Q1 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Boeing plans to increase 737 production rates to 50 per month by 2025/2026, leveraging the current slowdown to address supply chain issues and position for stronger future growth.
- Boeing Global Services is expected to sustain high margins, with an ongoing integration of its distribution businesses (Aviall and KLX) leading to sustainable margin improvements.
- Boeing Defense & Space is retiring risks on key development programs, such as T-7 and MQ-25, and expects to return to high single-digit margins by 2025/2026.
- Boeing's 737 production is facing disruptions due to self-imposed reductions in traveled work, particularly related to fuselages from Wichita, which may affect deliveries and financial performance.
- The FAA requires a 90-day control plan to monitor Boeing's production system, preventing production rate increases until control is demonstrated, potentially impacting Boeing's ability to meet demand and financial targets.
- Upcoming IAM labor negotiations pose risks to production continuity, introducing uncertainty to Boeing's operational performance during the critical production ramp-up period.
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737 Production Ramp and Free Cash Flow Target
Q: How will you achieve the 737 production rate of 50/month to meet cash flow targets?
A: We're confident we can reach 50 airplanes per month within two years. Spirit AeroSystems is committed, and acquiring them will help significantly. Clean fuselages from Wichita and fixing nonconformances will reduce cycle times and improve output. Reaching 38 per month is our first objective, and increasing by another 12 is doable; that's the bet we're making. -
Liquidity and Cash Burn
Q: How low can cash balance get before you need additional funding?
A: We have $17 billion in liquidity, including cash on hand and credit lines. Any supplemental funding would restore cash balance to about $10 billion and keep us ahead of near-term maturities. We'll be prudent, and our investment-grade credit rating is a priority. -
737 Production Issues and Quality Control
Q: How much of the 737 rate issue is self-inflicted, and what's the impact of FAA processes?
A: The 737 disruption is self-inflicted as we've decided to reduce traveled work, especially on fuselages. The FAA requires a 90-day control plan to monitor production, which isn't a magic fix but a set of metrics and controls. Negotiations with the IAM union are productive, aiming for continuous production. The $10 billion free cash flow target incorporates the IAM negotiation. -
Potential Acquisition of Spirit AeroSystems
Q: How will acquiring Spirit impact production and financing?
A: Acquiring Spirit AeroSystems will significantly aid in reaching production targets. Clean fuselages from Spirit will reduce cycles and improve output. We're exploring optimal financing to maintain our investment-grade credit rating. -
Supply Chain Constraints on 787 and 777X
Q: What supply issues are affecting 787 production, and any changes to 777X ramp?
A: On the 787, constraints include heat exchangers, which we expect to resolve by Q4, and seat suppliers, affecting production timing. No changes to the 777X plan, but ramping up creates working capital pressure. -
Impact of Production Slowdown on Margins and Compensation
Q: What is the financial impact of late deliveries and required compensation?
A: The 737 program's margins were impacted by 300 basis points this quarter due to delayed rate ramps and changes in product mix. While program margins won't return to 2018 levels, they will expand over time, driven by rate increases. -
737 Quality Improvement Timeline
Q: How long will it take to address product quality before increasing production?
A: We commenced actions after the Alaska Air accident and expect to receive clean fuselages from Wichita in the second half. The 30,000 ideas are for continuous improvement, not prerequisites for ramping up. We'll report on key milestones like the number of clean fuselages received. -
Union Negotiations Impact
Q: How will IAM union negotiations affect production and cash flow targets?
A: Negotiations with the IAM union are productive, and we're all aiming to solve for continuous production. The $10 billion free cash flow target includes considerations of the IAM negotiation outcomes. -
Defense Segment Risk Retirement
Q: When will defense segment charges subside, and what are key milestones?
A: We're retiring risk daily, with programs like T-7 and MQ-25 reaching important milestones this year. We expect BDS margins to reach high single digits by 2025-2026. -
Potential Equity Issuance and Funding Needs
Q: Is equity issuance considered for balance sheet and funding Spirit?
A: We believe we can access market funding without equity issuance. For the Spirit acquisition, we'll explore optimal financing to maintain our investment-grade rating. -
Leadership Succession
Q: What qualities are needed in the next leader amidst pending leadership change?
A: The next leader must make smart long-term decisions and get development programs right. I support the Board's process and have an internal candidate I think highly of.