Q4 2023 Boeing Co Earnings Call
You for standing by good day, everyone and welcome to the Boeing Company's fourth quarter 2023 earnings Conference call. Today's call is being recorded the management discussion and the slides presentation plus the analyst question and answer session are being broadcast live over the Internet to ask a question on.
Todays conference Please press.
But they did one followed by the zero on your Touchtone phone again, it's one.
Zero for our questions. After passing one zero you will hear that you had been placed in Q pressing ones. There are again, we'll 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 well Vice President.
Matt Welch: Investor Relations for the Boeing Company Mr. Welch. Please go ahead.
Matt Welch: Thank you and good morning, everyone welcome to Boeing quarterly 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.
Matt Welch: As a reminder, you can follow today's broadcast and slide presentation at Boeing Dotcom.
Matt Welch: As always detailed financial information is included in today's press release.
Furthermore, projections estimates and goals included in today's discussion involve risks.
Matt Welch: Including those described in our SEC filings and in the forward looking statement disclaimer at the end of the web presentation.
Matt Welch: In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of certain non-GAAP measures.
Matt Welch: Now I will turn the call over to Dave Kelly.
Dave Kelly: So Matt good morning, everybody.
Dave Kelly: And thanks for joining us.
Dave Kelly: While we report on our fourth quarter results today My focus is on Alaska Airlines flight 12 82.
And the actions we are taking as a company the strength and quality and earn the confidence of our customers.
Dave Kelly: The confidence of our regulators and the flying public.
Dave Kelly: Brian will cover the financials.
Speaker Change: I will keep my comments strictly to the issue at hand.
Speaker Change: I'll start upfront by apologizing again to Alaska Airlines.
Crew and to their passengers.
Speaker Change: And more broadly to all of our customers who are affected by the 737 Max nine grounding.
Speaker Change: The NTSB investigation into the accident is ongoing.
Speaker Change: I have an amazing amount of confidence in the work that they do they bring experts to the investigation and they take all the time, that's necessary to draw accurate conclusions and we intend to be there with them.
Speaker Change: As part of that NTSB process I cannot comment on any specific root cause.
Speaker Change: Sure.
Speaker Change: Thank you Scott.
Speaker Change: As a participant in the process I do believe the investigation will narrow quickly.
Speaker Change: Whatever conclusions are reached.
Speaker Change: Boeing is accountable for what happened.
Speaker Change: Whatever the specific cause of the accident might turn out to be.
Speaker Change: And is that like this simply must not happen on an airplane that leaves one of our factories.
Speaker Change: We simply must be better our customers deserve better.
Speaker Change: I want to remind everybody.
Speaker Change: What a great job the pilots.
Speaker Change: And the crew at Alaska Airlines, David and responding to a desperate moment I also want to remind everybody what a terrific job of leadership at Alaska Airlines did.
Speaker Change: Rounding here planes and ensuring safety.
Speaker Change: Alaska Airlines didn't exactly what companies like Boeing would hope good. Thank you.
Speaker Change: A moment like that.
Speaker Change: And that is why the airline industry is as cheap as it is.
We caused the problem and we understand that.
Speaker Change: Over these last few weeks I've had tough conversations with our customers.
Speaker Change: Our regulators congressional leaders and more.
Speaker Change: We understand why they are angry and we will work to earn their confidence.
There is no message no slogan.
Speaker Change: To accomplish that.
Speaker Change: It's all about real demonstrated action in absolute transparency.
Speaker Change: Every step of the way.
Speaker Change: So let's talk about those steps our team has worked diligently to help our customers restore their 737 dash nine airplanes to service.
Speaker Change: Yep.
Speaker Change: The detailed inspection protocol last Wednesday and.
Speaker Change: And today, all 737 dash nine operators are safely returning your airplanes in service.
Speaker Change: More broadly.
Speaker Change: We are taking immediate and comprehensive action to strengthen the quality of Boeing.
Speaker Change: And within our supply chain.
Speaker Change: We instituted additional quality controls and inspections at Boeing.
And at our supplier.
Speaker Change: We issued bulletins to suppliers to strengthen the focus on performance.
Speaker Change: And reducing the risks of quality escapes.
Speaker Change: We opened our factories to 737 operators for additional direct oversight.
Speaker Change: And we appointed an expert quality adviser.
Speaker Change: Conduct a comprehensive an independent review of our commercial airplane quality management system.
Speaker Change: And they will remain with us for many years.
Speaker Change: Most importantly last week, we paused 737 production for the day.
Speaker Change: That's more than 10000 teammates across Renton, Seattle, and Moses Lake staff to focus on safety and quality and safety.
Speaker Change: Safety and quality.
Speaker Change: This was a quality stand down at our scale, we have never done before.
Speaker Change: And we're going to keep doing them across our commercial factories.
Speaker Change: In addition to our internal actions.
Speaker Change: Yes, he has announced new oversight of our 737 manufacturing.
Speaker Change: We will cooperate fully and transparently with yesterday.
Speaker Change: At every turn.
Speaker Change: We respect our role as a regulator and we will follow their direction and every step.
Speaker Change: Production.
Speaker Change: Today were producing 730 sevens at a rate of 38 per month, and we will remain at that rate until the FAA and Boeing is satisfied with our quality and manufacturing process.
Speaker Change: This increased scrutiny, whether it comes from us from a regulator or from third parties will make us better it's that simple.
Speaker Change: Over the last several years we've.
Speaker Change: We've taken close care not to push the system too fast.
Speaker Change: And we have never hesitated to slow down.
Speaker Change: It's a whole production or to stop deliveries to take the time, we need to get things right.
Speaker Change: Nobody knows that better than our investors.
Speaker Change: As you know.
Speaker Change: Top delivering 780 sevens for over a year to ensure that each conform to our exacting specifications prior to delivery and on the 737 line. We have regularly slowed right breaks to support the stability of the overall production system.
Speaker Change: And you're correct Nonconformance when identified.
But this actually makes it absolutely clear we have more work to do.
Speaker Change: I know that these moments.
Speaker Change: That impact delivery schedules can frustrate, our customers and our investors.
Speaker Change: The quality and safety must come above all else.
Speaker Change: And our customers and our investors know that and are in there with us.
On that note.
As you will see we are not issuing financial outlook for 2024 today.
Speaker Change: Now is not the time for that we won't predict timing, we wont get ahead of our regulator. We will go slow to go fast and we will encourage and reward employees for speaking up to slow things down if that's what's needed.
Speaker Change: We will simply focus on every next airplane.
Speaker Change: And ensuring we meet all the standards that we have.
Speaker Change: All of the standards that our regulator has and that our customers demand.
As we go about that work.
Speaker Change: We remain confident in our recovery.
Speaker Change: Since day, one we've been focused squarely on inculcating safety and quality to everything that we do and getting back to our legacy of having engineering excellence at the center of our business.
Speaker Change: That focus and commitment is unwavering and we will continue to strengthen our processes and our execution every step of the way.
Speaker Change: Most importantly, we will be transparent every step of the way.
Speaker Change: And with our 170000 employees in mind I'd like to close with a message directly to our team.
Speaker Change: We have confidence in you and we have confidence in Boeing.
Speaker Change: We have competence in our airplanes.
Speaker Change: I know how seriously you take your word.
Speaker Change: Our men and women on the manufacturing floor and in our engineering offices know exactly what we must do.
Speaker Change: You know you work better than anyone else on the planet.
Speaker Change: Use your voice speak up focus on every nice detail.
Speaker Change: We will seek out and act on your feedback.
Speaker Change: We're in a challenging moment.
Speaker Change: We will earn trust back through demonstrated action and our commitment to total transparency.
I'm confident you I'm confident in our company and together, we will do just that.
Brian West: Brian over to you.
Brian West: <unk>.
Brian West: Thanks, Dave and good morning, everyone.
Brian West: Let's start off with the total company financial performance for the quarter.
Brian West: Revenue was $22 billion, that's up 10% year over year.
Brian West: Growth was driven by higher commercial volume and favorable mix.
Brian West: The core loss per share was 47.
Brian West: Better than last year, primarily on improved commercial volume better mix and lower abnormal costs.
They were offset by lower defense margins and higher period expenses, including R&D, which we expected.
Brian West: Free cash flow was $3 billion in the quarter inline with prior year and up sequentially from the third quarter, primarily due to improved commercial deliveries and strong order activity.
Brian West: Which drove favorable advance payment timing some of which was anticipated in the first quarter 2024.
Speaker Change: Turning to the next page I'll cover Boeing commercial airplanes.
Speaker Change: BCA booked 611 net orders in the quarter with.
Speaker Change: With 411, 730 sevens, including an order with Acosta.
Speaker Change: 98, Triple seven axis, largely in average order and $83 77.
Speaker Change: We have over 5600 airplanes in backlog valued at $441 billion.
Speaker Change: BCA delivered 157 airplanes in the quarter and revenue was $10 5 billion, that's up 13% driven by higher why widebody deliveries and favorable mix.
Speaker Change: Operating margin was just positive and 0.4% driven.
Speaker Change: Driven by returning to normal 737 delivery levels in the quarter improved mix as well as lower abnormal costs associated with getting to five per month on the 87 and resuming production on the Triple Seven X.
