Q2 2023 Boeing Co Earnings Call
Okay.
[music], Thank you for standing by.
Good day, everyone and welcome to the Boeing Company's second quarter 2023 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.
Just a question on today's conference. Please press the one followed by the zero on your Touchtone telephone again, it's one zero for questions. After pressing one zero you will hear that you had been placed in Q Kristine ones. They're all again, we'll take you out of the queue. It may prevent you from being able to ask your question.
At this time for opening remarks and introductions.
Turning the call over to Mr. Matt <unk>, Vice President of Investor Relations for the Boeing Company. Mr. Welch. Please go ahead. Thank you and good morning, everyone. Welcome to Boeing's second quarter 2023 earnings call.
I am Matt 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.
And as a reminder, you can follow today's broadcast and slide presentation at bowling Dot com.
As always detailed financial information 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 forward looking statement disclaimer at the end of the web presentation.
In addition, we refer you to our earnings release or presentation.
And presentation for disclosures and reconciliation of certain non-GAAP measures now I will turn the call over to Dave Calhoun.
Thank you Matt welcome everyone.
Well I better make a few comments upfront with respect to the quarter.
The quarter was solid very solid or where all of our businesses. We continue to make steady progress on our recovery.
We do have challenges our supply chain, notably as as the most significant is steadily getting better.
Overall, we feel good about our operational and financial outlook, including our free cash flow and delivery ranges that we set for 2023 as well as for that 2025 and 26 timeframe.
We're particularly encouraged by generating $2 6 billion of free cash flow in the quarter.
Cash flow is the best metric that we have to measure progress against this recovery.
Very strong second quarter, and we're confident in the $3 billion to $5 billion target for the year.
I'd like to highlight a couple of updates around the business.
Commercial airplanes had a very solid quarter.
Demand remains high we booked 460 net orders in the second quarter.
And we're proud to announce or firm up T orders I should say.
220 for Air India, and we secured our commitment for up to 300 with Ryanair.
Broadly demand is strong and resilient.
The need for 42000 airplanes over the next 20 years is what the industry is telling us.
And with demand strong.
Supply side of the system is beginning to settle down.
Our focus remains on execution and driving stability in the production and the supply chain and we're making steady progress.
We delivered 136 commercial airplanes in the quarter.
Including 103, 730 Sevens and 27 87.
Given the progress through the first half of the year, we are on the right path to reach our 737 and 787 delivery guidance for the year.
And we are steadily increasing our rates on each program with focus on stability every step of the way.
With respect to the spirit quality escapes a work stoppage and the bridge impairment.
All have been contained it will be remedied as we exit the third quarter.
So it will cost us a few deliveries in the quarter itself.
We're also progressing across our key development programs for.
$737 seven the dash 10.
The triple seven acts in the Triple seven Dash eight F.
This quarter is a solid proof point.
We're beginning to stabilize our operations and are on the right path.
The financial results speak for themselves.
I'd also like to recognize our team and our customers on the 737 Max return to service.
This month, the fleet has fallen more than 5 million flight hours and over 2 million flight since returning to service.
All with exceptional reliability.
The return to service in China is now largely complete as well with more than 90% of the 737 Max aircraft back in service.
More broadly in China, we're in.
Encouraged by recent signs of progress.
It's an important market for us we're committed to our customers there and we'll be ready to deliver when that time comes.
Boeing defense.
In defence and space, we still have more work to improve operating performance.
But the portfolio is well positioned and we're making progress.
Results impacted by continuing losses on three fixed price development programs commercial crew a T seven eight and the MQ25.
Get us in the quarter.
On Star liner, we're in lockstep with our customer we prioritize safety and we're taking whatever time is required.
Confident in that team and committed to getting it right.
On MQ25.
Schedule pressure added cost to the program, but we've had some recent successes that give us confidence that we're heading in the right direction.
We're approximately 25% of the way through the build of our first MQ25.
Static test article fuselages complete with preparation underway for the start of static testing this quarter.
And on the T seven H b.
The impact was not due to any performance challenge within the quarter. It was more associated with our estimates for higher supply chain and production costs in the future.
Similar to what many in the industry are facing.
Even with the cost growth, we're hitting some key milestones on the program.
But the Air Force successfully completed its first flight of the T. Seven.
We're heading towards the start of a flight test in earnest.
