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F500-2023-058-Boeing

One of the country’s largest aerospace and defense manufacturers saw a 7% increase in revenue in 2022, a steady gain as it looks to recover from a drop in revenue in 2019 and 2020 due to the pandemic and widespread groundings of Boeing 737 MAXs. 
<ul> 
 	<li>Order backlog for the company’s commercial airplanes grew in 2022 to $330 billion, from $297 billion a year earlier, partially reflecting increased demand as domestic and international travel rebounded.</li> 
 	<li>Supply-chain and quality-control issues in 2022 and 2023 have bedeviled Boeing, including the recent halt of some 737 MAX deliveries due to fuselage deficiencies.</li> 
 	<li>The aerospace and defense manufacturer is reconfiguring its workforce of 156,000 in 2023, planning to cut 2,000 jobs in its finance and human resources departments while intending to hire 10,000 new employees with a focus on tech and manufacturing.</li> 
</ul>

Aggregate sales hit $37.8 trillion last year—an increase of 19%, the highest annual growth rate in the list’s history.

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F500-2022-Boeing

Aerospace and defense manufacturer Boeing had a strong 2021 overall, with revenue for the year growing by 7% amid a surge in sales. Boeing delivered 340 jetliners in 2021, more than double its sales numbers from 2020, spearheaded by the long-awaited return of the 737 Max airplane that was grounded in 2019, along with the revival of air travel as the pandemic eased. But the company has faced further challenges in 2022 in the wake of the Russian invasion of Ukraine, as the war raised costs and delayed shipments for key manufacturing parts. Investors have also reacted poorly to ongoing delays in the development of Boeing’s 777-9 civilian wide-body jet, and to cost overruns in its contract to build new Air Force One aircraft for the White House.

Total revenue for the world’s biggest companies fell 4.8% to $31.7 trillion this year—the first decline in half a decade.

G500-2021-173-Boeing

<span data-sheets-value="{&quot;1&quot;:2,&quot;2&quot;:&quot;Boeing investors’ modest hope is that nothing terrible happens for a while. Crashes of 737 Max aircraft in 2018 and 2019, killing 346, exposed design flaws and grounded the model worldwide for more than a year. Then, as the plane gradually reentered service in early 2020, the pandemic virtually halted global air travel. With travel resuming in the spring of 2021, electrical problems with the 737 Max grounded about 100 of the planes, and Boeing “paused” deliveries. In the midst of it all—late 2019—the board of directors ousted CEO Dennis Muilenburg and gave the job to nonexecutive board chairman Dave Calhoun, who’s focused on stabilizing the company and getting it back on a growth trajectory. With his 65th birthday approaching in 2022, the board extended his retirement age to 70.&quot;}" data-sheets-userformat="{&quot;2&quot;:12673,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:2,&quot;11&quot;:4,&quot;15&quot;:&quot;Calibri&quot;,&quot;16&quot;:11}">Boeing investors’ modest hope is that nothing terrible happens for a while. Crashes of 737 Max aircraft in 2018 and 2019, killing 346, exposed design flaws and grounded the model worldwide for more than a year. Then, as the plane gradually reentered service in early 2020, the pandemic virtually halted global air travel. With travel resuming in the spring of 2021, electrical problems with the 737 Max grounded about 100 of the planes, and Boeing “paused” deliveries. In the midst of it all—late 2019—the board of directors ousted CEO Dennis Muilenburg and gave the job to nonexecutive board chairman Dave Calhoun, who’s focused on stabilizing the company and getting it back on a growth trajectory. With his 65th birthday approaching in 2022, the board extended his retirement age to 70.

This year’s Fortune 500 marks the 67th running of the list.

F500-2021-54-Boeing

This year's Fortune Global 500 generated $33.3 trillion in revenues and $2.1 trillion in profits.

