at it by the way along with the rest of my board, we happen to have our shareowner, leaving shortly after the issue came to our attention.
It's a normally defect that's in that <unk> section of our airplane and very difficult to visibly.
SaaS in fact, it is impossible to visibly assess once the process to do it is complete so without witnessing firsthand that process in action.
They're not likely to find it from that point forward.
The process was not standard.
And importantly, there was a ceiling that was applied on top of the fitting they've made it impossible to.
Notice any cracks so it's a it's just one of those again.
Safety implications the margins in our designs or provide for significantly greater safety protection.
So anyway.
I don't ever except and I Hope you don't think we might ever except that where these things go on but this one in.
In particular are very very difficult no matter, how many people you put in the field or the.
Spirit puts out there to see.
Anyway, the good news is.
We've now been through the unveiling of the of the issue.
Been through the rework procedures, both on the captured fuselages and our factory that have not yet.
<unk> gone through the subsequent stages and we've already looked at finished goods their airplanes, where we have to remove that fit in in order to get at it and these are all now defined work scopes.
And now we just get more efficient in the process of doing that rework and that's why we're confident our guidance, but again, we don't accept them. They are without a doubt over time, becoming more manageable.
And things like this.
I will celebrate the fact that an employee witnessed the procedure and raised his hand and said that doesn't look right that is the only way that we would have ultimately found out about it and I'm encouraging everybody in our supply chain, if they see something of that sort of raise their hand.
Thank you.
Yes.
Thank you. The next question is from the line of Sheila Cai Ahmed from Jefferies. Please go ahead.
Good morning, David Brian and thank you.
Maybe how do we think about BCA margins going forward, how do we think about the production trajectory you work impact compression frankly, an aircraft and inventory impacting BCA margin.
Yes, Thanks, Sheila for the question.
Broadly speaking as we said margins are will be a bit volatile this year and next as we do a couple of big things first we got to liquidate the three seven to eight seven inventory levels as well as shutting down those shadow factories.
We also have to move through the abnormal expenses on the 87, the triple seven and then prepare to ramp right. So it will be a little up and down.
As we move through and get out and get out of next year.
In terms of the near term you know I did indicate last month at the first quarter BCA margins would be lower than fourth quarter and that's for things like the abnormal in things like the lower volume.
<unk> will also be negative, but as we move into the back half of the year the margins will improve and of course as Dave mentioned by the time, we get to 'twenty five 'twenty six we still see a path to get BCA. It back to the double digit margins that you all recognize so we got to work through what's in front of US It's clearly did.
Find and we just got to execute.
Okay. Thank you.
Thank you. The next question is from Doug Harned from Bernstein. Please go ahead.
Thanks, Good morning.
Hi, Doug.
Hi on the 787.
On the path to reach five a month in Q4.
And then go to 10, a month in 'twenty five 'twenty six.
And you've also had some discussions that the rate could potentially go higher longer term now. This is all being done in Charleston, and if we go back a few years the maximum capacity of Charleston was seven a month. So as you go to 10 per month there.
Or higher what do you need to do in terms of investment and how would you expect margins for the 787 out of the single facility then compare it to what they were before the downturn. When you were operating out of both the Everett in Charleston.
So let me start from the back end and work my way towards the front end.
As you might imagine when you go from two to one.
With respect to investment it says a lot less to do with physical investment in equipment and more to do with how we route things through that factory today. Our factory is pretty constrained because we have this joined verification effort that has taken up lots of space both inside the factory and we.
Continue to do that work up and up and effort. So we have got to work our way through that we have a team that works full time planning the new routing in the factories and where we're confident we can get to 10 I don't think I.
Not only don't think we don't see a big demand on investment to get us from you.
What you noted is seven to 10.
It's just going to take us time, and we've got to remove that joined verification effort from our business and Doug as it turns to margin on the program margin side, we fully expect by the 'twenty five 'twenty six timeframe to have 87 margins that are higher than they were back in 18 and it will be because.
Things like this consolidation to Charleston, and also on the cash front on the unit margin perspective, 87 margins will get better on the improved dash 10 content as well as the benefits of that Dave described of consolidating in Charleston. So we think we got a good plan in front of US and we are very focused on 10 10.
The number and there's like execution its underwriting that.
Very good thank you.
Thank you. The next question is from Noah <unk> from Goldman Sachs. Please go ahead.
Yeah.
Hey, good morning, everybody.
Hi, Noah.
Wanted to try to ask about the 787 pace in the near term and then also in the medium term between now and the plan you've outlined for 25, So I guess, how many how many units are somewhere in process somewhere in a factory, but it seems like though.
These need to be reworked before you could then restart the sort of clean off the line units.
