The Boeing Company (BA) Earnings Call Transcript & Summary

No. The current assumption is we'll go down to 10, and we're planning to go down to 10. If we get further information, and we'll -- obviously, we'll reassess it. But even if we do, lead times come into play. And that's where -- even if you have, I'll say, the market that you can serve and we have the production, if you don't have the lead time lining up, we'll have to push that to the right. And that's what we're getting in the -- we're right in that sweet spot on the lead time where we have to make a decision, and we think it's a prudent thing to do. But like I said, if we see a marketplace different or there's different dynamics, we'll assess them, and we'll make a different decision.

Got it. You said you expect initial 777X deliveries in 2021. How tight is that, given that seems like 2 years and the FAA has obviously put a lot more scrutiny on MAX? I assume they'll give a closer look to...

No, no. It's a great question. Look, we're not assuming business as usual certify the aircraft, nor should we. Do we have specifics on what exactly might change? Not specifics, but we're anticipating them. We're taking some of the learnings off the MAX and trying to get ahead of it and apply them on the 777X. We've time lined it, to your point, on 2021, but we haven't been specific of when because we want to have a better understanding of exactly what will change in the certification. I would tell you, to date, the airplane has performed very well. Our first flight went as planned over 5 hours and achieved all the test points that it needed to achieve, and we're still doing ground testing, and we'll continue to do and as well as doing test flights. So we're continuing at the cadence you would expect on the certification. But we're, to your point, expecting and provisioning for -- we're going to have more time, more test points, might more documentation and so on and again try and take that learning from the MAX and apply it over there. But we'll -- as you know, we will work with the regulator and address whatever needs to be addressed to safely get it certified and get it into hands of the customer.

So if entry into service does slip into 2022, can you maintain a bridge on the 777 so that the overall delivery stay at about the 3, 3.5?

Yes. It depends how much. I mean, certainly, the 777 has continued to sell well. That freight market that we talked about will come into play. So it will open up some slots, and then we'll have to look at that time frame and the campaigns that we have in place to see whether we can fill that efficiently. And like I said, I think the freight market, in particular, will inform us of that. So we'll see how it goes. If not, we'll manage through that transition the best we can. But if there's an opportunity to fill a bridge in there with 777 metal-wing airplanes and do that, like I said, in an efficient manner, we'll address those campaigns.

Got it. So our focus has been on the MAX. So BDS has had its miscues with the commercial crew vehicle, ongoing tanker charges. Where do you think you are in terms of getting those under control?

Yes. Look, fixed-price development, we've talked -- I've been coming to your conference, I think, since day 1. Fixed-price development has had its challenges. And when I think about the derisking activity that has taken place around things like the pension plan and things like labor agreements and, I'll say, multiple significant development programs taking place, I think we've made good progress in getting our arms around that. Fixed-price development better than what it was but still not where it needs to be. So there needs to be and is a continued level of effort there to bring these things to closure and make sure that we're meeting the needs of our customer while we're doing that and learning from some of these developments. No surprise to anybody, these are challenging. Not only are they fixed-priced, we're dealing with a lot of technology in these products and risk that we've got to manage well in advance. And like I said, there's work to be done there, and we're seeing improvements, but we're not where we need to be or where we want to be across the board on fixed-price development. So that continues to be a big priority for us.

And so how did you feel you did in the fiscal '21 budget request? Any big surprises?

No. I wouldn't say there's big surprises there. I think, like a lot of the environments we've been faced into, proven, capable, reliable, affordable products, that's where you want to be. That's where you want to be and fit the needs of the warfighter and make sure you're doing that on time and in an efficient manner, again with a proven capability. And I think when you look at the budget and tie that to some of those product lines, you'll see that correlation. So I'd say no big surprises in there.

Right. So Global Services has been a consistent performer. How should we think about the outlook going forward?

Yes. Look, it's -- it continues to be a really great opportunity for growth. And it's a $3.1 trillion market, and we have a single-digit share in -- between defense base and in commercial, so getting that established and operating as one company. And really, again, 100% 7 days a week is focused on how can we help the customer. I think we've got a lot of great product offerings that we can bring. We're learning from both sides of the business, and we're getting more efficient in the back rooms as we bring these things together. So I think from a top line perspective, there's a lot of great opportunities. There's portfolio gaps certainly and that we've got to figure out how to address organically or inorganically. And then again, I think in the back room, there's still a lot of effort going on within there to look for more efficiency. So it's a great opportunity. It was a great move, I think, to set it up. But ultimately, we've got to demonstrate to the customer that we can provide them with a better level of service, a more integrated level of service at a better price in a very timely manner. And in a business like this, as you know, time matters. So we're spending a lot of time on some simple transactions of order to placement and how do we be more efficient and how do we have the front, I'll say, entry point for our customers? How user-friendly is that? How efficient is that rate to the logistics to ensure we're getting whatever they need in a timely manner? And so there's a lot of great things going on within the business, so it's an exciting opportunity for us. A little slowdown right now as a result of the MAX in -- particularly on spares. But overall, continues to be a great growth opportunity for the company.

