Q4 2024 The Boeing Co Earnings Call
Thank you for standing by good day, everyone and welcome to the Boeing Company's fourth quarter 2024 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 on today's conference. Please press. The one followed by the zero on your Touchtone telephone.
Matt: It's one zero for questions. After precedent one zero you will hear that you had been placed in Q pressing one zero again will 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 am turning the call over to Mr. Matt <unk> Vice President.
Welch: Didn't of Investor Relations for the Boeing Company Mr. Welch. Please go ahead.
Welch: And good morning, welcome to Boeing's quarterly earnings call I am Matt Welch and with me today are Kelly or Burg, Boeing's, President and Chief Executive Officer, and Brian West Boeing's Executive Vice President and Chief Financial Officer.
Welch: And as a reminder, you can follow today's broadcast and slide presentation at Boeing Dot com.
Welch: Projections estimates and goals included in today's discussion involve risks.
Welch: Including those described in our SEC filings and in the forward looking statement disclaimer at the beginning of the presentation.
Welch: We also refer you to the disclosures relating to non-GAAP measures in our earnings release and presentation.
Speaker Change: Now I will turn the call over to Kelly Warburg.
Kelly Warburg: Thanks, Matt and thanks to everyone for joining today's call.
Kelly Warburg: Before I get into the fourth quarter earnings let me first offer our thoughts and deepest condolences for the families and loved ones imposed on board Jos you Air flight to 216.
Kelly Warburg: We continue to support the airlines.
Kelly Warburg: And the U S National Transportation Safety Board.
Kelly Warburg: The South Korean authorities and the accident investigation.
Kelly Warburg: Now turning to the fourth quarter earnings.
Kelly Warburg: During the last call I highlighted four areas critical to our recovery.
Kelly Warburg: And as the new year begins we're making steady progress in all four areas.
Kelly Warburg: The first area.
Kelly Warburg: Stabilizing the business.
Kelly Warburg: Knowing the resolution of the Iam strike, our commercial team has been executing and methodical plan to restart our factories within the framework of our safety management system.
Kelly Warburg: This included ensuring all manufacturing employees were current on their training and certification.
Kelly Warburg: Prior to returning to work on the factory floor.
Kelly Warburg: We took time to rebalance the production line so that when we started up we did so with a healthy production system.
Kelly Warburg: People are back to work and excited about the task ahead and you can see the energy when you are on the factory floor.
Kelly Warburg: For the 737, Max we have sufficient parts inventory to enable producing at 38 a month.
Kelly Warburg: <unk> fuselages, which were a pacing item prior to the strike and all three of the production lines in Renton are now cycling.
Kelly Warburg: In the past quarter, we completed our safety management meeting with the FAA and which they reviewed our safety management system and our production status, including spending time on the factory floor.
Kelly Warburg: They reported that they saw a significant improvement and I am pleased that we have an agreed upon path.
Kelly Warburg: Rate increases beyond 38 per month.
Kelly Warburg: It's all about adhering to our safety management system and a stable factory as measured through agreed upon key performance indicators or kpis.
Kelly Warburg: It's in early innings on the production ramp and we need to stay disciplined on maintaining a stable production system.
Kelly Warburg: Early signs are encouraging.
Kelly Warburg: The best news is that our customers are reporting that they are encouraged with what they're seeing as they monitor our production.
Kelly Warburg: Progress on the 787 also continues and we finished last year at a production rate of five per month.
Kelly Warburg: Like the 737, we're working to ensure the 787 production system, including the supply chain is stable prior to making the next rate increase.
Kelly Warburg: An important accomplishment to stabilize the business was to shore up our balance sheet.
Kelly Warburg: We are committed to recovering the business, while maintaining an investment grade credit rating and delivering for our shareowners.
Kelly Warburg: I think the demand for our offering last year speaks volumes about the market's confidence in our recovery.
Kelly Warburg: We are working with across the supply chain, including the sub tiers to ensure readiness and stability with our production rate.
Kelly Warburg: Notably supplier part shortages across all of our commercial programs are within their established control.
Kelly Warburg: We have instituted dedicated sessions with suppliers to provide insight.
Kelly Warburg: As well as to promote two way communication to stay aligned as we operate together as one extended production system.
Kelly Warburg: The second element of our recovery as the improved performance on our development programs.
Kelly Warburg: Yes.
Kelly Warburg: While the charges for the quarter and Bds are disappointing.
Kelly Warburg: Have had the opportunity to complete deep dive EAC reviews on all of the troubled programs.
Kelly Warburg: We are very focused on creating stability within the EAC. So we stopped this quarterly drumbeat of cost growth.
Kelly Warburg: This means being more proactive and clear eyed on the risks and our estimates to complete the projects.
Kelly Warburg: While I know it doesn't show in this past quarters performance, we're making progress in working with our customers to actively manage the contracts to achieve better outcomes for both parties.
Kelly Warburg: <unk> seen that we've entered into an MLA with the U S Air Force on the <unk> program and we're in active discussions on a second MLA on that program all focused on improving the performance of the program.
Kelly Warburg: We're also in active discussions with our customer on the BC 25, b programs to make the necessary changes to improve the program performance and delivery.
Kelly Warburg: The U S. Air Force's term. This is an active management, which is a term I really like we're focused on actively managing all of our problematic programs to improve the performance for the company.
Kelly Warburg: And our customers.
Kelly Warburg: All said there is no silver bullet on these fixed price programs. So I do feel better about our ability to better manage the performance in 2025.
Kelly Warburg: On the commercial side, we continue to focus on getting the 737 dash seven and Dash 10.
Kelly Warburg: As well as the triple seven acts through certification.
Kelly Warburg: There are no updates to the timelines we previously communicated on these programs.
Kelly Warburg: On the dash seven in Dash 10, we're still working through the testing phase focused on finalizing the IC design solution, which we plan to include in the certification program.
Kelly Warburg: Working closely with the FAA, especially in light of their leadership changes will be a key focus area for us this year.
Kelly Warburg: The Triple <unk> is back in flight test and we have a good handle on fixing the thrust link issue we uncover.
Kelly Warburg: Now moving to the third area cultural change this will be a multiyear journey, but we're already making progress.
Kelly Warburg: Our leaders are getting more engaged with their teams and customers were having the Frank discussions about what we need to change.
