The Boeing Company (BA) Earnings Call Transcript & Summary

Good afternoon, everybody. We'll start our next session now. It's nice to have Brian West here with us. He's the Chief Financial Officer and Executive Vice President, Finance, of The Boeing Company. So Brian, thank you for being here.

Thanks for having me.

Great. So there's been a lot of news lately, right? Tariffs, the fire at SPS, and about 15% of the fastener industry went up in smoke, like that. But before we get there, can you give us a quick update on how things are progressing relative to expectations on the last earnings call?

Sure. Safe harbor did flash, just for the record. So the success factors for Boeing for this year was always going to be about safety, quality and stability. And so far, we're off to a pretty good start on all 3 dimensions. On the 737, the factory restart, remember, we deliberately wanted, once everybody got back in the factory after the strike, we wanted to make sure it was a very methodical way to bring people back in, get them trained, get them certified before they touch the airplane. And that is starting to show real dividend as we start to think about restarting the production line and as we move towards our path to 38 per month. So that one is going pretty well. The factory looks fantastic. The other thing to think about with the 737 line is that we're leveraging the safety management system and the quality management system. So that's where we harden all of the new input that we have put into the production system over the last year plus. So that is really driving stability, which is important. And it's also -- we see it with our 6 KPIs, the KPIs, the operational KPIs that the FAA agreed to of how we're going to measure stability in the factory. So all that's going really well. A lot of work to do, but again, the team is doing a very nice job. On the 787, again, stabilizing at 5 per month, on its way to higher rate sometime this year, which will be 7 per month. That's going pretty well. The defense business is starting to see signs of stabilization as it moves through its recovery. The services business is continuing to perform very well. So for the things that we can control and that we're focused on, not too bad. And as it pertains to the first quarter specifically, broadly, we're tracking to expectations. A couple of things to point out. Revenue will be seasonally lighter, particularly in BDS and BGS, where first quarter revenue is expected to be closer to the quarterly average over last year. EPS. EPS, we expect to have a onetime expense in the quarter, about $150 million. Deliveries at BCA could be a bit better. I'll talk more about that. And then free cash flow, we're seeing less working capital drag. So that could be better when we close the quarter, and it could be in the hundreds of millions of cash flow better. So we think we're off to a good start for the year.

Great. Maybe for folks that aren't as familiar with it, can you speak to, just for a moment, those 6 KPIs?

So the 6 metrics are normal metrics that we used to run the plant. But now they've got everyone's attention, everyone's visibility, and we can look at them every day if we wanted to, and they measure whether or not we have a factory that's stable. It will be things like rework. It will be notice of escapes. It will be traveled work. It will be supplier shortages. It will be employee training, and it will be ticketing. So if you can do all those 6 things, if I got all 6, if you can do all those 6 things well, we measure them with intolerances. So for instance, there will always be some level of travel work. But if you are within a normal level and you've got good tolerances around it, you basically are in the green. And a lot of these metrics are in the green. There's ones that we're still dealing with from the strike. So when the strike happened, we had a lot of airplanes on the ramp, we had to go do rework on those. So that one is a little bit higher, but coming down beautifully in the right vector. So we feel really good about the metrics. It's got lots of attention. The FAA can look at it whenever they want. And usually, weeks and months is where you get the more better information, but it's really quantitative. It's really quantitative, and we can't wait until when we show stability over the course of time that we're going to then be allowed to move up to higher rates beyond 38.

Got it. Got it. And then maybe one last thing just to unpack it. When you say the factory looks really good, what do you mean? Like relative to folks who maybe haven't seen the factory, what looks good about it today that maybe didn't look good before?