We're looking at the program. If you look at the program from award to this moment, we've had some very important successes, we move from firm concept too early flight testing and just 36 months on this program in.
The combination of model based engineering, <unk> design, and our advanced manufacturing increased first time quality by 75% and reduced our assembly hours by 80%.
We're also making progress on another key Bds programs.
The tanker for example, we have now completed rework on the production aircraft requiring it.
And we have resumed deliveries to the air force.
As we move through each quarter, we're progressing through these contracts and getting closer to putting them in the rearview mirror.
Despite the challenges.
Hitting some important milestones that increase our competence. Most importantly, these programs will meet or beat the high performance standards of the.
Warfighter.
Given the fixed price nature of some of our contracts.
<unk> transparent about these financial impacts and we're working to stabilize to derisk and mature them through development.
Quarterly charges have declined significantly over the last 18 months.
It may inside of Bds is strong we see solid order activity in the quarter, we booked orders valued at $6 billion, including key contracts from.
In the U S Army for 19, Chinooks and Germany also shared its plans to purchase 60 chinooks.
We remain confident in our defense business demand is strong and we will continue to improve operational performance to more normalized levels.
Boeing Global services.
Another very strong quarter, both on the commercial and government side of Evs.
The revenue and expanding earnings and margin.
We're really proud of this team they've had solid steady performance and they've enabled both commercial and military customers to keep fleet flying through a very dynamic time.
Some of our highlights this quarter include expansion in Poland with a new parts distribution site.
Japan Airlines adopting Boeing inside accelerator, our digital predictive maintenance solution for the 787 fleet.
To wrap up my comments.
We've had no shortage of challenges pop up to the start of this year and we knew that would be the case.
Had conformance items that we've identified or external challenges within the supply chain, even logistic routes, including washed out Bridget.
This is a complex business, we expect items to come up when they do we're transparent we take action and we move forward.
This is what progress looks like we're proud of the team.
We are well positioned towards the year end for the long term.
Relative to the strong demand, we will remain in a supply constrained world for the foreseeable future.
And with that I'll turn it over to Brian .
Thanks, Dave and good morning, everyone, let's start with the total company financial performance.
Second quarter revenue was $19 $8 billion, that's up 18% year over year.
Growth was primarily driven by higher commercial volume, including increased 787 deliveries.
Core operating margin in the quarter was minus 2%.
In the core loss per share was 82.
Margins and EPS were driven by expected abnormal costs and period expenses as well as losses on three fixed price development programs in our defense business, which I'll cover later.
Free cash flow as Dave mentioned was positive $2 $6 billion in the quarter.
Significantly better versus last year, and last quarter, driven by higher commercial deliveries and favorable receipt timing.
Relative to our expectations shared at the last earnings call. The strong order activity in the quarter drove over $2 billion of favorable advanced payment timing.
Keep in mind most of this was expected to incur in the third quarter.
Turning to the next page I'll cover commercial airplanes.
BCA booked 460 net orders in the quarter, including 220 with Air India.
<unk> 39, with Riad Air and signed a purchase agreement with Ryanair for up to 300 737, Max Dash tens.
We now have over 4800 airplanes in backlog valued at $363 billion.
Revenue was $8 $8 billion up 41% year over year on 136 airplane deliveries driven by the 87 program.
Operating margin was minus four 3%.
A sequential improvement versus the first quarter as anticipated, but remains negative as we continue to be impacted by expected abnormal costs and period expenses, including higher R&D spending.
As Dave noted to be worked through a number of operational challenges. So far this year, we're making steady progress and will continue to focus on stability as we look to increase production on key programs.
On the spirit work stoppage, we were pleased to see a quick resolution and we will work through any limited impacts to production. Overall this is not expected to change our production and delivery outlook.
Under the programs.
On the 737, we had 103 deliveries in the quarter, including 49 in June .
A positive proof point that the production system is stabilizing.
In regards to spirit bidding issue that we discussed last quarter in May we resumed deliveries of reworked airplanes and also began producing newly built airplanes meeting our specifications.
In light of this progress we are now transitioning production to 38 per month.
And still plan to increase to 50 per month in the 25 26 timeframe.
As we move into the higher rate will continue to prioritize stability and it will take some time to consistently deliver at 38 per month off the line.
We still project full year 737 deliveries a 400 to 450 with sequential improvement in the second half.