Speaker Change: Now I'll give more color on the key programs.
Speaker Change: On the 737, we delivered a 110 airplanes in the quarter and 45 in December.
Speaker Change: The program also began FAA certification flight testing on the 737 Dash 10 in December.
Speaker Change: For the year, we delivered 396 airplanes on the upper end of the revised guidance range. We provided in October.
Speaker Change: For the FAA announcement will maintain production at 38 per month and work transparently with the FAA to complete all requirements for future increases.
Speaker Change: At the same time, we'll continue to prioritize the master schedule to avoid disruption in our supply chain.
Speaker Change: On the 787 Dash nine we're actively supporting our customers return to service activities and as of today the majority our backs line and.
Speaker Change: Our factory, we have 10 dash nines and production all of which will undergo the FAA approved the inspection process prior to delivery.
Speaker Change: Spirit has also adopted this inspection routine it is factory.
The quarter ended with about 200, Max airplanes and inventory.
Speaker Change: It is important to think about this inventory in three buckets.
Speaker Change: First there were 140 737 dash eight built prior to 2023.
Speaker Change: Vast majority are for customers in China and India.
Speaker Change: We still expect to deliver most of these airplanes by year end as we work towards shutting down the Shadow factory.
Speaker Change: And the second bucket there are around 25 airplanes produced in 2023 that are still in with given the disruptions in the second half of last year and we expect these to deliver in 2024.
And lastly, there are approximately 35 dash seven dash tens that we will deliver once those airplanes are served by the timing of which will be determined by the FAA.
Speaker Change: Moving on to the 77, we delivered 23 airplanes in the quarter, including 11 in December.
Speaker Change: For the year, we delivered 73 airplanes within the guidance range, we originally outlined for 2023.
Speaker Change: The program successfully transition production to five per month in the quarter.
Speaker Change: And still plan to steadily work our way to 10 per month in the 'twenty five 'twenty six time frame.
Speaker Change: We ended the quarter with approximately 60 airplanes in inventory about 50 of which require rework, which continues to progress steadily.
Speaker Change: We still expect to deliver most of these airplanes by year end as we finished the rework and shut down the Shadow factory.
Speaker Change: We booked $77 million of abnormal costs in the quarter and have approximately 300 million left to go that will wind down by year end in line with our expectations.
Speaker Change: On the Triple seven X, we resumed production in the quarter and continued to progress along the program timeline, which remains unchanged.
Speaker Change: During the quarter the Emirates order for 90, <unk> Triple seven axis brought the program backlog to more than 400 airplanes and also extended the accounting quantity.
Speaker Change: We continue to follow the lead of the FAA as we progressed through the certification process, including working to obtain approval from the FAA to begin certification flight testing.
Speaker Change: We booked $71 million of abnormal costs in the quarter, which is now fully behind us after resuming production in line with our expectations.
Speaker Change: Moving to the next page Boeing defense and space.
Speaker Change: Bds booked $8 billion in orders during the quarter, including the Lockdown Award from the U S. Air Force for 15, KC 46 tankers. The backlog is now at $59 billion.
Speaker Change: Revenue was $6 7 billion up 9% on the tanker reward and improved volume and Bds delivered 52 aircrafts in two satellites in the quarter.
Speaker Change: Operating margin was minus one 5% in the quarter a.
Speaker Change: A sequential improvement from <unk>, but still we have more work to do.
Speaker Change: <unk> results were impacted by cost true ups on three fixed price development programs totaling $139 million as well as unfavorable performance and mix and other programs.
Speaker Change: Our game plan to get Bds back to high single digit margins by the 'twenty five 'twenty six timeframe remains unchanged.
Speaker Change: Our core business remains solid reps.
Speaker Change: Representing 60% of our revenue and performing in the mid to high single digit margin range. The demand for these products is very strong and we need to execute compete and grow these offerings.
Operator: Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's fourth quarter 2023 earnings conference call. Today's call is being recorded. The management discussion and the slide presentation, plus the analyst question and answer session, are being broadcast live over the Internet. To ask a question about today's conference, please press the digit 1, followed by the digit 0 on your touchtone phone. Again, it's 1, then 0. After pressing 1, then 0, you will hear that you have been placed in queue. Pressing 1, then 0 again will take you out of queue and may prevent you from being able to ask a question.
Speaker Change: On the 25% of the portfolio primarily comprised of fighters satellite programs operational performance stabilize as we exited the year and as a result, the fourth quarter saw improved margin trends, although still negative we still expect to return to the strong historical performance levels as we roll on of new contracts with tighter under.
Speaker Change: Writing disciplines as we move into the 25 26 timeframe.
Speaker Change: Lastly, we have our fixed price development programs that represent the remaining 15% of revenue.
Speaker Change: Despite the relatively modest cost true ups in the quarter, we continue to focus on maturing these programs <unk>.
<unk> risks quarter in quarter out and we made some good progress in the fourth quarter.
Operator: At this time, for opening remarks and introductions, I'm turning the call over to Mr. Matt Welch, Vice President of Investor Relations for the Boeing Company. Mr. Welch, please go ahead. Thank you, and good morning, everyone. Welcome to Boeing's quarterly earnings conference. 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. As a reminder, you can follow today's broadcast and slide presentation at www.boeing.com. As always, detailed financial information is included in today's press release. Furthermore, projections, estimates, and goals included in today's discussion involve risk, including those described in our SEC filings and in the forward-looking statement disclaimer at the end of this web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation, a certain non-gap measure. Now, I will turn the call over to Dave Calhoun. Thank you, Matt. Good morning, everybody.
Speaker Change: In addition to capturing the tanker award from the U S Air Force the program delivered nine aircrafts in the fourth quarter.
Speaker Change: Continuing to build positive momentum in spite of the supplier related disruptions to the factory that we faced earlier last year and on the T. Saturday. The first Red Hawk arrived at Edwards Air Force base in November formally start in the airports development flight test campaign for the aircraft.
Speaker Change: Overall, the defense portfolio is poised to improve the strong demand across the customer base. The products are performing the field and we're confident that our efforts to drive execution and stability will return this business to performance levels that our investors recognize.
Speaker Change: Moving on to the next page Boeing Global services.
Speaker Change: Bgs had another strong quarter, they received $6 billion of orders and the backlog is now at $20 billion.
Speaker Change: Revenue was $4 8 billion up 6%, primarily unfavorable commercial volume and mix.
Speaker Change: Operating margins were a very strong 17, 4% an expansion of 350 basis points versus last year as both our commercial and government businesses were delivering double digit margins in the quarter Bgs opening parts distribution center in India and received a follow on contract to provide statement from C 17.
David L. Calhoun: And thanks for joining us. While we report on our fourth-quarter results today, my focus is on Alaska Airlines flight 1282 and the actions we are taking as a company to strengthen quality and earn the confidence of our customers, our regulators, and the flying public. Brian will cover the financials, and I will keep my comments strictly to the issue at hand. I'll start up front by apologizing again to Alaska Airlines, to their crew and to their passengers, and more broadly to all of our customers who were affected by the 737 MAX 9 grounding. The NTSB's investigation into the accident is ongoing. I have an amazing amount of confidence in the work that they do. They bring experts to the investigation, and they take all the time that's necessary to draw accurate conclusions. And we intend to be there with them. However, as part of that NTSB process, I cannot comment on any specific root cause or speculate on a root cause.
Speaker Change: Turning now to the next page I'll cover cash and debt.
Speaker Change: On cash and marketable securities we ended the quarter at $16 billion.
Speaker Change: On debt balance remained flat at $52 $3 billion and over the next few days, we'll pay down $4 billion of the $5 billion of maturities coming due this year from our available cash on hand.
Speaker Change: We continue to maintain access to $10 billion of revolving credit facilities, all of which remain undrawn.
Our liquidity position remains strong our investment grade credit rating continues to be a priority and we are developing and deploying capital in line with the products. We've shared previously invest in the business and pay down debt.
Speaker Change: Turning to the next page I'll cover full year financials.
Speaker Change: Full year revenue was $77 $8 billion up 17% year over year.
Speaker Change: Growth was driven by improved commercial volume primarily on higher 77 deliveries.
Speaker Change: The core loss per share was $5 81.
David L. Calhoun: As a participant in the process, I do believe the investigation will narrow quickly. Whatever conclusions are reached... Boeing is accountable for what happened, whatever the specific cause of the accident might turn out to be. An event like this simply must not happen on an airplane that leaves one of our factories. We simply must be better. Our customers deserve better. I want to remind everybody.
Speaker Change: Better than prior year, primarily on improved commercial volume and mix as well as lower fixed price development charges in defense.
Speaker Change: Free cash flow was $4 4 billion for the year up versus prior year, primarily on higher 77 deliveries and favorable receipt timing there was partially offset by higher expenditures as we increase production rates and invest in the business.
Speaker Change: While we're postponing issuing 2024 guidance today, given our current focus we're committed to sharing timely and transparent updates moving forward.