Kelly Warburg: In 2025 will be rebase lining, our core values and behaviors to make our expectations perfectly clear to all our Boeing team mate.
Kelly Warburg: These will be incorporated into our leadership development program and become fundamental elements of our performance management system.
Kelly Warburg: Leadership promotions will be grounded not only in what we get done, but how we get things done.
Kelly Warburg: We're going to help focus the teams on what it takes to make Boeing successful and promote a culture of unity and accountability by implementing a single enterprise score for all of our annual incentive plans.
Kelly Warburg: As I talked with employees there is a growing swell of excitement around restoring trust and getting their Boeing back and they want to be a part of this turnaround.
Kelly Warburg: So the last area is building a new future for Boeing.
Kelly Warburg: While workforce reductions are always difficult I'm pleased that we have been able to reduce layers of management and redundant overheads in our system.
Kelly Warburg: This will serve us well as we establish a less bureaucratic more focused and agile operating environment for our future.
Kelly Warburg: We're preparing for the road ahead by continuing to make important investments in our core business, while streamlining our portfolio in areas that arent core to us.
Kelly Warburg: So let me wrap up by saying that the markets. We serve are robust and growing demand for our core commercial and defense products and services remains strong.
Kelly Warburg: Our backlog of more than a half a trillion dollars clearly demonstrates the value of our portfolio and we're focused on meeting our commitments and delivering safe high quality products to our customers.
Kelly Warburg: I do want to acknowledge and thank the incredibly talented employees that Boeing.
Kelly Warburg: Your resiliency and commitment gives me confidence in our path forward.
Kelly Warburg: It's going to take all of us working together.
Kelly Warburg: Next let me turn it over to Brian to cover the operating results and after that we'll be happy to take your questions. So Brian overview.
Brian West: Thanks, Kelly and good morning, everyone, let's start with the total company financial performance for the quarter.
Brian West: Revenue was $15 $2 billion down, 31%, primarily driven by lower commercial deliveries associated with the iam work stoppage.
Brian West: The core loss per share was $5 90.
Brian West: Primarily reflecting previously announced the impacts of the Iam work stoppage in agreement charges on certain defense programs as well as costs associated with workforce reductions announced last year.
Brian West: Free cash flow was a use of $4 1 billion in the quarter in line with the expectations shared at our last earnings call.
Brian West: Results were impacted by lower commercial deliveries and unfavorable working capital timing, primarily driven by the iam work stoppage.
Brian West: Turning to the next page I'll cover Boeing commercial airplanes.
Brian West: BCA delivered 57 airplanes in the quarter revenue was four 8 billion.
Brian West: And operating margin was minus 43, 9%, primarily reflecting previously announced impacts.
Brian West: Am work stoppage and agreement, including pre tax charges of $1 1 billion on the Triple seven X 767 programs.
Brian West: Backlog in the quarter ended at $435 billion and includes more than 5500 airplanes.
Brian West: Now I will give more color on the key programs.
Brian West: The 737 program delivered 36 airplanes in <unk>, including a step up to 18 in December and as of yesterday, We've delivered 33 airplanes in January with four days to go.
Brian West: On production, we restarted the factory in December and plan to gradually increase rate.
Brian West: We expect to be in a position to go above 38 per month later in the year.
All three lines in our Renton factory cycling and monthly production is already in the low to mid twenties for January.
Brian West: More broadly on the master schedule, we continue to make adjustments as needed and manage supplier by supplier based on inventory levels.
Brian West: Over the past year, our buffer inventory has grown to promote stability across our production system.
Brian West: As production stabilizes and rates increase over time, we plan to deliberately returns buffer inventory to more normal levels.
Brian West: The quarter ended with 55 737 dash eights built prior to 2023, the majority for customers in China, and India down five from <unk> with about another 10 already delivered in January.
Brian West: Given the impact of the strike, we now expect to shutdown the Shadow factory midyear and deliver all of the remaining airplanes to customers within the year.
Brian West: On the Dash seven Dash 10 inventory levels were stable at approximately 35 airplanes and testing on the anti IC design solution is ongoing with certification expected to follow later in the year.
Brian West: On the 77 program, we delivered 15 airplanes in the quarter as we made progress on working through production recovery plans for heat exchangers and delivery delays associated with steep certifications.
Brian West: The program exited the year at a production rate of five per month, and our recently announced plans to expand South Carolina operations as we prepared for anticipated future need of the commercial market.
Brian West: We are intent on ensuring the production system and the supply chain demonstrates stability prior to making the next increase on rates sometime this year.
Brian West: We ended the quarter with 25 airplanes and inventory build prior to 2023 that require rework down five from last quarter.
Brian West: Our ability to finish the rework and shutdown. The Shadow factory was also impacted by the work stoppage and we expect to complete this work in early 2025.
Brian West: Finally on Triple seven X as previously announced the $900 million pre tax charge, primarily reflects higher estimated labor costs associated with finalizing the <unk> agreement and will be incurred over the next several years.
Brian West: Flight testing recently resumed and we still expect first delivery in 2026, and we will continue to follow the lead of the FAA as we move through certification.
Brian West: Triple seven X inventory spend in 2024 finished at $2 6 billion.
Brian West: As <unk> spending levels moderated due to the work stoppage.
Brian West: As noted previously we expect the cash profile to look similar to prior development programs with first year prior to first delivery typically the largest use of cash driven by inventory build associated with the production ramp which will unwind as deliveries accelerate.
Brian West: Moving onto the next page and Boeing defense and space.
Brian West: Thanks.
Brian West: Bds booked $8 billion in orders during the quarter, including awards for 15, KC 46, eight tankers from the U S Air Force and seven P. Eight aircraft for the U S Navy and the backlog ended at $64 billion.
Brian West: Revenue was $5 4 billion down 20% year over year on volume and program charges and operating margin was minus 41, 9%.
Brian West: Bds delivered 34 aircraft and two satellites in the quarter, including the final $2 7 million AMD aircraft to the U S Air Force.
Brian West: The 15% of the portfolio comprised of fixed price development programs recorded a $1 $7 billion pre tax charge as previously announced.
Brian West: The fixed price development cost pressures were driven by the KC 46, <unk> and <unk> programs with KC 46, primarily reflecting higher estimated manufacturing costs, including the impacts of the iam work stoppage in agreement and T. Seven driven by higher estimated production cost on contracts in 2026 and beyond.
