The paragraph is an introduction to Boeing's Fourth Quarter 2024 Earnings Conference Call, led by Matt Welch, Vice President of Investor Relations. It mentions that the call includes a management discussion, slide presentation, and an analyst Q&A session, all accessible online. The call features remarks from Kelly Ortberg, Boeing's President and CEO, and Brian West, the CFO. Kelly Ortberg begins by expressing condolences for those affected by the Jeju Air Flight 2216 incident and mentions Boeing's ongoing support for the investigation. He then shifts focus to the company's steady progress in four critical areas for recovery, with the first being stabilizing the business.

After resolving the IEM strike, the commercial team has been systematically restarting factories while prioritizing safety and employee training. The production line for the 737 MAX is now fully operational with sufficient parts, allowing for a rate of 38 planes per month. The FAA has reviewed and approved the safety management and production system, setting the stage for future production increases. Customer feedback is positive, and progress is also being made on the 787, which ended last year at a production rate of five per month. Ensuring stability in production and the supply chain is key before increasing rates further. Additionally, efforts are being made to strengthen the company's balance sheet.

The paragraph outlines the company's commitment to recovering its business while maintaining a strong credit rating and shareholder satisfaction. It highlights efforts to stabilize production rates by addressing supplier part shortages through collaboration and communication. The company is also focused on improving performance in its development programs by proactively managing risks and costs. Despite recent financial disappointments, progress is being made in contract management with customers, exemplified by agreements with the U.S. Air Force on the T-7A and discussions on the VC-25B programs. Overall, the emphasis is on active management and collaboration to enhance program performance.

The paragraph discusses Boeing's efforts to manage fixed price programs and the certification processes for the 737-7, -10, and 777X models. The company is focused on testing and working with the FAA for certification, alongside resolving technical issues with the 777X. Additionally, Boeing is undergoing a multi-year cultural transformation, emphasizing leadership engagement, clearer core values, and a unified incentive program to enhance accountability and unity. Despite workforce reductions, there is a growing optimism among employees about restoring trust and contributing to Boeing's turnaround and future success.

The paragraph discusses Boeing's strategy to create a more agile and focused operating environment by investing in core business areas and streamlining its portfolio. It highlights a strong demand for Boeing's core commercial and defense products, supported by a backlog of over $0.5 trillion. The speaker acknowledges the commitment of Boeing employees and emphasizes collaboration for future success. Brian West then discusses the company's financial performance, noting a 31% drop in revenue to $15.2 billion due to an IAM work stoppage, which also impacted commercial deliveries and working capital. The core loss per share was $5.90, influenced by the work stoppage, defense program charges, and previous workforce reductions. Boeing Commercial Airplanes delivered 57 planes in the quarter.

In the mentioned quarter, the company reported $4.8 billion in revenue with a negative operating margin of 43.9%, mainly due to the IAM work stoppage and related charges. Their backlog is valued at $435 billion, including over 5,500 airplanes. The 737 program saw improved deliveries in 4Q and January, with production resuming and expected to increase. The company is managing inventory and production schedules, aiming to stabilize and reduce buffer inventory. The shadow factory is expected to close mid-year, with all remaining airplanes delivered within the year. The -7 and -10 models have stable inventory, with ongoing testing for certification. The 787 program delivered 15 airplanes while addressing production recovery issues.

The program ended the year with a production rate of five units per month and plans to expand operations in South Carolina to meet future commercial market demands. Stability in production and supply chain is needed before increasing rates further. The rework of 25 pre-2023 airplanes is ongoing, with completion expected in early 2025, but has been delayed by a work stoppage. The 777X program resumed flight testing and anticipates the first delivery in 2026, despite a $900 million pre-tax charge mainly due to increased labor costs. Inventory spending for 777X was $2.6 billion in 2024 but moderated due to the work stoppage. Boeing Defense and Space (BDS) booked $8 billion in orders, including for the KC-46A Tankers and P-8A aircraft, ending with a $64 billion backlog. However, quarterly revenue was $5.4 billion, down 20% year-over-year, with an operating margin of minus 41.9%. BDS delivered 34 aircraft and two satellites, including the final T-7A EMD aircraft to the U.S. Air Force.

