Q1 2025 The Boeing Co Earnings Call
[music].
Bob and David Calhoun.
Speaker Change: Thank you for standing by. Good day, everyone, and welcome to the Boeing company's first quarter 2025 earnings conference call. At this time, all participants are any listen-only mode.
Please be advised that today's call is being recorded. David, David, David, David,
Speaker Change: The Management Discussion and Slide Presentation, plus the Analyst Question and Answer Session, are being broadcast live over the Internet.
Speaker Change: To ask a question on today's call, please press star then one on your telephone. At this time, I am turning the call over to Mr. Matt Welch, Vice President of Investor Relations for opening remarks and introductions. Mr. Welch, please go ahead.
Speaker Change: Thank you, and good morning everyone. Welcome to Boeing's quarterly earnings call. With me today are Kelly Ortberg, Boeing's President and Chief Executive Officer, and Brian West, Boeing's Executive Vice President and Chief Financial Officer.
Speaker Change: Disquarters Webcast, Earnings Release, and Presentation, which include relevant Disclosures and non-GAAP Reconciliation are available on our website.
Speaker Change: Today's discussion includes forward-looking statements that are subject to risks and uncertainty, including the ones described in our SEC filings.
Speaker Change: As always, we will leave time at the end of the call for analyst questions.
Speaker Change: With that, I will turn the call over to Kelly Ortberg.
Kelly Ortberg: Thanks, Pat, and thanks everyone for joining in today's call. Let me start out by saying that we had a really solid quarter of performance across the business. And I'm pleased to report that our recovery plan is in full swing and showing signs that it's being effective. I'll be it early. I do like what I'm seeing.
Kelly Ortberg: In BCA, we continue to implement our safety management system and remain on schedule with our safety and quality plan that we've established with the FAA.
Kelly Ortberg: The key performance indicators that we're using to measure our production stability continued to progress and we delivered 130 airplanes in the quarter which was better than our internal plan.
Kelly Ortberg: In BDS, we had improved performance on our fixed price development programs and held our EACs for the quarter. We continue to make progress on our active management approach on the programs to improve performance and reduce our future EAC risks.
Kelly Ortberg: and of course winning the F-47 program was a transformational accomplishment.
Kelly Ortberg: To be selected the contractor for the world's first six generation fighter is a testament to our focused investment and some pretty difficult time and to our dedicated team. This will secure our fighter franchise for decades to come.
Kelly Ortberg: and our BGS business continued to deliver strong results and we reached a milestone event by delivering our 10767 freighter conversion.
Kelly Ortberg: So let me dig a little deeper into our four point plan for our recovery. Recall from previous calls to the highlighted four key areas.
The first stabilizing our business.
Sackent, Improving the Development Program Execution
Third, changing our culture, and fourth, building our new future.
Kelly Ortberg: So for stabilizing our business, our balance sheet has been an important focus [inaudible]
Kelly Ortberg: The equity raised at the end of last year was sized to provide us the ability to restore a production system to help.
Kelly Ortberg: With the better than expected delivery performance, we naturally had less drain on cash in the first quarter, so we continue to be on solid footing here.
Kelly Ortberg: As we announced yesterday, the expected debesiture of portions of our digital aviation solutions business will also provide a significant cash infusion.
Kelly Ortberg: The key to cash generation will be continued progress on the 737 MAX RAM.
Kelly Ortberg: We're currently producing in the low 30s per month and expect that we'll get to the 38 per month cap over the next few months.
Kelly Ortberg: We've stayed very close to the new Department of Transportation and FAA leadership and we remain aligned on the criteria to move to the next rate.
Kelly Ortberg: If you look back before the strike last fall, we've seen about a 50% reduction in traveled work and a 25% reduction in rework hours on the 737 line. So the changes we've made to strengthen our quality system are delivering results.
Kelly Ortberg: Even more importantly, almost every customer I talk with report an improvement to the quality of the airplane.
Kelly Ortberg: On 787, we continue to produce at 5 per month, and I'm pleased to report that we've completed the work on the last joint verification airplane in Everett, which now allows us to close our shadow factory and redeploy the people and facilities dedicated to that work.
Kelly Ortberg: will poise to move to seven per month this year, provided our KPIs indicate a stable production system, and they're currently looking very good.
Kelly Ortberg: As we highlighted last quarter, we continue to work through seat certification issues affecting some deliveries and I expect this will be a challenge for us for the balance of the year.
Kelly Ortberg: With the current cash balance and the production ramp status, I feel we are well on our way to stabilize in the business even in the face of the tariff situation which I'll address in a moment.
Kelly Ortberg: Now, let me switch to the next priority, which is improving the development of program execution.
Kelly Ortberg: As I mentioned, a quarter with EAC stability and defense is a good start, but our efforts run deeper than that.
Kelly Ortberg: During the last quarter, I mentioned that we had reached an MOA with the customer on the T7 program for which we termed active management.
Kelly Ortberg: On VC-25B, we continue to work with the customer to revise the program plan to allow for an earlier first delivery while maintaining our focus on safety and quality.
Kelly Ortberg: and we recently transferred our MQ-25 aircraft to our new production facility in Illinois to begin final assembly, which is the last production step before we move to ground and flight test later this year.