We ended the quarter with approximately 220 Max airplanes in inventory. This includes 85 for customers in China and 55 that have now been remarketed as part of the plan. We've previously discussed.
We still expect most Max inventory airplane to be delivered by the end of 'twenty 'twenty four.
Moving on to the 87 program, we had 20 deliveries in the quarter and still expect between 70 and 80 deliveries this year.
We increased production to four per month during the quarter and still plan to reach five per month by year end.
We ended the quarter with 85 airplanes as inventory and rework is progressing nicely and we still expect most to be delivered by the end of 2024.
We booked $314 million of abnormal costs in the quarter inline with expectations and Theres no change to total estimate of $2 $48 billion, which is largely done by year end.
Finally on the Triple Seven X program efforts are ongoing and the program timeline is unchanged.
Abnormal costs were $136 million as expected and we've lowered our total estimate from $1 5 billion to 1 billion, which reflects plans to resume production later this year rather than early 2024.
Moving on to the next page and defence and space.
Bds booked $6 billion in orders in the quarter, including an award from the U S. Army for 19, CH 47, Chinook and the backlog is now at $58 billion.
Revenue was flat at $6 $2 billion, and we delivered 38 aircraft in the quarter.
Operating margin was minus eight 5%, primarily driven by three fixed price development programs.
The first was related to commercial crew tied to scheduled delays that we previously shared and had a $257 million impact.
The second on MQ25 related to a schedule shift that drove a $68 million impact.
And lastly on the T. Seven a production contract we revised our long term production cost estimates that will occur over several years, starting in the 2025 timeframe, which drove an impact of $189 million.
These determinations were mostly made over the last few weeks as we closed out the quarter.
Similar to last quarter, roughly 60% of the portfolio is generating solid levels of performance in line with historical margins.
We continue to see operational impacts from labor instability in supply chain disruption on other programs that contributed to lower margins.
Looking at Bds in aggregate it will take time to return to normalized levels of performance, we're confident and we're focused on the path to high single digit margins in 2025 26, they're.
The strong demand across the customer base.
He is well positioned and we're focused on execution.
Moving onto the next page, let's cover services.
Bgs had another very strong quarter.
Bgs received $4 billion in orders during the quarter and the backlog is $18 billion.
Revenue was $4 $7 billion up 10% year over year, primarily driven by favorable volume and mix in both commercial and government services.
Operating margin was 18% an expansion of 110 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, which we don't expect to continue at these levels.
In the quarter, Bgs announced an expansion to Poland with a new parts distribution site, a collaboration with CAE and its paying airlines has adopted the Boeing in say accelerator for their 787 fleet.
Turning to next page I'll cover cash and debt.
We ended the quarter with $13 $8 billion of cash and marketable securities and our debt balance decreased to $52 3 billion.
In the quarter, we repaid $3 $4 billion of maturing debt and provided a $180 million cash advance the spirit as previously shared.
Year to date, we've repaid $5 $1 billion of debt, which is essentially all of our maturities for the year.
We also maintained $12 billion revolving credit facilities at the end of the quarter all of which remain undrawn.
Our liquidity position is strong investment grade credit rating continues to be important.
We're deploying capital in line with the priorities, we've shared invest in the business pay down debt through strong cash flow generation.
And flipping to the last page I'll cover our outlook.
The 2023 overall financial outlook is unchanged from what we previously shared including $3 billion to $5 billion of free cash flow generation.
The operating cash make up by division will likely be different with BCA and bds better than expected.
And Bds lower than expected due to the lower operating performance net net we still have confidence in the $3 billion to $5 billion of free cash flow for the year.
Stepping back to address the state of the market commercial demand remained strong across our key programs and services cargo remains healthy global passenger traffic was up 39% in may and is at 96% of pre pandemic levels, 105% domestic and 91% international.
China.
Through traffic and May was at 87% of pre pandemic levels with domestic traffic up more than 300% year on year and above pre pandemic levels.
Defense demand is also robust and they ask why 24 budget continues to progress in line with our expectations, our portfolio and capabilities are well positioned to support the needs of the nation and of our allies.
With demand strong we still find ourselves in a supply constrained environment and our focus continues to be on execution, both in our factories and the supply chain as we steadily increased production.
Relative to the first half of 2023, we continue to expect operating and financial performance to improve in the second half.
