Boeing (BA) Earnings Report: Q3 2015 Conference Call Transcript · 2015. 10. 22. · revenue growth, 10.2% core operating margins, 18% growth in core earnings per share, and operating

CompanyName:BoeingCoCompanyTicker:BASector:IndustrialGoodsIndustry:Aerospace/Defense

EventDescription:Q32015EarningsCallMarketCapasofEventDate:94.37BPriceasofEventDate:141.19

©2014TheStreet,Inc.Al l R ightsReserved Page1of23

Boeing(BA)EarningsReport:Q32015ConferenceCallTranscriptThefollowingBoeingconferencecalltookplaceonOctober21,2015,10:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

TroyLahr;Boeing;VPofIRDennisMuilenburg;Boeing;President&CEOGregSmith;Boeing;CFOTomDowney;Boeing;SVPofCorporateCommunications

OtherPart icipants

DougHarned;SanfordC.Bernstein&Company;AnalystHowardRubel;Jefferies&Company;AnalystMylesWalton;DeutscheBank;AnalystSamPearlstein;WellsFargoSecurities;AnalystCaivonRumohr;CowenandCompany;AnalystJasonGursky;Citigroup;AnalystRonEpstein;BofAMerrillLynch;AnalystSethSeifman;JPMorgan;AnalystCarterCopeland;BarclaysCapital;AnalystSteveLevenson;StifelNicolaus&Company;AnalystRobSpingarn;CreditSuisse;AnalystJulieJohnsson;BloombergNews;MediaDougCameron;TheWallStreetJournal;MediaDominicGates;TheSeattleTimes;MediaAlanScott;Reuters;MediaMikeAlmedinberg;Crain'sChicagoBusiness;Media

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheBoeingCompany'sThirdQuarter2015Earningsconferencecall.Today'scallisbeingrecorded.

Themanagementdiscussionandslidepresentation,plustheanalystandmediaquestion-and-answersessions,arebeingbroadcastliveovertheInternet.

Atthistime,foropeningremarksandintroductions,I'mturningthecalloverMr.TroyLahr,VicePresidentofInvestorRelationsfortheBoeingCompany.Mr.Lahr,pleasegoahead.

T royLahr (VPofIR):

Thankyou,andgoodmorning.WelcometoBoeing'sthirdquarter2015earningscall.I'mTroyLahr,andwithmetodayisDennisMuilenburg,Boeing'sPresidentandChiefExecutiveOfficer;andGregSmith,Boeing'sChiefFinancialOfficer.Aftermanagementcomments,we'lltakeyourquestions.Infairnessto




othersonthecall,weaskyoupleaselimityourselftoonequestion.Wehaveprovideddetailedfinancialinformationintoday'spressrelease,andyoucanfollowthebroadcastandpresentationthroughourwebsiteatBoeing.com.

Beforewebegin,Ineedtoremindyouthatanyprojectionsandgoalsinourdiscussionstodayarelikelytoinvolverisk,whichisdetailedinournewsrelease,variousSECfilingsandtheforward-lookingstatementdisclaimerinthepresentation.Inaddition,wereferyoutoourearningsreleaseandpresentationfordisclosuresandreconciliationofnon-GAAPmeasuresthatweusewhendiscussingourresultsandoutlook.NowI'llturnthecallovertoDennis.

DennisMuilenburg (President&CEO):

Thankyou,Troy,andgoodmorning.I'llstartwithsomecommentsonthequarterandourbusinessenvironment.Afterthat,Gregwillwalkyouthroughdetailsofourfinancialresultsandoutlook.

Withthat,let'smovetoslide2.Boeingdeliveredstrongthirdquarteroperatingperformance,with9%revenuegrowth,10.2%coreoperatingmargins,18%growthincoreearningspershare,andoperatingcashflowof$2.9billion.Givenouroperatingperformanceinthequarter,weareraising2015guidanceforrevenue,coreEPSandoperatingcashflow.Thisperformanceandconfidenceinourlong-termoutlookcontinuestosupportourcommitmenttoreturncashtoshareholders,whilealsomakingstrategicinvestmentstogrowourbusiness.Yeartodate,wehavereturnednearly$8billiontoshareholdersthroughsharerepurchaseanddividends.Thisremainsapriorityunderourbalancedcashdeploymentstrategy.

RevenueatBoeingCommercialAirplanesincreased10%onrecorddeliveriesofourindustry-leadingproductfamily.Duringthequarter,wedeliveredour325th787.Webeganfinalassemblyandachievedpower-onforthe737MAX,completedfirmconfigurationonthe777X.Andsuccessfullyconcludedfinaltestingandbeganimplementingtheadvancedautomatedfuselageproductiontechnologyonthe777line,whichwillimprovesafety,qualityandflowtime,andinsureasmoothtransitiontothe777X.

BoeingDefense,Space&Securitygrewitstoplineby6%onhigherrevenueatBoeingMilitaryAircraftandNetwork&SpaceSystems.KeycontractawardsduringthequarterincludedanorderfromIndiafor22Apacheattackhelicoptersand15Chinookheavy-lifthelicopters,andacontractfromJapanforfiveB22tilt-rotoraircraft.WealsoreceivedacontractfromtheUSNavyfor13additionalP-8APoseidonaircraft.

Significantdefenseprogrammilestonesincludeddeliveryofthefirsttwoof12EA-8GrowlerstotheRoyalAustralianAirForce,andthestartofflighttestingofthefirstfull-upKC-46Aaerialrefuelingtanker.Duringthelastfewweeks,wehavesuccessfullydeployedthetanker'srefuelingboomanditscenterlineandwingrefuelingdroguesystemsmultipletimesoverabroadrangeofflightconditions.Whilemoreworkremainsahead,theseearlyaccomplishmentsrepresentsignificantriskreductionandrealprogressontheflighttestprogram.

Insummary,wehadanotherstrongquarterofoperatingperformanceandcashgeneration.Withthat,let'sturntothebusinessenvironmentonslide3.

Thecommercialairplanebusinessenvironmentgenerallyremainshealthy,drivenbyimprovingairlineprofitability,solidairpassengertrafficandmeaningfulreplacementdemand.Aircargotrafficremainsawatchitemforusasthegradualmarketrecoverycontinuesamidmodestoverallglobaleconomicgrowthrates.Airplaneorderactivityandcustomerdiscussionsarecontinuingatamoderatedbuthistoricallyhealthypace.

Deferralrequestsandcancellationsremainwell-belowthehistoricalaverage.Inthesingle-aislesegment,




demandforournewfuel-efficient737MAXremainshigh,withcumulativeorderstotalingnearly2,900airplanesfrom58customers.Giventhestrongmarketdemand,wecontinuedtoseeupwardpressureonnarrow-bodiedproductionratesbeyondtheannounced52permonthin2018.However,weremainsteadfastinourfinancialdisciplineasweassessthemarketdemandforfurtherproductionratechanges.

Duringthethirdquarter,wemadethedecisiontoincreasethe767productionrateto2.5permonthstartingin2017,drivenbyongoingstrongdemandforthe767freighterontopoftheexistingplannedtankerproductionbase.Thisisatestamenttothecompellingvaluepropositionthatairplanebringstothemarket.Demandalsoremainsstrongforthe777X,withabacklogof306aircraftfromsixcustomers.

Onthe777,wehave44ordersincommitmentsyeartodate,includingthetwo777-300ERsannouncedlastweekforEVAAirways.Our777backlogstandsat235aircraft,withproductionfor2016essentiallysoldoutand2017productionmorethanhalfsold.Withfirmconfigurationofthe777Xcompleteandourmanufacturingadvancementstakinghold,wearenowworkingtofinalizetheproductionplantophaseinthisnewtechnology.Wewillalsocontinuetoassess777supplyanddemandtomaximizeairplaneprofitabilityoverthetransitionperiod.

Onthe787program,EVA'sdecisionlastweektoalsopurchaseupto24787-10sisevidenceofcontinuedstrongmarketdemandfortheDreamliner.The787'sbacklogofnearly800ordersfullysupportsourplannedproductionrateincreasesto12permonthin2016and14permonthlaterthisdecade.Wehavenowdeliveredmorethan330787s,includingmorethan50-9s.