Kelly Ortberg: And this next quarter will be an important one for us as we begin to baseline the performance of our F-47 plan.
Kelly Ortberg: On commercial development programs, we reached authorization from the FAA to expand the triple-7X flight test activities to include additional aerodynamics, brakes, and engines.
Kelly Ortberg: The aircraft are flying daily and performing well in flight testing.
Kelly Ortberg: Along with the Triple 7x, the 737-7 and the 737-10 continue with their certification programs and there is no change to our previously shared certification timeline on any of the commercial programs.
Kelly Ortberg: So while there's still a tremendous amount of work to do across all of our development programs, I am seeing an improved sense of urgency around the baseline management and risk management on these programs.
Kelly Ortberg: Now the third area of focus is changing the culture at Boeing and we've made some good progress there as well. In the quarter we had a series of employee meetings talking specifically about culture change.
Kelly Ortberg: We formed an enterprise working group to help us refresh our values and behaviors.
Kelly Ortberg: and we've recently completed an all-employee survey the first in five years and got very constructive feedback on what's needed to improve the future of our company.
Kelly Ortberg: We've introduced the new values and behaviors to the entire organization, and we'll be incorporating those into our new performance management system, our leadership training, and leadership
Kelly Ortberg: Our people are passionate about the culture change, so I really want to see the moment to make the necessary changes within the company.
Now the last area discusses building our future.
Kelly Ortberg: The plan to vestiture of portions of our digital aviation solutions business is an example of the portfolio streamlining that I highlighted on earlier calls.
Kelly Ortberg: There are a couple more steps that we are considering in this regard to help us keep focus on the right products and capabilities for Boeing's future.
Kelly Ortberg: and obviously the F-47 win is a key step for building our future, cementing our franchise in the fighter business.
Kelly Ortberg: So that brings me to the current tariff environment and the impact to our plan.
I would break this down into two categories.
Input tariffs that affect our costs to manufacture our products.
Kelly Ortberg: and then the potential impact of retaliatory carols like those we are seeing in China.
Kelly Ortberg: Brian will walk you through the financials, but the input tariffs incurred in the first quarter were immaterial, and we really didn't see any impact of deliveries in the first quarter.
Kelly Ortberg: Much of our supply chain is based in the United States, and many of our imports from Canada and Mexico are exempt under the US MCA agreement.
Kelly Ortberg: We do have suppliers in countries subject to the US tariffs, most notably in Japan and Italy, where our suppliers do significant structures work on our wide body airplanes.
Kelly Ortberg: We are currently paying the 10% tariff on those components, but we should recover tariff costs for those aircraft that are subsequently exported, which is a large portion of our wide body.
Kelly Ortberg: I hope over time that these tariffs can be resolved through negotiated agreements, but until that happens we will have to manage our way through these increased input costs.
Kelly Ortberg: The other issue is impact of potential retaliatory tariffs from other countries which could affect our ability to deliver aircraft.
Kelly Ortberg: The only region that we have an issue with aircraft delivery today is China, and due to the terrorists, many of our customers in China have indicated they will not take delivery.
Kelly Ortberg: Given the uncertainty, we're taking a very straightforward approach to dealing with these deliveries.
Kelly Ortberg: We have approximately 50 China deliveries in our plan for the balance of the year. We're in close communication with our China customers and we're actively assessing options for remarketing already built or in process airplane. [inaudible]
Kelly Ortberg: and for the nine airplanes not yet in the production system, we're engaged with our customers to understand their intentions for taking delivery and if necessary, we have the ability to assign those positions to other customers.
Kelly Ortberg: It's an unfortunate situation, but we have many customers who want near-term deliveries, so we plan to redirect the supply to the stable demand.
Kelly Ortberg: and we're not going to continue to build aircraft for customers who will not take them.
Kelly Ortberg: We've founded our exposure and until we get more clarity, we're going to do our best to keep the China situation from impacting our production flow.
Kelly Ortberg: We've put in place a conservative recovery plan this year anticipating some perturbations or revs, so I feel really good about our overall plan for the year, even though I expect the China situation, we'll take away some of the headroom we've dealt with our strong first quarter deliveries at BCA. [inaudible]
Kelly Ortberg: We continue to work this situation proactively with the administration and it's clear that they understand the importance of aerospace industry to the US economy and the role that Boeing plays as the top US exporter.
Kelly Ortberg: So, before I wrap up my prepared remarks, I want to recognize and thank our employees for their work in the quarter.
Kelly Ortberg: We really have a good start to the year and I'm glad we put a conservative plan together that allows us to deal with the terrorists.
Kelly Ortberg: Let me also give a special shout out to Matt Welch who is moving on to his new role as BCA CFO . It's done a great job for us, so congratulations and thanks Matt for all you've done.
Kelly Ortberg: Now let me hand it over to Brian to detail the operating results before we take your questions. Brian ?
Brian West: Thanks Kelly, and good morning everyone. Let's start with the total company financial performance for the quarter.
Brian West: Revenue was $19.5 billion of 18%, primarily driven by higher commercial delivery volume.
Brian West: The core loss per share of 49 cents was a significant improvement compared to last year, driven by higher commercial deliveries and improved operational performance across the business.