Roughly one third of these new charges will work through the cash flows in the next few years with the remainder spread over the coming decade.
Brian West: Given the fixed price nature of these contracts will continue to be transparent about impacts as we work to stabilize and mature these programs.
Brian West: We acknowledge that these are disappointing results is a complicated development programs and we remain focused on retiring risk each quarter and ultimately delivering these mission critical capabilities to our customers.
Brian West: As Kelly shared we continue to make progress in <unk>, including key order and delivery milestones already noted import.
Brian West: Importantly, the updated acquisition approach for the <unk> as a proof point for how we are working with our customers to find better overall outcomes for both parties and those efforts will continue as we work through other parts of the portfolio.
Brian West: On the 25% of the portfolio, primarily comprised of fiber and satellite programs or.
Brian West: Our fighter programs again recognized losses in <unk> due to disruptions associated with the <unk> ramp up and the F 18 production wind down.
Brian West: We also recognized impacts across satellites and a few other legacy platforms tied to development realities as we work to refresh the capabilities of these platforms to support our customer needs.
Brian West: The remaining 60% of revenues of the portfolio are generally performing in the mid to high single digit margin range. Although the P. Eight commercial derivative program experienced margin compression in the fourth quarter due to the iam work stoppage in agreement.
Brian West: While still more work in front of US we continue to be confident the bds margins can improve to high single digit levels in the medium to longer term.
Brian West: The demand for our defense products remains very strong supported by the threat environment confronting our nation and our allies, we still expect the business to return to historical performance levels as we stabilized production execute on development programs and transition to new contracts with tighter underwriting standards.
Brian West: Moving on to the next page Boeing Global services.
Brian West: Bgs continues to perform well delivering record operating margins in the quarter.
Brian West: The business received $6 billion in orders in the backlog ended at $21 billion.
Brian West: Revenue was $5 1 billion up 6% primarily on higher commercial volume.
Brian West: Operating margin was a record 19, 5% in the quarter up 210 basis points compared to last year with both our commercial and government businesses delivering double digit margins.
Brian West: In the quarter Bgs secured awards for C 17, Sustainment as well as a contract for F 15, Japan Super Interceptor upgrade and services from the U S. Air Force Bgs is a terrific long term franchise focus on profitable capital efficient service offerings, and executing well with mid single digit revenue growth mid teen.
Brian West: <unk> and very high cash flow conversion.
Brian West: Turning to the next page I'll cover cash and debt.
Brian West: On cash and marketable securities we ended the quarter at $26 3 billion.
Brian West: Primarily reflecting the successful $24 billion capital raise in October partially offset by the free cash flow usage and debt repayment.
Brian West: The debt balance ended at $53 9 billion.
Brian West: Down $3 8 billion in the quarter driven by the early repayment of a $3 $5 billion bond originally set to mature in 2025.
Brian West: Importantly, this prepayment de risks, our 2025 maturity profile, resulting in $800 million of debt maturities remaining of the year.
Brian West: The company maintains access to $10 billion.
Brian West: Our revolving credit facilities, all of which remain undrawn.
Brian West: We remain committed to managing the balance sheet in a prudent manner with two main objectives.
Brian West: First continue to prioritize the investment grade rating and second allow the factory and supply chain reset.
Brian West: We will continue to evaluate opportunities to further supplement the balance sheet as we make certain portfolio decisions through the course of the year.
Brian West: Turning to the next page I'll cover the total financial company results for the full year.
Brian West: Yes.
Brian West: Full year revenue was $66 5 billion down 14% year over year, driven by lower commercial deliveries, including impacts of the iam work stoppage.
Brian West: The core loss per share was $20 38.
Brian West: Down from prior year, primarily on lower deliveries in commercial and defense program Chargers, including impacts of the Iam work stoppage in agreement.
Brian West: Free cash flow was $14 $3 billion used for the year down versus prior year on commercial deliveries and unfavorable working capital timing, including the impact of the work stoppage.
Brian West: Stepping back let me provide some additional context on 2025 free cash flow.
Brian West: <unk> 2025 will be an important year in our recovery and while we still expect it to be a use of cash we anticipate a significant improvement over 2024.
Brian West: Within 2025, we expect one key free cash flow will be a usage and similar to <unk> 24, driven by continued working capital headwinds as we ramp production as well as normal seasonality.
Brian West: We still expect the first half to be a use of cash with a second half turning positive and accelerating as we exit 2025.
Brian West: Capex investments stepped up last year and could increase by approximately $500 million in 2025 to support planned growth across both the commercial and defense businesses.
Brian West: Importantly, we expect to exit the year with real momentum in the business as we return to normal production rates.
Brian West: This outlook will be underwritten by a few critical factors.
Brian West: Increasing 737 production rates through the year.
Brian West: Moving 787 steadily towards its long term production rates.
Brian West: Liquidating, our legacy, 737% and 77 inventory and shutting down both shadow factories.
Brian West: Strategically investing in the business, including the Triple <unk> production ramp in Capex to support planned growth across the portfolio.
Brian West: Improving our defense business as we continue to mature the fixed price development programs and work to transition recently challenged programs with a renewed focus on disciplined program management and stabilizing the business.
Brian West: And finally, continuing to demonstrate strong performance across our services business.
Brian West: Broadly the markets, we serve continues to be significant and our backlog of more than half a trillion dollars demonstrates that our product portfolio is positioned to win.
Brian West: Long term these fundamentals underpin our confidence as we continue to manage the business with a long term view built on safety quality and delivering for our customers with that let's open it up for questions.
Brian West: Thank you Andrew your question be heard clearly heard we ask that you not use a speaker phone cell phones or phone headset. Please use your handset to ask a question.
Brian West: You're using a speaker phone please be sure to mute.
Brian West: Im sorry, please be sure Jim mute function is switched off so you signal can reach the equipment as a reminder, in the interest of time, we are asking that you limit yourself to one single part question and our first question is from the line of David Strauss from Barclays. Please go ahead.
Brian West: Okay.
Speaker Change: Thank you good morning.
Brian West: Hey, David.
Brian West: Hello, everyone.
How are you.
Brian West: The restart on that how Thats gone you mentioned some.
Brian West: You mentioned <unk> that you have with the.
Brian West: Our kpis that you have with the FAA.