TurningtoDefense,Space&Security,wecontinuedtoseesolidsupportforourmajorprograms.CongresshasbeensupportiveofthePresident'sFY16DoDandNASAbudgetrequestincreasestocoreBoeingprograms,includingtheP-8APoseidon,theF-18SuperHornet,ApacheandChinookhelicopters,andtheNASAspacelaunchsystem.Internationaldemandforourofferingsremainsstrong,particularlyintheMiddleEastandtheAsiaPacificregion.Duringthethirdquarter,internationalcustomersforDefense,Space&Securityrepresented35%ofrevenueand40%ofourcurrentbacklog.

Thestrengthofourdefenseandspacebusinessstemsfromourinvestmentsintechnologyandinnovationthathaveestablishedaportfolioofreliable,provenandaffordableproductsandservices.Wecontinuetoinvestinorganicgrowthareasthatareprioritiesforourcustomers,suchascommercialderivatives,space,unmannedsystems,intelligence,surveillanceandreconnaissance,andthecriticalfewfuturefranchiseprograms,likeLongRangeStrikeandtheT-Xtrainer.TeamsthroughoutourCompanyalsocontinuetoensureourlong-termcompetitivenessbydrivingfurthersafety,qualityandproductivitygainstoimproveprogramprofitabilityandfundinvestmentinfuturegrowth.

Insummary,ourteamisexecutingonourbusinessstrategybygrowingrevenues,generatingsolidoperatingperformanceandcapturingstrategicnewbusiness.Now,overtoGregforourfinancialresultsandourupdatedguidance.Greg?

GregSmith (CFO):

Thanks,Dennis.Goodmorning,everybody.Let'sturntoslide4andwe'lldiscussourthirdquarterresults.Third-quarterrevenueincreased9%to$25.8billion,drivenbyrecordcommercialairplanedeliveries.Coreoperatingmarginsof10.2%reflectsolidexecutionacrossbothbusinesses.Coreearningspershareforthequarterincreased18%to$2.52,reflecting,again,continuedstrongcoreoperatingperformanceonproductionprogramsandwithinourservicesbusinesses.

Let'snowdiscussCommercialAirplanesonslide5.Forthethirdquarter,BoeingCommercialAirplanesrevenueincreased10%to$17.7billiononarecord199airplanedeliveries.BCAoperatingmarginof10%reflectsstrongexecution,offsetbytheimpactofhigherplannedR&Dspendingandincreased787deliveries.CommercialAirplanescaptured$13billionofnetordersduringthethirdquarter,andbacklog




remainsverystrongat$426billionandnearly5,700aircraft,equatingtomorethansevenyearsofproduction.

Specificallyonthe787,wecontinuetoexpecttheprogramtobecashpositiveinthefourthquarter,andwestillanticipatedeferredproductiontodeclineshortlyafterweachievethe12-per-monthproductionratelaterin2016.Nochangetothesefundamentalmilestones.Wecontinuetoseeprogressinthekeyoperationalperformanceindicatorsforthe787programasweimplementadditionalproductionefficiencies,whilemeaningfullyincreasing787-9production.Asplanned,the787-9productionrateanddeliveriesarenowoutpacing787-8.Thisisatestamenttotheteam'sdetailedadvancedplanningandday-to-dayexecutiontoensuresmoothtransitionandramp-upofthe787-9.

Onthe787-8,wehavecontinuedtomakeprogressonunitcostreduction,wherewe'venowseenadeclineofapproximately40%overthelast230deliveries.We'vealsomadefurtherprogresson787-9,wherewenowhavehadmorethan30%costreductionoverthefirst50deliveries.Drivenbycontinuedcostreductions,ahealthymixof-9sandthebenefitoffavorabletimingonquarterlyspending,the787deferredproductionincreased$577milliontoanowbalanceof$28.3billioninthethirdquarter.

Wecontinuetoanticipate787deferredproductiongrowthtofurtherdeclineinthefourthquarter.Westillhaveworkaheadofusonthe787asweremainfocusedonthesolidday-to-dayexecutionandriskmitigation,whileimprovingthelong-termproductivityandcashflowgoingforward.Wewillcontinuetomanagethesmoothramp-upofthe787-9production,prepareforthe12-per-monthintroduction,andintroducethe-10,whileagain,drivingefficienciesacrossallaspectsoftheprogram.

Let'snowturntoslide6todiscussDefense,Space&Securityresults.BDSreportedstrongrulesinthequarter,withrevenueincreasing6%to$8.4billionandoperatingmarginsof12.2%onstrongperformanceandafavorabledeliverymix.BoeingMilitaryAircraftthirdquarterrevenueincreased15%to$4.1billion,largelydrivenbyF-15contractnegotiations.

Operatingmarginswere12.2%inthequarter,reflectinghighervolumesandstrongperformance.Network&Spacerevenueincreased5%to$2.1billion,drivenbycommercialcrewvolume.Thissegmentalsogeneratedstrongoperatingmarginsof11.5%onfavorablemixandproductivityimprovements.GlobalServices&Supportrevenuedeclinedto$2.2billion,largelydrivenbytimingofdeliveries,whileoperatingmarginswerestrongat12.9%.Defense,Space&Securitycaptured$9billionofordersduringthequarterandreportedasolidbacklogof$59billion.

Let'smovetocashflownowonslide7.Operatingcashflowforthethirdquarterwasstrongat$2.9billion,drivenbyhighervolumesandsolidoperatingperformance.Withregardstocapitaldeployment,wepaid$618millionindividendsandrepurchased11millionsharesfor$1.5billioninthethirdquarter,aswecontinuetodeliveronourcommitmentofreturningcashtoshareholders.Yeartodate,we'vereturned$8billiontoshareholdersthroughdividendandrepurchased41millionshares.Again,thisreflectsourcommitmentandconfidenceinthelong-termoutlookforourbusiness.Returningcashtoshareholders,alongwithcontinuedinvestmentstosupportfuturegrowth,remainahighpriorityforus.

Let'snowmovetocashanddebtbalancesonslide8.Weendedthequarterwith$9.9billionofcashandmarketablesecurities.Ourcashbalancecontinuestoprovidesolidliquidityandpositionsuswellgoingforward.

Let'snowturntoslide9andI'lldiscussouroutlookforthebalanceof2015.Basedonthestrongoperatingperformanceyeartodate,we'veincreasedour2015guidanceforrevenue,operatingmargins,coreearningspershareandoperatingcashflow.Coreearningspershareguidancefor2015hasincreased$0.25,tonowbebetween$7.95and$8.15ashare,oncontinuedsolidexecutionacrossthebusiness.TheCompanyrevenueguidancehasincreased$500million,tonowbebetween$95billion




and$97billion,onhighercommercialairplanedeliveries.

ECAdeliveryguidancehasincreasednow5airplanes,tobefrom755to760.Defense,Space&Securityoperatingmarginguidanceisincreasedtoapproximately10%,againreflectingstrongoperatingefficienciesacrossthebusiness.Operatingcashflowhasincreasedtoapproximately$9.5billiononimprovedperformanceacrosstheCompany,aswellasfavorabletimingofreceiptsandexpenditures.Furthermore,we'reloweringourR&Dguidance$100million,tonowbe$3.4billionfortheyear,toreflecttimingofspending.

Inthefourthquarter,weexpectECAmarginstobeimpactedbythestrongoperatingperformance,somewhatoffsetbydeliverymixandhigherplannedR&Dspendingon777X,aswellasadditionalinvestmentsinproductivityinitiatives.Soinsummary,wegeneratedsolidrevenuegrowthandhealthyoperatingmargins,whilegeneratingsignificantcashflow.Wemeaningfullyreturnedcashtoshareholdersandinvestedinourfuture.Andwiththat,I'llturnthecallbackovertoDennisforclosingcomments.