Brian West: Three cash flow was a usage of $2.3 billion in the quarter. [inaudible]
Brian West: Reflecting Higher Commercial Deliveries and a working capital usage that improved compared to both the prior year and quarter.
Brian West: Our free cash flow was better than expectations to share last month driven by volume and favorable working capital timing.
Brian West: These financial results reflect only tariffs enacted as of March 31st, which was not material.
Turn to the next page, I'll cover BCA.
Brian West: BTA delivered 130 airplanes in the quarter. Revenue was $8.1 billion and Operating Margin was minus 6.6%. Primarily reflecting higher 737 and triple seven deliveries as well as lower period costs.
BCA Book 221 Net Orders in the Quarter.
Brian West: Cripple 7-9s, and 27-8-7-10 airplanes for Korean Air, and 57-37-8 airplanes for Volka.
Brian West: Backlog in the quarter ended at $460 billion, which was up more than $25 billion sequentially.
Brian West: This includes more than 5,600 airplanes that translate over seven years of production and importantly the 737 and 787 are sold for them into the next decade.
Now we'll give more color on the key programs.
Brian West: The 737 program delivered 105 airplanes in the quarter, including 33 in March.
Brian West: on production, the factory gradually increased rate during the quarter, and monthly production was below 30s and March.
Brian West: Importantly, the operational KPIs continue to progress and we still expect to be in a position to go to 38 per month over the next few months.
Brian West: Spirit continues to improve the quality and flow of fuselages which sets us up well for the reintegration and the deal is expected to close around mid-year.
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: Today we have about 3737-8's built prior to 2023, which is down 25 from year-end and includes 25 airplanes for customers in China.
Brian West: We still expect to complete the rework on these airplanes and shut down the shadow factory by mid-year.
Brian West: On the 7 and 10, inventory levels were stable at approximately 35 airplanes and certification timelines are unchanged.
Brian West: On 787, we delivered 13 airplanes in the quarter, generally in line with expectations outlined on our last earnings call.
Brian West: The program continues to stabilize production at five per month in the quarter and will remain intent on demonstrating stability in the production system and supply chain prior to making the next rate increase to seven over the next few months.
Brian West: Today we have about 20 airplanes and inventory built prior to 2023 that required rework. Down
Four of these 20 are for customers in China. [inaudible]
Brian West: Importantly, we finished our work and shut down the shadow factory in the quarter and expected to deliver about half of the remaining airplanes this year.
Brian West: Finally in the 777X, the program took another important step in its certification timeline, as it received approval from the FAA to expand flight testing activities.
Brian West: We'll continue to follow the lead of the FAA as we progress through the certification process and still expect first delivery in 2026.
Brian West: triple seven X inventory was up approximately 800 million in the quarter and will continue to grow as we move towards entering service as we previously shared.
Moving on to the next page, and BDS.
Brian West: PBS books four billion dollars in orders during the quarter and a backlog ended at sixty two billion dollars.
Brian West: Importantly in the quarter, BDS was selected by the U.S. Air Force, Design, Build, and Deliver. It's next-generation fighter aircraft BF-47.
Brian West: This order was not included in our first quarterback log, penning the completion of the source selection and evaluation review process.
Brian West: Revenue was $6.3 billion down 9% on planned lower volume, including impact from commercial derivatives associated with the production restart.
BDS Delivered 26 Aircraft in the quarter.
Brian West: Operating margin was plus two and a half percent up 30 basis points compared to last year and reflected stabilizing operational performance in the quarter.
Brian West: We made important progress in one queue, and the game plan is to get BDS back to the highest single-digit margins over time.
Brian West: Our core business remains solid, representing approximately 60% of our revenue and performing in the mid to high single-digit margin range.
Brian West: The demand for these products remains very strong, supported by the threat environment confronting our nation and our allies.
Brian West: The roughly 25% of the portfolio is primarily comprised of fighter and satellite programs.
Brian West: Operational Performance, Improved in the Quarter, which drove Bavril Martin Trends.
Brian West: Lastly, on our fixed price development programs that represent the remaining 15% of revenue, we continue to work to stabilize and mature these programs.
Brian West: This quarter's results reflected stabilizing operational performance, and we remain focused on retiring risk each quarter and ultimately delivering these mission critical capabilities to our customers.
Brian West: During the quarter, the MQ-25 program successfully transported the first engineering development model aircraft to the new production facility in Illinois, where it began final assembly. The last production step before ground and slight testing begin later this year.
Brian West: On the T7A, we achieved the first two EMD performance milestones outlined in the MOA that was finalized with the US Air Force in January .
Brian West: It continues to be an important example of how we are working with our customers to find better overall outcomes for both parties.
Brian West: Overall, the defense portfolio is well positioned for the future and we still expect a business to return to historical performance levels as we continue to stabilize production, execute on development programs and transition to new contracts with tighter underwriting standards.
We'll be on to the next page in BGS.
Brian West: BGS continued to perform well, delivering very strong financial results in the quarter.
Brian West: The business received $5 billion in orders, and the backlog ended at $22 billion.
Revenue was $5.1 billion stable year over year. [inaudible]
Brian West: Operating margin was 18.6% in the quarter of 40 basis points compared to last year unfavorable performance and mix with both our commercial and government businesses delivering double-digit margins.