Brian West: Can you maybe elaborate on what exactly those are outflows you already hitting what's necessary to get to to go about 30, a month and then Brian can you just give us an idea of what to expect for all and Max 707 deliveries in 2025.
Speaker Change: Yes, David So let me, let me talk about the production startup unmatched. So as you know we came out of the.
Speaker Change: The strike and didn't actually jump right on building aircraft. We spent time training the workforce getting them all up to speed, but also as I said balancing the line, which is really important.
Starting to line up in a stable manner than it already is paying dividends, we're seeing there.
Speaker Change: Production process come back very well and I feel pretty pretty good about.
Speaker Change: Where we are right now with the production rate remember that we've got a significant amount of inventory both in airplanes and in supply parts. So I.
Speaker Change: I don't see any constraints right now from the supply chain for us in ramping up.
Speaker Change: 737% 30.
Speaker Change: <unk> 38, a month rate and notably.
Speaker Change: The work at spirit.
Speaker Change: During the strike has really paid off that team has done a great job of improving the overall performance and quality of the fuselages, which youre going to help flow.
Speaker Change: Through the factory so as I said, it's early days, but I feel really good and I think our deliberate plan.
Speaker Change: It is going to pay dividends for us.
Speaker Change: For us going forward.
Speaker Change: David a little bit on how to think about 737 deliveries for the year, we're not putting out.
Speaker Change: Formal guidance will too early for that but let's just talk about a framework for the year.
Speaker Change: So January is off to a very solid start in <unk>.
Speaker Change: Deliveries should be in the high <unk> for the month now keep in mind. Some of these airplanes are the benefit of clearing the delivery center ramp that had accumulated in the November December timeframe. So.
Speaker Change: The advantage of a nice tailwind entering the year.
Speaker Change: We expect February will be lighter because there is fewer manufacturing days and also the timing of the factor a restart and then March is likely to be better than February.
Speaker Change: Again to get more predictability. So as we've said the first half is going to reflect our gradual steady restarted the factory and the second half is likely going to benefit from achieving higher production rates which include the.
Speaker Change: <unk> 38 per month target.
Speaker Change: And possibly higher based on approval from the FAA as Kelly mentioned so.
Speaker Change: We sit here today.
Speaker Change: <unk> got a lot of work in front of us.
Speaker Change: 2025.
Speaker Change: Some ways could look like 2023.
Speaker Change: Maybe a bit better if things go our way.
Hey, David Let me come back also in talk about the six Kpis that you asked about.
Speaker Change: So.
Speaker Change: Our kpis that we would agree we've agreed with the FAA on what the threshold is and where the control limits. We want to operate in these are what we collectively determined will will measure the stability our production system I'll quickly tell you what the six are there any notice of escape hours shortages.
Speaker Change: Part shortages employee proficiency rework by line traveled work at rollout and ticketing performance and so I will say, it's a little bit early because we have a lot of inventory yet of planes that were in process that we're going through but early indications is that.
Speaker Change: All of the.
Speaker Change: The kpis are looking and trending in the right direction. So I feel so far so good but it will be important to see and continue to measure. These kpis as we continue to ramp up and remember.
Speaker Change: We need to get to 38 and show stability at 38 with these kpis and we won't go to the FAA for a rate increase we won't request one if we don't.
Speaker Change: These kpis are performing the way that we want to and so I think we've got a disciplined approach as I said in my remarks, I am pleased that it's pretty well grounded in facts and data. So there is no subjectivity here as far as what it's going to take but we got to perform in and Stephanie and the team are clearly.
Speaker Change: Focused on performance of these kpis.
Speaker Change: Thank you and the next question is from Peter <unk> from Baird. Please go ahead.
Peter: Yes, good morning, Kelly and Brian.
Speaker Change: Hey, Brian maybe if you could walk us through a little bit on the free cash flow dynamics for 2025, I know you called out a few a few things some of the moving parts, but just thinking about working capital headwinds or triple <unk> spend or Bds losses, we've been estimating about a $5 billion outflow. This year I think it's a little above the consensus of four.
Speaker Change: Anything to highlight that you could help us maybe that potentially could be reduced that outflow or or how are you. How are you thinking I know you gave us the first half versus second half dynamics, but anything else that you could provide more color on that.
Brian West: Sure Peter.
Peter: So 2025 free cash flow is largely going to be consistent with what we've said at our October earnings call with the two adjustments that I noted, which is capex a little bit higher based on some growth programs that we're anxious to invest in and the impact of a few hundred million dollars based on the updated Bds charges. So it's <unk>.
Peter: <unk> with those two adjustments now in terms of profile as we've discussed and you mentioned the first half will be negative the second half will be positive it will be a net usage in the calendar year, but importantly positive momentum as we accelerate cash flows exiting the year that sets us up very nicely for 2026 now in terms of.
Peter: The levers the first half of the year BCA is going to be negative driven by the working capital usage and continued investment in the Triple Seven X program.
Peter: <unk> is going to be negative due to the prior period charges running through as well as normal seasonality as it pertains to customer receipts.
Peter: In Bgs is going to be nice and steady contributor in the first half as we go into the second half BCA is expected to flip positive. Because then it will get the benefit of the working capital as deliveries accelerate while we still invest in the Triple Seven X program again, it's all going to be a function of our ability to work.
Peter: I was higher deliveries in the back half of.
Peter: Bds is going to move positive. Despite a continued drag from the charges.
Peter: Primarily from the benefit of favorable receipt timing, it's natural and seasonal in that part of the business and then bgs.
Peter: We tend to put our second half than first half so it's going to be a nice steady, but growing profile for the second half.
Peter: And as I mentioned, the Capex is going to be a bit higher but for good reason because that's all about growth.
Peter: So in terms of the numbers that you described that's a reasonable ballpark or what we're aiming at and.
Peter: Managing all the levers.
Peter: Keep you updated as we move through the course of the year.
Peter: Appreciate it thanks.
The next question is from Sheila <unk> from Jefferies. Please go ahead.
Sheila: Good morning.
Speaker Change: Hi, <unk>.
Speaker Change: Development program on Boardwalk with things like timing of globalized.
Speaker Change: First of all right how are you.
Speaker Change: We are actively managing those programs and what are you looking to change Brian.
Brian related to that.