G500-2020-121-Boeing

Boeing spent 2019 trying, to little avail, to recover from two disastrous crashes of its 737 MAX jet, which killed 346 people. Airlines canceled orders, Congressional committees called hearings, projected dates for the plane’s return to service kept getting pushed back, and the company lost $1 billion. The board lost patience with CEO Dennis Muilenberg and fired him at the end of the year. Board chairman David Calhoun took over as CEO in early January, just in time to face the coronavirus pandemic, which virtually halted travel worldwide and will be an even bigger challenge for Boeing long-term than the grounding of the 737 MAX.

This year's Fortune 500 marks the 66th running of the list.

F500-2020-040-Boeing

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This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Global business is back. After limping through a worldwide financial crisis and economic slowdown, the 500 largest companies ranked by revenues shattered all sorts of performance records in 2013: They racked up combined revenues of $31.1 trillion, up 2.5% from 2012, and profits soared 27% to nearly $2 trillion. China’s 95 companies (up from 89 last year) posted $5.8 trillion in revenues. The U.S. has four fewer companies on the list than last year but remains (for now) the country leader, with 128 corporations on the list—including No. 1 Wal-Mart Stores—reporting $8.6 trillion in revenues. 

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Sector

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Boeing, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, plus human spaceflight and launch systems worldwide. The company operates through its commercial airplanes; defense, space, and security; and global services segments. In recent years, safety concerns and labor disputes have plagued the company, which was once lauded for its engineering-first culture. Boeing was incorporated in 1916. After a long history outside Seattle, in 2001 it moved its headquarters to Chicago to be closer to customers. It ultimately moved again to Arlington, Va., where it’s presently headquartered.

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Boeing (BA): Company Profile, Stock Price, News, Rankings

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Boeing

boeing

Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's call is being recorded. The management discussion and slide presentation plus the analyst question and answer session are being broadcast live over the Internet.

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.

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. This quarter's webcast, earnings release and presentation, which include relevant disclosures and non GAAP reconciliations, are available on our website. Today's discussion includes forward looking statements that are subject to risks and uncertainty, including the ones described in our SEC filings.

As always, we will leave time at the end of the call for analyst questions. With that, I will turn the call over to Kelly Ortberg.

Thanks, Pat, and thanks to 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. Albeit early, I do like what I'm seeing. 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. The key performance indicators that we're using to measure our production stability continue to progress, and we delivered 130 airplanes in the quarter, which was better than our internal plan.

I want to remind you that we planned the ramp up conservatively so that we had some capacity to deal with unknown challenges. 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. And of course, winning the F-forty seven program was a transformational accomplishment. To be selected the contractor for the world's first sixth generation fighter is a testament to our focused investment in some pretty difficult time and to our dedicated team.

This will secure our fighter franchise for decades to come. And our BGS business continued to deliver strong results, and we reached a milestone event by delivering our one hundred and seven sixty seven freighter conversion. So let me dig a little deeper into our four point plan for our recovery. Recall from previous calls that I highlighted four key areas. The first, stabilizing our business second, improving the development program execution third, changing our culture and fourth, building our new future.

So for stabilizing our business, our balance sheet has been an important focus. The equity raise at the end of last year was sized to provide us the ability to restore our production system to help. With the better than expected delivery performance, we naturally had less strain on cash in the first quarter, so we continue to be on solid footing here. As we announced yesterday, the expected divestiture of portions of our Digital Aviation Solutions business will also provide a significant cash infusion. The key to cash generation will be continued progress on the seven thirty seven MAX ramp.

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. We'll ensure that the KPIs are showing a stable production system and then request an increase to 42 per month with the FAA later this year. We 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. 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 seven thirty seven line. So the changes we've made to strengthen our quality system are delivering results.

Even more importantly, almost every customer I talk with report an improvement to the quality of the airplanes. On July, we continue to produce at five 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. We're poised to move to seven per month this year provided our KPIs indicate a stable production system, and they're currently looking very good. 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. With the current cash balance and the production ramp status, I feel we are well on our way to stabilizing the business even in the face of the tariff situation, which I'll address in a moment.