Well, a year ago, we had a series of stand-ups where we literally took people off the line and had them sit there and think about how can we make our work better. And we had tens of thousands of ideas that came up. And all those ideas, then everyone got adjudicated and some were implemented quickly, others were going to take some more time. Some of those requests from the mechanics on how to make their work easier, how to have better visual management, how to manage the tool crib more effectively. You can see it when you go out there. So instead of someone trying to run around looking for their tools, we now have literally, it's like a tool crib owner. And they go in and they go to one person. Where is the tool? That's right here. Right? Versus having to worry about where did I put it last time. So it's just better flow, more lean principles, a lot of visual management. You can see when parts need to be on the airplane at a particular station. Is it there or not? It's just real good hygiene. And I'm really proud of the team, the way they've used simple visual management tools, simple lean principles, a lot of listening to our mechanics, and it just flows better.

That's great. That's great. So maybe getting into the meat of some of the stuff that's going on today. Can you speak about the impact tariffs could have on Boeing's business, and as sort of outsiders and observers, how maybe we should think about that impacting supply and demand dynamics?

Sure. So we're watching the policy developments very closely. We do know the administration is well aware of how important the aviation industry is. They understand that it's important to the economy. It's important to U.S. manufacturing jobs. And it's also important to have a globally competitive long-term industrial base and they appreciate that. Now for us, I'll take it in 2 pieces. On the supply chain, on the input side, for us, we don't see material near-term impact. And part of that is because we have, as many of you know, a lot of inventory that was purchased pre-tariffs. It's also important to understand that 80% of our commercial spend and over 90% of our defense spend in our supply chain is U.S.-based. And furthermore, something like aluminum and steel that gets some headlines, nearly all of the aluminum and steel that we buy is U.S. sourced. And together, they account for like 1% to 2% of the average cost of an airplane. And given our inventory levels and given hedging strategies, the cost exposure is even 1% to 2% slower. So we think we've got that pretty well managed. What we do worry about is availability of parts because this is a broad complicated supply chain and people have different levels of exposure to it. And we want to make sure that we're really transparent with the supply chain, so that we're not making suboptimal trades in the supply chain for the short term. We really have to think about part availability and getting the parts. Cost implications are not that material. We just have to focus on getting the parts from where we sit today based on what we know today. So near term, not worried about it. On the commercial side, the demand side, at this stage, similarly, don't see near-term material impact, primarily because we have a big backlog, $0.5 trillion. And it's a robust versatile backlog to different customers, lots of different jurisdictions. And if a customer needed some flexibility because of some decisions that they were making, we can move around in a big backlog and try to accommodate best we can. So we try to exercise flexibility to help them achieve what they need to achieve with some uncertainty. So we think we've got enough room to breathe. And if this goes on for a lot longer and it's a lot more protracted, I don't know. But right now, from what we see, not a material impact on either side, and we're working like heck to stay close to our suppliers, so that we could make sure we've got part availability despite the uncertainty, and with our customers to make sure we listen to where we can help them be creative in the event they need flexibility. But with that big backlog, we can move a lot around and still get them what they need and not disrupt our own business.

So if I understand that right, you're saying you could deliver potentially more airplanes in North America, where there wouldn't be a tariff, potentially to customers outside North America, where there might be shifting things around, maybe with the hope that the tariffs fade at some point.

And that's one of the advantages of having a big backlog and having -- being able to listen to your customers. So we'll see how it plays out. But the most important thing is we want to be listening to our customers and be super flexible where we can.

Yes, it makes a ton of sense. So we had the surprise loss of SPS Technologies, their fastener plant. I think it was Jenkintown, Pennsylvania. I had the opportunity actually to visit that thing years ago when we were covering PCC. And I got to say it was -- I never expected it to burn down, but once it caught on fire, I'm not surprised that it burned, because everything in there was covered with cutting oil. So the industry loses maybe 10%, 15% of fastener capacity. How do you think about that? How do you plan around that? And that's something that the industry just didn't need to have.