Thankyou,Greg.Withthreesolidquartersbehindus,weremainfocusedondisciplinedexecution,qualityandproductivityimprovements,andmeetingcustomercommitments.Ourprioritiesgoingforwardareclearandconsistent:theprofitableramp-upincommercialairplaneproduction;deliveringonourdevelopmentprograms;continuingtostrengthenourdefenseandspacebusiness;drivingproductivityandperformancethroughouttheenterprisetofundourinvestmentsandinnovation;talentandtechnology;andimportantly,providingincreasingvaluetoourcustomersandourshareholders.Nowwiththat,wewouldbehappytotakeyourquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)OurfirstquestioncomesfromDougHarnedwithBernstein.

DougHarned (Analyst-SanfordC.Bernstein&Company):

Yes,goodmorning.


Goodmorning,Doug.


I'mgoingtoprobablyviolatethisalittlebitbecauseIwantedtogetsomeclarityonthedeferredproductionrampaspartofthisquestion.Sowhenyoulookforward,you'retalkingaboutbeingcashpositiveinQ4onthe787.Myunderstandingwasthatwouldbefollowedbyaplateauin2016,andthenthatwouldrampdownasyoutookrateuptowardthebackpartof2016.Ijustwanttomakesurethat,thatisstillhowyou'rethinkingaboutthis.Andthen--

GregSmith (CFO):

Yes.


Thatishowyou'rethinkingaboutit?





That'sexactlyright,andthatremainsconsistent,andwe'reconfidentinthatprofile.


Okay,great.Thenthesecondpartis,whenyoulookouttowardtheendoftheblock,whenwelookatthis,thedeferredproductionlevelsuggeststousthatwhenyougetinthelaterportionoftheblock,you'regoingtohavetohaveunitcashmarginsmoveabove25%fortheprogram.

Nowthat'saprettygoodnumber,andwhatI'dliketoknowfirst,isthatcorrect?Andthensecond,howdoyouseethepathtogettingthere?

GregSmith (CFO):

Well,Doug,Iwon'tgetintothespecificprogram-by-programmargin.ButIwillgiveyouasenseof,I'llsay,thefewareasthatarefocusedon--thathavebeeninthepastandwillbethepathforwardtocontinuetodrive787profitability.

Certainlyproductivity,continuingtocomedownthelearningcurveinternally.Youheardustalkabouttheprogresstodateonthe787-9andthe787-8,sothat'sgottocontinue,andwe'vegotalotofprojectsin-work.We'vegottogetthosematuredandwe'vegottogetthemcutinonlinenumbers.Sothereisnotalackof,I'llsay,focusandideasinthatarea,butwe'vegottogetthemmaturedandgetthemin.Butcontinuingtoexecuteaswehaveontheproductivity.

Mixplaysabigfactorinhere.Soourabilitywitharichermixofdash-9sand-10s.Andquitefrankly,asyou'veseenthedash-9getenteredintotheproductionsystemassmoothasitis,isanother,Ithink,indicatorofthatmixcomingtogether.Andkeepinginmind,thisisallinourbacklog,sothisisdeliveringonthebacklog.Butgettingthatsmoothintroductionandhavingthatrichermixofdash-9sand-10swillobviouslygrowasyougetfurtheroutinthatcostbaseanddeliveronthatbacklog.

Thesupplychain--obviouslywe'vegotplannedstepdownandcontractualstepdown,butwe'vealsogotinitiativesthatwe'reworkingtogetherintheCompanyandacrossthesupplychain,lookingforadditionalproductivityideas.Andkeepinginmind,there'sonlybeen300unitsbuilthere,roughly.Andaverysteepramp-up,andalotofchangeinratebreak.

Having--beingstableat10,andnowmakingthattransitionupto12,thisiswhenyoulook--historically,thisiswhereyou'vebeenreallyabletocaptureadditionalproductivitygains.Sowe'reworkingwiththesupplychainonthat.

Andthenrate.Asyouknow,we'regoingupinrate,anditwilltotalabout40%,goingupto12amonthin2016,andthen14amonthlaterin2019/2020timeframe.Somakinggoodprogressongettinguptoratewithinthesupplychain,aswellasgettingthefactoriesreadyinternally.

Again,thisisdeliveringonthebacklog,andyouknowthemarket,andsothatsupportstheserateincreasesverymuch.Butagain,thatwillcontinuetodriveproductivity.

AndthenIguesstheonlycommentI'dmakeonthemargins,I'dsaytheyaresimilartowhatweseetodayonourwide-bodyprogramsandwhatwe'reachieving.SoI'dsaygoodprogresstodate,alotofworkaheadofustodo,teamsgotgoodplansinplace,butweneedtokeepexecutingaswehave.Andthatwillbethepathgoingforward.


Doug,justtoaddalittlemorecolortothat.AsGregsaid,ineachofthosedimensions,wehaverealandfirmactionsunderway.Icantellyouformyself,Greg,Rayandthewholeteam,thisisaveryimportant,




high-priorityfocusareaforus.

AndineachoftheseproductivitydimensionsthatGregtalkedabout,theadvantagewehaveheregoestothefactthatwe'vegot800oftheseaircraft,roughly,inbacklog.Sothisgivesustheopportunitytodothatlong-termplanningandengagement,andtodriveprofitabilitywiththatlong-termview.Andthatiswhat'sgoingtodriveusdownthelearningcurvetogettothoseobjectivesthatGregmentioned.


Aspartofthattrajectory,thenpresumablyyoustillhaveanumberofcontractualstep-downsinthesupplychainthatyou'relookingforwardtoandthatyouhaveaprettygoodhandleon,Iguess?


Wedo,Doug.Andthatincludestheover-archingPartneringforSuccessumbrellathatwe'vetalkedaboutbefore,thatincludescommittedstep-downsthatareintheplan,andacontinuingefforttodrivevaluegeneration.Soourvalueengineeringeffortthatwe'vetalkedaboutbeforewithoursupplychainnetwork,morethanathousandideasinthepipelinerightnowthatwe'removingfromdesignstagetoimplementationstage.Sobothplannedandcommittedstep-downs,aswellasadditionalvaluegenerationbeyondthat.


Okay,thankyou.

Operator :

OurnextquestionisfromHowardRubelwithJefferies.

HowardRubel(Analyst-Jefferies&Company):

Thankyouverymuch.Dennis,yourecentlyextendedthe787-10withanewcustomer,andyou'vedoneanumberofthingswiththe777toenhanceitasavalueproposition.Couldyouaddressalittlebitthemarketdynamicsyouseebecauseofthecapabilitiesthesenewairplanesoffer,andhowyouseetheenvironmentforboththe777demandandalsothe9andthe10?


Youbet.Thanks,Howard.

Soyes,juststeppingback--andIknowthere'sbeenalotofdiscussionoutthereaboutthewide-bodymarketplaceandtheprospectsgoingforward.Andletmepaintforyouamarketoutlookthere,andthenhoneinonthosetwospecificairplanesinparticular.

Butifyoutakealookattheoverallmarket,wecontinuetoseeagrowinghealthymarketplace.Aswesaidbefore,ourcurrentmarketoutlookfor38,000newairplanesoverthenext20yearsintotal.Wecontinuetoseestrongpassengergrowth,independentassessments,again,of6%year-over-yeargrowththroughoutthetimeperiod.

Cargogrowthhasbeenmoremoderated,andhasbeenabitslowtorecover,asyouknow,butweareseeingsomerecoverysignsthere.Ifyoutakealookatoverallmarketcharacteristics,wecontinuetoseeastronghealthymarketplace,bothnarrowbodiesandwidebodies.

Ifyoutakealookatreplacementdemand,itcontinuestobestrong.Weexpectabout40%ofthoseaircraftinthatmarketoutlooktobedrivenbyreplacementdemand.AsIsaidcancellationsandreferrals




remainbelowhistoriclevels,aswell.Sothemarketfundamentalsremainstrong.

Now,whenwegettothetwoproductsyoumentioned,on787,asnoted,with800aircraftinbacklogandacontinuingstrongmarketdemand--andIthinkEVA'sdecisionherejustinthelastcoupleofweekstoacquire24787-10sisjustanothergoodsignofthevaluethat,thatproductisbringingtothemarketplace.The787isdeliveringvalueforourcustomers.