David L. Calhoun: What a great job the pilots and the crew at Alaska Airlines did in responding to a desperate moment. I also want to remind everybody what a terrific job the leadership at Alaska Airlines did, grounding the airplanes and ensuring safety. Alaska Airlines did exactly what companies like Boeing would hope that they would do at a moment like that, and that is why the airline industry is as safe as it is. We caused the problem, and we understand that.
Speaker Change: I would like to provide some additional context on our path forward.
Speaker Change: We always knew 2024 was going to be an important year in our recovery.
Speaker Change: Based on what we know today, we expect another steady year of free cash flow driven by the 737 production at <unk> 38 per month.
Speaker Change: Ongoing execution of the 77 toward our long term objectives.
Speaker Change: Continued liquidation of our 737 and seven eight <unk> inventory and continued focus to wind down both shadow factories.
David L. Calhoun: Over these last few weeks, I've had tough conversations with our customers. We are regulators, congressional leaders, and more. We understand why they are angry, and we will work to earn their confidence. There is no message, no slogan that will accomplish that.
Speaker Change: Our defense business will continue to improve as we mature fixed price programs and transition recently challenged programs with better underwriting disciplines that we've already started to see.
David L. Calhoun: It's all about real, demonstrated action and absolute transparency every step of the way. So let's talk about those steps. Our team has worked diligently to help our customers restore their 737-9 airplanes to service. The FAA approved the detailed inspection protocol last Wednesday, and today all 737-9 operators are safely returning their airplanes and services, more broadly. We are taking immediate and comprehensive action to strengthen quality at Boeing and within our supply chain. We have instituted additional quality controls and inspections at Boeing and at our suppliers. We issue bulletins to suppliers to strengthen the focus on conformance and Reducing the Risks of Quality Escapes. We opened our factories to 737 operators for additional direct oversight, and we appointed an expert quality advisor to conduct a comprehensive and independent review of our commercial airplane quality management system. And they will remain with us for many years.
Speaker Change: And Bgs will continue to generate strong free cash flow.
Speaker Change: Longer term, we're focused on quality and stability, which will ultimately drive free cash flow.
Speaker Change: Nothing has changed on the demand front and the backlog is strong and growing remember our 'twenty five 'twenty six items was based on achieving stability and we have to earn that by applying resources to fix our issues and demonstrate predictability one airplane at a time side by side with our regulator.
Speaker Change: This team is up to the challenge and we'll apply any and all resources to get back to delivery that satisfy our customers and underwrite the long through demand profile.
Speaker Change: We're still confident in the goals, we laid out for 'twenty five 'twenty six although it may take longer in that window that originally anticipated and we won't rush the system.
Speaker Change: With that I'll turn it back to Dave for closing comments.
Dave: Yes, Thanks, Brian.
Dave: We're addressing you.
Dave: Rental home.
Of the 737 Max family.
Dave: Adam.
Dave: We're living in the here and now and we're working with all of our people.
Dave: And I couldnt be more impressed with their commitment dedication and the comprehensive nature around which they will look at this.
David L. Calhoun: Most importantly, last week, we paused 737 production for the day, as more than 10,000 teammates across Renton, Seattle, and Moses Lake stopped to focus on safety and quality, and only safety and quality. This was a quality stand-down at a scale we have never done before, and we're going to keep doing them across our commercial factories. In addition to our internal actions, the FAA has announced new oversight of our 737 manufacturing. We will cooperate fully and transparently with the FAA at every turn.
Dave: All in we will get better I am confident in that.
Dave: We will address we will address everything that needs to be learned from the accident and we will move forward. So thanks happy to take your questions.
Speaker Change: Thank you and then order that you your question.
Harry: Harry We I said gena.
Speaker Change: The speaker phone cell phone iPhone headset.
Speaker Change: Please use your handset to ask a question.
Speaker Change: If you're on a speaker phone please be sure to mute.
Speaker Change: As your mute function.
Speaker Change: I'm sorry that your mute function is switched off so the signal to reach our equipment and as a reminder, in the interest of time, we are asking that you limit yourself to one single part question. The first question is from the line of Peter Ahmed. Please go ahead.
David L. Calhoun: We respect their role as our regulator, and we will follow their direction in every step of production. Today, we're producing 737s at a rate of 38 per month, and we will remain at that rate until the FAA and Boeing are satisfied with our quality of the manufacturing process. This increased scrutiny, whether it comes from us, from our regulator, or from third parties, will make us better. It's that simple. Over the last several years,
Peter Ahmed: Yes, good morning, Dave and Brian.
Peter Ahmed: Hi, Peter Dave.
Peter Ahmed: Thanks for the initial <unk> color on the Max situation and the steps being taken so I guess just to follow on that Dave I wanted to ask you about where you assess you are in kind of the recovery of the Max program. When we think about what has been a successful transition to <unk> 38, and some of the progress in stabilizing the supply chain.
David L. Calhoun: We've taken great care not to push the system too fast, and we have never hesitated to slow down, to halt production, or to stop deliveries to take the time we need to get things right. Nobody knows that better than our investors. As you know, we stopped delivering 787s for over a year to ensure that each conformed to our exacting specifications prior to delivery. And on the 737 line, we have regularly slowed rate breaks to support the stability of the overall production system and to correct non-conformances when identified. But this accident makes it absolutely clear that we have more work to do.
Peter Ahmed: And you've commenced deliveries.
Speaker Change: China and I know, we're not talking about 'twenty five 'twenty six targets, but directionally, there's been a lot of improvements since last fall and since your Investor day. When you laid out this long term outlook.
Yes, Peter I appreciate that.
Speaker Change: By the way, one stat, which I was just handed which I track all the time as the number of our.
Speaker Change: <unk> that have been returned into service we're at 129.
Speaker Change: And that is progressing at a very quick rate.
Speaker Change: Based on the inspection protocols that.
Speaker Change: Our FAA and we all agreed with.
Speaker Change: I am very proud of the progress that we've made.
David L. Calhoun: I know that these moments that impact delivery schedules can frustrate our customers and our investors. Quality and safety must come above all else, and our customers and our investors know that and are in there with us. On that note, as you will see, we are not issuing a financial outlook for 2024 today. Now is not the time for that.
Speaker Change: And I feel great about it of course with.
Speaker Change: With one exception and it's too big an exception, which is the escape.
Speaker Change: I also know that.
Speaker Change: As the <unk>.
Speaker Change: NTSB investigation Narrows and concludes and I do believe that will happen in relatively short order.
Speaker Change: All the learning that can be extracted from it and all the learning that can be extracted from all of those inspections of all those airplanes fly in day in and day out.
David L. Calhoun: We won't predict the timing. We won't get ahead of our regulator. We will go slow to go fast, and we will encourage and reward employees for speaking up to slow things down if that's what's needed. We will simply focus on every next airplane and ensure that we meet all the standards that we have, all the standards that our regulator has and that our customers demand, as we go about that work. We remain confident in our recovery. Since day one, we've been focused squarely on inculcating safety and quality into everything that we do and getting back to our legacy of having engineering excellence at the center of our business. That focus and commitment are unwavering, and we will continue to strengthen our processes and our execution every step of the way. Most importantly, we will be transparent every step of the way.
Speaker Change: That will inform us on what improvements we can make on our quality systems first.
First and foremost we will run the door plug literally from the second a door is received at Wichita through their lines, all 12 positions through our 11 positions here.
Speaker Change: Inspections will be added at a return it is on Lockdown and we've had help from our FAA. We've had help from our customers et cetera. So that's sort of step two.
The next one is how do you take all of that learning and apply it through all the supply chain lines.
Speaker Change: And we have some medium and long term efforts net just beginning to make sure that we do that.
Speaker Change: Sure.
Speaker Change: My confidence comes from quality systems.
Speaker Change: Always can get better.
Speaker Change: And when you have a moment like this you take everything you literally look at everything.
David L. Calhoun: And with our 170,000 employees in mind, I'd like to close with a message directly to our team. We have confidence in you, and we have confidence in Boeing. We have confidence in our airplanes. I know how seriously you take your work.
Speaker Change: We're all keenly aware of everything.
Speaker Change: So we're going to run that play as hard as we can and we're going to take the time to do it and the FAA I'm sort of glad they called out a pause because.
Speaker Change: That's a good excuse to just take our time do it right.
David L. Calhoun: Our men and women on the manufacturing floor and in our engineering offices know exactly what we must do. You know your work better than anyone else on the planet. Use your voice.
Speaker Change: I wish I had called that out on the first day, but maybe I would have.
Speaker Change: We've been good at taking pauses.
Speaker Change: Ive, probably taken more pauses in the last three years and I'll apologize to all our investors know that have been taken in 10 years before it.
David L. Calhoun: Speak up. Focus on every next detail. We will seek out and act on your feedback. We're in a challenging moment. We will earn trust back through demonstrated action and a commitment to total transparency. I'm confident in you, I'm confident in our company, and together we will do just that. Brian, over to you. Thanks, Dave. And good morning, everyone.
Speaker Change: This is what we do and how we get better and I also say Peter as you know one of the nagging issues that we've been facing have been shortages.
Speaker Change: Here or there.
Speaker Change: Where we have to pause our line.
Speaker Change: Inventory is not quite as robust as we'd like them to be based on supply chain weaknesses.
Speaker Change: We will run our master schedule in accordance with the plans that preceded us.