Yes. Yes, that's tough. Really feel bad for all those folks out in Montgomery County. So broadly, when we put our plan together, we had contemplated that not everything was going to go perfectly in the supply chain, that there were going to be some issues that would creep up. Here's a good example of when that happens. Given our elevated inventory levels, that I'll probably keep talking about, we don't see -- we see neither a near-term impact on production, nor do we see an impact on us getting to 38 per month on the 37 and 7 per month on the 87. So near term, we're fine. We have a lot of inventory. We have these parts. That said, the work at hand right now is to understand the broader implications for the other folks in the supply chain who have similar constraints based on the buyer. And we haven't gotten that all sorted out yet. We're hard at work on doing that. So there's still more that we will learn, and we're closely watching it. But at least for right now and as we think about this year, not a big impact. Need an answer in terms of what this picture is going to look like medium and longer term, and there's lots of people trying to sort that out. And in the meantime, we're looking at other alternatives, other qualifications, how do we make sure we can help the system, not let this get prolonged. So it's an issue. Not worried about it in the near term. Team is working on trying to get this bounded and a game plan so that it's laying flat.

You alluded this to a little, maybe peel back down a little bit. How is 737 production proceeding, and also 787?

Yes. So 737, like I said, the safety and quality plans that we put into the system based on a lot of good input has been hardened. All 3 assembly lines in Renton are cycling, which is good. We have plenty of inventory, and we expect some nice rate ramps this year, fuselages, engines. They're not constraints. January deliveries on the 737 were strong, February was solid, and March is going to look more or less in line with February. So we're making good progress. The shadow factory that we've talked about for the 737, all those inventory airplanes that were done before 2023, we're hard at work at moving them out and delivering those to customers. We expect that shadow factory to be shut down. We're already starting to move labor away, but we think it will be shut down this summer, and those airplanes will be delivered to our customers. So that feels pretty good. On the 787, it's also in pretty good shape. They exited last year in December, they did 9 787s in the month of December, and they were just hitting 5 per month on the production line. They are picking right up where they left off. Between the first 2 months of the year, we'll deliver 9 87s. March will probably look like February. And the 2 constraints we talked a lot about last year were heat exchangers and seats. Those plans are lying flat. They're hitting what their expectations are. So that's much quieter in terms of those constraints are concerned, and it feels much more stable. So we're demonstrating the stability and can't wait for us to be able to get to 7 per month later in the year. Similarly, on the 87, we had a shadow factory in Everett that was doing the joint verification work, and that has been shut down. So all that labor that was going to rework those airplanes has now been pointed towards first run production. The shadow factory shut down and then those airplanes will deliver as we run out the course of this year and a little bit into next year, mostly because of customer fleet planning requirements. So production, again, it's early, feeling pretty good.

Got it. When you think about the supply chain, where are some strengths, where are some weaknesses? And do you have some suppliers today that, given all the inventory you've talked about, that you might have to slow down when you decide to start burning through that inventory? How broadly should we think about that?

So overall, we continue to see really nice improvement, steady improvement across the supply chain. At any given day, there might be a hiccup here, hiccup there, but all manageable. Of course, things like fire and tariffs create some uncertainty that we've already talked about. But overall, but for those 2 things, getting very predictable and getting stronger. Not all there, but it's getting better. The weakness, I think, is going to be this uncertainty around tariffs, what's going to happen, how long it's going to happen for, and while I said, near term, not an issue, I think getting clarity around that for everyone is going to be important. In terms of the strength of the supply chain, it's the silver lining of all that inventory, right? Because we have deliberately kept the master schedule paced ahead of final assembly for a long time. And as you all know, we have a lot of inventory, very high levels of inventory. And we understand that it's an investment, and it's an investment in things like long lead items, engines, fuselages that we have plenty of. But there will be a moment when we feel more stable, that we will deliberately begin to take those excess buffers down. And we're not there yet. It's going to take us a little bit of time. But that is the big unwind benefit. The big liquidation is going to happen as that inventory comes down, those airplanes get delivered. And that is what we can't wait to do. And when you do that, you want to make sure you do it so you don't disrupt our suppliers who've been very good with us through the course of this period of time. You got to do it in a very efficient way, and we've got really good strong supply chain team that's going to navigate that for us. But overall, I feel really good about the investment we made in stability called inventory, and we just got to be really smart about how we wind that down, because it's got to come down.