Speaker Change: How do you correlate titles I think you mentioned one <unk> now can you maybe size that cash outflow for 25 of that $3 billion related to Bbs and then in <unk> and 'twenty.
Speaker Change: The business become breakeven in 2007, and when does it become part of that.
Speaker Change: Okay. Sheila I'll go first and then ask Brian to follow up.
Speaker Change: Yes, so obviously the quarter was disappointing here on the on the fixed price development programs, but as I said in my remarks, we're very actively now working all of these programs with our customers and we've got the U S. Air Force's is clearly working with us to find a better path forward on these programs both for us and for them.
Speaker Change: Derisking through this active management process is different and it's we still have to convert at these msas, which are memorandum of agreements we have to convert them to contract changes so.
Speaker Change: We're in early stages, but the customers are are working with us in that regard and then I think just as I said taken up.
Speaker Change: A real clear look at the at the EAC isn't the estimate to complete.
Speaker Change: And making sure that we're.
Speaker Change: Reflecting the realities of the risks that we have and so I'm very hopeful that we're going to see a much more stable performance here. This next year, but again, we're not done with these till we're done with these and they are fixed price. So we've got to continue to work at the work at this our team is very very focused.
Speaker Change: On program management discipline, making sure we're managing the task at hand, but a lot of work yet to do Sheila on the so I think we're making progress.
Speaker Change: But I can't certainly can't claim victory yet.
Speaker Change: In terms of the cash flow you.
Speaker Change: You are correct.
Speaker Change: New charge of $1 seven we characterize about a third of that is going to be over the next three years.
Speaker Change: Until a little bit front end loaded so a few million dollars $200 million.
Speaker Change: Pressure.
Speaker Change: We see in $2025, we said back in October now in terms of the broader question on the full way the charges are going to tend to flow through.
Speaker Change: Thank.
Speaker Change: Bds.
Speaker Change: For 25 free cash flow performance is going to look a little bit like 2023.
Speaker Change: Then once we get through 2025, it will be in a much different spot because a lot of that headwind from the charge will be behind us and when we get exactly to break into even positive won't be this year, but can't wait to have that discussion as we move out beyond exiting this year.
Speaker Change: Got it so breakeven could be possible in 'twenty Exxonmobil morning, Kevin.
Speaker Change: Yes for sure.
Speaker Change: Got it thank you.
Speaker Change: Thank you and our next question is from Ron Epstein from Bank of America. Please go ahead.
Speaker Change: Hey.
Ron Epstein: Good morning, guys.
Speaker Change: Kevin can you talk about how youre thinking about borrowings portfolio or I mean, theres been a fair amount of press about.
Ron Epstein: Maybe some things could be up for sale and maybe not.
Speaker Change: What's core what is.
Speaker Change: So the way I've been thinking about it.
Speaker Change: One of the things that's been talked about as maybe sell in Jefferson.
On one hand, maybe that's a good idea, but on the other hand that puts boeing's name in pretty much every cockpit every airplane on the planet and is that a bad. Thanks, Joe I mean, how are you thinking about it well so first of all Ron we've been through the <unk>.
Speaker Change: Through the detailed portfolio review, which was one of my one of my early path. That's complete highlighted areas that then.
Speaker Change: That are questionable to our core and we go through an analysis to look at each of those areas and were in process in that.
Speaker Change: It is.
Ron Epstein: Look at this here is how I would think about it Ron this is not going to be a major restructuring of the Boeing company. The core business that you see us and then.
Ron Epstein: We're going to continue to be in those core areas, but there are some areas you named one there are some areas where.
Ron Epstein: We can streamline the organization or we may be better off.
Ron Epstein: Focusing our energy elsewhere and will be actioning those over the.
Ron Epstein: The coming months and year, the only thing I would say is that.
Ron Epstein: As you look at those part of that decision process is what do you what do you do with something.
Ron Epstein: In some cases, you have potential that you could sell it and there are buyers in some cases that may not be a viable approach. We may want to just not continue with the next phase of the project or something like that so we're going through that but I think.
Ron Epstein: If I give you any guidance think of it as more pruning the portfolio not cutting down the tree.
Ron Epstein: Got it got it and you would expect maybe.
Ron Epstein: We'll know more about this in the next 12 to 18 months something like that yes look I can't really speak about individual portfolio decision areas, but as they come along.
Ron Epstein: Obviously, you'll see what we're doing there.
Speaker Change: Got it got it alright, thank you.
Speaker Change: Thank you. The next question is from Myles Walton from Wolfe Research. Please go ahead.
Myles Walton: Thanks, Good morning, so on the supply chain and maybe the spirit integration how key is that to your ability to get to 38, and then get above 38, and then if you could just quickly touch on the 787 and the supply chain constraints, you're observing there specifically on interiors and the heat.
Myles Walton: Exchanges are still the issue and how quickly do you expect those to release within the context of 2025.
Myles Walton: Also look on spirit I don't view spirit fuselages as a constraint right now for us to get to rate 38, as I mentioned in the remarks, they've done a really really nice job of.
Myles Walton: <unk>.
Myles Walton: Improving the quality of the fuselage and the flow of the fuselages. So we're in really really good shape on fuselages with spirit, which sets up a very successful integration we've got.
Myles Walton: A team a team of Boeing folks at spirit, working hand in glove with them.
Myles Walton: As they improve their production processes, and I think that sets us well sets us up well for the for the upcoming integration, which will happen sometime.
Myles Walton: Still we're projecting middle of the year.
Relating to 787 inventory or supply chain as Brian said in his remarks.
Myles Walton: I think we're working through the heat exchangers.
Myles Walton: <unk> need some additional improvement there, but all the all the improvements look good seat to remain a challenge for us and it is not the seat.
Myles Walton: We call it seats, but it's the it's the monuments really that go around the seats and the integration of the IOP and the certification associated with that.
Myles Walton: And we are still challenged in getting through.
Myles Walton: <unk> on some new of type seats on 787, we got a plan on that.
Myles Walton: It's really a customer by customer basis, one of the things we're looking at for the futures we've got a.
Myles Walton: Spread the seat new seat configurations, we call them code ones, we've got a spread these code ones out to allow ourselves.
Myles Walton: And the regulators more time.
Myles Walton: To get through the certification of these things are complex, they're not a seat there.
Myles Walton: Complex monument, and particularly as we move to doors.