Brian West: Let's start off with the total company financial performance for the quarter. Revenue was $22 billion. That's up 10% year-over-year. Growth was driven by higher commercial volume and favorable mix. The core loss per share was 47 cents.
Speaker Change: And each and every part we received in all of the buffer inventories that we get will stabilize production here on out.
Speaker Change: Less traveled work in our line.
Speaker Change: Things could come from that.
Speaker Change: So I feel really good about it.
Brian West: Better than last year, primarily improved commercial volume, better mix, and lower abnormal costs. However, they were offset by lower defense margins and higher period expenses, including R&D, which we expected. Free cash flow was $3 billion in the quarter, in line with the prior year and up sequentially from the third quarter, primarily due to improved commercial deliveries and strong order activity, which showed favorable advance payment timing, some of which was anticipated in the first quarter of 2024. Turn to the next page, and I'll cover Boeing commercial airplanes. BCA booked 611 net orders in the quarter, with 411 737s, including an order with ACASA.
Speaker Change: And.
Speaker Change: I also have confidence airplanes that will be certified.
Speaker Change:
Speaker Change: I like the respect that the FAA and Boeing are showing one another.
Speaker Change: Again.
Speaker Change: Maybe too long diatribe, but there are lots of sound reasons for why I'm feeling good and in some ways. This moment will accelerate recovery.
Speaker Change: Notch not delay it.
Speaker Change: And just initial progress on China.
Speaker Change: Yes.
Speaker Change: Yeah, So Peter.
Peter Ahmed: We've talked many many many times we have stood by our our.
Peter Ahmed: Our customers in China day in day out.
Peter Ahmed: They have been flying Max's now.
Peter Ahmed: For the better part of the year they are performing extremely well.
Brian West: 98 777Xs, largely on the Emirates order, and 83 787s. We have over 5,600 airplanes in backlog valued at $441 billion. BCA delivered 157 airplanes in the quarter, and revenue was $10.5 billion. That's up 13% driven by higher widebody deliveries and favorable mix. Operating margin was just positive at 0.4 percent driven by returning to normal 737 delivery levels in the quarter and improved mix as well as lower abnormal costs associated with getting to five per month on the 87 and resuming production on the 777x. Now I'll give more color on the key programs. On the 737, we delivered 110 airplanes in the quarter and 45 in December. The program also began FAA certification flight testing on the 737-10 in December.
And we had always hoped and expected they would begin to take deliveries.
Peter Ahmed: I think everybody has noticed that those deliveries have started.
Peter Ahmed: So we are just going to stay diligent stay with each and every one of them.
Peter Ahmed: And make sure.
Peter Ahmed: Our Chinese customers getting get what they what they've ordered and.
Peter Ahmed: Paid for.
Speaker Change: Thanks, so much thanks.
Yes.
Speaker Change: Yes.
Speaker Change: Thank you. The next question is from the line of Sheila <unk>.
Sheila: From Jefferies. Please go ahead.
Sheila: Good morning, David Brian.
Sheila: Maybe if you could update us on how youre thinking about the next Ken and the Max seven certification timing just given the Max have been exemption being with John what does it mean for the time and how does that.
Sheila: Then as you think about ramping production to 50, a month and the profit profile at the next slide.
Sheila: There is no lack stemming Argentina.
Sheila: Sheila Thanks for that question.
Sheila: I'm going to just give a little bit of a.
Sheila: A moment on why we made that decision on.
Brian West: For the year, we delivered 396 airplanes, on the upper end of the revised guidance range we provided in October. For the FAA announcement, we'll maintain production at 38 per month and work transparently with the FAA to complete all requirements for future increases. At the same time, we'll continue to prioritize the master schedule to avoid disruption in our supply chain.
Sheila: On the time limited exemption and I'll, let Brian help quantify it.
Sheila: I visited Capitol Hill.
Sheila: For a lot of reasons.
Sheila: The biggest one is to own the problem be transparent and convey that to all of our workforce.
Sheila: So that they know were willing to do that and then we can all be honest clear with each other every step of the way in this process and I'm. So I'm glad I made the visit.
Brian West: On the 737-9, we're actively supporting our customers' return-to-service activities, and as of today, the majority are back flying. In our factory, we have 10-9s in production, all of which will undergo the FAA-approved inspection process prior to delivery. Spirit has also adopted this inspection routine in its factory.
Sheila: I was not expecting.
Sheila: When I met with Senator Duckworth, the conversation that we had.
You know she is a pilot and a decorated pilot.
Sheila: She'll listen to everything I have to say, we didn't have a debate about the safety of the seven.
Sheila: And the seven and its certification work was moving along at a pretty steady pace.
Brian West: The quarter ended with about 200 Max airplanes in inventory. It's important to think about this inventory in three buckets. First, there are 140 737-8s built prior to 2023, and the vast majority are for customers in China and India.
Senator Duckworth: She had a way different argument for me and it was right.
Speaker Change: She said.
Speaker Change: You want to introduce this new airplane, a derivative, yes, but the new airplane and nine months from now Youll have an engineered solution to it to this issue and why is that the right call and in my view.
Brian West: We still expect to deliver most of these airplanes by year-end as we work towards shutting down the shadow factory. In the second bucket, there are around 25 airplanes produced in 2023 that are still in WIP, given the disruptions in the second half of last year, and we expect these to be delivered in 2024. And lastly, there are approximately 35 Dash 7s and Dash 10s that we will deliver once those airplanes are certified, the timing of which will be determined by the FAA. Moving on to the 787. We delivered 23 airplanes in the quarter, including 11 in December.
Speaker Change: Sound principles.
Positioned to take.
Speaker Change: I went home for the weekend I talked to our customer and you know who that is.
Unbelievably constructive in this is the right thing to do for aviation so.
Speaker Change: That is really how it happened and it was that simple but the.
Speaker Change: The passion and the argument that Senator Duckworth presented to me I am so glad I heard anyway, that's what happened the seven will have to move until we get that engineered fix in place and then I'll, let Brian sort of quantify that okay now what.
Speaker Change: And on the seven the work at hand.
Brian West: For the year, we delivered 73 airplanes within the guidance range we originally outlined for 2023. The program successfully transitioned production to five per month in the quarter, and we still plan to steadily work our way to 10 per month in the 2025-2026 timeframe. We ended the quarter with approximately 60 airplanes in inventory, about 50 of which require rework, which continues to progress steadily. We still expect to deliver most of these airplanes by year-end as we finish the rework and shut down the shadow factory. We booked $77 million of abnormal costs in the quarter and have approximately $300 million left to go that will wind down by year end, in line with our expectations.
Speaker Change: We will design and engineering solution, we're applying the resources are viewed it that could be within a year.
Speaker Change: But on the seven remember while it is very very important customer.
Speaker Change: The number of deliveries Youre talking about it is relatively small as I mentioned, we've got 35 dash seven dash tens in inventory at the end of the quarter Theres a handful of times, they're mostly seven so we'll sort that out as the as the process works in that airplane per the FDA get certified on your question on the Dash 10.
Speaker Change: I prefer not to get into what Ifs.
It is a great airplane.
Speaker Change: Customers Love It and there is great demand for it and it will get certified at some point when the FAA decides.
Brian West: On the 777X, we resume production for the quarter and continue to progress along the program timeline, which remains unchanged. During the quarter, the Emirates order for 90 777Xs brought the program backlog to more than 400 airplanes and also extended the accounting quantity. We continue to follow the lead of the FAA as we progress through the certification process, including working to obtain approval from the FAA to begin certification flight testing. We've booked $71 million of abnormal costs in the quarter, which is now fully behind us after resuming production in line with our expectations. Moving to the next page, Boeing Defense & Space. BDS booked $8 billion in orders during the quarter, including the Lot 10 award from the U.S. Air Force for 15 KC-46A tankers.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question is from Myles Walton from Wolfe Research. Please go ahead.
Myles Walton: Thanks, Brian you alluded to 2024 being another I think the words was steady year of free cash flow I think in sort of a follow on description you gave a lot of uppers.
Myles Walton: What's going to happen year on year, so is steady.
Myles Walton: Growth in free cash flow and or can you give some of the offsets to the uppers. Thanks.
Brian West: Yeah. Thanks, Myles So I did describe some of the key ones, obviously BCA volume up.
Brian West: Yes, less of a drag bgs steady you know theres a big investment in there that probably should have called out now that you are asking is the triple seven ex investment.
Brian West: That's important and that is big and also we've got a plan for.
Brian West: Making sure that we stay laser like our supply based on the master schedule, we don't want them to take their foot off what theyre doing and if that means we got to hold more inventory sobeit. It's important because at this moment and it will allow us to have any of our suppliers that might have been at the line that ensure the line they get a chance to catch up so.
Brian West: The backlog is now at $59 billion. Revenue was $6.7 billion, up 9% on the Tanker Award and Improved Volume, and BDS delivered 52 aircraft and two satellites in the quarter. Operating margin was minus 1.5 percent in the quarter.
All of that in the mix or levers that we got to deal with as we move through the year and in terms of what steady means.
