The Boeing Company (BA) on Q1 2021 Results - Earnings Call Transcript

Operator: Thank you for standing by. Good day everyone and welcome to the Boeing Company's First Quarter 2021 Earnings Conference Call. Today's call is being recorded. The management discussion and slide presentation plus the analyst question-and-answer session are being broadcast live over the Internet. At this time for opening remarks and introductions, I'm turning the call over to Ms. Maurita Sutedja, Vice President of Investor Relations for the Boeing Company. Ms. Sutedja, please go ahead. Maurita Sutedja: Thank you, John, and good morning. Welcome to Boeing's First Quarter 2021 Earnings Call. I'm Maurita Sutedja and with me today are; David Calhoun, Boeing's President and Chief Executive Officer; and Greg Smith, Boeing's Executive Vice President of Enterprise Operations and Chief Financial Officer. As a reminder you can follow today's broadcast and slide presentation through our website at boeing.com. As always, we have provided detailed financial information in our press release issued earlier today. Projections estimates and goals we include in our discussions this morning are likely to involve risks which are detailed in our news release in our various SEC filings and in the forward-looking statement disclaimer at the end of this web presentation. In addition we refer you to our earnings release and presentation for disclosures and reconciliation of certain non-GAAP measures. Now I will turn the call over to Dave Calhoun. David Calhoun: Yes. Thank you Maurita and good morning everyone. I hope you're all staying safe and healthy as we navigate this global pandemic. On behalf of Boeing, I want to share our heartfelt thoughts and support for those in India who are coping with the devastating and deadly impact of this most recent COVID-19 surge. If we think back to where we were a year ago as the impact of COVID-19 began to unfold it's been quite a year. While it has been challenging we saw the US industry and government come together to support one another like never before. And thankfully, we view 2021 as a critical inflection point for our industry and a proof point for those public investments. While a full recovery is still likely a few years away we're seeing encouraging signs including progress on vaccine distribution in many countries and domestic travel recovery in certain markets. I remind everyone at the outset we never imagine vaccines would be developed and distributed this early in the pandemic. We continue to adapt to new ways of conducting our business and remain dedicated to supporting our teammates and their families, as well as our customers and the communities where we operate. So let me start with an update on the business on the next chart. Starting with the 737 program. As all of you know we have identified electrical issues in certain locations in the flight deck of select 737 MAX airplanes. We are finalizing the plans and documentation with the FAA to outline the process required for operators to return their airplanes to service. Upon approval by the FAA we expect the work to take a few days per airplane. Greg Smith: Great. Thanks, Dave and good morning, everyone. Let's please turn to slide 4. First quarter revenue decreased to $15.2 billion, primarily due to lower 787 deliveries and commercial services volume. This was partially offset by higher 737 deliveries and higher KC-46A Tanker revenue. Earnings in the quarter were also impacted by lower commercial airplane period costs, partially offset by lower tax benefits and higher interest expense. Income tax in the quarter primarily reflects a benefit from the impact of the pre-tax losses largely offset by the adjustments to the valuation allowance and true-ups to the tax benefits recorded in 2020. Let's now move to commercial airplanes on slide 5. Revenue was $4.3 billion driven by lower 787 deliveries, partially offset by higher 737 volume. Although commercial airplanes operating margin continued to be under pressure, they performed in the quarter -- they improved in the quarter due to higher 737 deliveries, lower abnormal production costs compared to the same period in prior year and the absence of the first quarter 2020 charge related to the 737NG pickle fork repair costs. We delivered 58 737 MAX airplanes in the first quarter. We currently have approximately 400 737 MAX aircraft built and stored in inventory. As we've previously communicated we expect to have to remarket some of these aircraft and potentially reconfigure them. As you've seen by the recent orders we are making good steady progress on the remarketing effort. You may also recall right before the 737 MAX return to service, we estimated that around half of the approximate 450 aircraft we had in storage would be delivered by the end of 2021 and the majority of the remaining by the end of the following year. That estimate is unchanged. Through the first quarter we have delivered 85 737 aircraft from storage and as Dave mentioned, the recent delivery pause will impact our April deliveries. We expect delivery timing and the production rate ramp-up profile remain dynamic given the market environment, customer discussions and the remaining global regulatory approvals. There is no material change in our estimated for total 737 abnormal costs of $5 billion. During the first quarter, we expensed $568 million of abnormal production costs, which brought the cumulative abnormal cost expense to date to $3.1 billion. We expect the remainder of these costs to be expensed as incurred largely in 2021. Our assessment of the liability for estimated 737 MAX potential concessions and other considerations to customers, as well as the expected cash impact timing did not change significantly in the first quarter from our prior assessment. Cumulatively we've accrued a $9.3 billion liability for the estimated potential concessions and other considerations. To date we've reduced the liability by $4.9 billion through cash payments to customers and other forms of compensation including $1.2 billion we paid this quarter. We have settlement agreements covering approximately $2.5 billion of the remaining liability balance of $4.4 billion. Turning now to 787. As we discussed, we resumed deliveries in March. We currently have approximately 100 787 airplanes in inventory. Based on what we know today, we still anticipate that we will deliver the majority of these airplanes during 2021. We are working with our customers to facilitate deliveries and continue to monitor the international long-haul recovery as we assess our delivery plans. Our latest assessment of the financial impact related to the inspections and the delivery delays has been included in our first quarter closing position. As we've previously disclosed the 787 program has near breakeven gross margins due to previously announced reductions in production rates and program accounting quantity. If we are required to further reduce the accounting quantity and/or production rates or experience other factors that result in lower margins the program could record a reach forward loss in future periods. However on a cash basis, the 787 unit margin has held up relatively well even at lower production rates as many underlying profitability drivers remain intact. Moving now to 777X. As Dave mentioned, we still expect first delivery of the 777X to occur in late 2023 and we are making good progress on our flight test efforts. We still expect that peak use of cash for 777X program was in 2020 and that cash flow will improve as we get closer to EIS and begin deliveries in late 2023. We anticipate the program to turn cash flow positive approximately one to two years after the first delivery. Given the significant headwinds that remain in the market, BCA margin progression will be highly dependent upon future production rates and will take time. However, we continue to take appropriate action to make foundational lasting change through our business transformation efforts in order to help offset those headwinds as much as possible. Let's now move to Defense Space & Security on slide 6. First quarter revenue increased to $7.2 billion and first quarter operating margins increased to 5.6%, primarily driven by higher KC-46A Tanker revenue and the absence of charges related to the program in prior period, partially offset by a pre-tax charge of $318 million on the VC-25B program which was largely due to COVID impact and