The paragraph discusses financial and operational challenges within a company's portfolio, focusing on fixed price development programs that include the KC-46A and T-7A, which led to a $1.7 billion pre-tax charge due to increased manufacturing and production costs. One-third of these charges will affect cash flows in the next few years, with the rest spread over the next decade. The company aims to stabilize and improve these programs while acknowledging disappointing results. Progress includes new acquisition approaches for the T-7A and tackling disruptions in fighter programs like the F-15 EX and F-18, as well as satellite platforms. The remaining portfolio revenues are performing with mid to high single-digit margins.

The paragraph discusses Boeing's financial performance and outlook across different segments. The P-8 program experienced margin compression due to a work stoppage but is expected to improve. Boeing Defense, Space & Security (BDS) anticipates returning to historical performance levels with strong demand driven by global threats. Boeing Global Services (BGS) delivered record operating margins, with $6 billion in orders and a $21 billion backlog, showing a 6% revenue increase. BGS secured significant contracts and is focused on profitable, capital-efficient service offerings. The company ended the quarter with $26.3 billion in cash and marketable securities after a $24 billion capital raise, reduced its debt to $53.9 billion by repaying a $3.5 billion bond early.

The company has reduced its 2025 debt maturities to $800 million through prepayment and has access to $10 billion in undrawn revolving credit facilities. The focus remains on maintaining an investment-grade rating and stabilizing the supply chain. Full-year revenues fell by 14% to $66.5 billion, largely due to lower commercial deliveries, impacted by an IAM work stoppage. The core loss per share was $20.38, primarily attributed to lower deliveries and commercial and defense program charges. Free cash flow saw a $14.3 billion usage, influenced by commercial deliveries and working capital challenges. For 2025, the company anticipates improved free cash flow compared to 2024, despite the first half being a cash usage. Capital expenditures might increase by $500 million in 2025 to support growth in both commercial and defense sectors.

The company anticipates ending the year with strong business momentum as it returns to normal production rates, driven by several key factors. These include increasing 737 production, advancing 787 production to long-term rates, liquidating inventories and closing shadow factories, and investing in the 777X production ramp and capital expenditures to support growth. The defense business is expected to improve with disciplined program management, and strong performance is projected across the services sector. The company's substantial backlog, exceeding $0.5 trillion, underlines confidence in its product portfolio for the long term, emphasizing safety, quality, and customer satisfaction. The conversation is then turned over for questions, with David Strauss from Barclays asking about the 737 MAX production restart and targets with the FAA, as well as expectations for MAX and 787 deliveries in 2025.

Following a strike, the company prioritized training its workforce and stabilizing production lines instead of immediately resuming aircraft manufacturing. This approach is showing positive results, with production improving and no current supply chain constraints affecting the 737 ramp-up to 38 units per month. The efforts, particularly at Spirit, enhanced the quality of fuselages, benefiting the factory's workflow. Although formal yearly delivery guidance isn't provided yet, January deliveries are projected to be strong due to accumulated inventory clearance, while February may see lower numbers due to fewer manufacturing days and the factory's restart timing. March should improve as predictability increases, indicating a steady factory restart in the first half of the year.

The paragraph discusses the expected benefits of increasing production rates in the second half, including achieving a target of 38 units per month, subject to FAA approval. Kelly Ortberg outlines six key performance indicators (KPIs) agreed upon with the FAA, which will measure the stability of the production system. These KPIs include notice of escape hours, part shortages, employee proficiency, rework byline, travel to work at rollout, and ticketing performance. While it's still early in the process, initial trends for these KPIs are positive. The company is focused on achieving stability at the 38 units rate before seeking FAA approval for a rate increase. Emphasis is placed on a disciplined, fact-based approach to performance, with Stephanie and her team ensuring adherence to these KPIs. The paragraph concludes with Peter Arment asking Brian about the free cash flow dynamics for 2025.

The paragraph discusses financial projections for Boeing's free cash flow in 2025, with a focus on working capital dynamics and program spending. Kelly Ortberg notes that free cash flow expectations remain largely unchanged from prior guidance, except for higher CapEx due to growth investments and updated charges for BDS. The first half of the year will see negative cash flow due to working capital usage and 777X program investment, while the second half is expected to be positive as deliveries accelerate. BCA's performance will shift from negative to positive over the year, while BGS remains steady throughout. The overall goal is to improve cash flow momentum into 2026.