On the third quarter, specifically, we expect BCA margins to improve sequentially, but remained negative.
And we're not anticipating much in terms of Bds profitability.
The <unk> effective tax rate of 63% included cumulative adjustments related to the projected valuation allowance. These adjustments will continue to weigh on the tax rate for the remainder of the year.
And given the strong results in <unk> cash flow <unk> will be lower sequentially still positive and likely in the hundreds of millions of dollars.
All things considered we feel good about where we're at on the road to recovery right.
Right now, we're squarely focused on meaningful operating performance improvement, including deliveries revenue margins and cash flow all of which will improve as we progress through 2023 and while the challenges remain we are headed in the right direction.
Ultimately, we expect our operational and financial performance to continue to accelerate our line with the plan we laid out at our IR day last November and we are confident in $10 billion of free cash flow in 2025, 2026 with that I'll turn it over to Dave with some final remarks.
Again, a solid quarter.
We are wrestling, our way through the Bds contract fixed price contract exposures that we have we're confident we will see them through and as I've said before most importantly, the products that we deliver with warfighter will perform as or better than expected so with that I'll.
Open it up to questions.
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First question will come from Sheila <unk> from Jefferies. Please go ahead.
Thank you good morning, Dave Panamax.
So just digging into commercial airplanes.
Lots of 383 million I'm not quite sure how do we think about that turning positive can you maybe talk about the biggest drivers thinking about production rates stabilizing and then growing up what does the operating margin and how do you think about you know finalizing abnormal cost concessions and just.
Pricing program to the next.
Yeah, Hey, Sheila I'll start off with that.
Last quarter first quarter, I should say BCA margins were negative, 9% and we knew that they were going to get sequentially better and they did they got down to negative 4%. So it's good progress in terms of where we're headed as we think about the back half of the year, we will still have some.
Negativity, although sequentially better in the third quarter, and then as we exit the year and you know moving over into the first quarter of next year. Those margins will move positive we're confident in that and some of the things.
And as you mentioned, which is rate ramp you'll have some of this abnormal behind us in the rearview mirror and will be done and of course, you know the pricing was pretty good. So all of that what gives us confidence that we will get these.
Martin is positive and it will likely be towards the end of the year early early next year and the team is laser like focused on meeting those expectations.
Great. Thank you.
Thank you. The next question is from Atlanta, Peter Arment from Baird. Please go ahead.
Yes, Thanks, good morning, Dave and Brian .
Hey, Brian I'm staying on that same line of questioning on Max profitability. Maybe you can just walk us through how we think about cash profitability will improve with these scheduled rate breaks do we need to hit like a higher rate of 42, a month before we see meaningful improvement there or is it more about once the liquidations are complete in 2024.
Both.
Certainly the liquidation benefit is something we're very focused on because when you get rid of both on the 378 seven those dual factories.
It's just going to be a huge relief for the business to put that behind us and we're tracking and we're going to make good progress and that will be substantially behind us as we move out of 'twenty 'twenty four so that no doubt is a very big deal coupled with the.
The rate breaks we just announced go into 38, that's a big important move and there'll be subsequent rate breaks beyond that and all of that is going to play into a margin trajectory that's going to start to look a lot more normal and by the time, we get through 2024, and we're focused on that 25 26 timeframe as we've said BCA.
Margins will look a lot like they did before and that low double digit.
The area. So we know what we have to go do the levers are clear, we just got to execute.
Thanks, Brian .
Thank you. The next question is from Myles Walton from Wolfe Research. Please go ahead.
Thanks.
One clarification one question. So I think Brian you said that you expected second half improvement in three seven deliveries. So are you applying that we're gonna now going to be at the top end delivery range for the 737, and then I was intrigued.
By the Triple seven X pull forward of resuming production there Dave or is it something on the regulatory front in terms of progress that's helping you pull forward that schedule at this point.
No I wouldn't say anything has changed we're still confident in the regulatory process.
This is our desire to simply get ahead.
The production curve.
Theres no yeah, no no breaks on the on the regulatory side, we still have margin in that and hopefully hopefully we can beat it but all.
All the projections, we've given you I think are still intact.
Hey miles in answer to the the 737 forecast and it did we get to the high end.
Of course, we did 103 in the second quarter and the quarterly rates will be higher than then 103 is.