performance issues at our supplier. We received $7 billion in orders in the quarter, including contracts for 27 KC-46A Tanker aircraft to the US Air Force 11 P-8A Poseidon aircraft to the US Navy, and Royal Australian Air Force and six Bell Boeing V-22 Osprey rotorcraft to the US Navy and US Air Force holding the backlog steady at $61 billion. Let's now turn to Global Services results on slide 7. In the first quarter Global Services revenue declined to $3.7 billion, and operating margins decreased to 11.8% both driven by lower commercial services volume due to COVID-19. No notable asset impairments were booked in the quarter. During the quarter, BGS won key contracts worth approximately $3 billion resulting in backlog of approximately $20 billion. While services demand was relatively flat in comparison to fourth quarter 2020 we expect the quarterly revenue trend to improve as we support increased airline operations and more airplanes are flying as travel recovers. That said, given the dynamic environment we can expect to see revenue trajectory vary from quarter-to-quarter. Despite the challenging environment, we continue to position our services business for the future and are evaluating our portfolio to ensure that we have the right solutions to help our customers and industry navigate the downturn and prepare for market recovery. These efforts are starting to take hold and positively impact our operating margin performance. Let's now turn to cash flow on slide 8. Operating cash flow for the quarter improved to negative $3.4 billion, reflecting the timing of receipts and expenditures and higher 737 deliveries, partially offset by lower 787 deliveries and lower advanced payments. Let's move now to slide 9 to discuss our liquidity position. We continue to proactively manage our cash position and assess our liquidity through the pandemic. We ended the first quarter with strong liquidity, including $21.9 billion of cash and marketable securities on our balance sheet and access to $14.8 billion from our newly increased bank credit facilities, which remain undrawn. We also continue to have access to the capital markets. Our debt balance remained stable at $63.6 billion at the end of the quarter. As part of our ongoing prudent liquidity actions, we refinanced $9.8 billion of our delayed draw term loan that was due in early 2022 and expanded our revolving credit facility by $5.3 billion. These liquidity-enhancing activities are in addition to the many actions we have discussed before, including suspending our dividend, reducing discretionary spending matching 401(k) contributions in stock, pre-funding pension with stock, and awarding most of our employees a onetime stock grant that will best in three years in lieu of a merit increase. These actions reflect our continued de-risking strategy and are part of our balanced approach to ensure we proactively meet future obligations. We worked hard in the past to maintain disciplined cash management, while seeking opportunities to strengthen our balance sheet and we will continue these efforts. Once cash flow generation returns to more normal levels, reducing our debt level will be our top priority. We believe we currently have sufficient liquidity and are not planning to increase our debt levels. However, we will continue to actively manage our balance sheet. Our investment-grade credit rating is important to us. And we will continue to consider all aspects of our capital structure to strengthen our balance sheet. Let's turn now to the next slide to summarize. Our business environment remains dynamic. And while the commercial market recovery is gaining some traction and has been uneven and the path ahead is far from certain, we will continue to diligently work opportunities and monitor risk factors including, vaccination pace and case rates along with passenger traffic recovery and remaining 737 MAX regulatory approvals and U.S.-China relations. As Dave mentioned, we're still awaiting 737 MAX regulatory approvals from China and the timing of it will affect our 737 delivery plan. China is an important market for our commercial airplanes and order activity from China will affect our future production rates. As we've discussed, even as our industry begins to recover we anticipate 2021 will be another challenging year. However, based on what we know today, we still expect revenue, earnings and operating cash to improve from 2020. Commercial deliveries will continue to be the single biggest driver, across all financial metrics. Revenue improvement from 2020 to 2021 will be driven mainly by higher 737 and 787 deliveries, as we plan to unwind inventory and deliver from the production lines. Consistent with what we shared last quarter, we also expect improvement to our bottom-line from 2020 to 2021 primarily driven by higher commercial deliveries absent of 2020 charges, improved performance and benefits from continued business transformation actions. These impacts will be partially offset by higher interest expense. Also bear in mind that, our commercial business will continue to book significant abnormal production costs for the 737 program, in 2021. Similar to our revenue and earnings trajectories we continue to expect 2021, operating cash flow to be much improved from 2020, driven by -- mainly by inventory burn down, associated with 737 and 787 programs. While higher deliveries will be a tailwind, the timing of advanced payments and the burn down of access advanced payments along with 737 customer settlement payment and higher interest payments will continue to be headwinds. We expect the first quarter was the most challenging quarter from a cash perspective. And we expect the trend improve for the remainder of the year as we ramp up 87 and 737 deliveries in subsequent periods. However, there could be some timing variation quarter-over-quarter, so quarterly trajectory could be uneven. As discussed, our cash flow profile is heavily dependent upon obtaining the remaining 737 MAX regulatory approvals, the commercial market recovery and ongoing discussions with our customers on their fleet planning needs. In aggregate, we continue to expect 2021 to be a use of cash. We expect that continued improvement on the 737 MAX program due to lower customer considerations and higher delivery payments as well as recovery in commercial services will enable us to turn positive cash flow in 2022. The key watch items that I highlighted earlier will be the differentiator in our outlook trajectory. Given the dynamic environment, we continue to monitor the risks and opportunities to ensure we're well positioned for the future. Over the past year, we've been keeping you updated on our extensive business transformation effort. We're continuing to closely examine all aspects of our operations to simplify and streamline, everything we do and take billions of dollars out of our operating costs while driving our key efforts in safety, quality and performance. We're doing this now, so that we can emerge a leaner, sharper and more resilient company as the market recovers. And production rate increases in the future. We'll continue to execute a widespread set of changes over a multi-year period. I'm pleased with the strong progress we have shown in 2020, that is carried into 2021 and is gaining momentum. We expect the majority of our efforts will result in lasting change that will drive long-term productivity, future margin expansion and cash flow generation as our market continues to recover. And as we take action we're ensuring that every step only further drives key efforts in safety, quality and delivering on our commitments. We have a dedicated team focused on these efforts embedded in every business unit function to ensure we're continually improving in every aspect of our operations. This is an enduring effort that our entire leadership team is committed to driving forward in the future. And finally, as you know last week I shared my intent to retire from Boeing in July. I want to take a moment to thank the 140,000 great people at Boeing and all of our partners who have made my 30 years at the company so special. It has been a true honor and a privilege to work alongside all of you. I will cherish the relationships that I've been very fortunate to have here and over the years and those include all of you in the financial community that I've had the opportunity to get to know so well over the last decade and beyond. At Boeing, I've been