Brian West: In the core of BGS delivered the 100, 767-300, Boeing converted freighter to SF Airlines and received a modification contract from the US Air Force to integrate electronic warfare systems for the F-15 Eagle.
Brian West: It remains a terrific long-term franchise, focused on profitable capital efficient service offerings and continues to execute very well.
Turn to the next page, Alcover Cash and Dead.
Brian West: Cash remarkable securities ended at $23.7 billion, primarily reflecting the free cash of the
Brian West: Debt balance ended at $53.6 billion, down $300 million due to the pay-down and maturing debt.
Brian West: and leading 550 million of debt maturities remaining in the year. The company maintains access to $10 billion or 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, prioritized the investment-grade rating, and second, a lot of the factory is plighting to stabilize.
Brian West: As you saw yesterday, we entered into an agreement to sell portions of our digital aviation solutions business for $10.55 billion, which is an important component of our strategy to focus on our core businesses and strengthen the balance sheet.
Brian West: Depping back, let me provide some additional context on the macro backdrop before getting into the free cash lot look.
Brian West: We continue to closely monitor recent policy developments and believe that the administration understands the aerospace industry's importance to our economy broadly and US manufacturing jobs specifically and is focused on keeping our US industrial base globally competitive
Brian West: Given our position as a significant US exporter, free trade policy across commercial aerospace remains very important to us.
Brian West: As noted recently on the supply side, roughly 80% of our annual commercial supply chain spend goes directly to US-based suppliers. They will work closely with all our suppliers to ensure continuity of supply and pursue options to mitigate cost pressures.
Brian West: Conversely on the demand side, about 70% of our commercial deliveries this year are planned for customers outside the U.S. And importantly, the company has a large and diverse backlog of over half a trillion dollars with our key commercial programs sold out into the next decade.
Brian West: Specifically on China, it represents approximately 10% of our commercial backlog and if we need to redirect supply to more stable demand, the strong market backdrop across the rest of the world still supports our planned production rate increases.
Regarding free cashflow. [inaudible]
Brian West: We set a conservative plan for the year and had a strong start operationally, which we believe puts us in a position to largely offset any potential cash flow impact of Chinese deliveries this year, as well as higher expected input costs due to tariffs.
Brian West: Regarding deliveries, our plan for the rest of the year was to deliver roughly 50 airplanes to customers in China.
Brian West: There is strong demand for these airplanes and we are actively assessing options. Should we need to redirect the 41 China airplanes that are already built or currently in production?
Brian West: We will continue to monitor the demand situation and if tear-related impacts expand beyond China, we would expect to see additional pressure.
Brian West: Broadly, the markets we serve continue to be significant, and our backlog of more than a half a trillion dollars demonstrates the strength of our core product portfolio.
Brian West: Long-term, these fundamentals underpin our confidence in managing the business with a long-term view built on safety, quality and delivery for our customers.
Brian West: And before I open up for questions, I too would like to thank Matt Welch for his partnership over almost four years, and we all know they weren't easy four years.
Brian West: He's a terrific Boeing leader and we assume all the best in his new commotion and we welcome Eric Hill into the IR role with that open up the questions.
Speaker Change: Thank you. We will now begin the question and answer session. In the interest of time and to allow for broader participation, we ask that you limit yourself to one single part question. Your first question comes from a line of Doug Harned from Bernstein. Your line is open.
Good morning. Thank you
Doug Harnett: If we go back to the first Trump administration, your negotiations on subsidies across the Atlantic.
Led effectively to a zero tariff environment for aviation aviation.
Speaker Change: And, you know, when you look at the recent terrorist announced an under consideration, I mean, we would say they'd do nothing positive for the industry. I expect if Guillaume Faurie were on this call.
Speaker Change: The two of you would probably be in violent agreement on this but can you comment it earlier that the administration understands the importance of the industry. [inaudible]
But can you describe how you and others?
Speaker Change: Are interacting with Washington to get around, to get out of this paraff environment and what are you hearing back? What's your sense on how this might evolve in the US and even in Europe and China based on your interactions there?
Speaker Change: Yeah, Doug. Well, obviously it's an important topic right now and very dynamic topic. I don't think a day goes by where we aren't engaged with someone in the administration, including cabinet, you know, cabinet secretaries and up to potas himself. So this is a dynamic environment. As you as you point out, we've. [inaudible]
Had the luxury of operating for decades, actually since...
understands the implications of...
Tarris, not just our company, but the overall. . . .
Speaker Change: Aviation Industry here in the US. I'll just tell you that they understand, they know this is extremely important.
Speaker Change: Markets Closing, that's going to be a big challenge for us. So look, I'm very hopeful that we get to some negotiated agreements here and that we can move forward. Right now, China's our only problem and as we said in the prepared remarks. Thank you very much.
Speaker Change: We're going to work our tail off to make sure the China issue doesn't...
Speaker Change: to implicate our recovery and particularly our stability in our production system. So we'll deal with that. Customers are calling asking for additional airplanes. So this is really going to be just a short term challenge for us to. Thank you.
either have China reverse course and take the airplanes.
Speaker Change: or get us to in a position to remark at those airplanes. And as you know, to remark at them we'll have to do some things like painting them and things like that.