Now let me switch to the next priority, which is improving the development program execution. As I mentioned, a quarter with EAC stability in defense is a good start, but our efforts run deeper than that. 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. And we've since completed our first two incentive milestones associated with that agreement. 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.

And we recently transferred our MQ-twenty five 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. And this next quarter will be an important one for us as we begin to baseline the performance of our F-forty seven plan. On commercial development programs, we reached authorization from the FAA to expand the 777X flight test activities to include additional aerodynamics, brakes, and engines. The aircraft are flying daily and performing well in flight testing. Along with the 777X, the seven thirty seven-seven, and the seven thirty seven-ten continue with their certification programs, and there is no change to our previously shared certification timeline on any of the commercial programs.

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. 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. We formed an enterprise working group to help us refresh our values and behaviors. 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.

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 selection criteria. Our people are passionate about the culture change, so I really wanna seize the moment to make the necessary changes within the company. Now the last area to discuss is building our future. The planned divestiture of portions of our digital aviation solutions business is an example of the portfolio streamlining that I highlighted on earlier calls. 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.

And obviously, the F-forty seven win is a key step for building our future, cementing our franchise in the fighter business. 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 cost to manufacture our products and then the potential impact of retaliatory tariffs like those we are seeing in China. 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 to deliveries in the first quarter. Much of our supply chain is based in The United States and many of our imports from Canada and Mexico are exempt under the USMCA agreement.

We do have suppliers in countries subject to the new U. S. Tariffs, most notably in Japan and Italy, where our suppliers do significant structures work on our wide body airplanes. 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 bodies. 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.

The other issue is impact of potential retaliatory tariffs from other countries, which could affect our ability to deliver aircraft. The only region that we have an issue with aircraft delivery today is China. And due to the tariffs, many of our customers in China have indicated they will not take delivery. Given the uncertainty, we're taking a very straightforward approach to dealing with these deliveries. 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 airplanes. 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. 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. And we're not going to continue to build aircraft for customers who will not take them.

We've bounded 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. We've put in place a conservative recovery plan this year anticipating some perturbations or risk. So I feel really good about our overall plan for the year even though I expect the China situation will take away some of the headroom we've built with our strong first quarter deliveries at BCA. We continue to work this situation proactively with the administration, and it's clear that they understand the importance of the aerospace industry to The U. S.

Economy and the role that Boeing plays as a top US exporter. So before I wrap up my prepared remarks, I wanna recognize and thank our employees for their work in the quarter. We've really had a good start to the year, and I'm glad we put a conservative plan together that'll allow us to deal with the tariffs. Let me also give a special shout out to Matt Welch, is moving on to his new role as VCA CFO. He's done a great job for us.

So congratulations, and thanks, Matt, for all you've done. Now let me hand it over to Brian to detail the operating results before we take your questions. Brian?

Thanks, Kelly, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $19,500,000,000 up 18%, primarily driven by higher commercial delivery volume. The core loss per share of $0.49 was a significant improvement compared to last year, driven by higher commercial deliveries and improved operational performance across the business. Free cash flow was a usage of $2,300,000,000 in the quarter, reflecting higher commercial deliveries and a working capital usage that improved compared to both the prior year and quarter.

Our free cash flow was better than expectations shared last month driven by volume and favorable working capital timing. These financial results reflect only tariffs enacted as of March 31, which was not material. Turning to the next page. I'll cover BCA. BCA delivered 130 airplanes in the quarter.

Revenue was $8,100,000,000 and operating margin was minus 6.6%, primarily reflecting higher 07/30/7777 deliveries as well as lower period costs. BCA booked two twenty one net orders in the quarter. Seven seventy seven-9s and twenty seven eighty seven-ten airplanes for Korean Air and fifty seven thirty seven-eight airplanes for Boca. Backlog in the quarter ended at $460,000,000,000 which was up more than $25,000,000,000 sequentially. This includes more than 5,600 airplanes that translates over seven years of production, and importantly, the seven thirty seven and seven eighty seven are sold firm into the next decade.