Brian West: A sequential improvement from 3Q, but we still have more work to do. Four key results were impacted by cost true-ups on three fixed-price development programs, totaling $139 million, as well as unfavorable performance and mix on other programs. Our game plan to get BDS back to high single-digit margins by the 2025-2026 time frame remains unchanged. Our core business remains solid, representing 60% of our revenue and performing in the mid-to-high single-digit margin range. The demand for these products is very strong, and we need to execute, compete, and grow these offerings. For the 25% of the portfolio primarily comprised of fighter and satellite programs, operational performance stabilized as we exited the year. And as a result, the fourth quarter saw improved margin trends, although still negative. We still expect to return to strong historical performance levels as we roll into new contracts with tighter underwriting disciplines as we move into the 2025-2026 timeframe. Lastly, we have our fixed price loan programs that represent the remaining 15% of revenue.
Brian West: I believe we stand here today, the bottom and we will look a lot like it did last year and maybe a little bit of growth and once we know more we will put more specificity around it and will give normal guidance when adequate and when appropriate.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. Our next question is from Seth <unk> from Jpmorgan. Please go ahead.
Seth: Thanks, very much and good morning.
Seth: Good morning, Seth.
Seth: Brian you talked a couple of times about the shadow factories and.
The path toward toward winding down over over the next year and change is there any way to.
Seth: Quantify.
Seth: How you think about what the cost of those shadow factories was in 2023 or what you expect it to be in 2024.
Brian West: Yes so.
Brian West: Thanks.
Brian West: Wood.
Youre not going to see in 2024, just because we stopped their move that work through the system, but as we exit it will largely behind us as we think about our expectations on BCA profitability over time, we've always talked to it getting back to normal a lot of that productivity will be not only what volume might look.
Brian West: Despite the relatively modest cost trips in the quarter, we continue to focus on maturing these programs and retiring risks quarter in and quarter out, and we made some good progress in the fourth quarter. In addition to capturing the Tanker Award from the U.S. Air Force, the program delivered nine aircraft in the fourth quarter, continuing to build positive momentum in spite of the supply-related disruptions to the factory that we faced earlier last year. And on the T-7A, the first Red Hawk arrived at Edwards Air Force Base in November, formally starting the Air Force Development Flight Test campaign for the aircraft.
Brian West: Can't say a lot about that now but also we don't have this resource with the shadow factories. So we won't quantify it specifically, but it is an important component as we think about going from what our profitability has looked like at BCA, historically, where we think we can get to.
Brian West: Maybe I'll, just add and refresh everybody's memory, because we've talked about it a couple of times in our shadow factories, we put more hours into those airplanes than we do to produce it in the first place so.
Brian West: Overall, the defense portfolio is poised to improve. There is strong demand across the customer base, and the products are performing in the field.
Brian West: Anyway that's.
Brian West: Thats a metric I know everybody understands it.
Speaker Change: Great and if I could sneak in one more.
Brian West: And we're confident that our efforts to drive execution and stability will return this business to performance levels that our investors recognize. Moving on to the next page, Boeing Global Services. BGS had another strong quarter. They received $6 billion in orders, and the backlog is now at $20 billion. Revenue was $4.8 billion, up 6%, primarily on favorable commercial volume and mix.
Speaker Change: The advances.
Speaker Change: A nice tailwind in 'twenty three.
Speaker Change: How do you think about that in 2004.
Speaker Change: You know right now.
Speaker Change: We plan for obviously not to be quite what it was in 2023, that's factored into my comments. The good news is is that we still have a pretty robust demand environment and our commercial teams are working hard to chase every next order.
Brian West: Operating margins were a very strong 17.4 percent, an expansion of 350 basis points versus last year as both our commercial and government businesses delivered double-digit margins. In the quarter, BGS opened a parts distribution center in India and received a follow-on contract to provide sustainment for the C-17. Turning on to the next page, I'll cover cash and debt. On cash marketable securities, we end the quarter at $16 billion. On debt, the balance remains flat at $52.3 billion.
So we're not counting on a big one, but we know that our teams can go win campaigns.
Speaker Change: Thanks very much.
Speaker Change: Thank you. The next question is from Jason Gursky from Citi. Please go ahead.
Jason Gursky: Hey, good morning, everybody.
Jason Gursky: Brian Thank you.
Jason Gursky: Quick clarification, or maybe Dave and then and then a question on defense the clarification on the rate 38 a month.
Jason Gursky: You guys still firing some blayne. So the number that you are actually producing as a little bit less than that just kind of curious what rate 38 means and then on defense, Brian you've historically broken things down into that 60, 25 15 bucket.
Brian West: And over the next few days, we'll pay down $4 billion of the $5 billion of maturities coming due this year from our available cash on hand. We continue to maintain access to $10 billion of revolving credit facilities, all of which remain undrawn. Our liquidity position remains strong. Our investment grade credit rating continues to be a priority, and we're developing and deploying capital in line with the products we've shared previously. Invest in the business and pay down the debt. Turn to the next page, and I'll cover the full year financials. Full year revenue was $77.8 billion, up 17% year-over-year. Growth was driven by improved commercial volume, primarily higher 787 deliveries. The core loss per share was $5.81, better than the prior year primarily due to improved commercial volume and mix as well as lower fixed price development charges and defense. Free cash flow was $4.4 billion for the year.
Jason Gursky: A little bit about the.
Jason Gursky: The 25% bucket and 15% bucket in your remarks I was wondering if you just comment on the on the 60%.
Jason Gursky: The remaining part of the portfolio and how Thats performing and where maybe margins are in that slug of business at this point. Thanks.
Speaker Change: Sure I'll take the first one.
Speaker Change: Yes, we've cycled 238 per month, we said that.
Speaker Change: Keep in mind, it always takes time for that to equate into deliveries, but were not firing blanks.
Speaker Change: On your question on the 60% of the portfolio on Bds look.
Speaker Change: They've consistently quarter in quarter out has still been able to deliver some.
Speaker Change: Very good performance on some products that the customers need.
Speaker Change: I know the laundry list that we've talked about.
Speaker Change: Things like Apache and all that sort of stuff.
Speaker Change: Missiles and weapons.
Speaker Change: Things that are needed right now in this environment that we live in and they are performing well and they're in that mid to high single digit margin rate and when we step back if we think about going from where Bds is with margins two things have to happen that 25% that's wrapped around fighters satellites that has.
Brian West: Up versus the prior year, primarily on higher 787 deliveries and favorable receipt timing, it was partially upset by higher expenditures as we increased production rates and invested in the business. While we're postponing issuing 2024 guidance today, given our current focus, we're committed to sharing timely and transparent updates moving forward. I would like to provide some additional context on our path forward. We always knew 2024 was going to be an important year in our recovery.
Speaker Change: To get better we fully expected to get better and look a lot like it used to so when you've got 85% of your portfolio clicking at stable consistent.
Speaker Change: Mid to high single digit rates and we know we can get there and then you've got this 15% of the portfolio on fixed price development programs.
Speaker Change: We expect to be less of a drag as we retire risk over time and.
Brian West: Based on what we know today, we expect another steady year of free cash flow driven by 737 production at 38 per month, ongoing execution of the 787 toward our long-term objectives, continued liquidation of our 737 and 787th inventory, and continued focus on winding down both shadow factories. Our defense business will continue to improve as we mature fixed price programs and transition recently challenged programs with better underwriting disciplines that we've already started to see, and BGS will continue to generate strong free cash flow. Longer term, we're focused on quality and stability, which will ultimately drive free cash flow. Nothing has changed on the demand front, and the backlog is strong and growing.
Speaker Change: We expect that to play out.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you. Your next question is from Doug Hernan.
Doug Cameron: Thanks, Dan. Please go ahead.
Doug Cameron: Good morning, Thank you.
Doug Cameron: Yes, Hi, Doug.
Doug Cameron: Hi, I wanted to go back to the Max seven and the Max 10 certification.
Doug Cameron: And the question I have is.
Doug Cameron: When you look forward and given there's uncertainty on the timing of the.
Doug Cameron: The certification of each one of those and you look at both the mix and your customer demand and certainly you had more demand than you can respond to a given supply chain issues.
Doug Cameron: First.
Doug Cameron: Let's say that mix changes because of the timing of certification on those two variance.
David L. Calhoun: Remember, our 25-26 guidance was based on achieving stability, and we have to earn that by applying resources to fix our issues and demonstrate predictability one airplane at a time, side-by-side with our regulators. This team is up for the challenge and will apply any and all resources to get back to deliveries that satisfy our customers and underwrite the long-term demand profile. We're still confident in the goals we laid out for 2526, although it may take longer in that window than originally anticipated, and we won't rush the system. With that, I'll turn it back to Dave for closing comments. Yeah, thanks Brian. We're addressing you from Renton, home of the 737 MAX family. We're living in the here and now.
Doug Cameron: Are you still do you still see your line is full because it could be moved around between.
Doug Cameron: Dash Sevens eights and nines tens and then second what kind of operational challenges. If any do you have when you have to have some flexibility about what variant youre producing.
Doug Cameron: Doug.
Doug: I'll just start by.
Doug: And I think it's manageable.
We will have this if there's a delay in any way, it's we're not going to know what the last second.
Doug: No with a considerable timeframe in my view and by the way right now.