Speaker Change: But having said that, look, I can't predict where this is going to go. I don't know any better than...
that anybody reporting, we do here. Thank you.
Signs that indicate that negotiated settlements are...
Speaker Change: There are opportunities for that. I just don't know the timing and so again we're going to take the actions we need to make sure. Thank you very much.
Speaker Change: if this takes a while, we don't get into a situation where it packs our recovery. The one thing that we have to watch is to make sure we don't see more countries in a similar boat as where we are with China.
Speaker Change: You know, we're watching the EU, you made the comment on our competitor, and I think you I would agree with you wholeheartedly that that uh
Speaker Change: Both Gilman and I would welcome a non-tariff environment for both of us. This isn't good for either company to be in this.
Speaker Change: Situations, or the industry. So, hey, we're working through it. I can't tell you the timing of when this is going to all get resolved. But I can't tell you we're going to take proactive action and manage our way through it.
Herbert, thank you.
Speaker Change: You are next question comes from a line up, Myles Walton from Wolf Research. Your line is open.
Thanks. Good morning and congrats on the movement.
Miles Walton: You survived a lot. Brian , I think in January , you were expecting deliveries on the 3.7 in a low 400s and maybe 80 or so on the 7.8.7. Does that still, that framework still holds with the 50-year crafts from China, not going to China specifically, as Kelly mentioned? No.
Thank you, Myles. I'm the 3-7. Yes, we still think-
That's the right ballpark of 400. [inaudible]
Miles Walton: You had a nice strong start to the year operationally, and that should allow us to offset.
Miles Walton: Most of any delivery pressure that would come from the 25 airplanes already built in the inventory and around six that are in production airplanes that we plan to deliver this year. And for the second quarter specifically, we expect to deliver in the high 20th of April and the quarter should be more or less in line with one QX China, which is in the low to mid 90s. [inaudible]
Miles Walton: On the 8th, 7th, you're also in the right ballpark, you know, we also are having a nice start to the year.
Miles Walton: and we expect to ramp the 7th per month in the next few months.
and China would only be a handful of airplanes impacted, so...
Miles Walton: We like the ballpark that you mentioned and for 2Q, we've already delivered 5 so far in April and we expect 2Q to be a bit higher than where we were at in 4 Q2 4 delivery so things going pretty well. I think what's really important is any delivery timing won't disrupt our production rate increases on these programs.
Kelly Ortberg: and we're making really good progress operationally, and we're tracking to achieve the right Myles stones that Kelly mentioned in both programs in the coming months.
All right, thank you [inaudible]
Speaker Change: Your next question comes from a line-up, Seth Seifman from JP Morgan. Your line is open.
Seth Seifman: Thanks very much and good morning everyone and congratulations Matt. Just wanted to ask a follow up question on tariffs on the on the cost side. I guess if there's anything you could say to kind of size if we're thinking about the two impacts being kind of the China impact and the cost impact, maybe. Thank you.
Seth Seifman: kind of sizing potentially those two impacts and then talking about the drawback process on the
Speaker Change: on the cost side. They need to maybe manage the supply chain a little bit on the cost side if there are suppliers down in the chain who can't handle this as well as some of the larger and more well capitalized suppliers. And also
Speaker Change: How you deal with, you know, I gather you're going to get push from certain suppliers to kind of push through tariffs that they have with different surcharges and anything you can say about that process.
Brian West: Yeah, Seth, let me start with the kind of the process and let Brian kind of quantify it. So as you point out, we do have the duty drawback opportunity, and as you know, about 80% of our airplanes go outside or delivered outside of the US. So we have the opportunity for those.
Judy's that we pay those tariffs that we pay. [inaudible]
Brian West: to recover that when we deliver the aircraft. Now, you know, the kit creates a little bit of a cash flow timing issue that we'll have to work through. We are actively working as well with the supply chain because they don't have that opportunity. They're going to deliver it to us.
Brian West: and that we in turn deliver the product outside of the U.S. So, we are working to see if we can't come up.
Brian West: Indicated, they're going to have some pricing increases associated with that but it's not overly material and we're working through that the thing I'm really trying to make sure we're focused on is making sure that
Brian West: An argument over a 10% tariff who's going to pay doesn't turn into a continuity of supply.
Issues. So, we really need to make sure that...
Brian West: that people are buying and bringing in the parts that we're going to need, and then we'll work through the financial implications. I'll let Brian kind of quantify that for you.
Brian West: Escher, so I think I'll start with the supply chain input costs and then I'll get to the China piece.
And the...
Brian West: Supply Teamside, the net annual impact of higher tariffs on our input costs.
Speaker Change: is manageable and within our plan it's less than $500 million annually. And here's how to think about some of the pieces in addition to what Kelly described. We have elevated inventory levels that are all pre-tariff.
Speaker Change: Aluminum and steel are typically 1% to 2% of the average cost of the airplane which is virtually all US sourced.
Speaker Change: and with higher inventory levels and hedging strategies that one to two percent is even lower in the current environment.
Speaker Change: We do both eyes on behalf of our supply chain partners and those could be subject to some price increases as terrorists who hire. We can't pass along, but that's a very small amount of money, nothing to worry about.