And then maybe changing gears a little bit. Can you give an update on the Spirit transaction and maybe when it could close?

So Spirit, again, it's a good segue from the supplier conversation. They've done a very nice job on their operating performance, and we've got better, more consistent quality coming out of Wichita. Teams fully engaged. We like what we see, and we have wanted them to keep at pace. And like I said, as we think about future rate ramps, they right now won't be a constraint. So we like that. We want them to keep running that as a factory. Now in terms of the deal itself, we have a lot of people doing integration planning, getting close to their counterparts, very constructive. It's going well. We still expect to close the deal sometime this summer, middle of the year. And when I step back, and as we've been very closely working with the Spirit team, it's just a reminder of the power of reintegrating Spirit back into Boeing. We are going to get enhanced safety, quality and stability. We're already seeing signs of that. We are going to be able to take a much broader time horizon in terms of investments, right? We want to invest in quality, stability, innovation, and we'll do it in ways that perhaps they couldn't have done by themselves. We can't wait to do that. And it will be good investment. And at the same time, we like when they focus as a factory. One team, faster decision-making, less bureaucracy. We think it all works. So we can't wait to close.

And maybe just a little tangent off that one. Since a long time ago, it was kind of Boeing's DNA. How different is it today? I mean how hard will it be to bring it back in? I mean did it really just sort of become its own creature? Or is there still some vestige of what was Boeing and you pulled it back in?

I'm sure there's going to be a bit of both. What we can't wait to do is, the day it closes, we can't wait to come embrace them as if they never left and make sure they understand that it's Boeing now, right? So you'll see new badges, new signage, tchotchkes, new swag. We want to invite them in as our Boeing colleagues and teammates. And having Pat down there has been terrific. So I'm sure I only know a part of it, but I also know our intention is to welcome them to the family as if they never left.

That's great. Maybe transitioning to some aircraft certification programs. How is it going on the 37-7 and the 37-10? There's been some pushback from pilot unions around the exemption on the SMYD, the FAA. I've come to learn the FAA's work schedule is a little bit modified right now because of DOGE efforts. What's going on with those? And maybe after that, 777X?

Yes. So on the 737-7-10 certification time lines, there's no change to what we said previously at earnings. We are working with the FAA on the system that you mentioned, the SMYD, the Stall Management Yaw Damper. And what I would say is that in a situation like this, we're going to work very closely with the FAA after extensive analysis and research to know what's the right path forward. Nothing has been concluded. We're working with them as partners. And typically, something like this, we get to the right answer. And ultimately, it will be approved by the FAA. So hard at work, a lot of creative ideas, a lot of good constructive conversations. But ultimately, it will be the FAA that will make the decisions for this type of item as well as getting the final certification. So we stand ready. It's very collaborative. And we're seeing good progress in terms of the FAA working through various work packages. So we haven't seen real implications of slowdowns. And we still feel optimistic given all the work that they have on their plates on behalf of Boeing. So we feel pretty good about that. The 777X, similarly, there's no update on the time line, still the same as it was. And there, we resumed flight testing. And in the last 2 weeks, we got approval for the second phase of the flight testing, and that's when you start to get into areas like aerodynamics, the brakes, the engine. So we're in that next milestone. It feels good to start moving things down the road. So it feels good. And I'll remind you that the 777X has 3,700 flight test hours on it. So we're really working this airplane, and it's performing. So we can't wait to move our way now that we're in the second phase of certification and get ourselves to the point where we could get this in service next year. So far, so good. A lot of people working real hard to get this done.

