The Boeing Company — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Thank you for standing by. Good day, everyone, and welcome to The Boeing Company's First Quarter 2024 Earnings Conference Call. Today's call is being recorded. The management discussion and the slide presentation plus the analyst question-and-answer session are being broadcast live over the Internet. [Operator Instructions]
Thank you, and good morning, everyone. Welcome to Boeing's quarterly earnings call. I am Matt Welch, and with me today are Dave Calhoun, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer.
Thanks, Matt. Good morning, and thanks for joining us. Although we report first quarter financial results today, I will direct my comments toward the dramatic actions we've taken since the Alaska Airlines accident in January.
training, particularly on the job, taking advantage of our slowdown and adding hundreds of hours of training for each of our manufacturing employees; tooling, more of it and improve maintenance; work instructions, simplify, simplify, simplify; compliance checks, discipline; traveled work controls, don't travel work; incentive structures; employee listening; and maybe above all, culture improvement.
Thanks, Dave, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $16.6 billion, down 8% versus last year, primarily reflecting lower 737 delivery volume. The core loss per share was $1.13, a slight improvement versus last year, also reflecting lower 737 deliveries.
one, prioritize the investment-grade rating; and two, allow the factory and supply chain to stabilize for a stronger trajectory as we exit this year.
[Operator Instructions] And our first question will come from the line of Myles Walton with Wolfe Research.
You gave color on the April MAX deliveries similar to February, but I'm really more interested in the production output, how it's going on the line, where you are relative to where you were when you started to give the no traveled work policy, how that's improving or not? And what specific metrics you're looking at to allow you to go higher over the next 6 months?
So why don't I start this off? It is going to stay sporadic through 2Q. The real pivot for us is the number of clean fuselages we get out of Spirit with the new inspection protocols. It started slow.
The next question is from Doug Harned from Bernstein.
When you look at production on the 737, when you talk about going to $10 billion in free cash flow maybe by late -- by the end of 2026 or even 2027, this seems to be very much contingent on getting to this 50 a month rate. But when you look at that process, if I go back even pre-grounding for the MAX, Spirit had never successfully done a rate break to 50 a month before.
We do. Spirit's committed to it. I think the acquisition of Spirit will factor in significantly into that prospect. Clean fuselages in Spirit and in Wichita and fix on all those nonconformances will reduce their cycle and improve their output. So there's a lot of things that contribute to it, Doug. If we get ourselves to 38, which is our first objective, and we do it in a steady fashion moving up another 12 in my view, is doable in the window that we're talking about.
The next question is from Cai von Rumohr from TD Cowen.
Yes. So as a result of the production slowdown, you've had some -- presumably, you'll have late deliveries to customers. And traditionally, late deliveries require compensation. Could you give us some color in terms of what sort of a number we're going to look at? And basically, where are we going to see it? Is that going to be front-loaded, back-loaded? How should we think about that?
Cai, I'll take that one. Why don't we talk about in the context of 737 overall margins? The program booked about 300 basis points of impact in the quarter. And that was primarily driven by the delayed rate ramp that you're describing as well as mixing in more 8s and 9s for 10s in the near term so that we can support our customers in their fleet planning.
The next question is from Seth Seifman from JPMorgan.
Brian, you talked a little bit about the cash balance and liquidity. I don't know if this is necessarily the right way to think about it, but I feel like there's this conventional wisdom out there that Boeing should have roughly $10 billion of cash on the balance sheet. Maybe that can dip a little bit lower intra-year as we see now.
Thanks, Seth. First and foremost, I remind everyone that we do have $17 billion of liquidity today, comprised of the cash on hand as well as our credit lines. What we're focused on is a first half cash usage that is resulting from all of the actions we're taking to stabilize both the factory and the supply chain to set ourselves up for success as we move to the second half and into 2025.
Our next question is from Sheila Kahyaoglu from Jefferies.
Can we talk about the 737 rate again? How much of that is self-inflicted versus the FAA processes that are in place? And when we think about the 90-day time line that comes to a head with the IAM negotiations over the summertime, I would assume. So how do we think about the IAM progressing as well? And how much was incorporated into the $10 billion free cash flow target?
Okay, Sheila, that's like a 3-parter.
Sorry about that.
Yes. I'll do my best. So I -- all of the 737 disruption that it goes on today, in my view, is self-inflicted in the sense that we've made the decision that the amount of traveled work, particularly as it relates to the fuselage that was embedded and normalized in our factory, that we would make a dramatic reduction in it. So that move we made with all the inspectors and all the rework operators down to Wichita, the visibility we've provided to the Wichita workforce with respect to the rework that we were doing, the FAA didn't demand that. We demanded it because it's -- we're determined to get ahead of it.
The $10 billion free cash flow, does it incorporate the IAM negotiation?
Oh, yes. Yes, yes.
And the next question is from the line of Noah Poponak from Goldman Sachs.
I guess this is sort of asked and you've alluded to pieces of the answer to this, but I'm just going to ask it anyway because it seems to be the most important thing, which is just how long does it take to do everything you need to do on product quality? And how much of it needs to be done before you can increase production again versus how much of it can be done as you're increasing production again?
Yes. So Noah, I'll address this one. First of all, I'm glad you asked about the 6 months. When I say 6 months, I'm talking about the first half of this year because remember, we commenced all of these actions the day after the Alaska Air accident.