inspired every day by the incredible technology, products and services we bring to the world. And while it's our products and our mission to get you excited, it's the great people at Boeing that make it all possible and it is the people that I will miss the most. Over the next few months, I will be solely focused on a smooth transition of my responsibilities and then on to the next chapter in my career. I will always be cheering on Dave and the entire Boeing team from the sidelines. I'm confident in the long-term market opportunity ahead, the Boeing Company itself and the team behind it. So with that I'll turn it back over to Dave for some closing comments. David Calhoun: Thanks, Greg. Thanks for everything as you know. On behalf of the Board and the entire Boeing team, I want to thank Greg for his incredible contributions and his dedication to Boeing and its people. His remarkable leadership has made a significant and lasting impact for our company for our customers and for our stakeholders. Thanks to Greg's efforts, Boeing has -- also has had the benefit of very solid teams across the function that he oversees, people I've gotten to know quite well. As we build on Greg's legacy, we're not searching for a new strategic direction. We will engage in a comprehensive and thoughtful search process for a world-class executive with the talent and skills commensurate with the high level Greg has set. This process will encompass executives within Boeing and across the external market. We're well positioned for the future and we will continue to transform our business to not just navigate through this pandemic but to ensure that we emerge stronger and more resilient for the long term. While there's no question that COVID-19 has had a profound impact on our industry, we view this year as a key inflection point and as positive signs begin to emerge. As governments around the world accelerate vaccine distribution, people are getting back to work and global economies are beginning to get back to business. And as they do, we are proud of our role in enabling travel to connect people, to connect businesses and importantly to connect cultures. As we face into the challenges at hand, we remain steadfast in our commitment to quality, safety, integrity and transparency. Through it all, I am proud of how our team continues to stay focused on our customers and their important missions and I'm confident in our future. With that, Greg and I will be happy to take your questions. Thank you. Operator: Our first question comes from Sheila Kahyaoglu with Jefferies. Please go ahead. Sheila Kahyaoglu: Thank you. Good morning, everyone both Dave and Greg. Greg, congratulations and we look forward to your next chapter. I guess for either of you, how do we think about commercial profitability going forward and into next year? Is there a breakeven rate when we think about production or deliveries on both the MAX and the 787 as that destocking resolves itself? Greg Smith: Yes. Sheila, I think, as I mentioned in my remarks and obviously, I'll let Dave weigh in here, but it's really tied to burning off that inventory and then the production rates associated and particularly with the 737. So very similar to what we talked about on cash and revenue trajectory, earnings and margin are going to be very much on the same trajectory. But also as we've talked about under the umbrella business transformation, we've been really -- as we've been in this period, we've been challenging all aspects of the business and looking for opportunities to streamline, but at the same time never losing sight of the future. So, as you've seen from as what we posted last year, we continue to make significant investments in the business and we will. But at the same time, we're going to still stay very focused on the business transformation efforts that should help, continue to help that trajectory as we see the market improve and then our ability to increase production rates associated with that improved market. But, I'll let Dave weigh in as well. David Calhoun: Yes, there's probably not much I can add there, but I am -- I'll just add my confidence that as production rates begin to return to what we would consider ultimately normal and then above, we should get more leverage than we've ever gotten, simply because of all the actions that we've taken with respect to the fixed and readiness to serve costs that are out there. But maybe even a bigger part is the stability we will bring back to the production lines themselves. So, as we move the rates up, we can do so in a stable fashion. There is enormous productivity attached to that track. So, I agree with all the comments that Greg made, I would just add that commentary. Sheila Kahyaoglu: Thank you. Greg Smith: You’re welcome. Operator: And next, we'll go to the line of Doug Harned with Bernstein. Please go ahead. Doug Harned: Thank you. Good morning. Greg Smith: Good morning. Doug Harned: First Greg, I just want to thank you for all the work you've done with all of us over the years. It's been great, and definitely want to wish you the best in your next steps here. Greg Smith: Thank you very much, Doug. Time's flown by. Doug Harned: Yes. No kidding, no kidding. It's a long time. Actually Dave, I have a question for you that also goes over a long time I think and you're involved in the industry. If you think back over the years, Airbus and Boeing historically have always had kind of an ongoing battle about market share. They talk about it against each other that sort of thing. And it's been particularly true on narrowbodies. So, when you look at the situation today, the MAX obviously has been held back. There's still a large market for it. But Airbus has been delivering a lot of neos. They have a big backlog. On the last call, we talked a little bit about the 321XLR. So when you look forward now, how important is market share? Do you think about that? Is that number for narrowbodies important? And is there something that -- is there a level that you would want to make sure that Boeing is at? David Calhoun: Yes, it's a great question. I want to be -- I want to split that market. Let's put it that way. That's the way it's played out historically. They do better in some segments of that market we do better in other parts of that market with respect to the products that we field. And I'm confident we can get there. What I will say about this is, I can't make up for the production gap that we created on our own right for that entire year. I can't make up to that. And so I'm not going to try to regain that ground. I'm simply from this point forward going to try to hold our own with respect to what I think is our rightful share. I will also bring the rates back in the most stable fashion I can conceivably bring them. So, I will pace that. And I think that is good for Boeing. I think that is really good for shareholders. So, it's all a question over what period of time do you want to measure it? I'm confident that over a longer period of time, we'll get back to where we need to get to. And I'm confident in the product line always have been, and I continue to be. And I think some of the recent activity suggests that. When you look at the applications that we're actually putting our airplanes to work for, I think we're in a pretty decent place. So, -- it's a great question though. Doug Harned: But -- if I can follow-up on that. When you look at the last four months, you've been averaging a little bit more than 20 MAXs since it restarted. And that's clearly well below the capacity that you have to deliver them. What are the constraints here? Are they more on customer willingness to take delivery? Or more on your processes to get those airplanes out there and delivered? David Calhoun: Well, it's the former. I'm quite confident that recovery in this country is coming and it's probably coming sooner than most anywhere with the exception of China. But when you look broadly around the world, it's not quite as robust. And so, this year is still going to be a rough and tumble year for most countries around the world including Europe. And that is the issue is when did they project that they're going to come out and then will the order activity pick up in each of those markets the same way it has picked up here in the United States. And I'm confident that it will and that we will get over those gaps. But it's uncertain in a lot of countries around the world. And then the