Myles Walton: Doors are a real challenge in the certification process and so we've got to work through.
Myles Walton: Some of that we've got a team really focused on that but I think it is going to continue to be a challenge for those 77 deliveries, where we have a new seat configuration that needs to be certified. So for example, looped on the we've got a lot of completed airplanes that are held up still on seats and we're working through that hopefully we will get through that.
Myles Walton: <unk>.
Myles Walton: This year and we'll have more successful.
Myles Walton: Data integration program as we ramp 787 up.
Brian West: Okay, and Brian the delivery number for <unk> for this year 75 to 80 is that a doable number.
Myles Walton: Alright.
Myles Walton: Yes, so as we've said we're at five per month, we want to get to seven sometime this year and we've got call. It high teens coming out of inventory. So when you add all that together for sure.
Myles Walton: Maybe a little bit better.
Speaker Change: Great. Thanks.
Speaker Change: Thank you and our next question is from Scott <unk> from Deutsche Bank. Please go ahead.
Speaker Change: Hey, Thanks for taking my question Kelly could you characterize the pace of what you think the business can liquidate triple seven aircrafts from inventory once assets and then are you expecting the first class cabin seats to be certified for the Triple seven X launch customers by the time Triple seven acts itself is type certified or is there any risk of delay there on.
Speaker Change: <unk> as well.
Speaker Change: Yes, let me take the seating first and then I'll ask Brian to do the liquidation.
Speaker Change: So actually the first delivery Triple seven X delivery is also to Luke to answer which is where I. Just mentioned, we have had and continue to FC gel.
Speaker Change: So I guess the good news Bad news is we've had seat challenges.
Speaker Change: But we do know what those challenges are for Lufthansa deliveries now Triple seven X interior in general is a more complex interior, but thats baked into our overall certification program for the for the aircraft. So we got time to go work the seat.
The certification issues and we've learned from our 787, what those issues are so I think we'll be able to manage that for.
Speaker Change: For the initial deliveries.
Speaker Change: And Scott in terms of cash flows as is typical in a new program a heavy cash usage.
Speaker Change: A year before which is going to be for 2025.
Speaker Change: In terms of 2026, when it goes into service keep in mind. The initial airplanes are going to be changing corp, airplanes, which are going to be high <unk> cash flow airplanes, but once you get to those and you get out of 2000 26 million in 2027, Youre really going to start to generate free cash flows and that's going to accelerate as deliveries accelerate so we're going to be.
Speaker Change: Set up very nicely once we get through Eas.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. The next question is from Seth.
Glenn: Thanks, Glenn from J P. Morgan. Please go ahead.
Glenn: Thanks, very much and good morning good.
Glenn: Morning.
Glenn: Alright.
Glenn: I guess I wanted to follow up on maybe two other items as we think about that cash flow. This year, you talked about winding down the shadow factories, but both of them I guess that was something that in the past we've talked about as a key enabler of enhanced profitability.
Glenn: Do we think about factoring that into the cash flow improvement that we're seeing this year and then also any.
Glenn: The financial implications and cash flow implications of.
Spirit integration in the second half.
Speaker Change: Yeah sure let me take a stab at that one so as you know we've got to Shadow factories. The 737 has largely been in Moses Lake 77 has been the joint verification work in Everett.
Speaker Change: And there are a lot of labor that go into reworking those airplanes.
Speaker Change: As it pertains to the 787, we expect the very early part of this year that work will be done now we won't deliver all the airplanes. This year because we've got some customer fleet planning things, we need to extend it and went through that.
Speaker Change: Lead over into next year, but the factory itself and the labor associated with that is going to be over the early part of this year and labor has already started to move towards other first run production on the 737 equally Moses Lake we've begun to take labor and move it from Moses Lake into.
Speaker Change: Rent and we expect to shut that Shadow factory down by mid year, and then <unk>.
Speaker Change: Corresponding deliveries will tail off towards the end of this year. So it's been a long journey, we look forward to that it's all contemplated into our numbers I discussed and described in terms of how cash flows are going to move this year I would say that over time, the benefit youre going to start to see the margin improvement at BCA because you don't have these too.
Speaker Change: Very expensive shadow factories up and running anymore there'll be done.
Speaker Change: So that'll be something that will be 2026 and beyond.
Speaker Change: As it pertains to spear integration.
Kelly Warburg: As Kelly said.
Kelly Warburg: Anxious when theyre doing a great job, we're anxious to get it closed.
Kelly Warburg: We're not really describing what the financial impact on that is until we close but the good news is is that we're on pace. It remains strategically important and the team is holding up really nicely at a pivotal point as we ramp production.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you and the next question is from Noah <unk> from Goldman Sachs. Please go ahead.
Noah: Hey, good morning, everyone.
Speaker Change: I know.
Speaker Change: What is it about the T cell <unk>, specifically that keeps having so much cost creep and I guess Kelly as you look at the portfolio.
Speaker Change: Everything in defense is complex and I appreciate the amount of work that goes into these but I think there's been some investor confusion around the dollar size relative to the perceived complexity of these programs. So what is what is causing the cost creep in.
Speaker Change: How do you fix it and you mentioned the updated acquisition approach on that program, specifically can you detail that a little bit further so the fundamental on <unk> seven is a <unk>.
Speaker Change: Fixed price development with a large fixed price production.
Speaker Change: And we did not have our supply chains back to back in the fixed price production. So it's much larger than what you would normally see because very rarely do you see where you have first of all where you have a fixed price development, but certainly don't have multi years of fixed price production, we've been burned on that.
Speaker Change: On the tanker program and clearly that's been a challenge for us on <unk>. So we've taken our medicine, we're not going to do that anymore now.
Speaker Change: Now specific to the to the MAA, what we're doing is making changes the air force want some additional test aircraft.
Speaker Change: That will allow us to eliminate concurrency and by concurrency what I mean is we're still we've got we're building air production airplanes, while we're testing and certifying.
Speaker Change: The design and that is a disaster because every time you come up with a with a change that comes out of that you got to go ripple that change back through the production process either in process or airplanes or complete so the major milestone with the MAA one that we've got with the Air Force really.
Speaker Change: Helps us get more aircraft into the test program eliminates concurrency risk for us going forward. So it's not necessarily.
Speaker Change: Good news from an EAC write up but its certainly going to.
