In The Boeing Company's Second Quarter 2023 Earnings Conference Call, Matt Welch, Vice President of Investor Relations, and Dave Calhoun, President and Chief Executive Officer, reported that the quarter was solid for all of their businesses and that they are encouraged by the $2.6 billion in free cash flow generated in the quarter. They also discussed the challenges they are facing, such as the supply chain, but noted that it is steadily improving. They feel good about their operational and financial outlook for the next few years.

Boeing had a strong second quarter, with 460 net orders and 136 commercial airplanes delivered. They are confident in their $3 billion to $5 billion target for the year. The 737 MAX has returned to service with exceptional reliability, with over 5 million flight hours and 2 million flights since returning. They are making progress on their key development programs and are on the right path to reach their delivery guidance for the year.

Boeing is making progress in their defense and space portfolio, despite continuing losses on three fixed-price development programs. They are confident in their team and committed to getting it right. They have had some successes, such as the Air Force successfully completing its first flight of the T-7 and significantly reducing assembly hours. They are also making progress on other key BDS programs.

Boeing Defense, Space & Security (BDS) had a strong quarter with orders valued at $6 billion, including key contracts from the U.S. Army and Germany. Global Services also had a strong quarter with healthy revenue and expanding earnings and margins. Highlights include the expansion in Poland with a new parts distribution site, and Japan Airlines adopting Boeing Insight Accelerator. Despite challenges, Boeing is working to stabilize, derisk, and mature their contracts and is confident in their defense business.

Dave reported that second quarter revenue was $19.8 billion, up 18% year-over-year, and core operating margin was minus 2%. Free cash flow was positive $2.6 billion, driven by higher commercial deliveries and favorable receipt timing. Commercial Airplanes booked 460 net orders in the quarter, with revenue of $8.8 billion, up 41% year-over-year. Operating margin was minus 4.3% due to expected abnormal costs and period expenses, including higher R&D spending.

Dave noted that despite operational challenges, progress has been made and production is stabilizing. The Spirit work stoppage was quickly resolved and is not expected to change production and delivery outlook. On the 737, 103 deliveries were made in the quarter, including 49 in June, and production is transitioning to 38 per month with plans to increase to 50 per month in the '25-26 timeframe. The MAX program has 228 airplanes in inventory, 85 of which are for customers in China, and 55 have been remarketed. On the 87 program, 20 deliveries were made in the quarter and production increased to 4 per month with plans to reach 5 per month by the end of the year. There are 85 airplanes in inventory and most are expected to be delivered by the end of 2024.

BDS booked $6 billion in orders in the quarter, with revenue at $6.2 billion and 38 aircraft delivered. Operating margin was minus 8.5% driven by three fixed price development programs. BDS is expected to return to high single-digit margins in 2025-2026, while BGS had a strong quarter.

BGS received $4 billion in orders during the quarter and the revenue was $4.7 billion, up 10% year-over-year. Operating margin was 18%, an expansion of 110 basis points, and they announced an expansion in Poland and collaboration with CAE. BGS ended the quarter with $13.8 billion of cash and marketable securities and $52.3 billion in debt. Their 2023 financial outlook remains unchanged, with $3 billion to $5 billion of free cash flow generation.

Commercial demand remains strong for key programs and services, with global passenger traffic up 39% in May and China pass-through traffic up 300% year-on-year. Defense demand is also robust. Despite the strong demand, the company is still in a supply-constrained environment. The company expects operating and financial performance to improve in the second half of 2023, with BCA margins improving sequentially but remaining negative. The tax rate for the remainder of the year will be weighed down by cumulative adjustments. The company expects meaningful operating performance improvement, including deliveries, revenue, margins and cash flow, and is confident in $10 billion of free cash flow in 2025 and 2026.

Brian West from Boeing discussed the Commercial Airplanes operating loss of $383 million in the quarter and how it could turn positive. He explained that margins had improved from negative 9% in the first quarter to negative 4% in the second quarter, but would still be negative in the third quarter. He was confident that margins would move into positive territory by the end of the year or early next year, due to rate ramp, the end of abnormal costs, and a good pricing environment.