Thevaluepropositionisclearlyacompetitiveadvantage,bothintermsofoperatingcostreduction,aswellastheadvantageonrevenueandcargovolume,andresidualvaluethatitbringstothecustomers.Andwiththeproductionefficienciesthatwe'regenerating,weremainverybullishon787.AndasGregtalkedabout,ourplanstorampupto12amonthandthento14amonthbeforetheendofthedecade,allsupportedbystrongmarketdemandandauniquevaluepropositionofthatairplane.

Onthe777,we'vebeenveryfocusedonbuildingoutthe777bridge,aswe'vetalkedabout.Weneededtogenerateabout40to60ordersperyearonthecurrent777tobuildthatbridge;year-to-date,we'vegot44ordersandcommitments.Sowe'recontinuingtofilloutthatbridge.

Inessence,the777lineissoldoutthrough2016,morethanhalfsoldin2017,andwecontinuewithanumberofseriouscampaignsthere,allbridgingtothe777X.Andasyoupointedout,the777Xisbringing,again,auniquevaluepropositiontothemarket.Bothtoday's777andthe777Xhavereallynopurecompetitor,andbringuniquevaluetoourcustomers.

And777Xhavingjustcompletedfirmconfiguration,goodsolidsignsondevelopmentprogrambeingexecutedonplan,andweplantohaveEISonthatairplane2020asscheduled.Soinallcases,astrongfundamentalmarket,therightdifferentiatedproductline--both787sand777s--andverymindfulrightnowaboutbuildingabridgefromthe777tothe777X.


IfIjustmay,onthe78,initiallyyouhadteethingpainsintroducingitintothemarket.Couldyoujustforasecond--andthenI'llendhere--addressboththestatsreliabilityandhowyou'veimprovedthat,andhowthat'salsohelpedlowerbothairlinecostsandyourcosts?


Youbet.Andwecontinuetoseestrongprogress.

Andyou'reright,wehadsomechallengesasweintroducedthatairplaneintoourcustomerfleets.Andwe'vebeenveryfocusedonreliabilityimprovementsbothinthefieldandintheproductionline.We'veseensteadilyimprovingdispatchreliabilityacrossourcustomersets,andwe'repleasedwiththeprogressthere.

Thatsaid,moreworktogo,sowe'renotdone.Andwe'regoingtocontinuetodrivedispatchreliabilitythereforourcustomersuntilweachievetheobjectivesthatwehave.Somoreworktogo.

Iwillsaythatreliabilityimprovementsthatwe'vedeliveredtodateinthefield,andthenhaveback-drivenintotheproductionlinehavereallytakenhold.Andthebestsignofthatiswiththeroughly50dash-9sthatwedelivered.Asthey'rehittingthefleets,they'recominginatamuchdispatchreliabilitythantheoriginaldash-8s.

Sojustfurtherproofthattheinvestmentswe'remakingaredeliveringvalueforourcustomers.Andwe'regoingtostayveryfocusedongettingtothefinishlinethere.





Thankyou.

Operator :

OurnextquestionisfromMylesWaltonwithDeutscheBank.

MylesWalton (Analyst-DeutscheBank):

Thanks,goodmorning.


Goodmorning.


Greg,maybeoneforyou.Iknowtimingaroundadvancesissomethingthat'sgenerallyhardtopredict.You'veputoutthereaplaceholderof$3billionfor2015.

Andyear-to-date,thathasn'treallycontributedmuch.Andifyoulookatthefourthquarter,obviouslythatcamethrough.It'shardformenottothinkyou'dberunning$1billion-plusaheadofyourrevisedguidance.Socanyouhelpgiveeithertheoffset,orifthatismoreorlessjustconservatismaroundnotknowingwhenthat$3billionisgoingtotick?

GregSmith (CFO):

Yousaidit,Myles.Theycertainlydomovearound.Istillexpectittobeapositivecontributorto2015,buttimingdoesfactorin,soweshouldhavemoreinthefourthquarter.

ButIthinksteppingbackfromthat,youcansee,it'saboutthestrengthofthecashenginehere,andnottherelianceontheadvances.Obviouslyadvancesareimportant,butwhenyoulookintothecoreoftheCompany,you'reseeingstrongcashflowgeneration.Andthat'sthebigfocusareaforus.Andasyousaid,advances,they'regoingtomovearoundquarter-to-quarter,andwewillhaveafewmorehereinthefourthquarterthanwehaveinthethirdquarter.


Evenwiththetickupintherevisedcashguidanceforthisyear,theoutlookisstillgrowthinto2016fromthenewlevel?

GregSmith (CFO):

Yes,asyoustepbackandyoulookatthelong-termprofileoftheCompany,westillseethesameopportunitytohavestrongcashflowgrowthgoingforward.Itreallyplaysintocertainlytheproductionratesincreasesthatwe'vetalkedaboutonthe737,the767,andaswellasonthe787overthelongterm.Andobviously787improvingthroughthatperiod.Sooverthelongterm,we'reconfidentinthelong-termcashflowgrowth,I'llsay,storythatwehaveinplace,andit'sauniqueonewhenIcompareustootherindustrials.


Great,thanks.

GregSmith (CFO):

Thanks.




Operator :

We'llgotoSamPearlsteinwithWellsFargo.

SamPearlstein (Analyst-WellsFargoSecurities):

Goodmorning.

GregSmith (CFO):

Goodmorning.


Dennis,you'vetalkedaboutinthepastbeingabletogetmid-teensmarginswithintheBCAbusiness.AndIguessI'mwonderinghowcomfortableyouarestillwiththat?Andhowdothingslikethe777transitionandvolumeandactuallylowercommodityprices--whichshouldbelowerescalation--howdoesthatplayintoit?WhatdoesittaketogetthosekindofmarginsinBCA?


Sam,goodmorning.Yes,weremainfocusedonthataspirationaltarget.

Aswe'vetalkedaboutbefore,weseemargingrowthinBCAasanimportantpriorityforus.You'reseeingitinthedataandtheresultsthatwe'reproducing.TheproductivityactionsthatGregdescribedearlierareallpartofdoingthat.

Partofitisproductivityefficiencyinsideourownfactories.AnotherkeyportionofthatiswithinoursupplychainthroughourPartneringforSuccesseffort.

ButifwetakethelongertermviewofwhatourCompanycanandshouldbe,gettingtothatmid-teensmarginrangeisanexpectationandaspirationthatwesetforourselves.AndIthinkthat'sasmartandaggressivetargetforthelongterm.We'regoingtostayveryfocusedonit.

AsGreghassaid,withthebacklogthatwehaveandtheproductlinethatwehave,ouropportunitytogeneratelong-termcashgrowthandlong-termmarginaccretionisverystrong.Andwearetakingtherightproductivityactions,bothinternallyandexternally,todothat.Andthatwillresultinincreasedreturntoourshareholders,anditwillallowustofundandinvestinourfutureinnovationandtalent.Soweareveryfocusedondoingthat,andremainsteadfastonthatlonger-termtarget.

Now,regardingyourquestionaround777,aswethinkaboutthattransition,obviouslyakeytopicforushereasthe777Xwillbegincomingintotheproductionsysteminthe2018timeframe,leadingtoEISin2020.AsImentionedearlier,we'rebuildingthe777bridgewithtoday'scurrentproductline,leveragingthefactthatairplanedoesprovideauniquevaluepropositioninthemarketplace.

We'rethinkingcarefullythroughexactlyhowwedothattransitionandthetimingofit.Aswe'vetalkedaboutbefore,it'simportantthatwedothatefficiently.We'retryingtopullaheadsomeofthetechnologyinvestmentintheline,likeautomationinthefuselageline,tode-riskthattransition.AndasImentionedearlier,we'vealreadyimplementedthatautomationhereinthe777lineonthefuselageuprightbuild,andthat'sgoingwell.Sothat'sanotherwaytode-riskthattransitionandensureprofitabilitythroughit.

There'sbeenalotofconversationsoutthereaboutexactlywhattheshapeofthattransitionmightbe,andwe'refactoringinmarketdemand.AsIsaid,someuncertaintyaroundcargorecovery.