Brian It sounds like the averaging 30 for the first six months you kind of have implies second half of April is disrupted may as maybe heavily disrupted June starts to look normal again.
Is that all correct and then in the medium term in terms of the ramp.
There is some you know reputable press talking about this 38 being close to the middle of the year are wanting to be at 42 early in 'twenty four and wanting to be at 52 early in 'twenty five.
I guess, we know the demand is there in a scenario where the supply chain.
As relatively consistent is that at least what you're working towards.
Yeah, let's start with that back and so we.
We will have a plan to get to 38 in terms of subsequent ramp to higher numbers, let's let that take care of itself, let's focus on getting the 38 and we still believe that 50 is the number in 'twenty five 'twenty six and in terms of the.
Near term so in terms of what's in front.
Front of US, we know barrel by barrel and spirits factory and obviously, we know every one in our factory in terms of what's Gotta get done.
As if the.
The unit is not too far into the production side our production cycle.
The time to take to repair one of these days as you have the vertical fin on an airplane, obviously, it's more complicated and it takes more time, but we will sort our way out in the near term.
Getting back to production levels that are normal we'll be months in terms of the inventory that we've described the 225 fits.
<unk> finished goods inventory.
75% of those are going to have to have this fix the good news is is that this will not take us off our path to liquidate that inventory in the three 7% to 25 by the largely by the time, we get out of 2025, it's going to cost a little bit more.
Provided for that at 224, rather yeah liquid it by 2024.
It'll take a little bit.
More cost, but we factored that into our closing position in the first quarter. So all in all we think we know what's in front of US and worked closely with spirit and as we move our way out of the short term recovery then we get back to an area. We can start to get to the 38 and I think that for US. The biggest thing is that one of our call.
It it out and two we have not changed the master schedule and that's a big deal we want to make sure that the supply chain keeps pace as we move our way through the rest of the year.
Oh on the finished goods by the way it's two.
Two things to keep in mind one we.
We are largely through a couple of them already so and we are defining the scope of that work and again measured in a few weeks not not measured in months.
And so we're confident in that but the other thing to keep in mind on the finished goods as you know we have a big conformance.
Scope.
Now even without that effect a lot of that work can get done concurrently so it's not a pure add.
Right.
The finished I mean, the finished goods it would just seem like as long as you can rework faster than you deliver that doesn't change your pace and the deliveries were.
Turning to deliver deliveries from that wasn't enormous so that that makes sense. So that's why I'm sort of trying to get at what's <unk>.
In our factory, but I think I better understand it now so I appreciate all that color great.
Great. Thanks.
Thank you. The next question is from Rob Spingarn from Melius Research. Please go ahead.
Hey, good morning, just a quick clarification and then a question the clarification that the production rates, you're talking about 38 et cetera is that Britain only or does that include deliveries out of inventory from Moses or rather production out of Moses Lake on the mods and then the question is on the.
Pricing environment, just with the other guys sold out on narrow bodies and the 787 really being the strongest airplane out there on the wide body side, just from a demand perspective.
How has the pricing been on these big recent orders.
And how do you.
As we go forward here.
You broke up a little bit at the end of your question on pricing could you just.
So we're basically just asking with the sold out conditions in the narrow body side at Airbus How's pricing on the Max and then on the wide body side 70, seven's arguably the strongest offerings how's pricing there just given the demand situation.
Yeah, let me comment on <unk>.
<unk> it, particularly on the wide body world.
We still compete then we the deliveries themselves are important competitive factor in everything that we go for and then pricing follows so.
The implication that the pricing environment is firming as probably a solid point of view and we don't discuss pricing.
On these calls other than to suggest that is tied to the market is.
Each and every competition.
We all do what we Gotta do I I will say I'm very happy and pleased with the orders that we've won and I'm sure Airbus says the same.
And then a clarification question the first part.
<unk> 38 is the final assembly number so right now it's at 31 movement of 38 sometime later in the year.
So it's a ranking number yeah.
Thank you.
The next question is from David Strauss from Barclays. Please go ahead.
Yeah.
Thanks, Good morning.
Just following up on the on the Max issue I had as spirit fix the manufacturing issue from there there and in other words, our fuselages coming off their line clean now and when would you actually start to expect to see.
See those come to you.
Yes, there are they know the fix there.
I know the scope and they're going to start delivering clean ones imminently. So we feel good about what they've got to go do of course are the harder work is on our end for some of these in finished good inventory.
Okay. A quick follow up I think from the Investor day are I recall the are the pacing item ongoing to 30, a month being activating the third line in Renton.
Have you actually activate the third mine at this point, Yeah, you bet.
Great and we're still moving forward on the fourth.
Got it thank you.
Thank you. The next question is from Jason Gursky from Citi. Please go ahead.
Yeah, good morning, everybody.