Right. So to the question of cash flow, at a high level, what are the directional pieces we ought to consider when we look at the next 2 to 3 years? And what kind of degree of visibility do you have that you can kind of hit any sort of number?

Yes. Look, no surprise, the single biggest driver is MAX and getting back to rate. That is the single biggest cash driver, I'd say, over the long term. If you step back pre-grounding and think about the fundamentals that we laid out and what were in place there, what's changed outside the MAX, 87 was 12 to 14, and 777X was earlier in the schedule. Those 2 have changed. So now going to 10 a month will certainly impact that profile of cash to 12. And the 777X, moving to the right, back to progress payments, those move out as well. Outside of that, fundamentals within even the businesses, not a lot of change. So again, single biggest driver in there is getting the MAX safely back up and then making incremental rate increases, ensuring we have stability. I can't say that enough, just ensuring we have stability. Each one of these rate increases within the supply chain and within our own factories, that will give us the confidence to move back up to the next rate and so on, and the cash profile will align rate to that.

So I mean you've kept your labor force, so you will be able to kind of ramp up. If you look at other guys like Spirit, basically, 21% of their folks in Wichita are gone. They have to rehire. Is that a major issue in terms of your ability to kind of ramp back? Or this could get longer and therefore elongate all of that?

No. Look, I mean, through even coming down to 42 obviously had a significant impact on the supply chain and then going to the pause. So there is daily engagements with all levels of the supply chain to understand where we are from an inventory perspective because, in some cases, we gave everybody a green light, "Hey, go continue to produce." So we got inventory to build -- burn off once we come back up in rate. But right now, it's really liquidity and where they need help or support? How can we help? How can we bring in third parties to help? And then going further down within the supply chain is a big focus area. So I talked about the daily MAX calls. Supply chain is front and center, giving us clarity on where we are, where we have some strain, bringing our treasury organization into that discussion, working with suppliers, bringing our banking relationships. And ultimately, right, we want to make sure everybody maintains health through this period and what can we do to help do that. First and foremost, just get visibility on where everybody is and what decisions they have to make. Certainly, Spirit being a big one, which we are partnering with and helping through this transition. But back to the rate increases, we'll have to watch as we burn off that inventory. How efficient are those resources coming back to Spirit? How is their production health that will then inform our production health and our decision to go up to the next rate run?

Right. So it looks like this year, obviously, is abnormal cash flow. Next year is abnormal because, presumably, you're delivering all those planes. What's the first quasi-normal cash flow year we could have? Is it '22 or is it really '23 because of all the complexity of kind of ramping all those up?

Yes. So under the current assumptions we have, to your point, you'll start to say that gradually come -- I'll say, out of where we are today really tied to those deliveries and those production rates. So it will link directly to that. So once you get to, I'll say, peak rate is where you'll see more, I'll say, normality with regards to cash, cash generation. And certainly through that period, we'll be focusing on the balance sheet and repaying a lot of the steps that we've had to bring on through this period. That will be a big, big priority while continuing to invest in the business, which we are today. So look, it's a long-term, long-cycle business. It's competitive, and we're making sure that, even in the middle of all this, that we're continuing to make the right investments near term and for the long term. But we're being prudent about it and being strategic about it, especially through this period. So that's kind of the trajectory to look for over time, grounding lifted, delivering airplanes, slowly moving in up in rate, monitoring the supply chain, as you talked about, and ensuring we can go to the next rate. And that will inform that profile of cash more than any other element in the company.

So you were kind of, at one point, at 57, you're now, I mean, other people talk around '21 or so, that's roughly where they're starting. I mean that's a pretty long climb. And even when you were at 57 before, people were kind of struggling to keep up. What's the earliest you feel you could get to before 57?

It's going to be a couple of years. But keep in mind, informing that is the supply chain, to your point, this pause and then coming back up. But also, we've got our ramp to deliver, and that's going to inform our production system. So as we're clearing the ramp, we'll inform how quickly we can go up in rate and we're starting at the beginning of the line. So that's going to take time to slowly bring that line back up, all 3 lines, and we'll monitor our own health through that. We'll monitor supply chain health through that and our customers' ability to take airplanes, quantity of airplanes in periods of time. All of that is going to inform when we go up and how we go up. Look, we've got -- everybody's been at that rate, to your point, not all healthy. And this period of time has allowed a lot of people to get healthy, build some inventory for us, get work back in position. And I'll tell you one of the disciplines coming out of this is ensuring we stay there, get work done in position, keep the supply chain healthy and continue to monitor that. And those are going to be indicators and enablers really informing us to go up or maintain a rate for a period of time. So just think of this as incremental milestones with multiple, I'll say, aspects being considered, not just the production system, but that ramp and our customers and so on that ultimately inform that profile.