Frankly,someuncertaintyaroundEx-ImBankreauthorization.Thosearefactorsthatcouldcausesome




customerstodelaydecisionsaroundwidebodies,sowe'rebeingmindfulofthat.Wewanttomakesurewemaintainahighlyprofitablelinethroughthetransition.Allofthosefactorsaregoingintoourplanningrightnow.

Frankly,withthat,wedon'tseeanyscenarioswherewewouldcomedownbelowaseven-a-monthproductionrateduringthetransition.Importantagaintoremindourselvesthat2016isessentiallysoldout,2017ismorethanhalfsoldout,sothistransitionthatwe'retalkingaboutisa2017andbeyondtransition.Andthroughallofthat,we'regoingtodrivethisinawaythatmaximizesprofitabilityofthelinethroughthetransition,allowsustocontinuetoinvestinthefuture.

Andmybroadercommentsaboutcontinuedcashgrowthandmarginaccretionoverthelongterm,allaccountforthat777transition.Sothat'sallfactoredintoourbiggergameplan.


Thanks.AndGreg,Idon'tknowifyoucanmentionanythingaboutthecommoditycostandhowthataffectstheescalationandyourassumptionsintheprogramaccounting?Didithaveanyeffectthisquarter?

GregSmith (CFO):

No,itdidn'tSam.Itdidn'thavemuchimpactatall.


Thankyou.


Thanks.

Operator :

OurnextquestionisfromCaivonRumohrwithCowenandCompany.

CaivonRumohr (Analyst-CowenandCompany):

Yes,thankyouverymuch.Couldyoucommentwhethertherewereanyadjustmentstocommercialblocksoraccrualrates?

Andthenrelatedly,Dennis,youtalkedaboutmoderatedorderstrength.Areyoustilllookingforbook-to-billtogetto1.0fortheyear?Becauseitlookslikeyou'regoingtohavetomoveprettyquicklytogetthere.

Andifso,howdoestheChineseorderplayintothat?Andwhataretheimplicationsofgettingthereornotgettingthere,intermsofpotentialprofitability,lookingforward?Thankyou.


Cai,letmetakethesecondpart,andthenI'llflipittoGregforyourfirstquestion.

Soregardingbook-to-billfortheyear,again,wecontinuetoseebook-to-billofapproximately1fortheendoftheyear.AsImentioned,somehesitancyrightnowinthewide-bodymarketplacearoundcargorecoveryanduncertaintywiththeEx-ImBank.That'scausingsomecustomerstopauseabitondecision-making,soit'smoreofatimingissue,ratherthanavolumeissue.Sowestillanticipatebook-to-billtoberoughly1bytheendoftheyear.




Somedecisionscouldslideintotheearlypartofthenewyear.Frankly,withabout5,700aircraftinbacklog,annualbook-to-billratiosarenotthatimportanttous.We'recontinuingtogenerateorderspipeline,buttimingquarter-to-quarter,ifithappenstoshiftabitwiththekindofbacklogwehave,weremainveryconfidentinthelong-termplan.

Asyoumentioned,therecentannouncementbyourcustomersinChinawasverypositiveforus.WewerehonoredtohostPresidentXiatourfactoryinEverettacoupleweeksago.Amongstanumberofagreements,thatincludedanannouncementaround300aircraft--250narrowbodiesand50widebodies.Someofthoseareairplanesthatwerealreadyinbacklogbutunidentified.Othersareincrementalnewcommitments.

Andwe'llbeworkingthroughthespecificdealsonthoseairplaneswithourcustomersoverthenextmanymonths,andwe'llannouncethoseastheycometofruition.Butthatwillgenerallycreateupsidetoourbook-to-billposturefortheendoftheyear.

Gregyouwanttotakethefirstpart?

GregSmith (CFO):

Yes,onblockextensions,weextendedthe737by200aircraft;sooneblockextensionthere.Andthenwiththeincreaseddemandandoutlookonthe767,weincreasedthataswellby34units.Asfaraschangeinbookingratesbyprogram,nosignificantchangesI'dsay,Cai,acrosstheboard.

CaivonRumohr (Analyst-CowenandCompany):

Thankyouverymuch.

GregSmith (CFO):

You'rewelcome.

Operator :

OurnextquestionisfromJasonGurskywithCiti.

JasonGursky(Analyst-Citigroup):

Onequickclarificationquestion,andthenthemeatofone.Dennis,youmentionedtherateofsevenamonthonthe777.Wouldyoubefiringblanksinthatenvironment?That'stheclarificationquestion.

AndthenthemeatofthequestionisoneforGregonCapExoutintothefuture.Canyoutalkabouttheputsandtakesthatyou'relikelytoseeoverthenextcoupleofyearsonCapEx?


Yes,Jason,onthefirstquestionthere,yes,thatwillbefactoredintotheoveralltransitionplan.Asyou'rewell-aware,that'saverycommonpracticeforusaswetransitionmodelmixesinourhigh-volumelines.Aswegofrom777to777X,wherewecanpulltechnologyandimplementationahead,aswe'redoingwithautomation,wewill.Thatwillmakethetransitionevensmoother.

Insomecases,wewillfireselectedblanksdowntheproductionline.That,again,willhelpussmoothoutimplementationandinsureleanimplementation.Notethatwe'llalsohavesome777flighttest--excuseme,777Xflighttestaircraftthatwillflowthroughtheproductionsysteminthatsametimeframe.Soallofthatwillbefactoredintotheproductionprofileandthetransitionplan.

Butagain,asIsaid,welookedthroughalloftheoptionsandvariableshere,bothfromamarketdemand




standpoint,fromaproductionefficiencystandpoint.Wedon'tseeanyscenariosthatwouldtakeusbelowaseven-a-monthproductionrate.Andwe'reveryconfidentthatwecanachievethatimplementation,remainveryprofitableonthatlinewhilewedoit,andsuccessfullybringthe777Xtothemarketplace.

GregSmith (CFO):

AndJason,onCapEx,we'llexpecttogoupslightlynextyearfromourlevelsthisyear.Andagain,that'ssupportingthegrowthintheproductionrateswetalkedaboutandfurtherinvestmentsinthedefensebusiness,aswellassomeoftheproductivityinitiatives.Sofurtherimplementationoftheautomationactivityonthe737andthe787willalsobeputintoplaythereand,again,supporting777X,aswellastheplannedproductionrates.AndthenIwouldsaypast2016,thenwestarttocomedownandmoderatefromthereisreally,again,linkedtoourgrowthandlinkedtoourinvestmentprofile.

JasonGursky(Analyst-Citigroup):

Okay,that'shelpful.Thanks,guys.

GregSmith (CFO):

Okay,you'rewelcome.


Thanks,Jason.

Operator :

We'llgotoRonEpsteinwithBankofAmericaMerrillLynch.

RonEpstein (Analyst-BofAMerrillLynch):

Yes,goodmorning,guys.

GregSmith (CFO):

Goodmorning,Ron.


Quickquestionforyou,forGreg.Whenyouthinkaboutbalancingnear-termcapitalreturnstoshareholdersversuslong-termvalue--andinthecontextofthisis,I'mthinkingaboutthesharebuybacks.Year-to-date,youguysboughtback--what,ifIdidthemathright--41.5millionsharesforabout$6billion,right?

GregSmith (CFO):

Yes.


Thatimpliesanaveragecostofmaybe$144to$145pershare.

GregSmith (CFO):

Yes.





That'swithinabout10%ofthehistoricalhighsofthestock.Howdoyouthinkaboutthat?

GregSmith (CFO):

Well,wethinkthestockisstillundervalued.Andagain,IthinkitgoestothemarketplacethatDennistalkedabout.Itgoestothestrengthofthebacklog,whichthenlinksrighttotheproductionratesthatwehaveannounced,thatare,again,deliveringonthatbacklog.

Soit'sthatprofile,alongwiththeproductivityexpectationsyear-over-year.Soweobviouslyseealotofvaluestillleftinthisstock.That'swhyweboughtback$20billioninthelastthreeyearsandremaincommittedtothat.