final and very important strides is we've got to reinstate our trade relationship in aerospace with China. That's a big part of the market long-term. It's important that we get our share -- our fair share of that market, which historically has always been at 50%, a little more when you consider all the widebody activity. And we need to get back to that stage. I believe that will happen but it's going to take a little time. Doug Harned: Great. Thank you. Operator: And next we'll go to Seth Seifman with JPMorgan. Please go ahead. Seth Seifman: Thanks very much, and good morning. Greg thanks very much for all your help over the years and best of luck to you. Greg Smith: Yes. Thanks Seth. Seth Seifman: Sure. I just wanted to ask this morning about 787. And we think -- when we think about the process from here similar to the question that Doug asked about 37, the delivery pace, is it more governed by customers' willingness to take deliveries? Or is it governed by putting aircraft through a change in corporation process, in which case how much of that work is done? And then not to split hairs too much here, but I believe last quarter the plan was to deliver the vast majority of the aircraft in inventory. And this quarter it's the majority. So has that -- is there now an expectation to carry some more 787 inventory into 2022? David Calhoun: Yes. Can I -- let me take that and I'll let Greg -- if he wants to add something he can. You used the word willingness and that's an important word. That is not the issue. It's -- there are a lot of logistics issues when we look at month to month to month to month around getting crews in and getting them out. Not so much with respect to the U.S. policy but from where they might be coming. So all of these orders there's not a giant reconfiguration cost embedded in the 87 program. These are orders with known customers and known destinations. And there was no -- we're not playing games with our language. We -- whether we put the word vast in front of it or not we'll see. But that's not going to be because of a lack of willingness to take airplanes. It's just going to be because of logistical timing with respect to when crews can get in and take delivery and move them out. Anyway that would be my commentary. Greg anything you want to add? Greg Smith: No, no. I think that's absolutely right on. Seth Seifman: Okay, great. Thank you. Greg Smith: You're welcome. Operator: And our next question is from Carter Copeland with Melius Research. Please go ahead. Carter Copeland: Hi. Thanks. Good morning guys, and Greg I echo everyone else. Thank you so much for your help over the years and nothing but the best of luck in the next chapter. Greg Smith: Thank you very much. I appreciate it. Carter Copeland: You only have to deal with one more geeky accounting question from me. Greg Smith: I could guess what it is, but I won't. I'll let you… Carter Copeland: Like maybe you can ask it for yourself. I want to ask about the 87 deferred production number the reduction in that balance? Greg Smith: I would have had. That was my guess too. Carter Copeland: Good, good. Then you have the answer ready to go. So you have been running $400 million, $500 million a quarter up until this quarter. You talked about a rate change. Obviously you've got the rework on the planes that are sitting there in inventory. Can you just help us understand bridge between the $178 million and the numbers you were running, because the rate is not all that different it doesn't seem. So any color there I think is helpful. Greg Smith: No absolutely. Yes. And actually Carter you got it right. I mean it's all those other moving pieces that are obviously unusual and didn't exist in the prior quarter. So once we get through that and get to a normalized pace, you'll see deferred continue on the trajectory that we've outlined before. But near-term to your point there's a lot of moving pieces in there. They're weighing into that number that are not I would say sitting on a normalized level. But it will once we start continuing to deliver. And long-term, like I said, we will be on the same path as we've talked about before. And like I said on a cash… Carter Copeland: Is it safe to say that the biggest piece is revaluation? Greg Smith: Pardon me? Carter Copeland: Is it safe to say the biggest piece of that delta is the revaluation of the inventory? Greg Smith: Well, it's the fact that you've got so much disruption going on in the factory. That's it. Carter Copeland: Okay. Greg Smith: Between the rework and building inventory and storing aircraft, it's all that that's weighing in the current period that obviously will not be experiencing once we -- even when we start ramping up, which is as Dave indicated earlier what we've already started. So like I said, before long, you'll see that back at a normalized I'll say level of burn. Outside of that like I said cash -- unit cash basis programs really doing a great job and really holding up well at a very low rate. And again, that's a testament to all the hard work that's gone on over the years on stabilizing the factory and the operations and the productivity initiatives. So you're seeing the benefit of that. So as the rate kind of stabilizes and goes up and we certainly deliver those inventoried aircraft that's going to be a big driver as I mentioned on cash flow between the balance of this year and then going into 2022. Carter Copeland: Okay. Thank you very much. David Calhoun: If I could add just one thing is we -- our pause went on longer than I think anybody wanted it to maybe even including us except for that pause we directed an awful lot of energy, a lot of cost and a lot of effort to remove the nagging rework loops that existed for quite some time. So our ability to now climb down that rework curve get back to real standard operations with fewer constraints to get us ready for a return on rate. I'm highly confident that that's exactly the way this is going to play out. So it was purposeful with respect to that pause the amount of work that we took on. Carter Copeland: Great. Thank you for the color gentlemen. David Calhoun: Thank you. Operator: And our next question is from Peter Arment with Baird. Please go ahead. Peter Arment: Yes. Thanks. Good morning, Dave, Greg. David Calhoun: Good morning. Greg Smith: Good morning. Peter Arment: Greg, thanks for everything like everyone else said. I appreciate it over all the years. Greg Smith: Thank you. Peter Arment: Hey, Dave this is more I guess a bigger picture question on the US-China relations kind of the watch item comment. It seems like it's the first time you're really highlighting this under the business environment. Has something changed in terms of your timeline and what you thought when the regulator would be approving? Or is this just that it's just taking longer? And maybe you could just give us a little more color on that in terms of when you expect it? Thanks. David Calhoun: Yes. Thank you. No this issue has been hanging around for quite a while, but we have a new administration in place in the United States. I don't want to -- I didn't want to walk in their office on the first day when they're trying to come to grips with their own strategies with respect to China broadly. And I'm glad they're doing that. But we're now at a stage where the focus on the economic recovery here in the United States on the part of the administration as well as now getting their feet a little firmer on the ground with respect to China relations. It's time for us to just point out the economic implications of a trade with China in the aerospace industry and commercial aviation specifically. They're significant. You all know that. And so we're just hoping to get everybody incentivized and lobby both sides. We have great relationships in China. We have firm orders on the books with China. But we need to get the order stream going again. And I'm confident that that will happen. But this just happens to be the moment to begin to talk about that broadly and that's why you saw me talk about it on the call this morning and in this discussion. We're just going to make sure that our administration knows the importance of getting those relationships straight. I think trade is good for everybody. I think they do too but we've got to work our way through that and give them the time to process. Peter Arment: Okay. Dave, just as a follow-up to that is just the -- is the timing aspect if this drags on