Now I'll give more color on the key programs. The seven thirty seven program delivered a hundred and five airplanes in the quarter, including 33 in March. On production, the factory gradually increased rate during the quarter, and monthly production was in the low 30s in March. 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. 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 midyear.

More broadly on the master schedule, we continue to make adjustments as needed and manage supplier by supplier based on inventory levels. Over the past year, our buffer inventory has grown to promote stability across our production system. As production stabilizes and rates increase over time, we plan to deliberately return buffer inventory to more normal levels. Today, have about thirty seven thirty seven-8s built prior to 2023, which is down 25 from year end and includes 25 airplanes for customers in China. We still expect to complete the rework on these airplanes and shut down the shadow factory by midyear.

On the '7 and '10, inventory levels were stable at approximately 35 airplanes and certification timelines are unchanged. On July, we delivered 13 airplanes in the quarter, generally in line with expectations outlined on our last earnings call. The program continued to stabilize production at five per month in the quarter, and we 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. Today, we have about 20 airplanes in inventory built prior to 2023 that required rework, down five from year end. Four of these 20 are for customers in China.

Importantly, we finished rework and shut down the shadow factory in the quarter and expect to deliver about half of the remaining airplanes this year. Finally, on the 777X, the program took another important step in its certification timeline as it received approval from the FAA to expand flight testing activities. We'll continue to file the lead of the FAA as we progress through the certification process and still expect first delivery in 2026. 777X inventory was up approximately $800,000,000 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.

BDS booked $4,000,000,000 in orders during the quarter and its backlog ended at $62,000,000,000 Importantly in the quarter, BDS was selected by the U. S. Air Force to design, build and deliver its next generation fighter aircraft, BF-forty seven. This order was not included on our first quarter backlog pending the completion of the source selection and evaluation review process. Revenue was $6,300,000,000 down 9% on planned lower volume, including the impact from commercial derivatives associated with the production restart.

BDS delivered 26 aircraft in the quarter. Operating margin was plus 2.5%, up 30 basis points compared to last year and reflected stabilizing operational performance in the quarter. We made important progress in 1Q and the game plan is to get BDS back to high single digit margins over time. Our core business remains solid, representing approximately 60% of our revenue and performing in the mid to high single digit margin range. The demand for these products remains very strong, supported by the threat environment confronting our nation and our allies.

The roughly 25% of the portfolio is primarily comprised of fire and satellite programs. Operationally performance improved in the quarter, which drove favorable margin trends. Lastly, on our fixed price development programs that represent the remaining 15% of revenue, we continue to work to stabilize and mature these programs. 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. During the quarter, the MC25 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 flight testing begin later this year.

On the T-7A, we achieved the first two EMD performance milestones outlined in the MOA that was finalized with the U. S. Air Force in January. This continues to be an important example of how we are working with our customers to find better overall outcomes for both parties. Overall, the defense portfolio is well positioned for the future and we still expect the 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.

Moving on to the next page and BGS. BGS continued to perform well delivering very strong financial results in the quarter. The business received $5,000,000,000 in orders and the backlog ended at $22,000,000,000 Revenue was $5,100,000,000 stable year over year. Operating margin was 18.6% in the quarter, up 40 basis points compared to last year on favorable performance and mix with both our commercial and government businesses delivering double digit margins. In the quarter BGS delivered the one hundred seven sixty seven-three hundred Boeing converted freighter to SF Airlines and received a modification contract from the U.

S. Air Force to integrate electronic warfare systems for the F-fifteen Eagle. It remains a terrific long term franchise focused on profitable, capital efficient service offerings and continues to execute very well. Turning to the next page, I'll cover cash and debt. Cash and marketable securities ended at $23,700,000,000 primarily reflecting the free cash flow usage in the quarter.