Speaker Change: Eliminate risk that we're staring at on the program and then on <unk>, two which is we are in active discussion with them. It's also on making some changes to equipment.
Speaker Change: Equipment purchased by us versus purchased by.
Speaker Change: By the Air Force directly which will also help them with their logistics support plans, but also de risk our.
Speaker Change: Our escalation risk associated with those commodities. So that's the type of stuff we've got to get.
Speaker Change: Get better at is working those things with the customer, but the fundamental to this is a fixed price development with with the fixed price production option and not having your supply chain back to back.
Speaker Change: It is not a good recipe and we've learned and were.
Speaker Change: We're not going to do that anymore.
Speaker Change: So appreciate learning that lesson and not doing that again, but if you. If you live with the decisions that were made on the existing programs for until the end of those programs.
Speaker Change: How do you have confidence in the cash flow improvement in this segment.
Speaker Change: In the near term, but you've expressed or well. So I mean, we do an estimate at complete and look at the estimate to complete so much of the charges that we're taking are not actual charges for overruns to date their anticipated charges for increased costs from our supply chain. So we are getting the supply chain.
Speaker Change: Back to back and fixed price right now our goal is to get that 100% done, but as we're doing that we're having to recognize the cost increases from the supply chain. So.
Speaker Change: That's why I have confidence, we're getting closer to having that all back to back so we've eliminated.
Speaker Change: Laminate that large risk going forward, but obviously, it's resulting in pretty significant charges as we went through that.
Speaker Change: What I would say long term our objective has always been to get to 15% of the portfolio that is wrapped up in these fixed price development programs, including <unk> seven to not be a drag to just be neutral alright.
Speaker Change: Zero profit and not consume cash the rest of the portfolio and we get the 25% fighters satellites performing as they should given their legacy products and 60% of the portfolio Thats doing quite well if we can get that all move in the right direction that gets you to the path to high single digit margins in Bds like they should be.
Speaker Change: Even with a 50% of the portfolio that isn't going to do anything for us and Thats fine because long term outside of the planning period in front of us those development programs, including tanker, including MQ acute into seven there are longer term opportunity with market demand, particularly internationally that actually could have us do a little bit.
Speaker Change: Better than we're not counting on but longer term those are the reason why we stay in these.
Speaker Change: In these programs and delivery capabilities to customers that absolutely need.
Speaker Change: I appreciate all that detail. Thank you.
Speaker Change: The next question is from Doug Harned from Bernstein. Please go ahead.
Doug Harned: Good morning, Thank you.
Doug Harned: Got.
Doug Harned: It sounds like you are in.
Doug Harned: And very good position right now to get to the 38, a month level given that you're already at the 20 and the two thousands on the mix.
Doug Harned: But.
Doug Harned: Historically upward rate breaks have been pretty challenging.
Doug Harned: And when you look beyond the 38, a month to 42 and subsequent rate rates. How are you thinking about what you need to get done to make sure that you have the right team in place to make those rate breaks happen given that a lot of people have.
Doug Harned: The leftover.
Doug Harned: Past five years or so.
Doug Harned: You know as I look at that.
Doug Harned: Less concerned about our people resources to do that I think we're in good shape.
Doug Harned: Once we get to these higher rate breaks the most important thing is that we have the supply chain ready and mature and one of the things we're doing right now because we've forecasted rates that the supply chain has built two and then we haven't met those rates. So I want to make sure that that supply chain isn't making independent decisions.
Doug Harned: On on readiness for these out year production rates and continuing to invest in the <unk>.
Doug Harned: Capacity that they need.
Doug Harned: The supplier. So we've started that as I said in the opening remarks open communication and what that means is is at at various levels, including CEO level, we're making sure that that they are investing in their supply chain and if theyre not theyre talking to us about why and we're working through what we do to make sure.
Doug Harned: Sure that we don't get to a point, where we're ready to get to the next rate increase in the supply chain stability is not going to be there now remember these kpis that I talked about earlier.
Doug Harned: Those are going to stay with us for each rate increase so we won't make a rate increase.
Doug Harned: Well, we won't we won't be approved for it but we won't requested if our production system isn't showing that these metrics are are indicating stability. So we got to continue to work that but I'm not too sure too concerned about the overall.
Doug Harned: Staffing level of the production resources, it's probably more focus in on the supply chain for that growth and Doug the other good news.
Doug Harned: Facilitation.
Doug Harned: We're cycling at three lines in Renton as Kelly mentioned and we've got that fourth line.
Doug Harned: <unk>.
Doug Harned: And that is going to create a lot of flexibility for us as we think about those rate breaks so not only is it labor parts supply chain et cetera, but the facilitation is there as well so we.
Doug Harned: We feel pretty confident the tools are all there in place and of course, the demands there which is great.
Speaker Change: Beneficial and is there any.
Speaker Change: Is there anything you would point to in the supply chain that you, particularly want to focus on to make sure you don't run into.
Speaker Change: Initially when you take your next breakup.
Speaker Change: No not in particular I think there's multiple areas that we will work with all the all of our tier one Oems probably have a commodity in their portfolio that we want to make sure but it's generally more in the <unk>.
Speaker Change: In the commodities, where there is long lead.
Speaker Change: Components like forgings castings that kind of stuff im less worried about electronics, that's pretty easy area to scale, but it's where you have to invest in that that second and third tier supply chain that we want to make sure that they're making those investments and they haven't hedged their bets.
Speaker Change: And don't believe we're going to build the airplanes and then we find out that we don't have the capacity there and one of the things that we're working very closely with GE on is that the overall, making sure they understand our overall market demand as well as the aftermarket demand for the engines as well because they've got.
Speaker Change: They've got a big challenge with.
Speaker Change: Supporting our rate increases are competitor rate increases and managed in the aftermarket.
Speaker Change: Very closely with Larry and his team to make sure we stay aligned.
Speaker Change: Very good thank you.
Speaker Change: The next question is from the line of Jason Gursky from Citi. Please go ahead.
Speaker Change: Sure.
Jason Gursky: Hey, Good morning, Brian One for you and then just a quick one for Kelly as well.
Speaker Change: Brian for you BCA margins.
Jason Gursky: You took some charges this quarter.
Jason Gursky: The programs that were in forward loss positions I suspect, though that we'll have.