into the middle of the second half or later, if that impacts your rate decisions for next year? Is that what you were alluding to earlier? David Calhoun: Well it will eventually. If we drag out all the way through the year, it eventually relates -- will impact the recovery of our rates, not so much the rates that exist as we exit the year. So the pace of that recovery of those rates is what it may impact. And anyway narrowbodies before widebodies, but -- so that's it. It is what it is. Peter Arment: Got it. Thanks so much. David Calhoun: Yep. Operator: And our next question is from Myles Walton with UBS. Please go ahead. Myles Walton: Thanks, good morning. Greg, best wishes on the next pursuit. Thanks for all the help through the years. Greg Smith: Thank you. Myles Walton: Even the IR at Raytheon was helpful. The question for Dave or Greg one of the pushbacks I get which I think is actually fair is that Boeing maybe shouldn't be putting or taking out as much structural cost. And instead maybe there's an absence of cost that need to be added for innovation program execution supply chain health. I know the last call a lot of the comments were actually on the structural cost actions. I'm just curious how would you respond to that given the program execution has not been perfect whether you can go down the list. But how would you respond to you actually might need to put structural cost into the system? David Calhoun: Yes. Well, I completely reject that argument. And of course, I would. But we have maintained and sustained, it's actually quite remarkable in light of everything we face, but we have sustained all the important research investments that we've been making. We've sustained all of the development programs that were in the works and they're not insignificant and we've added resource to those development programs as reflected in the accounting adjustments we made at the end of last year. They represent that we put time and we put more cost into these programs. We didn't make -- take less. So I'm actually very confident. I think we have removed an awful lot of duplication of effort. And Greg, can give you that in living color especially with respect to overlapping technology development programs between our BDS and our commercial world. So anyway, I'm confident in our future and I think the level of investment we put into our research and development differentiators compared to our competitors, I feel great about. I feel great about. That's the benchmark we care the most about. So anyway that would be my commentary. I'll turn it over to Greg. Greg Smith: Yes. No surprise. I completely agree. And look I think you got -- also got to step back. We've invested over $60 billion over the last 10 years and that has all been in key technologies and programs and all efforts within our factory, within our space. So we have not been short on investment by any means. And you saw even last year in the middle of the pandemic, we continue to make the appropriate investments in the right area of the business. And I'd say even in some cases, we've made more investment like on the 737 line in order to capture stability on the other end as Dave indicated. It's ultimately going to be great for our company, but great for our industry and our partners. So in a lot of cases, we've moved money or shifted money or even added money in some cases because we're playing a long game here. And we're looking for areas where we have constraints or where as Dave said we have duplication of effort. And we're just challenging ourselves also in what's best-in-class even down to program levels of layers and spans around leadership and what constraints they have down at a program level and how can we remove those constraints. So -- but not losing sight of the future. And quite frankly, making some of these moves that are going to provide even more stability going forward as Dave indicated and that's the whole idea. That as 37 rate comes up, we see better stability coming out of this than we did going in and it's no different on any of the other programs. So -- and yes, lots being done here and there are going to be -- continue to be lots being done. But I think I can speak on behalf of everybody is no losing sight of the future here and it's all about helping our workforce, helping our suppliers and driving stability that ultimately will be good for the entire industry. Myles Walton: Thanks for the color. Greg Smith: You’re welcome. Myles Walton: Thanks. Operator: Our next question is from David Strauss with Barclays. Please go ahead. David Strauss: Thank you. Greg, let me echo what everyone else said. Congrats on a good job particularly these last couple of years. Greg Smith: Thanks, David. David Strauss: I want to ask on 787, the 100 or so aircraft that are parked today. What proportion of those have actually had the fixes implemented? And how long does it take to make the fixes to an individual airplane? And just so we're all on the same page here, you're implying that you think you can deliver 100-plus aircraft over the next three quarters. Greg Smith: Yes. So maybe I'll start and Dave can certainly weigh in here. But as far as the number of aircraft, we're working through them sequentially, Dave. So we're working through them in tail number by tail number. So as we're working through those that's informing aligned up with our delivery plan. So you're not going to see all of them being reworked at the same time. That's not going to -- how it's going to work and that's not how it is working, but it's progressing well as you can see by the increase in the deliveries so far to date. As far as -- you're measuring this in days as far as the amount of rework required, but we're taking whatever time it takes to get the work done in station and completed per our spec. But it is improving aircraft over aircraft. So as the teams are completing the rework, they are actually coming down a learning curve. So we anticipate that overall cycle time to improve. And like we said, look, we're -- right now we've got a schedule lined up with -- by tail number, by month, by customer that gets the majority of the 100 inventoried aircraft delivered by the end of the year. And as Dave indicated, that could move around from customer to customer and so on, but we're trying to stay ahead of that and staying very engaged with our customers around specific time frames of which we'll be making our delivery and all that aligned up with how we do the rework and how we stabilize the ramp and complete the final deliveries. So, I don't know, Dave, if there was anything, you wanted to add to that? David Calhoun: No, no. This is more about, how the airplanes move from position to position as opposed to the applied work itself. And at the end of the day, we're going to be at a rate probably this month at 10 or 12 airplanes. And that just demonstrates that that's what we can do. And we're going to hold that rate for as long as we can, depending on customers and their ability to get in and take deliveries. It's -- again, as I said before, the trick in this one is the logistics of all of the customers coming in and out and then how we move these planes through position. The applied work itself, that's pretty clear and it's getting more productive every day. So, we're in a pretty good place on that front. David Strauss: Thanks. And Greg, you had mentioned sequential free cash flow improvement through the year. Would you expect by the fourth quarter that you're free cash flow positive? Greg Smith: Yes. No, what I said was that, the first quarter was the more challenging one. It's going to be plus or minus month-over-month, quarter-over-quarter. It's going to be a little bumpy David. But it's going to play right back into Dave's comment just prior on the 87 delivery profile that's not linear. So, it's again laid out in detail, but it's not exactly the same month over month or quarter-over-quarter, so all that's going to play in. But look, everybody is working extremely hard obviously to meet our commitments to our customers' get these aircraft reworked appropriately and then of course get -- continue the delivery and the same thing on the 737. And that's what's going to get us to a better profile by the end of the year. But I'd expect it to be lumpy quarter-over-quarter between and particularly the second and third quarter and then some -- I think on a better trajectory in the fourth quarter. David Strauss: Great. Appreciate the comments. Greg Smith: Yes, you are welcome. Operator: And next, we'll go to Ron Epstein with Bank of America. Please go ahead. Ron Epstein: Yes. Good morning guys. Greg, I echo everybody else's comments. It's been a pleasure working with you over the years both at Raytheon and at Boeing. So thank you for that. Greg Smith: Likewise. Ron Epstein: Best of luck with what's going on. Dave, a question for you. So I just want to follow up on Myles' question. You've talked a lot about business transformation. What's the end state? And ultimately, how does engineering fit into that vision? Because to be fair, 73 had issues, 78 had issues, 777X has issues, 747-8 had issues, KC-46 has issues, Air Force One now has issues and the Starliner has issues. So, how does business transformation fix that? David Calhoun: Well, I'll remind everybody that the A380, the A350, the A330, the A3... Ron Epstein: We're not talking about Airbus. We're talking about Boeing. David Calhoun: But I just want to remind everybody, but they -- that they had a little trouble as well. These programs are big and they're complicated. So the idea that we fix everything, I'm not sure, I can sign up for that. The idea that we're going to be a whole lot better, I can sign up for it. And the work we've done to align our engineering function broadly, everybody inside the company has signed up for that endeavor and feels great about it. The work we've done with respect to the safety management system that surrounds that engineering function and which they lead into half of the company. It avails itself to new data to a faster cycle time with respect to how our company processes that data and ultimately makes decisions around that data. And a reinvestment in the fundamental design practices of the company that will instill disciplines that we just need to get better and better at. And everybody in the company signed up to do this and we're making real investments in that process. So, I feel very, very, very good about all of that. And it will -- it does not mean, that in a flight test, somewhere along the way we don't run into an issue that needs to get resolved. And so it is the nature of our industry to do big things and do them very well. So anyway, I'm confident that these transformation efforts are significant. I'm also confident on this production stability, which goes hand-in-hand with engineering. We've taken actions over this -- really hard actions over this course of this year to stop things when we see an issue and get them fixed once and for all. And the 87 in Q1 was a glaring example of that. These fit and finish issues with respect to the joints in our fuselages were just nagging problems difficult problems. And we applied real engineering talent and expertise to that, new process controls, new lines of communication with our supply side. So that we're not surprised by that stuff anymore and we can eliminate rework loops that ultimately travel with the product. I could go on and on and on and on and on. But I think some of the signs should be very apparent to you and to our customers. Ron Epstein: On the next product, would we expect to see it go smoother? David Calhoun: Yes. Yes and I expect the next product to get differentiated probably in a significant way on the basis of the way it's engineered and built and less dependent on the propulsion package that goes with it. Ron Epstein: Got it. Okay. Thank you. David Calhoun: Yes. Thanks. Operator: And next we go to Jon Raviv with Citi. Please go ahead. Jon Raviv: Good afternoon. Thank you very much and best of luck Greg kind of obviously on the next endeavor. Greg Smith: Thank you. Jon Raviv: But one related question here looking at the balance sheet, I mean, when we look at net leverage you're over three times levered versus your peak EBITDA and appreciate that number climbs as you continue to consume cash. So how has the company prepare for god forbid another crisis given this position and your commitment to the IG rating. I realize you've issued some stocks for pension of 401(k). But how are you evaluating it here? I know it's a different conversation versus $100 ago, but here we are in the mid-200s depending on the day. So how do you think about how that dynamic at this point? Greg Smith: Yes. Look, I don't think it's any different than we have been thinking about it since the beginning, which is we're looking around corners and playing out options and making sure we have them, and understanding the second and third order effect. And to your point some of them -- sequence of these sometimes matters and the timing of them matters. So I think the big takeaway should be that we're going to constantly review the capital structure and the strategy and the long-term strength of the balance sheet. And with that we're going to keep all our options open and on the table. But how we think about it is again not just as a base case, but we just -- as we have just keep looking around corners and understanding what levers would we pull and when would we need to pull them and what would be the implications of doing that. And as I said on the call that as we see it today, we don't see a need for additional liquidity, but also as you've seen how we've handled the bank line and extended our credit facility. We're making sure that we've got all the right things in place if we need to go there. And if we do we'll be prepared to do so. Jon Raviv: Thanks very much for fitting me in. Greg Smith: Yes. You’re welcome. Maurita Sutedja: Operator, we have time for one more question. Operator: Thank you. And that will be from Hunter Keay with Wolfe Research. Please go ahead. Hunter Keay: Thank you so much for getting on. Greg, let me be the last one to say congratulations. It's been a pleasure. Greg Smith: Yes. Likewise, Hunter. Thanks. Hunter Keay: Of course. Dave, I'd love for you to continue on the comment that you made to Ron at the end there about what's next and how it's less dependent on the propulsion package. Can you just continue to elaborate on what you're about to say please? What is this going to involve from a product perspective, but also from a manufacturing perspective? What are you guys thinking about? David Calhoun: Yes. So there's a lot that goes into this, but I think it's important that everyone understand. Most often when a new airplane is developed by either side, it is usually developed around a propulsion package that offers 15% to 20% improvement with respect to efficiency versus the one it's displacing. That's the way it's happened over a long period of time. I don't believe the next generation of engine can deliver that kind of performance. And then therefore, whatever cost efficiency ultimately and whatever performance advantages are derived from the next airplane in my view we're going to come from the way it's engineered and the way it's manufactured all with a focus on a lower cost per seat when we get it out to the marketplace. And, yes, a more sustainable package with respect to environment. So that's what we all have to be focused on. I like the pressure that puts on the manufacturers. That means the technologies we deploy are our technologies. We've done an awful lot of fantastic work in our defense programs with respect to using engineering modeling and then manufacturing processes that tap that engineering modeling directly, create parts that can be assembled in one motion with great efficiency. Secondly, we've invested as you know in composites in our platforms for a very, very long time. The learning curves associated with getting efficient at composite development are significant. I believe Boeing has a huge advantage on that front. And so how we bring that engineering modeling the composite development work that we've done over these years, and then quick simple assembly like we've demonstrated with the trainer airplane and other defense programs. We have to do it at scale and we have to prove to ourselves we can do it at scale. But in my view those are going to be the advantages to that next airplane that gets developed. And I just love where Boeing is positioned on that front when the time comes. Hunter Keay: Thank you. David Calhoun: Yes. Maurita Sutedja: All right. That completes the Boeing Company's first quarter 2021 earnings conference call. Thank you all for joining.
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Jefferies Upgrades Boeing to Buy Amid Spirit AeroSystems Acquisition