It is our expectation of course, we had a little bit of the spirit impact in there that's why that will get sequentially better and in terms of the range itself are.
We squarely see the middle of that range as high confidence and the question is going to be how much can we move from the middle of the range up to the higher end and we will prove that out day to day out as we execute and deliver more airplanes. So we feel very good about the range and we'll keep reporting as we as we see the.
Execution, but right.
Right now a degree of confidence in that front.
Yeah.
Alright. Thanks.
Thank you. The next question is from Jason Gursky from Citi. Please go ahead.
Hey, good morning, everybody.
Brian won't just bookkeeping question and then one question on defense margins on the more bookkeeping, one the services businesses.
Things are pretty good margins here.
And you're noting mix I'm just wondering if when you. If you could just talk a little bit about when you kind of go back to a more normalized margins in that business based on what Youre seeing in your inventory mix there.
And then on the defense, you've historically talked about.
60% doing pretty well, 15%. These development programs and then 25% some legacy programs. That's how you've talked about the margins in that business can you confirm that 60 15 25 is still the right.
Mix of things and then kind of what's based or what's in your assumptions on getting back to that high single digit rate in that 25 26 timeframe.
In those three buckets.
Sure. So let's take services yeah. They just had a excellent quarter and are both the commercial and the government businesses were performing incredibly well.
We still have that expectation of that business and we want them to be doing margins that are in the you know in the teams.
Will it be 18 quote unquote out no it'll come back a little bit, but when I say come back a little bit we still feel like our long term view of that business should be in the mid teens and from time to time, it'll be a little better and we'll keep pushing the business to be just as good as they can be but.
But I don't expect it to step back dramatically.
Really good about where that business is positioned.
If I can just comment on that.
It's important to note that.
They are still in an extremely supply constrained world everything they do is supply constrained. So pricing is a little favorable anything that they can get out of their shops or are being taken that has not changed and so how long that lasts my prediction is it's going to be quite a while I don't see any any let up.
With respect to the need for lift out there and everybody is fighting for the next part so.
That's just the moment we're in.
And in regards to the defense business, you've got the pieces correct. The way, we think about the fixed price development programs that we've talked about the 15%. We just have to stabilize those and execute and know that every quarter, we're getting closer to having those products.
Over in delivering behind us.
The next piece of the 60% very stable, there's a lot of very nice products in there and we have to keep them stable and with our lean efforts and other things, we actually could get a little bit of productivity out of those program to get better and better and better, but that's keep that 60% stable and keep it moving.
The 25% that's left over that's a part of the portfolio as a handful of programs and they were not where they need to be they're negative they need to swing positive and there's a plan to go do that hum, but it just going to take us a little bit of time in terms of what this portfolio looks like in the 25 26 timeframe.
We believe the 50% will be stable it will be at certain milestones, where a lot of stuff will be in the rearview mirror and the 85%. That's left over is going to be performing at very attractive margins because we've done the hard work of stabilizing and then trying to bring in even more productivity programs, including lean manufacturing. So these businesses.
Even healthier and stronger.
The roadmap is clear it's on us to execute it but we think we've got all the levers working and the team is very motivated and laser like focused.
Great. Thank you.
Thank you. The next question is from Cai von <unk> from Cowen. Please go ahead.
Yes, thank you very much for taking the call. So.
Basically to follow up on Jason's question, if if we take out the loss programs Bds still was was marginally red and if we take the 60% that should be earning they should be earning 300 million. So is the 25%, losing 300 million that's the one.
They don't understand you know how bad is that and if you say you're going to have modest profits in the third quarter I mean again, it looks like there's fairly significant underperformance there.
Maybe give us a little more color on the programs involved in what it takes to get them black. Thanks. So much yeah sure Cai. So we're not going to have modest of our profitability in the quarter. I think we said that we're not expecting much at all from the Bds portfolio just to be clear because these things arent going to sell themselves in the near term.
Yes. It is.
A significant gap, it's a hundreds of millions of dollars of swing that we have to go execute to get these handful of programs and a better spot.
And they are complicated.
Situations with complicated products and factories that almost went dark during the pandemic and we've had to bring them back to life and that takes time, because one is to get them up and moving and then also to get the right labor that's trained and knows how to do some very complicated work.
So we know what the programs are and how we gotta go attack them.