Debt balance ended at $53,600,000,000 down $300,000,000 due to the paydown of maturing debt and leaving $550,000,000 of debt maturities remaining in the year. The company maintains access to $10,000,000,000 of revolving credit facilities, all of which remain undrawn. We remain committed to managing the balance sheet in a prudent manner with two main objectives. First, prioritize the investment grade rating and second, allow the factory and supply chain to stabilize. As you saw yesterday, we entered into an agreement to sell portions of our digital aviation solutions business for $10,550,000,000 which is an important component of our strategy to focus on our core businesses and strengthen the balance sheet.

Stepping back, let me provide some additional context on a macro backdrop before getting into the free cash flow outlook. We continue to closely monitor recent policy developments and believe that the administration understands the aerospace industry's importance to our economy broadly and U. S. Manufacturing jobs specifically and is focused on keeping our U. S.

Industrial base globally competitive for the long term. Given our position as a significant U. S. Exporter, free trade policy across commercial aerospace remains very important to us. As noted recently on the supply side, roughly 80% of our annual commercial supply chain spend goes directly to U.

S. Based suppliers, and we'll work closely with all our suppliers to ensure continuity of supply and pursue options to mitigate cost pressures. 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 $05,000,000,000,000 with our key commercial programs sold out into the next decade.

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 cash flow, 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 China deliveries this year as well as higher expected input costs due to tariffs. Regarding deliveries, our plan for the rest of the year was to delivery roughly 50 airplanes to customers in China. 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.

We will continue to monitor the demand situation, and if tariff related impacts expand beyond China, we would expect to see additional pressure. Broadly, the markets we serve continue to be significant and our backlog of more than $05,000,000,000,000 demonstrates the strength of our core product portfolio. Long term, these fundamentals underpin our confidence in managing the business with a long term view built on safety, quality, and delivering for our customers. And before I open it 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. He's a terrific Boeing leader, and we wish him all the best in his new promotion, and we welcome Eric Hill into the IR role.

Thank you. We will now begin the question and answer session. Your first question comes from the line of Doug Harnett from Bernstein. Your line is open.

the first Trump administration, the negotiations on subsidies across The Atlantic led effectively to a zero tariff environment for aviation. And, you know, when you look at the recent tariffs announced and under consideration, I mean, we would say they do nothing positive for the industry. Expect if Guillaume Faury were on this call, the two of you would probably be in violent agreement on this. But and you commented earlier that the administration understands the importance of the industry, but can you describe how you and others are interacting with Washington to get around, to get out of this, tariff environment? And 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?

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 cabinets, you know, cabinet secretaries and up to POTUS himself. So this is a dynamic environment. As you as you point out, we've had the luxury of operating for decades, actually, since the 1979 civil air aviation agreement on large aircraft in a tariff free environment.

So we're spending a lot of time making sure the administration understands the implications of of either short term or long term tariffs on our not just our company, but the overall aviation industry here in The US. I would just tell you that that they understand. They know this is extremely important to our trade, to the trade balance. Aircraft are, you know, such a significant part of our trade surplus. And if we see, markets closing, that's gonna be a big, 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, we're gonna work our tail off to make sure the China issue doesn't implicate our recovery and and particularly our our stability in our production system. So we'll deal with that. Customers are calling, asking for additional airplanes.

So this is really gonna be just a short term challenge for us to either either have China reverse course and take the airplanes or get us to to in a position to remarket those airplanes. And as you know, to remarket them, we'll have to do some things like painting them and things like that. But having said that, look, I can't predict where this is gonna go. I don't know any better than than anybody reporting. We do hear signs that indicate that negotiated settlements are there are opportunities for that.

I just don't know the timing. And so, again, we're gonna take the actions we need to make sure if this takes a while, we don't get into a situation where it it impacts our recovery. The one thing that we have to watch is is is to make sure we don't see more countries in a in a similar boat as where we are with China. 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 both Guillaume and I would would welcome a non tariff environment for both of us.