Doug: The status on the on the seven and the 10 was progressing reasonably well.
Doug: I believe the FAA has taken anybody off off the course that we havent taken anybody off of course, and so they are making real progress and I think we were almost close to the finish line had we not pulled.
Doug: The time limited exemption, so Idaho again, I'm never going to suggest a date or anything like that for the FAA, but they're working diligently on it and they know how to separate these two these the issue we're wrestling within our factory from the <unk> efforts.
David L. Calhoun: And we're working with all of our people, and I couldn't be more impressed with their commitment, dedication, and the comprehensive nature around which they will look at this. Boeing will get better. I am confident in that. We will address everything that needs to be learned from the accident, and we'll move forward. So thanks. I'm happy to take your questions. Thank you and in order that your question, You're on a speaker. Sorry. And as a reminder, first,,,,,,,, Yeah, good morning, Dave and Brian. Hi Peter. Gabe.
Doug: And I believe we're going to have plenty of time, and we will be able to manage our product mix up reasonably well.
Doug: There won't be anything dramatic by way of change.
If there are some subtle changes from quarter to quarter first or second you'll know it pretty early and so will we.
Doug: I think it's quite manageable.
Doug: So is it fair to say that the supply chain ramp is probably still the governing constraint on your on your production ramp not things like mixed here.
Doug: Yes.
David L. Calhoun: Thanks for the initial open call on the Max situation and the steps being taken. So I guess just to follow on that, Dave, I wanted to ask you where you assess you are in kind of the recovery of the MAX program when we think about what has been a successful transition to rate 38 and some of the progress in stabilizing the supply chain and you've commenced deliveries to China. And I know we're not talking about 25, 26 targets, but directionally, there's been a lot of improvement since last fall and since your investor day Yeah, Peter, I appreciate that.
Although I will say if this pause goes on for a little while.
Doug: I like I don't want.
I want to pause my customers, but the pause is going to be helpful for us in so many ways in a sense.
Doug: That supply chain and they're going to keep running.
Doug: According to that master schedule.
It's good for us if some buffers get developed in some some of the more stress suppliers get ahead of the game.
Doug: So there is important progress that we will get made despite this.
Momentary pause.
Speaker Change: Very good thank you.
David L. Calhoun: By the way, one stat that I was just handed, which I track all the time, is the number of our Dash 9s that have been returned to service. We're at 129, and that is progressing at a very quick rate, based on the inspection protocols that our FAA and we all agreed on. I am very proud of the progress that we've made, and I feel great about it, of course, with one exception, and it's too big an exception, which is the escape. I also know that as the NTSB investigation narrows and concludes, and I do believe that will happen in relatively short order. All the learning that can be extracted from it and all the learning that can be extracted from all those inspections of all those airplanes flying day in and day out will inform us about what improvements we can make in our quality system. First and foremost, we will run the door plug literally from the second a door is received at Wichita through their lines, all 12 positions through our 11 positions here. Inspections will be added at every turn.
Speaker Change: Yes, Thanks, Doug.
Speaker Change: The next question is from the line of Ron Epstein from Bank of America. Please go ahead.
Ronald J. Epstein: Hey, Brian Good morning, Hey, good morning, how are you.
Ronald J. Epstein: But if I may I guess I got two part question if that's okay.
Ronald J. Epstein: The first one if you guys could walk through 707, a little bit.
Ronald J. Epstein: You mentioned, what's going on in that line that sort of thing we get we get questions about that and then I'll come back with the second part in the cycle.
Speaker Change: Yes, so on the 787, there's nothing new on the 87.
Speaker Change: Team is doing a very nice job will produce at five per month rate like we described.
Speaker Change: We expect to steadily increase those rates over time and liquidate a lot of inventory a lot inventory.
Speaker Change: We'll get more dimensions around the specifics in line with normal guidance, but the program is doing just fine and the backlog is big.
Speaker Change: No no that's been doing been doing great and then maybe the second question. This one.
Speaker Change: A little more difficult.
I am still getting trying to get my head around how we got here.
Speaker Change: Meaning if you go back to the beginning of the Max issue.
Speaker Change: 737 line like the most scrutinized production line.
David L. Calhoun: It is on lockdown, and we've had help from our FAA, from our customers, et cetera. So that's sort of step two.
Speaker Change: World So.
Speaker Change: What happened to get to where we've got today I understand that revamping the quality system. All of that is all great news, it's a positive move forward.
David L. Calhoun: The next one is how do you take all of that learning and apply it through all the supply chain lines. And we have some medium and long-term efforts now just beginning to make sure that we do that. My confidence comes from quality systems can always get better. And when you have a moment like this, you take everything, you literally look at everything.
Speaker Change: But why did that have to happen now.
Speaker Change: I just don't understand that.
Speaker Change: Well Ron.
Speaker Change: It should never happen. So the question about now is that not so relevant it should never and can never happen.
Speaker Change: I am incredibly proud.
Speaker Change: The work that our people do on the 37 line I think it is steadily progressed.
David L. Calhoun: And we're all keenly aware of everything. So we're gonna run that play as hard as we can, and we're gonna take the time to do it at the FAA. I'm sort of glad they called out a pause because that's a good excuse to just take our time, do it right. And I wish I had called that out on the first day, but maybe I would have.
Speaker Change: Quality numbers have gotten better, but when you have an escape.
And then when everybody concludes exactly what happened in that escape.
Speaker Change: Another fire. So you take another step forward with respect to all things quality.
David L. Calhoun: We've been good at taking pauses. I've probably taken more pauses in the last three years, and I'll apologize to all our investors now than in the 10 years before that. But this is what we do, and it's how we get better.
Speaker Change: And you make certain that whatever it was they created that opportunity for failure in the sky or in flight <unk>.
Ever happen again and that that has already happened.
Speaker Change: And then we will learn from everything so.
David L. Calhoun: And I also say, Peter, as you know, one of the nagging issues that we've been facing have been shortages here and there where we have to pause our line, buffer inventory is not quite as robust as we'd like it to be based on supply chain weaknesses. We will run our master schedule in accordance with the plans that preceded this, and each and every part we receive and all the buffer inventories that we get will stabilize production here on And I also have confidence in our airplanes that will be certified. I like the respect that the FAA and Boeing are showing one another. Again, maybe this is too long a diatribe, but there are lots of sound reasons for why I'm feeling good.
Yes, I think I think I understand your underlying context for the question, but I.
Speaker Change: I'd, probably take exception to that premise.
Speaker Change: Okay.
Speaker Change: The next question is from the line of Cai then Ramirez from Keefe.
Phil LeBeau: PD Cowen. Please go ahead.
Speaker Change: Yes, thanks, so much so.
Cai von Rumohr: Now that you've waived the exemption.
And the engine anti icing on your redesign year designing the new system. You said it would take about a year have you accelerated that at all and could you accelerated more because my assumption is that is going to be the long pole in the tent in terms of when you when the FAA can certify the Max.
Cai von Rumohr: <unk> 10.
Speaker Change: I think I think that is a accurate statement that you just made.
Speaker Change: Given the fact that we made this decision.
Speaker Change: Just a couple of days ago.
David L. Calhoun: And in some ways, this moment will accelerate recovery, not delay it, in just initial progress in China. Yeah, so Peter, as we've talked many, many, many times, we have stood by our customers in China, day in, day out. They have been flying Maxes now for the better part of a year, they are performing extremely well, and we'd always hoped and expected they would begin to take deliveries. And I think everybody has noticed that those deliveries have started. So we are just going to stay diligent, stay with each and every one of them, and make sure our Chinese customers get what they've ordered and paid for. Thanks so much.
Speaker Change: Needless to say, we will throw more engineers at it we're going to put more work into it.
Speaker Change: Accelerated and the nine months.
Discussed with.
Speaker Change: Senator Duckworth was based on.
Speaker Change: My understanding of that project before I made this decision. So the answer is yes, we will step up resources will step up whatever testing as required we will do everything we can to inform the FAA about for that particular part of that program.
Speaker Change: So.
Speaker Change: That's where we stand today and you are correct.
Speaker Change: That is the that is the pole in the tent all of us should be watching.
Terrific. Thank you and then another quick one.
Speaker Change: With the supply chain running at the master schedule, but youre delivering not quite as many.
Speaker Change: Should we.
Speaker Change: About a fairly large build in the inventory account here in the next couple of quarters until you get beyond that.
David L. Calhoun: Yep. Good morning Dave and Brian. Maybe if you could update us on how you're thinking about the Max-10 and the Max-7 certification timing, just given the Max-7 exemption being withdrawn. What does that mean for the 10, and how does that phase in as you think about ramping production to 50 a month and the profit profile of the Max-5? If there's no MAC 7 or, Sheila, thanks for that question.
Speaker Change: Yes, there is two things that are going to be things, we have to deal within cash flow.
Speaker Change: It's going to be the triple <unk> investment I discussed as well as what you just described.
Speaker Change: And Thats contemplated in my description of what we thought the bottom looks like and then we just got to go run the play and we.
Speaker Change: Work through what's in front of us.
Speaker Change: But more work ahead, and we will describe it more specifically as we move through the year.