Atthesametime,weremaincommittedtothedividend,toensurethatwe'recompetitivefromthedividendperspective,aswellasinvestinginthebusiness.That'sbeenfirstandforemostforus,investinginthingslike777X,liketheMAX,like787-9and-10.Andtheserateincreasesalongwith,again,efficiencies,automation,thatwe'reputtinginon777,we'reputtinginon737.Andthenadditionalinvestmentswe'remakingdowninCharlestontosupport,again,productivityandrateincreases.

Sothat'sthekindofprofileweseethatgivesustheconfidencetocontinuetobuybacktheseshares,buthaveabalanceddeploymentplantomeetallofourobjectives.


Great.IfImay,justafollow-on,seeingthateverybodyelseaskedaboutfivequestions.

Howdoyouguysthinkaboutthemiddle-of-the-marketairplane?That'ssomethingwe'vebeenthinkingaboutalot,andthere'sbeenalotofchatteraboutthatintheindustry.Howdoyouthinkaboutasapotentialmarketopportunity,andwhatinvestmentwouldberequired?


Westillseethatasanichemarket,butanimportantone,andwe'rehavingconversationswithourcustomers.Weseetodaythat,thatmarketspaceislargelyservedbyour737MAX8and9family,andontheupperend,bythe787.Andwethinkthat,inlargepart,servesthatmarketspace.

It'simportantthatalotofourcustomers,theirbuyingbehaviorandtheirneeds,arerelatedtofamiliesofaircraft.Andwestillseeinthatnarrow-bodymarketplacetheMAX8asbeingrightattheheartofthemarket,augmentedwiththeMAX9toservesomeofthoseneedsthatareinthatmoreofthemiddle-of-the-marketsegment.Soforthenearterm,weseeourcurrentproductlineasbeingtherightanswerforthatsegment.

Thatsaid,we'recontinuingtohaveconversationswithourcustomers.Andifweneedtorespondwithanewairplaneinthatmarketplace,thatwouldbesomethingthatwouldbemoretowardsthemiddleofthenextdecade.It'snotsomethingthatwoulddramaticallyaffectourR&Dprofilesoverthenextfourtofiveyears.Wethinkthoseprofilesareverysolid,withourcurrentdevelopmentprograms.

Butitissomethingwe'rekeepinganeyeon,continuingtotalkwithourcustomers,understandtheirneeds,andifthemarketdemandsaresponse,we'llbeready.


Great,thanksalot.

Operator :




OurnextquestionisfromSethSiefmanwithJPMorgan.

SethSeifman (Analyst-JPMorgan):

Hi,thanksverymuch,andgoodmorning.

GregSmith (CFO):

Goodmorning,Seth.


Togetinonthe787alittlebitmoreandwhatyouexpectinQ4,nottonitpicktoomuch,butyou'vetalkedinthepastaboutahealthydeclineinthedeferredgrowthinQ4,butnowwe'restartingfromalowerlevel.Somaybejustalittlemorecoloronhowtothinkaboutthat?Andthenifyoucouldexplainalittlebitaboutthedynamicsasweheadinto2016,andwhyitplateausforalittlewhilebeforegoingdownatthat12-month?

GregSmith (CFO):

Sure,we'llseeadeclineindeferredinthefourthquarter,I'dsay,similartotherateofdeclineyou'veseeninthisquarter.AndQ3certainlywashelpedbystrongperformance,butwedidhavesometimingofexpendituresaswell.Sowehadalittlebitof,I'llsay,favorablepick-upinthethirdquarter.

Butagain,Ithinkwhenyoustepbackandlookattheoverallprofileordeferredtodate,it'sbetterthanwhatweoriginallyprojected.Andthenasyoumoveinto2016,Seth,asIsaid,you'llstarttoseethatturnonceyouhitthe12-a-month.Sothegrowthwillmoderateobviouslyintothefourthquarter,andthenthroughinto2016untilyouhitthatrate,andthenthat'swhenwewouldexpectittoturn.

Andthatturndown,again,isdrivenbytherate,aswellasthestepdownonthesupplychain,thecontractedstep-downpricingandthecontinuedproductivity.Butalsothatmix.Imean,ensuringthatwe'vegot--thatdash-9continuestocomeintotheproductionsystemasithas.Sothoseare,I'dsay,thekeyindicatorsorkeyleversaswemoveinto2016.


Thanksverymuch.

GregSmith (CFO):

You'rewelcome.

Operator :

NextwegotoCarterCopelandwithBarclays.

CarterCopeland (Analyst-BarclaysCapital):

Goodmorning,DennisandGreg.

GregSmith (CFO):

Goodmorning,Carter.


Greg,Iwonderedifwecouldgobacktothemarginsforasecond.Inotedyouextendedtheblock200




unitsonthe737,butnomaterialmarginincreasethere.Iwonderedwhythatwas?IassumethatwouldbeallMAXs.

Andthenonthe777,Dennis,yourcommentsabouttryingtomaintainthatmarginratetotheextentpossible.Youobviouslyhavesomeprettysignificantextracoststherewhenyoutransitionoverthesurgelinefromthe787tothe777.Isitthat,thatcostisinthe777Xblock--orit'scalledR&D?

Howshouldwethinkabouthowyoumanagethetwodifferentprogramsgoingdownthesameline,becausethere'sobviouslysignificantcoststhere?Soanycolorwouldbemuchappreciated.

GregSmith (CFO):

Letme--ifyou'reallright,I'llanswertheMAXquestion.


Goahead,Greg,yes.

GregSmith (CFO):

Itwasaslightpick-up,Carter,butagain,200unitsonalargeblock.Sothere'salotofmovingpiecesinthere.There'ssomeinvestmentinthereforadditionalrateincreasesinproductivity.Sowhenyounetthatallout--again,notasignificantchangeonoverallbookingratesforthequarter.


Butpositive?

GregSmith (CFO):

Yes.


Okay.


Toyoursecondquestionon777,soasyounoted,theR&Dinvestments,theCapExinvestmentswe'remakingtobring777Xonline,areallpartoftheprofilethatwesharedwithyouintermsofourtotalR&DandCapExinvestment.Wherewecanpullthoseforwardandpre-implementonthe777linetoreducerisk,likethefuselageuprightbuild.Wearedoingthat.Butallofthatisincludedinourtotalinvestmentprofilefor777X.


Allright,thanks,guys.

GregSmith (CFO):

You'rewelcome.

Operator :

OurnextquestionisfromSteveLevensonwithStifel.

SteveLevenson (Analyst-StifelNicolaus&Company):




Thanks.Goodmorning,everybody.


Goodmorning.


Couldyoupleaseexpandyourcommentsontheupwardpressureonsingle-aislerates?Andcanyouletusknowifthere'sanypushbackfromthesupplychain,particularlyonengines?


Yes,whenyoutakealookatthemarketthere,Steve,itcontinuestoshowsignsofstrengthandgrowth.Whatwe'reseeingfromcustomersintermsofmarketdemand,especiallyforthe737MAX,continuestobeapositivesignforus.

We'vetoldyouwe'reat42amonthnow,we'rerampingto47amonth,and52amonthby2018.Thosearecommittedplansthatwehaveinplace.Wecontinuetodostudiesonpossibilitiesoframpingupbeyondthat.AsIsaidearlier,we'regoingtomaintainverystrictfinancialdisciplineaswedothosestudies,beingverymindfulaboutit.

Wearestillinaslightlyoverbookedposition,intermsofourorderprofileforthe737.Andallofthatjustcreatesgeneralupwardpressuretoproductionrates.We'regoingtobeveryfiscallyresponsibleasweconsiderthoseoptions.Again,ourcommittedplantakesusoutthrough2018,sowehavetimetoconsiderthesealternativesbeyondthat.

TheotherthingthatI'dliketofactorinisthe737MAXdevelopment.Thefactthatwe'veachievedpower-on,onthefirstairplane,thatfinalassemblyisonoraheadofschedule,alsogivesusconfidenceintermsoftheairplanecomingtogetherandbeingreadyforEISwithourcustomers.Soboththedevelopmentprogramprogress,aswellasthemarketdemandsignals,showusthatnarrowbodiesareaveryrobustmarketforus,bothshortandlongterm.