  • Jefferies upgrades Boeing to Buy, highlighting the long-term benefits despite potential EPS dilution in 2026.
  • Boeing announces a strategic acquisition of Spirit AeroSystems for $4.7 billion to enhance supply chain management and operational efficiency.
  • The acquisition aims to address manufacturing defects and is seen as a pivotal step for Boeing in the aerospace industry.

On Monday, July 1, 2024, Jefferies updated its stance on Boeing (NYSE:BA), changing the grade to Buy while recommending holding. At the time of this update, the price of Boeing was $182.01. Jefferies highlighted that although the Boeing deal might dilute earnings per share (EPS) for 2026, the benefits it brings are considered 'priceless.' This analysis was published by The Fly.

Boeing, a leading aerospace company, has announced a significant move to reacquire Spirit AeroSystems (SPR) for $4.7 billion. This strategic acquisition is aimed at bolstering its supply chain management, marking a pivotal step for Boeing as it seeks to enhance its operational efficiency and reliability. The deal, disclosed on Monday, is a long-awaited step by Boeing to strengthen its position in the aerospace industry.

The acquisition of Spirit AeroSystems, a prominent fuselage maker, for $37.25 per share in an all-stock transaction valued at $4.7 billion is a strategic expansion for Boeing. This move is aimed at reintegrating Spirit AeroSystems back into Boeing and addressing and rectifying manufacturing defects that have plagued its operations. The acquisition is seen as a strategic effort by Boeing to enhance its operational efficiency and reliability in the aerospace sector.

At the time of the announcement, Boeing's stock price stood at $182.01, experiencing a slight decrease of $0.5 or -0.274%. Throughout the trading day, the stock fluctuated between a low of $180.65 and a high of $184.435, reflecting the market's initial reaction to the news of the acquisition. Over the past year, Boeing's shares have ranged from a low of $159.7 to a high of $267.54, with a market capitalization of approximately $111.73 billion and a trading volume of about 5.9 million shares.

Jefferies' upgrade of Boeing to Buy, despite the potential dilution of EPS for 2026 due to the acquisition, underscores the long-term strategic benefits of the deal. The acquisition of Spirit AeroSystems is considered 'priceless' by Jefferies, highlighting the significant positive impact it is expected to have on Boeing's supply chain management and overall operational efficiency. This strategic move by Boeing is seen as a key step in enhancing its competitiveness and reliability in the aerospace industry.

UBS Maintains "Buy" Rating on Boeing with Adjusted Price Target

  • UBS has adjusted its price target for NYSE:BA to $240 from $250 while maintaining a "Buy" rating.
  • Boeing's significant achievement in space exploration highlighted by the successful docking of its Starliner capsule at the ISS.
  • The company's stock performance and market capitalization reflect its resilience and potential for growth in aerospace and space exploration sectors.

On Friday, June 7, 2024, UBS maintained its "Buy" rating on NYSE:BA but adjusted its price target to $240 from the previous $250, as reported by TheFly. This adjustment comes at a time when Boeing's stock was trading at $191.42, reflecting the company's ongoing efforts and challenges in both its aerospace and space exploration sectors. Boeing, a leading aerospace company, has been making headlines not only for its commercial and military aircraft but also for its ventures into space exploration, a sector where it competes with other aerospace giants and newer space-focused companies.