Okay. Have you guys thought about framing and disclosing some version of that time line of work maybe in big buckets or categories that you would provide to the investment community? Because it feels like everybody is guessing and has no visibility.
I think that's fair. Noah, the most important one, the essential one and that we will have to report as we close the second quarter is going to be the number of clean fuselages that we're receiving from Wichita and the prognosis for that going forward. So that will be the most essential part of the equation I think you're trying to solve.
Our next question is from Kristine Liwag from Morgan Stanley.
Dave, Brian, you mentioned that the first half deliveries for the 737 will be under pressure as you focus on quality. But then again, stability of the supply chain is also a priority. So in the event that 737 MAX production and deliveries continue to be under pressure beyond the first half of this year, how long can you keep the supply chain at a higher rate? What does it mean to keep them stable? And then also as a follow-on to that, if this were to play out, can you talk about the puts and takes of free cash flow generation in the second half of the year?
Yes. I'm sure Brian is going to answer this one, but let me start. We have a rate increase plan. And as everyone knows, it gets us up to 50 here as we get into that '25, '26 window. So our job now, given the slowdown here in these 6 months and then sort of the pushout of those rate increases is to make sure we have all the inventory we need to satisfy that 50 number and have the buffers where they need to be to make sure that the supply chain can demonstrate the capacity to meet those numbers.
Only thing I would add is that tactically, we have adjusted the master schedule at a supplier-by-supplier basis. It's all out there. They know it. We will continue to pace final assembly in line with that master schedule so that we don't sacrifice stability because what we're talking about is a very important near-term investment that we have to stay laser-like focused on so that we don't take a step back. And that's what we're focused on. And we believe that we can handle the cash flow fluctuations as we get through the first half into the second half and position ourselves for 2025.
And our next question is from Scott Deuschle from Deutsche Bank.
Dave, could you further characterize what you're seeing with respect to supply chain performance on the 87? And where the constraints are that are driving you to drop back below 5 a month? And then I'm curious if there's been any change to the plan on the 777X ramp.
Yes. No change on the latter. But we really have two constraints to think about on the 87. One is discrete. It's well understood and known, and it's heat exchangers. This is a product that used to be built in Russia. When the invasion happened, it got moved, and the capacity of that supplier has not kept pace with us. But the improvement plan that we all see gets us where we need to be by the fourth quarter, and we have a lot of confidence in it. So again, discrete, well known, et cetera.
Got it. And then, Brian, can you get an advance on the large P-8 contract that you won this quarter?
So we're going to not talk about that specifically in terms of that award. But I did want to come back to two things that you asked about. I want to make sure there's color out there. 777X, as we described, no changes. But I would like to indicate that we're starting to see the inventory implications of that ramp. And that's something that's big and important as we move through this year, and we're excited to be able to put that in service. But that does create some working capital pressure that I don't want to be -- have lost on anyone.
And the next question is from David Strauss from Barclays.
Just wanted to clarify on your comments around the balance sheet and liquidity. Is equity -- considering equity issuance, is that still off the table as you think about the balance sheet and potentially funding Spirit?
Well, as we stand for what I described in terms of what we're looking at right now, working closely with the rating agencies, we believe we can do the move I described in the near term with market access without that.
Okay. And a quick follow-up there as it relates to Spirit. How engaged is Airbus in this process at this point and thinking about potentially taking back their own work? And does the deal need to wait until you get full clarity on what might happen with that Airbus business? Or do you think you can move forward without full clarity there?
No. We can move forward without full clarity. And as you probably know, we're not going to get involved in that, whatever is going on there. We encourage Spirit to do whatever they need to do to try to remedy or improve their business relative to our potential acquisition. So I don't have a lot of insight into that, but I encourage Spirit to try to resolve that kind of stuff as quickly as they can. But we are not -- we're not being held hostage to that.
Our next question is from Peter Arment from Baird.
Dave, can you talk about your pending kind of leadership change? I mean you've been on the Board for many years. You've been CEO for 5 years during what's obviously been a very challenging environment with MAX, COVID, 787. But it kind of -- as we think about it in reality, Boeing is in kind of a position to have a multiyear improvement story. So what do you think is the right leader that's needed to execute kind of what is a very complex company?
Yes. I always -- I appreciate you're asking that, Peter. First of all, the process we have in place is a good one. Steve Mollenkopf in the Chair role, Bob Bradway in the governance role. The Board at large, they're going to look at the market every way they can. They know I have an internal candidate that I think the world of. They will balance sort of their perspective and get to the right conclusion with my full support. I do not expect that to happen in the next month or 2. So let's all be clear about that.
And that question will come from the line of Jason Gursky from Citigroup.
Okay. Great. Recognizing that you've got 2 other segments, the last caller here, nobody has touched on BDS.
Go Jason. Thank you.
So first on the services business. Look, the operating margins there have been quite healthy over the last year or so, and I think are operating well above kind of your targeted margin range for that medium-term targets out there in '25, '26. So the question is, can we sustain the margins that we've got that we're seeing today out into that period?
Let's split this, Brian. I'll do the services. You can handle the defense contracts. So services. The one thing that I don't think anybody's factored into margin for us in services, a big profit pool that we have is our distribution business. This was the acquisitions of Aviall, KLX over the years.
Sure. On BDS, Jason, characterized in a couple of ways, we're retiring risk every day, particularly on a program like VC-25B, which will move our way through. And we will deliver 2 airplanes, and then that will be over as a program.
And that concludes our call today. Thank you, everybody, for joining.
Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.