You know, as Kelly said, we do have this...
Speaker Change: Judy drawback opportunity to get us to that net, you know, a few hundred million dollars.
Speaker Change: And I would point out that we have a global trade and supply chain team that have decades of experience with tariffs and duty recovery. And when you're one of the world's biggest exporters, we really have a good handle on this. So we feel confident in some of the ways that we've been described in this.
Kelly Ortberg: I'd also say that keep in mind that over time any input related costs will work its way through to price escalators. So she mostly neutralize over time and then in addition to what Kelly said about the suppliers.
Kelly Ortberg: As you know, many are on fixed price like a program contracts, where the important record does pay the tariff. And as Kelly said, we're going to be able to help them through this.
Kelly Ortberg: The situation as it pertains to China specifically, and we talk about 50 or so airplanes that you know it could be north of a billion dollars but as I said it's all contemplated within a conservative plan that we put together so we feel pretty good.
Great. Thank you.
Speaker Change: Your next question comes from a line of Scott Dussel from Deutsche Bank. Your line is open.
Speaker Change: Hey, good morning. Brian , on the last call, you seem to reference the free cash flow usage for the year. It will be somewhere in the $4 to $5 billion range. I guess can you give an update on how you're thinking about that specific range as well as some further characterization of the free cash flow cadence as we move to the year? Thank you.
Brian West: Sure, thanks, Scott. Let me start with the second quarter, so we expect the second quarter to be roughly in line with the first quarter usage. Let's start with the second quarter.
Speaker Change: And as we said, we expect a second half free cash flow to turn positive and then accelerate as we exit the year driven by a few really important lovers. The 737 production ramp to 38 per month and even potentially higher as we exit the year.
Speaker Change: Higher 737 Delivery Volume. We've got the 787 production ramp, the 7th from month, and also potentially higher as we exit the year.
Speaker Change: We have the higher 787 delivery volume and we have customer seats that will be favorable and those are offset by a couple things higher investment levels including the triple seven acts. [inaudible]
Speaker Change: and the potential impact of both China and this net impact from higher input costs from tariffs that we've discussed.
Speaker Change: So in terms of the range that you mentioned, we're not going to adjust that full-year range right now, we're good with where it's at.
Speaker Change: We had a really good start to the year. We need to execute on the production rate increases.
Speaker Change: and we need more clarity on China and terrorists more broadly. So give us a little bit of time to see how things play out. The good news is that as Kelly said, we deliberately built the year to count for some unknowns. We're still comfortable with the plan that we've outlined.
Appreciate it, thank you [inaudible]
Speaker Change: You are next question comes from a line of Sheila Kahyaoglu from Jeffries. Your line is open.
Good morning, Kelly Brian , and thank you Matt so much.
Speaker Change: So maybe just on that last thought, you know, seeing the skyline is largely impact at that of China and there's no demand impact with tariffs.
Speaker Change: Are we thinking that production went ramped outside 2025 with a 3-7 and the 8-7 race?
Speaker Change: and how you're watching the biggest risks in the supply chain in the master schedule and how that correlates to cash flow expectations of you continue to benefit from volume ramps, but also on-time deliveries.
Brian West: Let me take the demand side now, let Brian comment up.
Brian West: So we don't see any change in the overall demand here. Our backlog is well over half a trillion. It's everybody wants the aircraft. So, you know, we're going to work through this China situation. Maybe have to redeploy some aircraft, but we don't see any any pullback whatsoever.
Brian West: in demand for the aircraft. So our rate increase plan remains unchanged. We'll go to 38 a month.
Brian West: Here, we'll get to the stability and then our first rate increase will be from 38 to 42 two.
Brian West: and then we'll do five per month increments after that, so 42 to 47, 47 to 52. Those rate increases would be no earlier than probably six months in between, but again, it depends on each one will require the number of hours.
Brian West: that we have stable KPIs. And the more you move up the rate, the more difficult it is to make sure you maintain stable KPIs. So if we go to one of those rates and we need to stay there for a little longer to be mature, that's what we'll do. But I don't see any change in our long term.
Brian West: Ray Plans, all the KPIs on the on 787 right now are all green, look good. So, you know, we'll make this next rate increase in the coming months on 787. And then there for future opportunities there, as you know, we. And then for future opportunities there, as you know, we.
Invested, Additional No.
Brian West: Capital, a billion dollars here in our Charleston facility. That's where we are today to expand our production capacity here. So we definitely want to get the 8-7 back up to double digit production rates. And none of what we're seeing right now is not going to solve those plans.
Kelly Ortberg: I'm a supply chain side. As I mentioned, we have a lot of inventory, enough inventory that is there for us to achieve the race that Calhoun's mentioning and get really good alignment with our key suppliers.
Kelly Ortberg: Fusilides, engines, everything looks pretty good. Yeah, we have to get through some discrete moments around this tariff and ensuring the continuity of delivery, which will work through as Kelly mentioned, but as we look a little further out, good alignment, plenty of inventory, feel pretty confident about how to supply cheese out of it.
Thank you.
Speaker Change: Your next question comes from Alina, Scott Mickens, from Meleous Research. Your line is open.
Good morning.