Again,anypushbacksfromsuppliers?


Well,wecontinuetotalktooursupplychain.Certainly,it'srampinguptothedegreewe'rerampingupissomethingthatwehavetopayattentionto.Andoursupplychainislettingusknowwheretheyseepressurepointsandwhereweneedtoworktogether.

NothingthatIwouldsayisoutoftheordinary.Thesearenormalramp-uppressures,andweknowhowtodotheserateramp-ups.We'vedonemorethanadozenoverthelastfewyears.We'vegotafewmoreimportantonesaheadofusduringthenextfiveyears.

Butworkingacrosstheintegratedsupplychainandmakingsuretheyhavethecapacityandthecapabilitytodeliveronourneedsisanimportantpartoftheequation.That'soneofthethingswefactorintoourcommittedplans.Weremainveryconfidentthatoursupplychaincanmeetourramp-upto52amonthontheMAX.Ifweweretogobeyondthat,factoringinsupplychaincapabilityisakeycomponentofthatdecision.Again,wehaveplentyoftimetomakethatdecisionwiththecommittedplanswealreadyhaveinplace.





Gotit.Thankyouverymuch.

T royLahr (VPofIR):

Operator,wehavetimeforonemorequestion.

Operator :

ThatwillbefromRobSpingarnwithCreditSuisse.

RobSpingarn (Analyst-CreditSuisse):

Thankyou,goodmorning.


Goodmorning.


Dennis,Iwantedtoaskyouonthebuyback.ButbeforeIgettothat,justaquickquestionforGregontheF-15,andthenIthinktherewassomeC-17sthatwerepre-builtbutdeliveredinthequarter.SoGreg,thequestionthereis,howmuchcashdidtheF-15deal--Ithinkit'sabouta$700millioncontributiontorevenue.Butthosetwoitems--howmuchunusualcashdidthoseprovideinthequarter?

AndthenDennis,foryou,giventhatyouhaveprettygoodvisibilityintowhatyourprograminvestmentlookslikeover,let'ssay,thenexthalf-decadewiththeMAX,the777X,anditsoundslike757replacementsintheplan,butdoesn'treallyrampuntilafterthat.Giventhat,canweexpectthatyourbuybackatthecurrentlevelsshouldcontinueunabatedgoingforward--roughlythoselevels?


Greg,whydon'tyoutakethat?

GregSmith (CFO):

Yes,noimpactoncashontheF-15,Rob.Andthen,I'dsay,veryinsignificantontheC-17.


Okay.


Andtoyourgo-forwardquestion,Rob,again,aswelookatprioritiesforcashdeploymentoverthenextseveralyears,toppriorityremainsorganicinvestment.Andthisisdeliveringonourdevelopmentprogramslikethe777X,theMAXandthe787-10.We'reconfidentinthat.

Andaswesaidbefore,withthephasingofthoseprograms,ourR&Dprofileyear-to-yearweexpecttoremainconsistent.AndsothatshouldgiveyouconfidencethatourR&Dfoundationisnotgoingtovarysignificantlyyear-to-year.Thatwillbeafoundationalinvestmentthat'sbuiltintotheplanoverthenextfiveyears.

Secondpriority,aswesaid,isreturningstrongvaluetoourshareholders,bothintheformofdividendsandsharerepurchase.Weexpectthattocontinuetobeastrongcomponentofouroverallcashdeploymentoverthenextmanyyears.




Andthenthirdly,anytargetedactionswemighttakeintheM&Aarena--acquisitionarena--thatwouldbeathirdpriorityinthatlist.Sowe'regoingtoremainveryfocusedonthosepriorities.Andthefactthatweexpectlong-termcashanotherwillallowustofuelboththosefutureinvestmentsandthingslikesharerepurchase.


SoDennis,tojustclosethetitlelooponthat,borrowingbigM&Aforward-yearshouldreallynotlookanydifferentthannow,fromabuybackperspective,orperhapshigher,giventhatyou'reramping?


I'mnotgoingtogiveyouguidancetospecificnumbers,Rob,butsharerepurchaseanddividendstrengthoverthelongtermwillcontinuetobeahighpriorityforusoncashdeployment.


Okay,thankyou.

Operator :

LadiesandGentlemen,thatcompletestheanalystquestion-and-answersession.

(OperatorInstructions)

I'llnowreturnyoutotheBoeingCompanyforintroductoryremarksbyMr.TomDowney,SeniorVicePresidentofCorporateCommunications.Mr.Downey,pleasegoahead.

T omDowney(SVPofCorporateCommunications):

Thankyou.WewillcontinuewiththequestionsforDennisandGreg.Ifyouhaveanyquestionsfollowingthispartofthesession,pleasecalltheMediaRelationsteamat312-544-2002.Operator,wearereadyforthefirstquestion.Andintheinterestoftime,weaskthatyoulimiteveryonetojustonequestion,please.

Operator :

We'llgoJulieJohnssonwithBloombergNews.

Julie Johnsson (Media-BloombergNews):

Hi,all.Ijustwantedtocirclebackon777rate,andfollowupwitha747ratequestion.IjustwanttomakesureIunderstandthis.Areyoustudyingtakingtheratetosevenamonthorplanningto?

Andwouldthisbeeffectivein2017,orarewelookingmoreat2018forthetriple?Andon747,obviously,thecargomarketisnothelpingorderactivitywiththatplane.Arewepotentiallylookingattakingtheratebelowoneamonth?


Letmefieldthefirstonethere,andthenGreg,I'llaskyoutotouchonthesecondone.

Julie,regarding777,asIsaid,we'redoingourscenarioplanningrightnowthatincludesmarketdemandandfeedbackwe'rehearingfromourcustomers.Itincludesthevaluepropositionofthe777andthe777X.AndIwanttostressagainthat,thatairplaneisprovidinganabsolutelyuniquevaluepropositioninthemarketplace.




It'sdifferentiatedandourcustomersseeit.Andthenalsodoinganefficientandprofitabletransitionfrom777to777X.Sothoseareallthingsthatwe'refactoringintoourplan.

Wehaven'tfinalizedthatplanyet.We'reworkingthroughavarietyofoptions.Butaswelookthroughallofthoseoptions,wedon'tseeanyscenariosthatwouldtakeusbelowaseven-a-monthproductionrate.Sowewantedmakesurethatwasclear,asthere'sbeenspeculationaboutwhatoptionrangewemightlookat.

Weseethatasafloorforourplanning,givenallofthescenarioswe'relookingat.Specifictiming--implementationisyettobefinalized.We'reworkingourwaythroughthosedetails.Thosewillbedecisionswe'llhavetomakeinthefirstpartofnextyear.

ButI'llstressagainthatwearesoldoutessentiallythrough2016,morethanhalfsoldoutthrough2017.Sowhatwe'retalkingabouthereisatransitionthat'sout2017andbeyond,andwewouldgetintothemeatofthatinthe2018timeframe.Somoredetailstobeworkedthrough,butweremainconfidentthat,consideringallofthefactorsItalkedabout,thatwe'llbeabletoprofitablygothroughthattransitionandbringthe777Xtothemarketplace.

GregSmith (CFO):

Julie,on747,asyouknow,thishasbeenachallengingmarketplacerecently.Andwetookthe--weannouncedtakingtheratedownfrom1.3to1amonthearlyin2016,sowecontinuetomonitorthatmarketplace.Itischallengingrightnow;itisdrivenbythemarket.

It'sagreatairplane.It'sanairplanethatsitsinaclasswithinitself,whetherit'sanIorafreighter,sothisiscertainlymarketdynamics.We'vegotapipelineofcustomerswe'relookingat.Butagain,havingsaidthat,it'sachallengingmarketplacefortheairplane.

Sowecontinuetowatchit,andatthesametimefocusonproductivitywithinthefactoriesandthesupplychain.Andwe'lllikelytakeanotherlookattheratehereearlynextyearandseewhereweareonordersandbacklog,andmoveforwardfromthere.Butrightnow,theplanistoholdat1amonth

Operator :

OurnextquestionisfromDougCameronwiththeWallStreetJournal.