And then maybe transitioning to BDS. How is demand for BDS' products and capabilities holding up in the current pretty dynamic environment, right? You've got DOGE, you've got budgets that we're not sure what they're going to be. You've got all kinds of cross currents right now.

Yes. And it's not always easy to navigate those cross currents. I would say we are getting encouraging signs from the administration on the funding of critical next-generation aircraft modernization programs and beefing up defense deterrents, which is going to play well for us. We've got a lot of assets to offer that. But it's just indications. We haven't seen anything definitive. We have a lot of experience in those areas and our products stand up pretty well. On the global front, where you've got evidence that, that demand wants to pick up as the threat is what it is, we particularly have a lot of interest in things like the Chinook, the Apache, E-7, P-8, the F-15EX. So a lot of interest. They have important unique missions. Haven't seen things go from the rhetoric to budgets. But overall, we have a great portfolio. People like our products. We think we'll take advantage of the growth in the marketplace, and we'll keep an eye on the U.S.

Yes. There's been some recent stuff in the press saying that there could be a delivery pause on the 67 tanker. Stepping back, where does the tanker stand in terms of getting sorted out and so on and so forth?

So we saw a crack on the fixed leading edge. And the good news is there was no safety of flight issue, and we're working very closely with the Air Force to support them as we go through this. The other good news is that where this crack is, it's very accessible and the rework is not a big deal. So we've bounded it, we know how to fix it, and we will be able to fix it. We don't expect the tanker deliveries for the year to be impacted by this. And I don't expect, in the first quarter, the tanker program to have bad news because of this. So we're able to work through it, importantly, stay close to the customer and, again, no safety of flight issue. So we will work our way through this.

Got it. Got it. And then maybe changing gears again. Where does the company stand on its portfolio shaping? Given Kelly's commentary on better focusing the company's resources, and we talked earlier about Boeing kind of is a fixed wing airplane company. There's been things in the press about Jeppesen, and that's kind of all over the place. But I was just kind of wondering things like Wisk. Is that core to the company or not? And if you can give us some more color on maybe more than just Jeppesen.

Sure. So as we said at earnings, this isn't going to be a major restructuring of the Boeing company. This is an area where you could prune things that might not be as core, partly to finish the supplementation of the balance sheet that was anchored in the equity raise. So it'd be a little bit to finish that. But mostly, this is about just focus and simplicity. It's a new CEO who's coming in with a fresh set of eyes, that's natural, and trying to figure out what are the ones that probably aren't as core. But again, it's a short list, not a long list. And as we move forward, my expectation is that we'll have more to say when appropriate, but it won't be massive moves. And we like the assets that we're in. We like our defense business. Our defense business has work to do in its own recovery, but we have really important capabilities that serve the war fighter and the customer that we're anxious about recovering and then growing even further. So lots to be excited in that part of the portfolio. As it pertains to Wisk, Wisk has been an investment over a long period of time that we're very excited about, because we're learning a ton as they move through their development program on their way to certification. And for us, we think it's important innovative technology and core capabilities that will inform the future. And it will all be centered around autonomy. So it's not a massive investment, but it's an important one that we've been committed to over time. And as we stick to it and we get the benefits from it, I think we're going to learn a lot about autonomy, and that is going to dictate a lot about the future. So it's small, it's important, and we're sticking with it.

And then, I mean, maybe just as a follow-on to that, if you can say, like when will we start to learn more about this snipping and tuck-in, so we can get a sense...

It's -- I really can't say. When there's something to say, we'll say it. But again, it's not a -- there won't be a long drumbeat.

Got you. Right. Got you. Got you. A question we get all the time is what is Boeing's normalized free cash flow? So broadly, if you think out a number of years, if you can answer this, how do you think about what normal cash flow is for the Boeing company?