A little bit time, and a little bit longer than anyone expected, but we will make progress and we'll work our way through it because we know how to make these programs and these products because we've been doing it for a while.
Is there a is part of the problem that you've got stuck with contracts those are mostly fixed price contracts and with inflation and all of this disruption that's the problem and if so do any of those contract.
<unk> reached their end so that you can basically get better pricing going forward.
Yeah, Let me just comment on that.
Really.
So we're gonna have to live within this envelope with respect to pricing and contracts, we might get some ups here and there and modifications here and there, but I wouldn't say that's the answer to this the answer is really to get get aligned that started from zero because it was more or less dark as Brian said and get it up to pace.
A couple of these products are they are not the same old product, there's actually a lot of new new.
I'll call it capabilities embedded in these products you can imagine with what those are I can't talk about them on the call.
And so we're just working our way through learning curve, if we didn't see.
Progress on those learning curves.
Yeah, we wouldn't we wouldn't be giving you that guidance that we're going to be back to where we where we do see progress it's not in that we haven't seen before.
It does take time frustrating for everybody, but we're getting there.
Thank you.
Thank you. The next question is from Robert Young Gang from Melius Research. Please go ahead.
Hey, good morning.
Good morning.
Dave you've been really clear on no new airplane right now, but at the same time, you've talked about and Boeing is working on the Transonic Trust braced wing aircrafts, which seems to be a pretty exciting design for the narrow body market.
And while I know it's early in that process do you think it has a chance to enter service with current Gen engines like the leap or the GTS and then maybe later take on our CFM rise and then as a second part to this question could this aircraft actually.
Service, the large narrow body market as well as something against the $3 21.
Yes, I'm glad to get the question.
We're heavily invested in this week.
We like.
What it could potentially deliver to this market a level of performance that you know the.
The industry is used to seeing with brand new programs.
So now for me to pick and choose the variations and power plants at this stage is.
Is probably not smart.
Suffice to say we are intent on proving this technology.
We are hopeful and if it matures the way, we think it will and at NASA frankly thinks it will.
I do think it will see service.
And then those power plant decisions will be exciting you are right.
We can we can use existing power, but we would prefer.
Frankly to have a bigger fan diameter, ultimately and maybe even open rotor someday. So those are all considerations without a doubt.
I don't want to make her choices too early.
But all of those options that you are talking about are still out there. We just have to prove that mature the technology at the bay, if I can fit in the winter. So we're in a pretty good place.
Great. Thanks, so much thank you.
Your next question is from Christine Li Wang from Morgan Stanley . Please go ahead.
Hey, good morning, guys.
Hi, Christine.
You know on the 737 Max production rate increases to 38 per month can you just give us more insight in terms of what's happening with the supply chain, what's their house and any particular bottlenecks that you're monitoring in order for you to get to that rate and any other additional color regarding the timing of the step up would be.
That's all.
Yes Christine.
Were there and we're confident that our supply chain is coordinated to deliver on this they've known about it for a while and we're happy to be able to move forward. So.
So we feel very confident in terms of subsequent step ups.
Mass or schedule that's been out there is clear on what those look like and we will do it a step at a time and we're happy we can make this first moved to 38.
Most of our time and applied effort with respect to the supply chain is focused on readiness for the <unk>.
Great and then you know you guys had mentioned that after 38 it would be 42 after you've seen some stability that stability I mean, what are you guys. Looking for is it a few months of 38 is it you know six months of 38, well and what do you have to see to get you confident to move over to the next step up of 42 per month.
Yeah. It is it is.
As you suggest 38 has to come and it has to come.
In a stable form so that we're not.
Up and down every month, but maybe more important than that.
We now have such good visibility into the supply chain, we know whether they are ready for the next.
For 40, 42, 44 et cetera. So I just think it's the combination of much better visibility on each of those step ups and yes, our own factories, assembling and delivering at a steady pace, but youll see all of that just like we do.
Great. Thank you.
Thank you. Our next question is from David Strauss from Barclays. Please go ahead.
Great. Thank you.
Dave on an on 77 it looks like.
Deliveries are off to a slow start here in July I know you reiterated 70 80, there's there's you know some things for swirling around out there that you're you're encountering and carrying some sort of new issue on the 87 can you can you just address that.
Yeah, Theres no theres no new issue on the 87, Oh, let's be very clear.