Boeing's recent achievement in space exploration, specifically the successful docking of its Starliner capsule at the International Space Station (ISS), marks a significant milestone for the company. Despite encountering last-minute thruster trouble that nearly compromised the docking process, the mission proceeded as planned. This event is particularly noteworthy as it demonstrates Boeing's capabilities and commitment to overcoming challenges in space exploration. The successful docking, after years of delays due to technical issues including helium leaks on the spacecraft, showcases Boeing's resilience and technological prowess.

The significance of this achievement cannot be overstated, especially considering the competitive nature of the space exploration sector. Boeing's ability to successfully dock the Starliner capsule at the ISS, despite the initial docking approach being called off due to a technical issue with five out of the twenty-eight thrusters, highlights the company's engineering capabilities and its potential for future space missions. This success is a crucial step forward for Boeing, reinforcing its position in the aerospace industry and opening up new avenues for growth and exploration beyond Earth's atmosphere.

Financially, Boeing's stock performance reflects the company's ongoing efforts to navigate through its challenges and capitalize on its successes. With a stock price increase of $1.57, marking a change of approximately 0.83% to close at $191.42, Boeing demonstrates resilience in the face of adversity. The company's market capitalization stands at about $117.51 billion, with a trading volume of 5.82 million shares, indicating a solid investor interest in its activities and future prospects. This financial performance, coupled with its achievements in space exploration, positions Boeing as a key player in both the aerospace and space sectors, with the potential for continued growth and innovation.

Boeing’s Overweight Rating Reaffirmed at JPMorgan

JPMorgan analysts reaffirmed their Overweight rating and a price target of $210 for Boeing (NYSE:BA) stock. The analysts adjusted the free cash flow (FCF) estimates for Boeing for the second quarter of 2024 and the entire year, following management's recent investor conference update.

This adjustment is due to a decrease in near-term deliveries of the 737 and 787 models, coupled with the company's efforts to enhance its production processes. Despite the expected $4 billion cash outflow in Q2, Boeing's recent debt raise ensures sufficient liquidity.

Long-term cash flow estimates remain mostly unchanged for now, pending more information on the 737 production ramp-up, Boeing's potential acquisition of Spirit Aerosystems, and the priorities of the incoming CEO, once appointed. The year-end price target is maintained at $210.

Boeing Stock Plunges 7% on China Delivery Halt

Boeing (NYSE:BA) has recently stopped delivering aircraft to China due to a request from the country's aviation regulator for additional certification documentation. This documentation concerns the batteries in cockpit voice recorders installed in all Boeing models, including the 787 and 737 Max.

This suspension has financial repercussions for Boeing, with the company's Chief Financial Officer indicating a potential negative impact on second-quarter cash flow. Consequently, Boeing's shares fell by more than 7% yesterday.

Speaking at the Wolfe conference, Boeing's CFO noted that second-quarter cash flow might decline compared to the first quarter due to the continued halt in aircraft deliveries to China, a key market for Boeing. The company expects 787 deliveries in the second quarter to be on par with those in the first, indicating no short-term improvement.

In addition to the China delivery issue, Boeing faces persistent supply-chain challenges for the 787 model, which could further hinder production and delivery increases. The CFO also mentioned that margins in the defense segment are expected to be negative in the second quarter.

As a result, Boeing forecasts that second-quarter deliveries will remain close to first-quarter levels, with no significant increase anticipated.

Boeing Slashed to Sell at Northcoast Research

Northcoast Research analysts downgraded Boeing (NYSE:BA) to Sell from Neutral, setting a price target of $140 on the stock. The analysts reflected on a turbulent last three months for Boeing, during which the aerospace sector has seen its fair share of dramatic developments, including unusual incidents and concerns about safety protocols highlighted by whistleblowers. With the quarterly earnings update looming, which the analysts anticipate will raise further concerns about Boeing's fundamentals, Northcoast’s outlook is decidedly bearish.

The analysts suggested that while the market has already reacted to some negative news, as seen in the declining stock price, it may still be overlooking deeper structural issues such as balance sheet stability and potential future cash liabilities.

Boeing Shares Drop Following Another Incident

Boeing’s (NYSE:BA) shares dipped more than 1% pre-market today following a Sunday report about a Southwest Airlines Boeing 737-800 losing an engine cowling during takeoff from Denver International Airport.

The engine covering struck a wing flap, prompting the Federal Aviation Administration (FAA) to initiate an investigation into the matter. The affected Southwest flight, en route to Houston’s William P. Hobby Airport, returned safely to Denver approximately 25 minutes post-takeoff, with no injuries reported. Southwest is currently conducting a thorough examination of the aircraft.

This incident adds to a series of issues for Boeing, including a fuselage panel detachment on an Alaska Airlines jet in January and a separate FAA probe into a Southwest flight that veered off its intended landing path in New York in March. Boeing has faced ongoing scrutiny over quality control and safety, impacting the delivery schedule of its new Max aircraft. Additionally, Boeing announced last month that CEO Dave Calhoun is slated to retire at the end of 2024.

Boeing Stock Falls 2% Following Analyst Downgrade

Boeing (NYSE:BA) shares fell nearly 2% intra-day today after Melius Research downgraded the company to Hold from Buy while keeping a $209 price target.

The downgrade is attributed to "too many overhangs" affecting the aircraft manufacturer. Melius Research pointed to strong demand for Boeing’s commercial planes but highlighted significant concerns, including execution issues, a slower-than-anticipated ramp-up in 737 production, and ongoing losses in the Boeing Defense sector. These factors contribute to skepticism about reaching the projected $10 billion in free cash flow (FCF) by 2026, a figure both Boeing and consensus estimates target.

The research firm suggests Boeing is on the path to, and in need of, an extensive multi-year restructuring. It also anticipates that the stream of negative news will persist, continuing to weigh on Boeing's stock value. Melius Research’s FCF estimate for 2026 stands at $8.9 billion, falling $1.1 billion short of both consensus and Boeing’s own expectations.