Speaker Change: Hey Scott, Kelly, congrats on the F-47 win. I have a quick question there. There was a comment from the administration about the EMB phase being cost plus, but there was some competitively priced options for L-Rap.
Speaker Change: So I'm just wondering are those options fixed price? Do they have inflation escalators built into them? How should we be thinking about the risk from those options?
Speaker Change: Yeah, hey Scott, on the F-47, we're not at liberty to disclose anything relative to the contract structure beyond what the Air Force has said. So the only thing I can say is what you've read there is the extent of our disclosure. Clearly we haven't come off our strategy of ensuring we're entering into the appropriate contract type for the appropriate type of work. So I wouldn't...
Speaker Change: We're worried that we've signed up to undue risks, likely done in some of our past fixed price programs, but that's about all I can say on that right now.
Alright, thanks for taking the question.
Speaker Change: You are next question comes from the line of David Strauss from Barclays. Your line is open.
Good morning.
Speaker Change: Hey, David. Hey, Ty. Um, could you maybe dig in a little bit more on, on the status of the six KPIs, um,
Speaker Change: Three months ago, both on the Macs and 70s. So I think you had highlighted there was one on the 787. That was kind of out of line a little bit. If you could just touch on that. And then, how you've gone about mitigating risk around the junk and pound, the fire there and how do you feel like, you know, how you've got that kind of captured in the guys as well. Thanks.
Speaker Change: Okay, hey look on the KPIs as I mentioned on 787 when we talked at the last earnings call we had one of the
Speaker Change: One of the KPIs that was below threshold and that was in final ticketing.
Speaker Change: The number of snags, the final ticketing. That's all gone green. So we're looking really good. The 817 has done a really, really nice job.
Speaker Change: of focusing on that. We are still burning down some rework associated with pre-strike-level inventory aircraft. We're getting close to that.
I switched to 737 now.
Speaker Change: and so we still have a little bit of work on one KPI and that's on rework relative to the 737 max. However, it's coming down.
Speaker Change: The rework is coming down per our plan. So, you know, I feel pretty good that as we continue to go through, you know, from the low 30s to 38.
of the Acting Administrator, Chris Roschleau here.
Speaker Change: In Seattle, they spent time out the floor talking to FAA people, talking to R.
Speaker Change: But our plan seems to be working and we'll make any adjustments we need to.
Speaker Change: Regarding the SPS fire, the team has done a very, very nice job of reacting and jumping all over that issue. And it's a combination of finding alternate source, qualifying, finding inventory and getting it in the right place. And it's not just us, as you know, it's...
some of our major suppliers as well, this impact.
Speaker Change: I think we're going to be able to scramble our way through this. I don't think we'll be at the inventory levels we want, but I don't see right now that any aircraft program is going to be held up.
Speaker Change: and it looks like we're going to be able to manage our way through this. Now, you know, it's going to take a while to get this capacity back into the system. So, we're going to just have to stay diligent as we manage this, and particularly as we ramp up and rates.
Speaker Change: Your next question comes from a line of Noah Poponak from Goldman Sachs. Your line is open.
Hey, good morning everyone.
I know, you know.
Speaker Change: You know, we're some of these improvements inevitable with time or how much have you changed specifically since you've come on board with the blocking and tackling of the operating performance of the business?
Speaker Change: You've laid out how you're going to turn the battleship but curious if you could talk about the shorter term simpler blocking and tackling improvements you've made and I thought maybe those would be two that would be helpful to hear more about.
Speaker Change: Yeah, so let me address the traveled work first, Noah. First of all, I don't build any airplanes, so the team is doing a great job. It's not me, that's what the team is doing. And we've put in a new, a major new process in the, in the way we're building the aircraft.
Speaker Change: For any before we move the aircraft and you know these are moving lines so before we move the aircraft we now have what we call a travel ready process.
Speaker Change: and what that requires that any work not done on station, any traveled work.
Speaker Change: has to be evaluating at risk, safety risk assessments done against that. And if it induces safety risk, like we saw with a door blow out.
Speaker Change: We're not going to move the airplane and the last I saw on I know these numbers are probably higher right now but the last I saw the numbers. [inaudible]
We have implemented that process on 800 airplane moves.
Speaker Change: and we had stopped the airplanes 200 to those 800 times. So, long-winded, that's how we're not getting the travel work, we're not traveling the airplanes.
Speaker Change: and so if the work is not done, we're getting it done. We're holding airplanes and getting it done and being much more disciplined.
Speaker Change: Now I'll also say our supply chain is in much better shape than it was pre-strike, so we're not dealing with near the number of shortages that we were prior to that.
Speaker Change: Look, on the defense side, it is around this new focus on working with our customers to get these contracts.
and David Calhoun.
Speaker Change: So that is a win-win. We made real good progress as I've talked about particularly like on the T7, VC25.
The Starliner, I think we've got all these programs. We've got all these programs.
Speaker Change: Now, well-contained in terms of what our ETC now, you know, I'm not claiming victory here yet. We've got a lot of work to do.