Brian West explains that MAX profitability will improve with scheduled rate breaks and liquidation of the dual factories. He states that rate breaks have already been announced, and the liquidation of the factories will be substantially complete by 2024. He also explains that BCA margins will look normal by the time they reach 2025-2026. Brian states that they are at the top end of the delivery range for the 737, and the 777X production has been pulled forward.

Dave Calhoun stated that there have been no breaks on the regulatory side and that the projections given are still intact. Brian West explained that they expect the quarterly rate of 737s to be higher than 103 and that they have a degree of confidence that they can reach the higher end of the range. Jason Gursky asked about the services business and when they can expect to go back to more normalized margins. West explained that the defense business has historically done well with 60% of the margins coming from development programs and 25% from legacy programs.

Brian West and Dave Calhoun of Boeing discuss the company's services business, which is performing well and has margins in the mid-teens. They also note that the defense business is composed of 15% fixed price development programs, 60% stable products, and 25% other elements. They emphasize that the services business is supply constrained and that there is a lot of demand for the products in the defense business.

Brian West responds to Cai von Rumohr's question about the 25% of the portfolio that is not performing well. He explains that they have a plan to turn it around but it will take time. He also states that the remaining 85% of the portfolio is expected to perform at attractive margins due to the efforts to stabilize and increase productivity. He then clarifies that they will not have modest profitability in the third quarter.

The BDS portfolio is not expected to solve itself in the near-term, and it will take time to get these products up and running. There is a significant gap that needs to be filled, and this gap is in the hundreds of millions of dollars. The products are complicated and have been made more difficult due to the pandemic. There are new capabilities embedded in the products, and the company is working to learn these capabilities. There are fixed-price contracts in place, and it is unlikely that these contracts will be modified to get better pricing.

Dave Calhoun of Boeing is optimistic about the Transonic Truss-Braced Wing aircraft, which could potentially deliver a level of performance that the industry is used to with brand-new programs. He does not want to make a choice yet on engine variations or power plants, but believes that existing power plants and bigger fan diameters may be possible in the future. Ultimately, the technology must be proven and deployed before any decisions can be made.

The Boeing team is confident that their supply chain is ready to increase production to 38 737 MAX planes per month. They have had visibility into the supply chain for some time and are confident they can make the first move to 38. They are focusing their time and effort on readiness for 50 planes per month, and they will move to 42 after they have seen stability in the 38 rate for a few months.

Dave Calhoun and Brian West address a question from David Strauss about the 787, reassuring that there is no new issue and that they are confident in the 70-80 deliveries for the year. They then explain that they have an up arrow in the BCA forecast due to orders and advances being better than expected. Lastly, they maintain their guidance for 50 MAX deliveries a month by 2025-26.

Dave Calhoun believes that the market is there to potentially reach a rate of 60 aircraft per month, but they need to focus on stability and execution in the second half of 2024. He believes that if they get through this period well, they will be able to talk about a rate of 60. He also notes that they can produce 50 aircraft per month on their current three lines, and they are considering the logistical complexity of producing one line in Everett.

Brian West discussed the 787 production and delivery rate and noted that the team has done a great job in the joint verification work. He expressed confidence that the second half of the year will be better than the first half. However, he was unable to provide any information about delivery numbers for the following year.

Boeing has reduced its finished goods inventory in China with permission from its customers, and the return-to-service work in China is largely complete. The reliability of the fleet has been great, and Boeing is hopeful that they will resume deliveries in the future. They are committed to supporting their customers in China and to being a free trade beacon for the US administration.

Dave Calhoun discussed his thoughts on the Airbus A220 stretch 500 and stated that he does not view it as a meaningful competitor. He believes that the next airplane should be 25-30% better than what is currently flying and that the company is focused on Transonic wings. Lastly, he was asked about the MAX production rate and aircraft pricing and stated that the official plan is to get to 42 a month by the end of the year and that new aircraft pricing is up by a double-digit percentage compared to pre-pandemic levels.

Brian West and Dave Calhoun discussed the improvement in defense margins for next year, with the goal of reaching 38% by the end of the year and 50% by 2025-26. Dave Calhoun also mentioned that the industry is short of airplanes and that they compete for each order. Finally, Matt Welch concluded the second quarter earnings call.

The conference call for Boeing's second quarter 2023 earnings has concluded and all participants are thanked for joining. Participants are now able to disconnect.

This summary was generated with AI and may contain some inaccuracies.