This isn't good for for either company to be in this situation or 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 tell you we're gonna take proactive action and and manage our way through it.

Your next question comes from the line of Myles Walton from Wolfe Research. Your line is open.

Thanks. Good morning and congrats on the move, Matt. You survived a lot. So Brian, I think in January, were expecting deliveries in the 03/07 in the in the low April and maybe 80 or so on the July. Does that still that framework still holds with the 50 aircraft from China not not going to China specifically as Kelly mentioned?

Thanks, Myles. On the 37, yes, we still think that's the right ballpark of 400. You had a nice strong start to the year operationally, and that should allow offset most of any delivery pressure that would come from the 25 airplanes that are already built in 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 twenties for April, and the quarter, should be more or less in line with, one q ex China, which is in the low to mid nineties. On the a seven, you're also in the right ballpark.

You know, also are having a nice start to the year, and we expect to ramp to seven per month in the next few months. And China would only be a handful of airplanes impacted. So we like we like the ballpark that you mentioned. And for 2Q, we've already delivered five so far in April, and we expect 2Q to be a bit higher than where we were at in 4Q twenty four deliveries. So things are going pretty pretty well.

I think what's really important is any delivery timing won't disrupt our production rate increases on these programs. And we're making really good progress operationally, and we're tracking to achieve the right milestones that Kelly mentioned on both programs in the coming months.

Your next question comes from the line of Seth Seifman from JPMorgan. Your line is open.

Hey. Thanks very much, and good morning, everyone, and congratulations, Matt. Just wanted to ask a follow-up question on tariffs 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 kind of sizing potentially those two impacts. And then talking about the drawback process on the cost side, do you need to maybe manage the supply chain a little bit on the cost side if there are suppliers down in the chain who, you know, can handle this as well as, you know, some of the larger and and, more well capitalized suppliers?

And and also how you deal with, you know, I gather you're gonna get pushed from certain suppliers to kind of push through tariffs that they have with different surcharges and, anything you

Seth, let me start with the kind of the process, and then I'll 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 are delivered outside of The U. S. So we have the opportunity for those duties that we pay, those tariffs that we pay to to recover that when we deliver the aircraft.

Now, you know, it 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. Their point of delivery is to us, and that we, in turn, deliver, the product outside of The US. So we are working to see if we can't, if in effect, allow them to piggyback on our duty drawback. And and that that requires, you know, accounting processes to make sure we can track things.

And so we're working that right now. We do have some suppliers who've indicated they're gonna have some pricing increases associated with that, but it's not overly material, and we're working through that. The thing, I'm I'm really trying to make sure we're focused on is making sure that an argument over a 10%, tariff who's gonna pay doesn't turn into a continuity of supply, issue. So we we really need to make sure that that people are buying and bringing in the parts that that we're gonna need, and then we'll work through the the financial implications. I'll let Brian kinda quantify that for you.

Yeah. Sure. So I think I'll start with the, supply chain input costs, and then I'll get to the China piece. On the supply chain side, the net annual impact of higher tariffs on our input costs is manageable. And within our plan, it's less than $500,000,000 annually.

And here's how to think about some of the pieces in addition to what Kelly described. Yeah. We have elevated inventory levels that are all pre tariff. Aluminum and steel are typically 1% to 2% of the average cost of the airplane, which is virtually all US sourced. And with higher inventory levels and hedging strategies, that one to 2% is even lower in the current environment.

We do both buys on behalf of our supply chain partners, and those could be subject to some price increases as tariffs move higher, that 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 duty drawback opportunity to get us to that net, you know, a few hundred million dollars. 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 describing this. I'd also say that, keep in mind that over time, any input related costs will work its way through to price escalators. So it should mostly neutralize over time. And then in addition to what Kelly said about the suppliers, as you know, many are on fixed price life of program contracts where the importer does where importer record does pay the tariff. And as Kelly said, we're doing what we can to help them through this this situation.