So obviously, I can't get specific on the guidance, but what I can tell you is that we're very confident in our long-term demand profile, $0.5 trillion in backlog. And then we see no reason why the business can't get back to historical financials once we get through stability. And we know exactly what we have to go do. We have to go produce 737s and 787s, ramp them, and deliver them. We have to execute on these development programs that we just talked about. We have to return BDS to its historical financial profile, and we have to continue to deliver a steady services business that's been doing just great. So that's the short list that we have to go execute on. And once we do that, we know that it will look like it used to look. And we're hard at work with that effort. And all of this is underpinned by delivering that backlog for our customers and doing it with safety and quality at the forefront. So it's not a complicated play. We just have to go execute.

And a question that came up earlier in one of the meetings, and I think Kelly has talked about, is culture. How have you seen the culture evolve under the new leadership? And if you could give us an example of like something that's happening now that maybe wasn't happening before?

Sure. So biggest something new is got a new leader, and it is a top priority. He's made it one of his top priorities from the very moment he walked in, and he's made it clear to all of us just how important culture is to the success of the Boeing Company. He's very authentic, he's very genuine about that. Our people are ready and they are motivated to have this conversation, and so are our customers, by the way. Leaders are more engaged. We have a global cultural working group in place spanning all levels with direct access to the CEO. There is a candid conversation happening, as we speak, around values, around behaviors. And that conversation will get distilled into something that's very meaningful, something we all can rally around. It's not going to be a slogan. It's not going to be a poster. It's going to be things we really believe in. And then once that gets distilled from this working team and disseminated, it will get embedded everywhere. It will get embedded in performance management systems, it will get embedded in leadership development programs. So it will be very consistent. So we're all working off the same set of values and behaviors of how we hold each other accountable. Like I said, this doesn't open overnight. Kelly has done it before. He says it's going to take us a while. But what it's really all about is how we work together, how do we treat one another. And as leaders, our job is to make it easier for everyone to do their job. And if we get good at that, and we're all rowing in the same direction, then we're going to be successful with our culture and then that will permeate to have success in our business. There's just no doubt about it. So it's very early days. There are things happening. There's a lot of excitement. There's a lot of energy. And I think it's well needed. And the trick that Kelly has been able to pull off is you have a culture of a 106-year-old company called Boeing that is known for its culture, and there's great things about the culture. And how do you come in and change the parts that need to get changed without disrupting the things that make it great. And he's able to balance that perfectly and people are excited for it. So I think we'll be fine, and it will be a different company, be a better company.

And then maybe wrap up with kind of the one question we didn't talk about yet is how is Boeing thinking about a new aircraft program, and does Boeing need to do one in the first place? And I think they do, but I mean does Boeing think they need to? And if so, kind of what time frame could something like that happen?

So the first priority is to finish the certification deliveries of our current development programs. I got -7, -10, 777X, we have finished that, right? And when we do, they are very important to our customers' fleet strategies, and it's going to deliver them a lot of value, both in the top and the bottom ranges of the portfolio. So that's job one, and we can't take our eye off that ball. Now Kelly, very early in his tenure, was public and he said, we're Boeing, we make airplanes. We're going to make an airplane someday. But he's also careful to say, yes, but it's not right now. So just by virtue of him acknowledging, we are an airplane company, we're going to make an airplane, that's a big deal. Now it's a ways off, and there's been no timetable set. And it's a ways off for a variety of reasons that we don't need to go into, but we just don't want to rush a decision for a product that's going to be out there for 50 years, right? It's a really important decision. The good news is, in the meantime, we have lots of engineers, thousands of engineers, who work on innovation, who work on capabilities that we're pretty sure are going to be important to whatever that next airplane is. And those are investments that are happening as we speak, and we've been making them, and we're going to continue to make them. It's not going to disrupt our financial profile. It's well within the envelope, and we're innovating. And at the right moment, there will be a day when that will get more specific about what it is and when, et cetera, but not right now. But Kelly will tell you we're going to make another airplane. Stay tuned.

Cool. Well, thank you so much. Thank you for taking the time. Appreciate it.

You bet. All right. Thanks.