Just a quick question on the outlook for orders in the commercial.
Business.
Just wondering if you could kind of provide a little bit of color on your expectations from a book to bill perspective for the year, given the pipeline that you're seeing and I don't want to get too far ahead of ourselves here getting the Max back up in the air in China's great deliveries or next but I'd also be interested to get your thoughts on the future for.
<unk> deliveries in China, specifically.
Yeah, let me.
Starting with the I want to make sure.
I wanted to speak out of both sides of my mouth here, if you don't mind number one.
All of our guidance all of our expectations are predicated on know China.
So everything that we've discussed by way of production rate supply constraints and demand in the marketplace does not factor that in I don't want to be clear about that.
On the other hand, we are working very hard to regain China, and if and when we're able to do that.
It takes risk out of the delivery of the finished goods inventory simply because there's less work to do in getting the airplanes to their original originally intended customer.
But it doesn't change.
Much by way of production rates or anything along those lines because we're already our rates all the way out to 50 and beyond.
We are constrained by supply they're not these are not demand rates I think I.
I think we could add plenty of if I, if I thought the supply could meet it so.
With respect to how I think we should think about.
Future orders.
All I know is that every next order in their sizeable and there are plenty in play as we speak <unk>.
Deliveries are further and further out so now we're out believe it or not in the Thirty's. So it's.
I think that's the best way to just think about it.
What does the backlog support in terms of deliveries over what period of time.
And right now where we're out competing in in years.
567 years.
Okay, great. Thanks.
Thank you. The next question is from Cai von <unk> from Cowen. Please go ahead.
Thank you very much so.
November Investor Day, you laid out a forecast of cash flow of $3 billion to $5 billion. This year and since that time, you've taken a couple of shelves you'll see the 737 you discussed the 767 and you mentioned because of the supply chain, having to build to higher inventories. So there were a lot of that.
Bad guys.
That revised number.
What are the good guys to get you home to stay in that number I know you had the $1 billion tanker advance, but you know are the advances from airline customers substantially better.
What are the good things in that forecast would allow you to maintain it.
Cai I'll, let me start with a reminder, and then I'll, let Brian mentioned, one or two good guys sort of the tanker advanced we had always counted on.
It made it come a little earlier because of a third.
Their need to get.
Get tankers in the field, but that was always counted on.
But what we what we did when we gave you that guidance.
We did not like I said expect the supply chain to come ripping back and we'd never have any problems.
So there was some judgment applied when we gave the range that we would have to live through some of these things now I would suggest that one or two of these might've been a little tougher than things, we were thinking about but not much and.
So anyway that was factored into our guidance and that will continue that that factor continues all the way into.
2024 so.
Brian you might want to comment on a couple of.
Just a couple of things.
Thanks for the question Cai.
On the first quarter.
Eight seven deliveries were a little light.
Make that back up and the rest of the year you mentioned the tanker benefit that's something that we always planned for later in the year. The customer just wanted to get it done a bit sooner, which we think is good so that's.
That's the first quarter and then in the second quarter as I mentioned will be in more of a breakeven position largely because of the 730 sevens that they're going to push out but again, it's going to be back half benefit in the second half as I think about the acceleration, it's going to be the three seven recovery the $3 seven rate ramp and.
There's going to be wide bodies that are going to accelerate cross the board Triple 787 hundred 67, So all of that's contemplated.
It still got high conviction in the long end of that range high it might be a little pressured but.
We're committed to delivering that commitment of $3 billion to $5 billion.
Thank you very much.
Thank you and the next question is from Peter Arment from R. W.
Thank you.
Yes. Thank you good.
Morning, David and Brian .
Dave I appreciate your comments on China.
I know you've derisked, the skyline out through 'twenty six.
Deliveries, but it seems like it's.
It is important steps.
Later made and I'm just wondering whether you.
See this out is that this next steps to delivery is that customer driven or is it still regulator to live and how are you have you tempered that thanks.
Yeah.
Again, I don't want anything to get misinterpreted here.
The China market, which in my view has always been the issue with respect to taking deliveries of airplanes has come back as robustly as any one might have imagined and domestic travel now is at the pre pandemic level and will continue to grow so they need airplanes.
So I'll just sort of state is the fact that our customers in my view are going to need more airplanes in the relatively near to medium term.
And this is a pretty easy way for them to satisfy that need so rather than get involved in any geopolitical discussion because no geopolitical discussion is actually required here.
We are we have orders on the books, we have airplanes on the tarmac and so this is just a nod from from the Chinese government that they would like to take delivery of their airplanes. So that is the situation as it exists.
And I'm going to stick with sort of my posture. If you don't mind that all of our guidance at all of our activities are going to assume that the best things don't happen and if they do then we will welcome that news and get back to all of you.