DougCameron (Media-TheWallStreetJournal):

Goodmorning,everyone.Iknowyoumustbeprettyexhaustedatthatdefensequestionattheendoftheanalystcall,buthopefullyyou'llindulgeme.

Giventheamountofportfolio-shapingthat'sgoingonamongstthe[prime'snight],Dennis,howcomfortableareyouwiththeshapeoftheBDSrightnow,particularlyonmilitaryaircraftandspace?Andareyoucomfortablewiththatregardlessofwhathappenswithsomebigupcomingcontest?


Yes,Doug,weare.AndasIsaidbefore,wehaveastrong,robust,healthydefensebusiness.

It'satoughmarketplace,andwe'veacknowledgedthat.We'redealingwiththerealitiesofsequestrationintheUSdefensebudget,somewhatoffsetbywhatwe'veseenasinternationaldefensegrowth,especiallyintheMiddleEastandtheAsiaPacificregions.Butourdefensebusinessoverallisahealthyportfolio.

Weliketheprogramstructureswehave,we'regrowinginternationallyandwe'reinvestingforthelong




run.Thatmarketplaceissomewhatmuted,soweexpectthatbusinesstoberelativelyflattoslightgrowth,topline.Inparallelwiththat,we'recontinuingtodrivebottom-lineperformance,andyousawitintheresultsherewitha12.2%marginquarterinourdefensebusiness.Sothat'sarobust,importantpartofourportfolio.

Wehavedifferentiatedproductlinesonthingslikecommercialderivatives,theP-8andthetanker,whichpresentuswithopportunitiesforlonger-termgrowthandleverage--theoneBoeingvalue,ifyouwill,acrosscommercialanddefensesectors.We'recontinuingtoinvestinfutureproductlinesaroundhumanspaceexploration,satellites.We'reinvestinginunmannedsystemsandISRcapabilities.

Andimportantly,weareinvestingforsomecriticalfranchiseprogramsforthefuture.Youalludedtothat,butprogramslikelong-rangestrike,thenewTXtrainer,areimportant.Andoneofthereasonswecontinuetodriveproductivityissowecaninvestinthosefutureproductlines.

Andwedon'tseeaneedtosignificantlychangethestructureofourdefensebusiness.We'regoingtostayveryfocusedonexecutingthebusiness,investingorganically,andwherewecanmaketargetedacquisitionstoroundoutourportfolio,we'llcontinuetodothat.

Operator :

OurnextquestionisfromDominicGateswiththeSeattleTimes.

DominicGates (Media-TheSeattleTimes):

Goodmorning,DennisandGreg.


Goodmorning,Dominic.

DominicGates (Media-TheSeattleTimes):

Ijustwanttoclarifyacoupleofthingsaboutthe777ratequestion.TheEISfor777Xis2020,butpresumablythat'sgoingtorampupoverseveralyears.

Sothefirstquestionaboutthebridgeis,howfarbeyond2020areyoustillhavingtofillabridgeforthecurrent777model?Andthensecondly,yougaveussomereassurancethatthefloorfortheproductionrateinthebridgeissevenamonth,butyoualsomentionedfiringblanksinthat.Canyougiveussomeidea,like,howmanyblanksarewetalkingabout?

Ifitwasoneamonth,that'sverydifferentfromoneortwoayear.Sogiveussomeguidancethere?


Dominic,tothefirstpartofyourquestion,whenyoulookatthedurationofthebridge,you'reright.777XEISisin2020.Aswesaid,thebridgewe'retryingtobuildwiththecurrent777isroughlyafive-yearbridge,soittakesustothatsametimeframe.Thedepthofthatbridgeismostsignificantinthe2018-2019timeframe.

Sowe'reveryfocusedonfillingthatout,andweneedabout40to60aircraftperyearoverthatfiveyearstofillthatbridge.Sothateffortcontinuestopressahead.

Nowwhenyouthinkaboutthetransitionandproductionrate,thefactthatwe'llfiresomeselectiveblanksthroughtheline,thatisnotahigh-volumedecision,toyourpoint.Thisissomethingthatwe'lldoselectivelyaswebringleanimplementationonlineandthenewproductionrate.Wehaven'tfinalized




exactlyhowmanythatwillbe,butthoseareincrementals,notasustainedactivity.Andthenalsomindfulthatwewillhave777Xflighttestaircraft--typicalnumbersofflighttestaircraft,principallyinthe2018/2019timeframe--thatwillbewithinthatproductionlineaswell.Sobothofthosearebeingfactoredintotheprofile.

Operator :

OurnextquestionisfromAlanScottwithReuters.

AlanScott (Media-Reuters):

Hi,canyouhearme?


Yes.

AlanScott (Media-Reuters):

Okay.SoIwantedtocomebacktothe787,Dennis,andask--andalsoGreg--howfardoyouthinkyoucankeepincreasingthedeferredproductioncosts?Arewenearingtheupperlimitofwhatyoucanreasonablydeferwithouttakingacharge?Andifwe'renearingthat,howdoyouthinkaboutwhetheryouneedtoincreasetheaccountingblockoratwhatpointyoumayneedtotakeareach-forwardloss?

GregSmith (CFO):

Onthedeferred,Iwouldsay,Alan,thattheprofilehasn'tchanged,thekeymilestoneshaven'tchanged.Thegrowthwillstarttomoderateagaininthefourthquarter.AndasI'veindicated,oncewehit12amonth,that'swhenthedeferredwillstarttoturn.

I'dsayallthekeycontributorstothatunitcost,themix,andagain,gettingtothe12amonth,whichagain,we'remakinggoodprogressinthatarea.Sothoseareallofthekeyitems,I'llsay,contributorstothat.Butthefunnelofmilestonesintheprofileofthathasnotchangedfromwhatwediscussedprobablyayearandahalfago.


Operator,wehavetimeforonefinalmediaquestion.

Operator :

Thatwillbefrom[MikeAlmedinberg]withCrain'sChicagoBusiness.

MikeAlmedinberg (Media-Crain'sChicagoBusiness):

Hi,goodmorning.DennisorGreg,DeltaAirlineshascontinuedtopushthisideathatthere'sabubbleinthewide-bodyaircraftmarket.Theycomparedthatsegmenttothepre-recessionrealestatemarket.AnycommentonthistakefromDelta?


Yes,Mike.I'llgobacktomyearliercommentsaboutourbroaderlookatthewide-bodymarket.Wecontinuetoseeaveryhealthyoverallmarketplace,bothnarrowbodiesandwidebodies.AsIsaid,trafficgrowthissustained,replacementdemandissustained,deferrals,cancellations,belowhistoriclevels.

Werecognizesomeofthecommentsthathavecomeoutrecently,andbelieveyou'rereferencingthe




notearound$10million777sthatmightbeavailable.I'llsay,justbasedonourunderstandingofthemarketplaceandwhatweunderstandfromourcustomers,thatnumberisofthewrongorderofmagnitude.

Andfrankly,thevalueofthe777isholdingupverywellinthemarketplace.Itisauniqueairplane;inthat365-seatcategory,thereisnocompetingaircraftoutthere.It'sauniquevaluepropositionforourcustomers.Sothevaluesareholdingupwellinthemarketplace.

Wearemindfulthatthecargomarkethasbeenabitslowtoreturn.We'remindfulofthefactthatlackofEx-ImBankreauthorizationiscreatingsomeuncertaintyandsomedelaysincustomerdecisions,andsowe'reconsideringthat.Butifyoustepbackfromit,theoverallhealthofthemarketplaceandtheuniquevaluepropositionofourairplanesisveryclear,andweremainconfidentinthat.


Thatconcludesourearningscall.Again,formembersofthemedia,ifyouhaveadditionalquestions,pleasecallourMediaRelationsteamat312-544-2002.Thankyou.

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Boeing (BA) Earnings Report: Q3 2015 Conference Call Transcript · 2015. 10. 22. · revenue growth, 10.2% core operating margins, 18% growth in core earnings per share, and operating