There might have been a pick up in the strength Stringer a few weeks ago, but we are very focused on.
Both the joint verification work on the 87, and then getting stable at four and then work our way to five so eight seven we feel particularly good about and we're very confident in that 70 to 80 deliveries for this year.
I'll just reiterate.
Brian jumped jumped me, but yes.
We're actually feeling pretty good about the stability of the line and the.
There is there is no new issue.
Okay, Great quick follow up.
Probably for Brian So the the BCA forecast you know the two and a half to three and a half operating cash flow. This year, you've got an up arrow. There. So what what is surprising to the upside I mean, you're still running through.
Big unit losses as it is it just upside from working capital advances coming in sooner than expected or better than expected is that the upside in terms of what that up arrow signifies bingo, okay. The orders and these advances it's just better than we had thought.
Got it alright, thank you very much.
Thank you. Our next question is from Bernstein.
<unk>. Please go ahead.
Good morning, Thank you Hi, Doug.
Hi, you've maintained your guidance for 'twenty 'twenty five 'twenty $6 50, a month on the Max It appears you've got demand that can be well in excess of that and you've talked about the likelihood of even new orders coming in.
And you've got the new line that should be finished whenever it is.
You know next year some time.
Can you talk about how you think about that line, where you could potentially go on right now.
How you deal how you deal with potential new orders coming in when.
Kind of the skyline, you've got laid out here is it probably pushes you out to like 2028, or so and the ability to take an order.
Yeah, Doug why don't I take this.
Youre right.
Yes.
The truth is I think both us and our competitor faced that circumstance of having to take orders now quite a ways out there.
I would love to get to 60 in the market is therefore, it theres no doubt about it.
For me there was a moment in time that is really important with respect to execution and the subject of stability and that is second half of next year, when we wind down all of our Shadow factory efforts.
And we can apply all of the labor to to those rate increases. So we already have the labor in house, but now we get them to work on new airplanes, and that's a very good thing and you know the economics attached to that.
It's just not a simple thing to do.
And I don't want any of us to get ahead of ourselves on this front. So we're just going to stay focused we're going to work hard on stability.
Second half of 'twenty four is a very important moment in time, because I believe that's the step change for BCA and pretty much every every way.
If we get through that well and we execute well then we'll be talking to all of you about six months, but I I don't want to get ahead of myself on this one and either as a team.
But in principle, you can do the 50 out of out of rent and on your on your current three lines. So how are you thinking about there would be some more of a logistical complexity, presumably are doing one line in Everett.
How would you how would you use that even if you aren't up at 60 yet.
Well again, I I'm, having a little too much capacity is not a problem for us right now when you're when you're trying to knock down stability. So if we run something that are suboptimal level, it's not going to cost us much and it's going to it's going to improve stability and delivery and all those things so.
Again, I don't I want to be careful and I don't want to get out that far and talk about trades at that moment.
But right now we're just focused on stability, we want to have more capacity than we need so that we're ready for that next increment and that workforce transition is probably the most important part of all of it.
Okay, great. Thank you.
Yes.
Thank you. Your next question is from Seth Seidman from J P. Morgan. Please go ahead.
Good morning, Thanks very much.
Brian I wanted to ask about the 787 and kind of.
You talked about some confidence in the pace of the production ramps and deliveries there first any particular items to watch in the supply chain.
And second if you could start to help us think a little bit about deliveries next year, because if you're building 60 or 70 planes.
And you're supposed to deliver most of the remaining inventory.
Just potential for a pretty big delivery haul next year. So both in terms of what is the potential for that to make sure that we understand what it is and also is that we don't get overly overly exuberant about what it might be.
Well I will.
It'll be less than satisfying for you because I just can't I really can't talk about next year delivery numbers and it's just not the right time to do that although we still have confidence as we get out of the first half of this year. The second half will be better and then we will just wanted to make sure we're always sequentially improving.
As it pertains to the 87 very proud of that team given where they've been over the last couple of years, they've got the joint verification work a very steady consistent are there working on their share of escapes.
They knocked down as fast as they see them and theyre getting into production rates that are steady and they're getting to that five per month by the end of the year is a big deal in and no longer they are in the abnormal category there back to where a path, where we expect them and then there'll be obviously increases from there to get to the 10 by 'twenty five 'twenty six.