As it pertains to China specifically, you know, we talk about 50 or so airplanes that's 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.

Your next question comes from the line of Scott Duschel from Deutsche Bank. Your line is open.

Hey, good morning. Brian, on the last call, you seem to reference that the free cash flow usage for the year will be somewhere in the 4,000,000,000 to $5,000,000,000 range. I guess, 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 through the year? Thank you.

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. And as we've said, we expect the second half free cash flow to turn positive and then accelerate as we exit the year driven by a few really important levers.

The July production ramped to 38 per month and even potentially higher as we exit the year. Higher seven three seven delivery volume. We've got the seven eight seven production ramp to seven per month and also potentially higher as we exit the year. We have the higher seven eight seven delivery volume, and we have customer seats that will be favorable. And those are offset by a couple of things, higher investment levels, including the triple seven x and the potential impact of both China and this net impact from higher input costs from tariffs that we've 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. We had a really good start to the year. We need to execute on the production rate increases, and we need more clarity on China and tariffs 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 account for some unknowns.

We're still comfortable with the plan that we've outlined.

Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Your line is open.

Good morning, Kelly, Brian, and thank you, Matt, so much. So maybe just on that last thought, you know, assuming the skyline is largely intact outside of China and there's no demand impact with tariffs, how are we thinking that production ramps outside 2025 with the 3.7 and the 8.7 rates? And how you're watching the biggest risks in the supply chain in the master schedule and how that correlates to cash flow expectations as you continue to benefit from volume ramps, but also on time deliveries?

Actually, let me let me take the demand side, I'll let let Brian comment. So we don't see any change in the overall demand here. Our backlog is well over half a trillion. It's the everybody wants the aircraft. So, you know, we're gonna work through this China situation, maybe have to redeploy some aircraft, but we don't see any any pullback whatsoever, in demand for the aircraft.

So our rate increase plan is on remains unchanged. We'll go to 38 a month, here. We'll get to the stability, and then our first rate increase will be from 38 to 42. And then we'll do five per month increments after that. So 42 to 47, 40 seven to 52.

Those rate increases would be no earlier than probably six months in between. But, again, the it depends on each one will require that we have stable KPIs. And the more you move up the rate, the the more difficult it is to make sure you 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 rate plans.

All the KPIs on the on seven eight seven right now are all green, look good. You know, we'll make this, next rate increase in the coming months on July. And then there are for for future opportunities there. As you know, we've invested additional capital billion dollars here in our our Charleston facility. That's where we are today to expand our production capacity here.

So we definitely wanna get the 08/07 back up to double digit production rates. And and none of what we're seeing right now is not gonna solve those plans. And on the supply chain side, you know, as

I mentioned, we have a lot of inventory, enough inventory that is there for us to, achieve the rates that Kelly's mentioning. And we've got really good alignment, with, our key suppliers, fuselages, engines. Everything looks pretty good. Yeah. We have to get through some discrete moments around this tariffs and ensuring the continuity of 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 the supply chain side of it.

Your next question comes from the line of Scott Marcus from Melius Research. Your line is open.

Kelly, congrats on the f 47 win. I have a quick question there. There was a comment from the administration about the EMD phase being cost plus, but there were some competitively priced options for LRIP. So I'm just wondering, are those options fixed price? Do they have inflation escalators built into them?

we be thinking about the risk from those options?

Yeah. Hey, Scott. On the f 47, we're we're not, we're not at liberty to to disclose anything relative to the contract structure beyond what the Air Force has said. So the only thing I can say is is what they've read what you've read there is is, 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 I wouldn't worry that we've signed up to, you know, to to undo risks like we've like we've done in some of our past fixed price programs. But that's about all I can say on that right now.

All right. Thanks for taking the question.

Your next question comes from the line of David Streves from Barclays. Your line is open.

Boeing (BA) Q1 2025 Earnings Call Transcript

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