David L. Calhoun: I'm going to just give a little bit of a moment on why we made that decision on the time-limited exemption. I'll let Brian help quantify it. I visited Capitol Hill for a lot of reasons.
Speaker Change: Thank you.
Speaker Change: Hey, Louis we have we have time for one more question.
Thank you and that question comes from Noah <unk> from Goldman Sachs. Please go ahead.
Noah: Hey, good morning, everyone.
Noah: Hey, Noah.
David L. Calhoun: My biggest one is to own the problem, be transparent, and convey that to all of our workforce so that they know we're willing to do that, and then we can all be honest and clear with each other every step of the way in this process. So I'm glad I made the visit. I was not expecting, when I met with Senator Duckworth, the conversation that we had, um, you know she's a pilot and a decorated pilot. She listened to everything I had to say.
Noah: Mike go over one if I'm last but hum.
Brian.
Speaker Change: <unk> that.
Speaker Change: There is some limitation here and how you can discuss it but maybe just sort of trying to talk out Max units. This year.
Speaker Change: With assumptions have not breaking to higher rates.
Speaker Change: You made it a point to say you're at 38, I know I know that rate final assembly, where the entire supply chain is as always a different number but.
David L. Calhoun: We didn't have a debate about the safety of the Seven, and the Seven, in its certification work, was moving along at a pretty steady pace. She had a very different argument for me, and it was right. She said, you want to introduce this new airplane, a derivative, yes, but a new airplane. And nine months from now, you'll have an engineered solution for it, for this issue. And why is that the right call?
Speaker Change: And if I just simply said 31 for six months I am 38 for six months that's in the low four hundreds and then you unwind five to 10 of inventory of months.
Speaker Change: You can kind of get you know.
Speaker Change: Somewhere near 500, or just decent growth from 2023.
Speaker Change: Is that just a reasonable starting point as we wait to learn more from the FAA.
Speaker Change: No.
David L. Calhoun: And in my view, it was a sound, principled position to take. I went home for the weekend, I talked to our customer, you know who that is, unbelievably constructive, and this is the right thing to do for aviation. That is really how it happened. And it was that simple.
Speaker Change: I completely understand the question.
Speaker Change: And those are the inputs I described.
Speaker Change: Yes.
Speaker Change: Out of respect for the process that we need to go through the FAA I, just got a steer away from specificity.
Speaker Change: That's just not the right time, we've got work in front of us and I promise when appropriate we are going to be more specific.
David L. Calhoun: But the, you know, the passion and the argument that Senator Duckworth presented to me, I'm so glad I heard it. Anyway, that's what happened. The seven will have to move until we get that engineered fix in place, and then I'll let Brian sort of quantify the okay. Now what? And on the seven, the work at hand, we will design an engineering solution, we're applying the resources, and our view is that that could be within a year. But on the seven, remember, while it's a very, very important customer, the number of deliveries we're talking about is relatively small. As I mentioned, we've got 35 dash sevens and dash tens in inventory at the end of the quarter. There's a handful of tens, they're mostly sevens. So we'll sort that out as the process works for that airplane for the FAA gets certified. On your question on dash 10, you know, I prefer not to get into what ifs.
Speaker Change: But anyway.
Speaker Change: It's probably going to be on the specificity of those numbers wait and see it's just not appropriate yep fair enough fair enough.
Speaker Change: Are you are you willing and able to speak to just updating what the cap is these days on the monthly inventory unwind and how China plays into that.
Speaker Change: I don't know, we think about our cap we've got the shadow factories that had been working for <unk>.
Speaker Change: Quite a while and they know the routines and they've been pretty steadily on both the three 7% of the 87 consistently meeting month in month out liquidation targets and expectations for customers. So I don't think theres any kind of cap. We're just focused on we know exactly the pile of inventory its a 140 and $3 seven that I described is 50.
Speaker Change: On the 87 are happy at the rework and we're just going to move through.
Brian West: It is a great airplane, customers love it, and there's great demand for it. And it'll get certified at some point when the FAA decides. Okay, thank you. Myles Walton.
This year with real focus in order to be in a position, where we start shutting these shadow factories down.
Speaker Change: And then we're just going to run that play as hard as we can.
Speaker Change: Okay.
Speaker Change: Is China officially fully 100% taking deliveries we see it in the press, we see the reading of the tail number of websites, but can you just declare that that's just fully officially on at this point.
Brian West: Thanks, Brian, you alluded to 2024 being another steady year of free cash flow. I think, sort of, follow-on descriptions, you gave a lot of uppers. Thank you very much, thanks for joining us, of the offsets to the up. Yeah, thanks, Myles. So I did describe some of the key ones, obviously, BCA volume up, BDS less of a drag, BGS steady.
Speaker Change: One at a time.
Speaker Change: And yes.
Speaker Change: Okay.
Speaker Change: And then Brian just one more defense.
Speaker Change: The margin still still not where you want it but better sequentially any framework you can provide around how that progresses through 'twenty four.
And what was the final defense cash burn in the 'twenty three cash. So we can think about where you know what to work off of as we go into 'twenty four.
Brian West: You know, there's a big investment in there that probably should have been called out now that you're asking, the 777X investment. That's important, and that's big. And also, we have a plan for, you know, making sure that we stay laser-like in our supply based on the master schedule. We don't want them to take their foot off what they're doing.
Speaker Change: Yes, so the cash burn.
Speaker Change: Put out some numbers a year ago, and what we thought the operating cash flows by division.
Brian West: And if that means we have to hold more inventory, so be it. It's important because, at this moment, it will allow us to have any of our suppliers that might have been on the line, may have been short of the line; they get a chance to catch up. So all those in the mix are levers that we have to deal with as we move into the year. And in terms of what steady means, you know, our belief as we stand here today, the bottom end will look a lot like it did last year, and maybe a little bit of growth. And once we know more, we'll put more specification around it, and we'll give normal guidance when it is appropriate. Okay, thank you. Thank you for joining us. Thank you. Okay, thanks very much, and good morning.
Speaker Change: Bbs.
Speaker Change: The worst case and for them in that range.
They were much worse than that.
And what we described last year and we expect it to be better this year and thats behind us, but yet they did a lot worse, obviously offset by Bds and BCA doing better.
Speaker Change: But it was worse.
Speaker Change: And then.
Speaker Change: The first part of your question on margins, we expect margin trajectories to get better over time, particularly as we focus on this 25% of the portfolio that is very specific and there's a lot of actions or activity around it.
But we.
Speaker Change: We will get better.
Speaker Change: They will eventually get to the point, where we're putting positives on the board.
What I'm most interested is the team that's got to execute over the next between now and 'twenty 'twenty five 'twenty six in order to get these margins back in high single digit range and I will remind you.
Brian West: Brian, you talked a couple of times about the shadow factories and the path toward winding them down over the next year and a half. Is there any way to quantify how you think about what the cost of those shadow factories will be in 2023 or what you expect it to be in 2024? Yeah, so, thanks. I would say the impact you're not going to see in 2024 just because we still have to move that work through the system.
Speaker Change: Thats, how we describe our defense margins.
Speaker Change: We got to put two points.
Speaker Change: On top of that which is what we account for in our global services Division for the defense side. So it's really looking more like a double digit.
Speaker Change: Defense external view.
Speaker Change: We are aiming to get towards because we think thats a pretty decent business.
Speaker Change: Right.
Okay, and you squeezed you squeezed in free.
Brian West: But as we exit, it will largely be behind us. And as we think about our expectations for BCA profitability over time, we've always talked about it getting back to normal. A lot of that productivity will be not only what volume might look like; can't say a lot about that now. But also, we don't have this resource with these shadow factories.
We got in we got them all I haven't got the rest of them. Thanks, So much for the time I appreciate it. Thanks, Noel thanks, everyone. Thanks, everybody.
Speaker Change: That completes the Boeing company's fourth quarter 2000.
Speaker Change: 23 earnings Conference call. Thank you for joining you may now disconnect.
David L. Calhoun: So, we won't quantify it specifically, but it is an important component as we think about going from what our profitability has looked like at BCA historically to where we think we can get to. You know, maybe I'll just add and refresh everybody's memory because we've talked about it a couple of times in our shadow factories. We put more hours into those airplanes than we do to produce them in the first place.
Speaker Change: We're sorry your conferences ending now please hang up.
Brian West: So anyway, that's a metric I know everybody understands. Great, and maybe if I could sneak in one more to the advances, it was a nice tailwind in 23, you know, how do you think about that in 24? You know, right now, we plan for it obviously not to be quite what it was in 2023. That's factored into my comments.
Brian West: The good news is that we still have a pretty robust demand environment, and our commercial teams are working hard to chase every next order. So we're not counting on a big one, but we know that our teams can win campaigns. Thanks very much.
Brian West: Hey, good morning, everybody. Brian, just maybe a quick clarification, or maybe Dave, and then and then a question on defense, the clarification on the rate of 38 a month. You guys are still firing some bling so that the number that you're actually producing is a little bit less than that. Just kind of curious what rate 38 means.
Brian West: And then on defense, Brian, you've historically broken things down into that 60, 25, 15 bucket. You talked a little bit about the 25% bucket and the 15% bucket in your remarks. I was wondering if you could just comment on the 60%, the remaining part of the portfolio, and how that's performing and where maybe margins are in that slug of business at this point. Cheryl, I'll take the first one.