Theres nothing in particular right now that is a major worry bead for eight seven and the supply chain still feels like it's getting better a little more stable a more coordinated and we got to keep executing.
Okay. Thanks very much.
Thank you.
Your next.
Question is from.
Ron Epstein from Bank of America. Please go ahead.
Okay.
Hey, Yeah, good morning, guys.
One topic, we just haven't talked about much so far is China.
Maybe can you update us on kind of how that's going and in your sense on delivery.
Delivering new aircraft into China, and what's going on there and if that could be pretty helpful. Yeah, Yeah Ryan.
So you probably saw.
In our disclosures that.
We reduced our exposure at least with respect to the finished goods.
Inventory down to 85 of course, we did that with the permission.
And constructive dialogue with our with our customers in China.
The return to service work in China with respect to the airplanes that were already there is largely complete.
Everybody is very happy with the performance in fact, the reliability of the fleet has been fantastic.
And we're getting a lot of good signs that they'll resume delivery, but I'm not going to predict that for you.
We're just going to keep managing it exactly the way we have been we are not dependent on it we want to do it and we certainly want to support our customers in China, and we will be the free trade Beacon with respect to our administration and all the political influences but.
I'm just going to leave it posture just the way it has been no that we have 85 airplanes that we would like to begin delivery on we're getting good signals I hope it can happen our guidance is not dependent on it.
Got it got it and then maybe one quick follow up if I may I'm, we've talked a little bit about product development.
Just wanted to get your thoughts on what day, two 'twenty stretch 500 may or may not mean, it seems like everybody who's going to do at least have some signals are sending and just how do you guys think about it.
Honestly I've I've probably been Kurt.
And maybe to Kurt with my answers, but I really don't think about it.
Don't view it as a as a meaningful competitor theres nothing that I would want to do on the product development front to respond to it it's not the world that we're interested in we like our portfolio. The next airplane in my view with respect to development has to be a meaningful change 25, 30% better.
The <unk> today, that's why we're focused on trans.
Transonic.
Wings that is that's just our game plan.
And I don't think based on all the competitions that we've touched and all the speculation that we that we here I just don't think it's gonna be a meaningful difference.
Got it okay. Thank you very much.
Lois we have time for one final question.
And that question will come from Noah <unk> from Goldman Sachs. Please go ahead.
Hey, good morning, everyone.
Good morning.
Maybe just a few since I'm last follow ups or things that haven't been asked.
The leadership of the company as it had been out around the air show talking about the Max maybe getting to 42, a month by the end of the year I mean is that.
The official plan or can you talk about that.
Pricing.
The checks that.
We have access to our saying that new aircraft pricing is up double digit percentage compared to pre pandemic.
Is that what you're seeing and then in the defense margin next year.
With the way you see the milestones.
Hang out and the progress on the cost that you're going after can you have some you know reasonable low to mid single digit margin in the defense business next year or is that 2025 planned more backend.
Back end loaded.
So I'll take the last one or defense margins has to get better next year period full stop.
I guess in terms of at what level, but they've got to get better as we go on the trajectory to that 25 26 timeframe.
And as it pertains to that 42 number.
We're talking about 38 today and happy to talk about 38, Theres, a master schedule that the supply chain has and they know all of those rate breaks.
And you know, we'll talk about that more specifically when we want to move to it but theres no no no confusion about where the next rate breaks are.
We just want a pizza have focused on a 138 and then as Dave mentioned the preparation for the entire supply chain to get to a number of 50 in that 'twenty five 'twenty six timeframe as Dave mentioned, that's where most of the focus is all those interim breaks there'll be what they they are and we will get.
To get to them as we have stability from one point to another and the good news is I'm not surprised at all that our team is conveying those messages.
Not surprised because we're all in that prep mode.
Okay and anything you could say on current realized aircraft pricing yeah.
I can't I'm, not going to give you any specific numbers.
Let me just say that the industry is short of airplanes buyouts reasonably large margin.
Boy do we compete I'll tell you that for every one of these orders because they're big and they are important.
But as you might expect in a constrained market things probably get better.
Okay I appreciate all the detail. Thank you.
And that concludes our second quarter earnings call. Thank you for joining.
Thank you and ladies and gentlemen that does conclude our conference for today. Thank you for joining Boeing company's second quarter 2020 earnings Conference call you may now disconnect.
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