Jason Gursky: Some impacts on the margins for some of your more profitable programs as well given all of those costs I'm just.
Jason Gursky: Curious.
Jason Gursky: What is the margin cadence look like for BCA over the next six.
Jason Gursky: Eight quarters.
Jason Gursky: Ramping in production when do we get the chance here to flip to the positive range on margins and then just kind of a long term implications of these these cost increases coming out of the labor strike that kind of thing on the financial model and what BCA margins are going to speak to you over time once youre up at those.
Jason Gursky: Targeted production rates and then Kelly just really quickly for you received the companies.
Jason Gursky: Corporate calendar, it's got the X 66 on the cover just wondering if you could comment a little bit on that aircraft and kind of what it means to the company and kind of your general views on on that development program for NASA.
Jason Gursky: Yes, let me take the latter part of that first so it's an important technology development program.
Jason Gursky: It's very challenging.
Jason Gursky: Sure.
Jason Gursky: Taking some dedicated resources that I think.
Jason Gursky: Our learning new things and exploring new technologies for us.
Jason Gursky: And then we'll look at what.
Jason Gursky: What comes out of that and how that factors into our next airplane. So it's an important project that we're working on we've got some funding we're investing but we've also got some funding there to support us. So we'll continue.
Jason Gursky: To explore that exciting opportunity and see what that portends for the future.
Jason Gursky: For future airplane I will tell you I've sat through the.
Jason Gursky: Through with the team and there's some exciting stuff that we're learning from.
Jason Gursky: From that program and so I think we want to continue that.
Speaker Change: And Jason in terms of BCA margins. So as we think about 2025 margins will be negative there'll be less negative as we move through the next few quarters as we exit the year.
Jason Gursky: And then beyond that.
Jason Gursky: We expect them to get better in 2026, we're not going to try to characterize it quite yet its too early but in terms of the longer term profile.
Jason Gursky: The Iam agreement did put pressure, but keep in mind, we're talking about a cost it's less than 5% of the airplanes now, it's a little bit of pressure, but I characterize that versus the massive productivity benefit that we're going to enjoy by having to shadow factories behind us and our rate ramp is going to accelerate productivity naturally.
Jason Gursky: So.
Jason Gursky: It doesn't disrupt.
Jason Gursky: Our margin expectations over the long term a lot of work in order to.
Jason Gursky: Get this pressure behind us, but plenty of levers that we think work towards our favor it doesn't necessarily disrupt the long term.
Jason Gursky: Okay. Thanks.
Speaker Change: Thank you. Thank you. The next question is from Gavin Parsons from UBS. Please go ahead.
Gavin Parsons: Thanks, guys good morning.
Jason Gursky: Morning.
Jason Gursky: Just wanted to follow up on the BCA margin question, a little bit with the price side of the price cost mix.
Jason Gursky: How much of Max 10, starting to contribute.
Jason Gursky: It helps drive the margin up how much of kind of escalators or realized price increases over the coming years and then a quick clarification on inventory just how much cash is tied up in both completed aircraft and web. Thank you.
Jason Gursky: So in terms of the.
Jason Gursky: Profile for BCA of course, we've got a backlog.
Jason Gursky: Is in place that has embedded escalation in it that hasnt changed that's good and in terms of our supply contracts.
Vasily: Sure Vasily.
Vasily: Signed up until end of this decade, so that doesn't really disrupt the near term or even medium term per se I will tell you, though as we move forward.
Vasily: We'll expect any kind of inflation pressure to be off set by an expectation that we continue to drive productivity. So we think we'll be able to manage that mix more to come as we move out of this year and get into more of that normal stable position, but nothing right now would suggest it's going to disrupt that long term margin outlook to BCS enjoy.
Vasily: Historically and of course, some of the mix benefits that you mentioned.
Vasily: Both the 10, three seven and 10 of the 87 are are going to be natural Taylor.
Vasily: <unk>, including the consolidation of Charleston that we've always talked about and we still feel very good about as we move towards normal production rates. So more work to do but no big disruptions, we see as we sit here today in.
Vasily: In terms of the inventory.
Vasily: We've got 87 $5 billion worth of inventory in the company right now that is too much now it's been an investment and stability and we are committed to make that investment. So that we can get the factories in the right spot, but there will be a point where in those inventories will begin to liquidate.
Vasily: How do we see the productivity benefit to working capital benefit will be something that we're very interested in seeing and we will begin to lower buffer rates that we put in place deliberately.
Vasily: As we get to more predictability. So that is the big cash flow benefit that we're going to see over the next cut.
Vasily: A year's ish.
Vasily: And it's all because we've been sitting on this big investment that we look forward to have an unwind with deliveries.
Vasily: And that's what we're focused the team on.
Seattle.
Vasily: Thanks, a lot.
Vasily: Thanks, Kevin and lowest we have time for one final question. Thank.
Speaker Change: Thank you and that question is coming from the line of Gautam Khanna. Please go ahead.
Vasily: Yes, thanks for the detail on the call.
Speaker Change: I just wanted to put a finer point on when you expect to be.
Speaker Change: At 38, a month in terms of deliveries on the three seven and when.
Speaker Change: Realistically you could get 242, I know you mentioned this year, but if you could put a finer point within the year. Thank you.
Speaker Change: You know what I'm, not putting a finer point on it.
Speaker Change: Both externally nor internally, we're going to go to that rate when the Kpis say that we're going to go to that rate.
Speaker Change: And we'll just see how that plays out I mean, like I said things look encouraging so far we've got a lot of a lot of work yet to do.
Speaker Change: And we'll make those rate increases hopefully sometime so that I do want to get through the rate.
Speaker Change: <unk> 38 approval and move to that next rate of 42.
Speaker Change: Get through the approval this year and get to that 42 sometime towards the end of the year, but we'll put it exact dates on it once we know.
Speaker Change: And feel better about our kpis and how the trends are are indicating.
Speaker Change: Yes. Thank you that's part of why we're not providing guidance yet I think we got a little bit more work to do to see the system get stable before I feel like we can provide guidance.
Speaker Change: <unk>.
Speaker Change: We have a reasonable expectation that we'll be able to meet that guidance. So more to come as we mature things are off to a good start but we've got a lot of work yet to do.
Speaker Change: That completes the Boeing company's fourth quarter 2020 earnings conference call. Thank you for joining and you may now disconnect.