Brian West: Yep, we've cycled to 38 per month. We said that. Keep in mind, it always takes time for that to equate into deliveries, but we're not firing blanks. On your question about 60% of the portfolio on BDS, look, you know, they've consistently, quarter in, quarter out, been able to deliver some very good performance on some products that the customers need. And you know, the longer list that we talked about, things like Apache and all that sort of stuff, missiles and weapons, things that are needed right now in this environment that we live in, and they're performing well, and they're in that mid And when we step back, if we think about going from where BDS is with margins, two things have to happen. That 25% that's wrapped around fighters and satellites, that has to get better, and we feel like it is expected to get better and look a lot like it used to. So then you've got 85% of your portfolio clicking at stable, consistent, mid to high single-digit rates.
Brian West: And we know we can get there. And then you've got this 15% of the portfolio on fixed price development programs that we expect to be less of a drag as we retire risk over time. And we expect that to play out....
David L. Calhoun: Good morning. Thank you. Yeah, hi Doug. Hi, I want to go back to the MAX-7 and the MAX-10 certifications, and the question I have is, when you look forward, and given there is uncertainty about the timing of the certification of each one of those, and you look at the mix in your customer demand, and certainly you've had more demand than you can respond to given supply chain issues, First... Let's say that mix changes because of the timing of certification on those Are you still, do you still see your line as full because it could be moved around between Desk 7s, 8s, 9s, 10s? And then second, what kind of operational challenges, if any, do you have when you have to have some flexibility about what variant you're producing?
David L. Calhoun: You know, Doug, I'll just start by saying I think it's manageable, we will have this. If there's a delay in any way, we're not going to know at the last second. We're going to know with a considerable time frame, in my view, and by the way, right now, the status on the 7 and the 10 was progressing reasonably well. I don't believe the FAA is taking anybody off the course, and we haven't taken anybody off the course.
David L. Calhoun: And so they are making real progress, and I think we were almost close to the finish line had we not pulled the time-limited exemption. So I don't, again, I'm never going to suggest a date or anything like that for the FAA, but they're working diligently on it, and they know how to separate these two, the issue we're wrestling with in our factory from the CERT efforts. And I believe we're going to have plenty of time, and we'll be able to manage our product mix reasonably well. There won't be anything dramatic by way of change.
David L. Calhoun: If there are some subtle changes from quarter to quarter, first or second, you'll know it pretty early, and so will we. And I think it's quite manageable. So is it fair to say that the supply chain ramp is probably still the governing constraint on your production ramp, not things like mix here? Although I will say, if this pause goes on for a little while, you know, I like, I don't, I don't want to stop my customers.
David L. Calhoun: But the pause is going to be helpful for us in so many ways, in the sense that that supply chain is going to keep running according to that master schedule. It's, it's, it's good for us if some buffers get developed in some of the more stressed suppliers to get ahead of the game. So there is important progress that will get made despite this, this momentary pause. Very good, thank you. Yeah, thanks. Bye. Bank of America, Good morning. Hey, good morning. How are you?
Brian West: If I may, I have a two part question. The first one, if you guys could walk through 787 a little bit, you mentioned the rate, what's going on in that line, that sort of thing we get questions about that, and then I'll come back with a second. Yeah, so on the 787, there's nothing new on the 87. Teams are doing a very nice job, we'll produce at the five per month rate, like we described, and we expect to steadily increase those rates over time and liquidate a lot of inventory. And, you know, we'll get more dimensions around the specifics in line with normal guidance, but the program's doing just fine. And the backlog is big. Yeah, yeah, it's been doing great. And then maybe the second question; this one's a little more difficult.
Brian West: I'm still trying to get my head around how we got here. Meaning, you know, if you go back to the beginning of the Max issue... Wasn't the 737 line, like, the most scrutinized production line in the world? So what happened to get to where we are today? You know, I understand that revamping the quality system and all that is great news. It's a positive move forward, but why did that have to happen now?
David L. Calhoun: And I just I just don't understand. Well, Ryan, it's a... It should never happen. So the question about now is not so relevant. It should never and can never happen.
David L. Calhoun: I am incredibly proud of the work that our people do on the 3-7 line. I think it has steadily progressed; quality numbers have gotten better, but when you have an escape and then everybody concludes exactly what happened in that escape, that lights another fire, so you take another step forward with respect to all things quality, and you make certain that whatever it was that created that opportunity for failure in the sky or in flight can never happen again, and that has already happened, and then we'll learn from everything. So yeah, I think I understand Yes, thanks so much.
David L. Calhoun: So now that you've waived the exemption on engine anti-icing and you're redesigning the new system, you said it would take about a year. Have you accelerated that at all? And could you accelerate it more?
David L. Calhoun: Because my assumption is that this is going to be the long pole in the tent in terms of when the FAA can certify the MAX 7 and 10. I think that is an accurate statement that you just made. Given the fact that we made this decision just a couple of days ago, needless to say, we will throw more engineers at it. We're going to put more work into it, and I hope we can accelerate it. And the nine months that I discussed with Senator Duckworth were based on my understanding of that project before I made this decision.
David L. Calhoun: So the answer is yes, we'll step up resources, we'll step up whatever testing is required, and we will do everything we can to inform the FAA about that particular part of that program. And that's where we stand today. And you are correct. That is the poll in the tent all of us should be watching.
Brian West: Terrific. Thank you. And then another quick one, you know, with the supply chain running at the master schedule, but you're not delivering quite as many, should we think about a fairly large build in the inventory account here in the next couple of quarters until you get beyond that? Yeah, there are two things, Cai, that are going to be things we have to deal with in cash flow. One is going to be the 777X investment I discussed, as well as what you just described. And that's contemplated in my description of what we thought the bottom looked like.
Brian West: And then we just got to go run the play and, you know, work through what's in front of us. But there is more work ahead, and we'll describe it more specifically as we move through the year. Thank you. Hey Lois, we have time for one more question. Are you in there? and John Fenneman.
Operator: Thank you for joining us. Have a great day. Hey, good morning, everyone. Hey Noah. Hi Noah.
Brian West: I might go over one if I'm last, but Brian, recognizing that there are some limitations here in how you can discuss it, but maybe just trying to talk out max units this year with assumptions of not breaking to higher rates. You know, you made it a point to say you're at 38. I know, I know, you know, that rate, final assembly, where the entire supply chain is, is always a different number. But, you know, if I just simply said 31 for six months and 38 for six months.
Brian West: That's in the low 400s, and then you unwind 5 to 10 of inventory a month. You know, I can kind of get, you know, somewhere near 500 or just decent growth from 2023. Is that just a reasonable starting point as we wait to learn more from the FAA? You know, no. I completely understand the question. Those are the inputs I described. But, you know, I, out of respect for the process that we need to go through the FAA, I just got to steer away from specificity. It's just not the right time.
Brian West: We've got work in front of us, and I promise, when appropriate, we are going to be more specific. But anyway, that's, that's, it's probably going to be on the specificity of those numbers. Wait and see. It's just not appropriate.
Brian West: Fair enough, fair enough. Are you willing and able to speak to just updating what the cap is these days on the monthly inventory unwind and how China plays into that? You know, I don't know, we think about a cap, we've got the shadow factories that have been working for, you know, quite a while, and they know the routines, and they've been pretty steady on both the 3-7 and the 8-7, consistently meeting month in, month out liquidation targets and expectations for customers. So I don't think there's any kind of cap, we're just focused on, we know exactly And then we're just going to run that play as hard as we can. Okay? And is China officially fully 100% taking deliveries? We see it in the press, we see the reading of the tail number websites, but can you just declare that that's fully officially on? One at a time.
David L. Calhoun: And yes. OK, and then Brian, just one more defense. You know, the margin is still not where you want it, but it's better sequentially. Any framework you can provide around how that progresses through 24, and what was the final defense cash burn in the 23rd cash so we can think about where you know what to work off of as we go into 2020? Yeah, so the cash burn, we put out some numbers a year ago, and we thought the operating cash flow was by division.
Brian West: BDS, at the worst case end for them in that range, they were much worse than that. And it's all what we described last year, and we expect it to be better this year. And that's behind us. But yeah, they did a lot worse, obviously offset by BGS and BCA doing better. But it was worse.
Brian West: And then the first part of your question on margins, you know, we expect margin trajectories to get better over time, particularly as we focus on this 25% of the portfolio that is very specific, and there's a lot of actions or activity around it. But we will get better; they will eventually get to the point where we're putting positives on the board. What I'm most interested in is the team that's got to execute over the next, between now and 2025-26, in order to get these margins back in the high single-digit range. And I will remind you that that's how we describe our defense margins. You really have to put two points on top of that, which is what we account for in our global services division for the defense side. So it's really looking more like a double digit defense external view that we are aiming to get towards, because we think that's a pretty decent business model.
Brian West: Okay, you squeezed in three. We got in. We got them all in. Got the rest in. Thanks so much for the time. I appreciate it. Thanks, Mullen. Thanks, everyone. Thanks, everybody. We're sorry, your conference is ending now. Please hang up.