Right. So near term, obviously, MAX is the focus. MAX is sucking a lot of cash out the door, but you clearly have substantial borrowing capacity. How should we think about deployment over the next 3 years? You've got Embraer to do, but what do you have to see to sort of consider stock repurchase or another M&A transaction?

Well, again, you'll continue to see investment in the company. And again, we're being prudent with that and being smart with that capital through this period especially, but that commitment remains unchanged. Like I said, it's a big marketplace, competitive one. We want to make sure we come out of this. We're competing to win and making the right investments, not only just in the technology, but investments in our production systems as well. You're going to continue to see that. First and foremost, to pay down the debt. So as we have a better, I'll say, clarity on our cash generation profile, we'll be starting to try to get that balance sheet back in order. Long term, as far as a balanced deployment strategy, unchanged. But clearly, this has caused us to re-shift that balanced approach and primarily pay down a significant amount of this debt, and then we'll reassess where we are and decide how to move forward with a more balanced deployment.

And so last one, when -- you haven't provided any guidance to The Street. What would you have to see to provide guidance? And I assume you may not provide exactly the same type of guidance, but what would you have to see to give The Street a little more color in terms of where things might be?

Well, look, first and foremost, airplane safely back into service. That's number one. The even more detailed discussions with the customers on how we sequence deliveries and their ability to take deliveries and then that informing the production system. So I kind of see all of those, we need to have good clarity on them to get a good sense of what's the profile going to look like going forward. And I told you we're obviously committed to getting back together and describing the puts and takes and the risks and the opportunities around whatever guidance we give and condition it to recognizing that there's decision points along the way. But to get a real, I'll say, kind of sense of projection of where we're going, really need to be informed by those 3 to be able to lock those down and then have again good line of sight and clarity about what's the next year going to look like. And like I said, we'll paint a picture and let you know what's in there, what isn't in there, what are the key drivers within there, what are the watch items, so everybody is kind of well-informed to understand the puts and takes.

Got it. So I think everybody understands the risks. Maybe talk about, as you think about this year, what are the 1 or 2 things that could make this be a better year than people are kind of looking for today?

Yes. Well, look, while the 737 line has been down, the level of effort with the management team as well as the staff that we've kept is what are all the productivity initiatives that we had, I'll say, on the list but didn't have implemented or had them time-phased because we were at a very high rate, difficult to implement. Every one of those is on the table and we're getting updates on those and engage with those on a regular basis, get them into place now. Relooking at buffer between us and the supply chain at a higher rate. I think one of the things that we learned is when you're at a rate of 52 and a fuselage is a day late, it makes a big difference. And we don't want work out of position, so making up for it out on the ramp is not something we want to get in. So let's relook at the buffer. Let's relook at economic order quantities. Let's look at all these productivity initiatives. And just to give you an idea, David and I just went and toured the line again. We have 6,500 kits deployed rate down to paintbrushes for the team. So this -- they spent a tremendous amount of effort, 2-hour work packages, people on the airplane with everything they need. And that's a big efficiency driver where we've modified some of the capital or tooling all under productivity, getting around to root cause on shortages and really driving them to a corrective action and taking all this time to just dig into these, what I would consider, inefficiencies at times and how do we come out of this healthier than ever. And I really believe that we're in a position to do that that ultimately is going to be an opportunity. It's going to make us more predictable on a -- from a delivery point of view, first-time quality, know how to position work and reliability on delivering, again, to the end customer, and it's going to drive a lot of efficiency and driving some of that back into the supply chain as well. So some of these teams that have established some of these things on the line today, they're over on 777 and 777X and trying to deploy those over there. So this is how we've been using some of these resources, and that is an opportunity to come out stronger, at least from a -- again, from a productivity or a predictability perspective. And look, there's been a lot of hard learnings as a result of the MAX certainly. And we've made a lot of changes, and we'll continue to make changes that are -- have been and will continue to be a big commitment. Having a Safety Committee on our Board, having somebody in charge of the safety for The Boeing Company and reporting to us and all the items that are being addressed, having safety representatives in each of the organizations, having the engineering organization realigned, hard-lined into the chief engineer, these are all things that we've taken on and become -- you ask, where do you spend your time? There's a lot of our time being spent on some of these things and fundamentals that ultimately will improve our company. So no shortage of things we're focused on. But having said that, the list is about 5, and they're not insignificant. But the entire team and Dave laid them out from day 1, everybody is in each one of those swim lanes and working on those 5.

Terrific. Thank you very much.

All right. Thank you. Appreciate it. Thanks.

Yes. My pleasure.