Speaker Change: Risk Management, and Active Management with our customers to get to a win-win on these programs is helping. And obviously
Speaker Change: You know, our goal here is to get our defense business back up to, you know, high single digit kind of performing. [inaudible]
Speaker Change: Fidget Business, and there's no reason I see it. We can't do that. This is a good step, but we've got to continue to have good EAC performance to make that happen. And, you know, the team is really focused on doing that. We've got to continue to have good EAC performance to make that happen.
Speaker Change: And I'm the tanker specifically, Noah. That crack on the leading edge, the team identified it very quickly, determined that it was in the safety of flight issue. The population that they had to go do was small, the rework they could get to that very quickly, so it really wasn't a big deal. So it didn't disrupt the quarter at all.
Speaker Change: Okay, I appreciate all the detail and Matt Kingratz on the promotion and thanks for all the help over the years.
Thanks a lot.
Speaker Change: Your next question comes from Alina, Peter Arment from Beard. Your line is open.
Yeah, thanks. Hi, Kelly and Brian . Congrats, Matt.
Speaker Change: Hey Kelly, I guess maybe just a wrap up a little bit on a lot of questions around the rate breaks, but when you get to 38 and obviously you're the FAA's reviewing the KPIs with you, how do we think about that when you're moving beyond, you know, rate 42 or rate 47, and is that something you're doing in concert with the FAA? I know you mentioned...
Speaker Change: The Sheila that you're looking for stability first on all those is just keeping them in the loop or are they more involved in the process? Appreciate it. No, our current plan is that until the plans change we will go through the same process with each rate break.
Speaker Change: So the metrics, they have access to the metrics, we have a digital dashboard, they look at them on a daily basis, so it's not just [inaudible]
Speaker Change: You know, looking at, you know, at one point in time, they're regularly looking on these. So that's what, that's why I said when we go from 42 to 47, if we're not stable for a couple of months, we'll stay at that rate until we get the stability. [inaudible]
Speaker Change: and so we think the fastest we'd want to go would be about six months in between rate breaks, but it really we do have to have a stable production system and they're going to be the same same KPIs.
Speaker Change: that we're using, that we're using on the initial rape rate. I said this last quarter and I think it's going to still be true is that
Not something we...
Speaker Change: Collectively done before. I think we've got a good plan to do it, but that may take a little while to get through that plan. Then I think it's going to be much more standard work.
Speaker Change: and we've always had a process with the FAA, we call it capstone reviews where we do a major FAA review before we go
Speaker Change: Higher in rate increase. So, you know, this isn't really a new thing to sit down with the FAA as we go through rate increases. We just have a new process here to do it.
Thanks for all the car. Appreciate it.
Speaker Change: You are next question comes from a line of Robert Stallard from Vertical Research. Your line is open.
Thanks very much. Good morning. [inaudible]
Hey, Rob.
Baker Gratz, Matt, on the move. [inaudible]
Speaker Change: Roberts, The Business, and what you expect your net cash proceeds to be.
Architects from the South.
Thank you.
Thanks Rob. So on the margin question,
Speaker Change: This is not going to disrupt our long-term view as to be in the...
Speaker Change: Mid-Double-digit margins for the business. It's just not very big impact, so not worried about that at all, and the service business will continue to perform in that, grow in the, you know, mid-single digits revenue and deliver nice mid-teen margins.
Speaker Change: So that'll be consistent. This is nothing to do with that.
Speaker Change: In terms of the deal itself, there's not a lot of leakage on this, so you can think about it being 10 billion net, so it's going to be pretty close to the full purchase price.
Speaker Change: and then I also add that the way this deal got done is that it's all cashed. So it's important to know that we're not going to take any risk between signing and closing, which I think is good for the company and good to get this behind us.
Thanks for watching.
and Rob, we have time for one final question.
Speaker Change: Certainly, your final question comes from a line of Richard Safran from Seaport Research Partners. Your line is open.
Thanks.
Richard Safran: Kelly Bryant, good morning, Matt congrats. You know, I think you guys have talked several times about your portfolio shaping. I thought maybe you'd update us on where the Jefferson sale leaves you as you look forward. Is there anything else that you're considering on any other items on the list?
Richard Safran: and on Chapson specifically, you know, I think it's a pretty important digital asset. So I was just wondering how you think about where to set the perimeter of the deal. I was wondering if you kept what you needed. It can show you have a strong digital capability going forward. Thanks.
Richard Safran: Yeah, so that's a good question. We spent an extraordinarily long time looking at the boundary of this and ensuring that we're retaining access to everything we need for the future of our aircraft. You're right, it's a great digital asset. We'll continue to do business with Jefferson, even post the best teachers. It's a great asset, but I kind of assure you that all the things that we need for the success of our cockpit and our [inaudible]
and others.
Richard Safran: Future Aircraft, Support and Maintenance. We've retained either access to that or it was outside of the perimeter.
of what we're talking about in the divastiture.
Richard Safran: We do have a couple more rich that we're looking at. I would say that they're probably not going to be as big as Jeff, but we've got a couple more things that I'd like to action in the portfolio. I am done with the review.
Richard Safran: So, you know, I kind of have our mind on on what we need to do here. I think the a couple more smaller activities are probably in the cards and we'll just see I have to see how those play out over time.
Well, thanks very much.
Thanks Rich.
Richard Safran: and that concludes the Boeing Company's first quarter, 2025 earnings conference call. Thank you for joining.