The paragraph discusses the outlook and management of BDS and BGS businesses. BDS is expected to perform better due to favorable receipt timing but faces delays in stabilizing fixed-price development programs. Kelly Ortberg mentions active efforts with customers, such as the U.S. Air Force, to improve these programs and convert Memorandums of Agreement (MOAs) into contract changes. BGS is expected to perform better in the second half of the year. There's an acknowledgment of increased Capital Expenditure (CapEx) aimed at growth, and Brian is asked about managing financial impacts, including expected cash outflows and when the business might become profitable.

The paragraph discusses the current progress and future expectations related to a fixed-price project. The speaker expresses cautious optimism about achieving stable performance in the upcoming year, noting that significant work remains. Brian West explains the financial implications, specifically a new $1.7 billion charge that will impact cash flow over the next few years, with particular pressure expected in 2025. He suggests that breakeven could be achievable by 2026 or 2027. After this explanation, Sheila Kahyaoglu acknowledges the information, and the conversation shifts to a question from Ron Epstein of Bank of America about thoughts on Boeing's portfolio.

The paragraph features a discussion between Ron Epstein and Kelly Ortberg about Boeing's strategy regarding its business portfolio. Ortberg explains that the company is conducting a detailed review to assess which areas are core to their operations and which might be streamlined or potentially sold. He emphasizes that any changes will involve refining or "pruning" the portfolio rather than undergoing a major restructuring. Ortberg suggests that more clarity on these decisions will emerge over the next 12 to 18 months.

In the paragraph, Kelly Ortberg discusses the status of the supply chain and integration efforts with Spirit in relation to achieving production targets. He indicates that Spirit fuselages are not a current constraint for reaching a production rate of 38, praising Spirit's improvements in quality and flow, and expressing confidence in a successful integration planned for mid-year. For the 787, Ortberg mentions ongoing efforts to improve issues with heat exchangers and challenges related to seating, specifically the monuments around seats and the integration and certification of in-flight entertainment systems. He notes that dealing with these seating issues is being addressed on a customer-by-customer basis.

The paragraph discusses the challenges and plans related to new seat configurations, specifically referred to as "code ones," for aircraft like the 787 and 777X. These configurations are complex and involve certification challenges, especially with the addition of doors. The process is affecting deliveries, with completed airplanes held up due to seat certification. The aim is to improve the seat integration program and ramp up 787 deliveries. Brian West confirms the target delivery numbers for the 787, and Kelly Ortberg addresses potential delays in seat certification for the 777X, which will have its first delivery to Lufthansa. The paragraph highlights ongoing efforts to resolve these issues and ensure successful certification and delivery outcomes.

The paragraph discusses the challenges and strategies related to seat certification for Lufthansa's 777X deliveries, noting that the new aircraft's complex interior is accounted for in the overall certification program. Brian West explains the financial outlook, indicating heavy cash usage before the entry into service (EIS) in 2025, with initial low cash flow from earlier aircraft until significant cash flow improvements in 2027 as deliveries accelerate. Seth Seifman raises questions about how the winding down of shadow factories, previously seen as a key profitability driver, and the integration of Spirit in the latter half, would impact cash flow improvements. Kelly Ortberg responds, referring specifically to changes involving the 737 in Moses Lake.

The paragraph discusses the status of Boeing's 787 and 737 operations. It notes that joint verification work on the 787 is nearing completion, with some deliveries extending into the next year due to customer planning. The labor associated with this work is already shifting to other production tasks. For the 737, labor from Moses Lake is being redirected to Renton, with plans to shut down the Moses Lake site by mid-year, resulting in decreased deliveries by the year's end. Closing these costly shadow factories promises future margin improvements. The integration with Spirit AeroSystems is proceeding well and remains strategically important, but financial impacts will only be revealed after closing the deal. Seth Seifman and Noah Poponak, analysts from Goldman Sachs, are part of the conversation, with Noah asking about cost overruns related to the T-7A.