I appreciate it thanks, Dave Yep.
The next question is from Seth <unk> from Jpmorgan. Please go ahead.
Thanks, very much and good morning, everyone.
Dave I Wonder if.
Just talk for a second.
Context, I think the the current issue might might even predate the grounding.
But they've been struggling there on a couple of different fronts lately and the idea of moving to 38 and then to 50 is you can only go as fast as they can go and it's pretty understandable because I don't think anybody's had a more challenging three or four years then.
Then spirit.
Maybe you guys.
But how are you going to make sure that they're there to support that rate increase for you.
Maybe more broadly and then with a specific reference to the big labor contract that they have coming up in June .
Well I.
Yeah, I'll be optimistic about the labor contract I think.
As you might guess I suspect our workers know the situation they're in they know that they've got to deliver for Boeing.
My guess is they will all get too.
Palatable answer.
It's not my controls so you'll have to you'll have to ask Tom about that.
I'm confident in their ability to ramp with us.
We were on a steady course to keep them ahead of us in this ramp rate and they were on a reasonable course, there. This last defect will slow them down in measures in weeks and months not not in in years and will not impede their ability to get to our our rate increases.
We're going to stay present with spirit. We're in their factories were talking to there are people as I say, there's a couple of ways you can look at the <unk>.
This issue that came up like I said, it's normally it was difficult to find but an employee raise their hand and noticed a bad procedure and everybody jumped on it within a week. We had this resolved with the FAA, we had a clearer picture of the airplanes that were that were impacted and were all at work on the rework that is.
As a signal of a healthy supply chain not a weak one.
And so we're going to maintain that attitude, we're going to continue to work constructively with spirit.
Brian mentioned, you our willingness to advance them cash during this moment.
While they go through their recovery stages.
So.
Yes, we're going to stay constructive I have confidence that Tom and the team at spirit can get ahead of this.
And we have been on the rate increase request and supply chain requests with them for quite some time and we are confident they can get there.
Great. Thank you very much.
The next question is from Christine Li Wang from Morgan Stanley . Please go ahead.
Hey, good morning, everyone I'm following up on the supplier Master agreement schedule or sorry to supply a master schedule for the 737, Max how long will the supply chain be it a higher production rate than your final production rate.
And how much of that inventory built going to cost.
Yeah, it's a matter of months Christy. Thanks for question as a matter of months and the inventories all contemplated in our forward look and it's not anything we're worried too much about in fact.
Again, another indicator patient of how we're thinking about this we're perfectly comfortable.
Keep it everyone at pace and hold little buffer, we think thats, a better alternative than keep it a little bit too too close to the wire and we're going to keep having that posture and that's going to help us get the 38 and then beyond.
Great and a follow up on us what Seth question on the Labor agreement with Spirit should we see a production disruption at spirit, what our mitigating actions you could take.
And are.
Are there things that you could do to make it easier for you to meet your targets. It again, there is a production disruption at spirit.
Yeah, I'm not going to speculate on that I'm going to assume that our supplier.
And the workforce at our supplier are good enough some smart enough and can play in far enough ahead do not worry about that.
Great. Thank you.
And lowest we have time for one final question.
Thank you and that will come from Matt Akers from Wells Fargo. Please go ahead.
Yeah, Hey, good morning, guys. Thanks for the question can you touch on Bgs margins in the quarter I think this is like the highest.
You've produced since you broke that out yeah. I know you mentioned the mix was positive but can you see.
How much of that benefit was I think this is kind of like a mid teens margin pre COVID-19 should we expect it to kind of gravitate back to that level or if it would be kind of a little bit higher here.
Yeah. Thanks for the question.
We love the service business right. It's a franchise that goes on for years and years and years and you know the good news is is that as Dave mentioned on the commercial side, we are back to pre pandemic levels, that's a healthy sign.
And the team is very focused on profitable capital efficient growth and that's important to the services business. So I think we're set up very well a quarter a little bit a mixed benefit but overall, we're set up very well to deliver a mid single digit revenue growth business with mid teens margins and a high cash flow conversion.
Just like we set out in November and we get more and more confident about that business and the team that's running it. So I think it's going to accrue to our benefit over the next several years.
And if I just think that my short three years.
Or maybe it feels long.
We made a lot of changes to services.
We tightened up the capital discipline, and a pretty significant way they all leaned in favor of higher margin more intellectual property content in our work that we do and of course, we now have a supply constrained market around that so I'm not surprised these margins have expanded and I'm not.
Not expecting them to go down.
I think the team's doing a great job.
Great. Thank you Paul.
And that concludes our first quarter earnings call. Thank you everybody.
Yes.
Thank you and ladies and gentlemen that does conclude the Boeing.
First quarter 2023 earnings conference call. Thank you for joining.
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