The paragraph discusses cost and complexity issues in defense programs, specifically focusing on the T-7A program. Kelly Ortberg explains that the cost increase is due to supply chain issues and the challenges of fixed price development and production contracts. The company plans to change its approach by increasing test aircraft to eliminate "concurrency," which happens when production and testing overlap, leading to costly changes. A Memorandum of Agreement (MOA) with the Air Force will reduce concurrency risks, although it might not present favorable news for the Estimate at Completion (EAC). The company is also in discussions regarding a second MOA to address these concerns further.

The paragraph discusses the efforts to improve financial management in equipment procurement by aligning supply chain costs with fixed-price contracts. Despite facing anticipated charges due to increased supply chain costs, confidence is expressed in cash flow improvements as these changes progress. The ultimate goal is for fixed-price development programs, such as the T-7, to break even and not negatively impact cash flow.

The paragraph discusses the company's strategy and outlook for its portfolio, emphasizing the performance of legacy products like fighters and satellites as well as future development programs such as Tanker, MQ, and T-7. Brian West explains that with 25% of the portfolio meeting expectations and 60% performing well, achieving high single-digit margins in BDS seems feasible. Although 50% of the portfolio may not contribute much immediately, these programs have long-term potential, especially in international markets. Doug Harned from Bernstein questions how the company plans to manage future production rate increases, considering past challenges and workforce changes. Kelly Ortberg responds by emphasizing the importance of having a mature and ready supply chain to meet forecasted production rates, expressing confidence in the current team.

The paragraph discusses the importance of ensuring that the supply chain is prepared for future production rate increases by maintaining open communication with suppliers at various levels, including CEOs. The company is monitoring Key Performance Indicators (KPIs) to ensure production system stability before requesting rate increases. While there is confidence in staffing levels, the focus remains on the supply chain. Additionally, facilities in Renton and Everett provide flexibility for managing rate changes. There are no specific supply chain concerns, but the company will work with Tier 1 OEMs on various commodities to prevent potential issues.

The paragraph discusses challenges in the supply chain for certain commodities like forgings and castings, highlighting the need for investments in second- and third-tier suppliers to meet production demands. Electronics are noted as easier to scale. The speaker, working closely with GE, emphasizes aligning market demands and supporting production rate increases while managing the aftermarket for engines. It then transitions to a Q&A session with Doug Harned and Jason Gursky, where Jason inquires about the impact of costs and labor strikes on Boeing Commercial Airplanes (BCA) margins and future production rates. Additionally, there's a brief mention of receiving a corporate calendar featuring the X-66 aircraft.

In the paragraph, Kelly Ortberg discusses the significance of a challenging technology development program for NASA, highlighting its importance to the company and its potential impact on future aircraft designs. The program involves dedicated resources, funding, and exciting technological advancements. Brian West then discusses the expected improvement of BCA margins by 2025, despite some pressure from costs such as the IAM agreement. He emphasizes the long-term productivity benefits derived from having additional factories and accelerated production rates, suggesting these factors will positively influence margins in the future.

In the paragraph, a discussion unfolds between Gavin Parsons from UBS and Kelly Ortberg regarding BCA (Boeing Commercial Airplanes) margins, price-cost dynamics, and inventory levels. Kelly Ortberg explains that BCA's backlog, embedded with price escalations, and their long-term supply contracts are stable, implying no foreseeable disruptions to long-term margin outlooks. Ortberg mentions that inflation pressures are expected to be mitigated by productivity improvements. Future production, including contributions from Max 10 and benefits from consolidation at Charleston, are anticipated to be positive factors. Additionally, the company holds $87.5 billion in inventory, which is considered excessive but intentional to support factory stability, with plans to optimize it.

The paragraph discusses the anticipated financial benefits from liquidating inventories, which will improve cash flow over the next few years. The conversation touches on production rates for deliveries, particularly achieving 38 units per month and aiming for 42 units. Kelly Ortberg emphasizes that these targets will depend on Key Performance Indicators (KPIs) and prefers not to commit to specific dates until more certainty is achieved. The goal is to reach the higher production rates by the end of the year, contingent on meeting internal performance measures.

Kelly Ortberg expressed that the company is not yet ready to provide guidance because the system needs to stabilize further. Although things are progressing well, there is still significant work to be done before they can reliably offer guidance. The operator then concluded Boeing's Fourth Quarter 2024 Earnings Conference Call.

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