Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's fourth quarter 2024 earnings conference call. Today's call is being recorded. The management discussion in the slide presentation plus the analyst question and answer session are being broadcast live over the internet. To ask a question on today's conference, please press the digit 1 followed by the digit 0 on your touchtone telephone. Again, it's 1-0 for questions. After pressing 1-0, you will hear that you have been placed in queue. Pressing 1-0 again will take you out of queue. It may prevent you from being able to ask a question. At this time, for opening remarks and introductions, I'm turning the call over to Mr. Matt Welch, Vice President of Investor Relations for the Boeing Company. Mr. Welch, please go ahead.

Thank you and good morning. Welcome to Boeing quarterly earnings call i am matt welch and with me today are kelly orberg boeing's president and chief executive officer and brian west boeing's executive vice president and chief financial officer and as a reminder you can follow today's broadcast and slide presentation at boeing.com projections estimates and goals included in today's discussion involve risks including those described in our sec filings and in the forward-looking statement disclaimer at the beginning of the presentation we also refer you to the disclosures relating to non-gap measures in

our earnings release and presentation now i will turn the call over to kelly ortberg thanks matt and thanks to everyone for joining today's call before i get into the fourth quarter earnings let me first offer our thoughts and deepest condolences for the families and loved ones of those on board Jeju Air Flight 2216. We continue to support the airline and the U.S. National Transportation Safety Board as they assist the South Korean authorities in the accident investigation. Now turning to the fourth quarter earnings. Starting the last call I highlighted four areas critical to our recovery. And as the new year begins, we're making steady progress in all four areas. The first area, stabilizing the business. Following the resolution of the IEM strike, our commercial team has been executing a methodical plan to restart our factories within the framework of our safety management system. This included ensuring all manufacturing employees were current on their training and certifications prior to returning to work on the factory floor. We took time to rebalance the production line so that when we started up, we did so with a healthy production system. People are back to work and excited about the task ahead, and you can see the energy when you're on the factory floor. For the 737 MAX, we have sufficient parts inventory to enable producing at 38 a month including fuselages which were a pacing item prior to the strike and all three of the production lines in Renton are now cycling. In the past quarter we completed our safety management meeting with the FAA in which they reviewed our safety management system and our production status including spending time on the factory floor. They reported that they saw significant improvements and I'm pleased that we have an agreed upon path for rate increases beyond 38 per month. It's all about adhering to our safety management system and a stable factory as measured through agreed upon key performance indicators or KPIs. It's an early innings on the production ramp and we need to stay disciplined on maintaining a stable production system but early signs are encouraging the best news is that our customers are reporting that they are encouraged with what they're seeing as they monitor our production progress on the 787 also continues and we finished last year at a production rate of five per month like the 737 we are working to ensure the 787 production system including the supply chain is stable prior to making the next rate increase. An important accomplishment to stabilize the business was to shore up our balance sheet. We are committed to recovering the business while maintaining an investment-grade credit rating and delivering for our share owners. I think the demand for our offering last year speaks volumes about the market's confidence in our recovery. We're working across the supply chain, including the sub-tiers, to ensure readiness and stability with our production rates. Notably, supplier part shortages across all of our commercial programs are within their established control limits. We have instituted dedicated sessions with suppliers to provide insights as well as to promote two-way communication to stay aligned as we operate together as one extended production system. The second element of our recovery is to improve performance on our development programs. While the charges for the quarter in BDS are disappointing, I have had the opportunity to complete deep dive EAC reviews on all the troubled programs. We are very focused on creating stability within the EACs so we stop this quarterly drumbeat of cost growth. This means being more proactive and clear-eyed on the risks and our estimates to complete the projects. While I know it doesn't show in this past quarter's performance, we're making progress in working with our customers to actively manage the contracts to achieve better outcomes for both parties. You've seen that we've entered into an MOA with the U.S. Air Force on the T-7A program, and we're in active discussions on a second MOA on that program, all focused on improving the performance of the program. We're also in active discussions with our customer on the VC-25B program to make the necessary changes to improve the program performance and delivery. The U.S. Air Force has termed this as an active management, which is a term I really like. we're focused on actively managing all of our problematic programs to improve the performance for the company and our customers. While I've said there's no silver bullet on these fixed price programs, I do feel better about our ability to better manage the performance in 2025. On the commercial side, we continue to focus on getting the 737-7 and 737-10, as well as the 777X through certification. There are no updates to the timelines we've previously communicated on these programs. On the dash 7 and dash 10, we're still working through the testing phase focused on finalizing the icing design solution, which we plan to include in the certification program. program. Working closely with the FAA, especially in light of their leadership changes, will be a key focus area for us this year. The 777X is back in flight test, and we have a good handle on fixing the thrust link issue we uncovered. Now moving to the third area, culture change. This will be a multi-year journey, but we're already making progress. Our leaders are getting more engaged with their teams and customers. we're having the frank discussions about what we need to change. In 2025, we'll be re-baselining our core values and behaviors to make our expectations perfectly clear to all our Boeing teammates. These will be incorporated into our leadership development program and become fundamental elements of our performance management system. Leadership promotions will be grounded not only in what we get done, but how we get things done. We're going to help focus the teams on what it takes to make Boeing successful and promote a culture of unity and accountability by implementing a single enterprise score for all of our annual incentive plans. As I talk with employees, there's a growing swell of excitement around restoring trust and getting their Boeing back, and they want to be a part of this turnaround. So the last area is building a new future for Boeing. While workforce reductions are always difficult, I'm pleased that we have been able to reduce layers of management and redundant overheads in our system. This will serve us well as we establish a less bureaucratic, more focused, and agile operating environment for our future. We're preparing for the road ahead by continuing to make important investments in our core business while streamlining our portfolio in areas that aren't core to us. So let me wrap up by saying that the markets we serve are robust and growing, demand for our core commercial and defense products and services remain strong, our backlog of more than a half a trillion dollars clearly demonstrates the value of our portfolio, and we're focused on meeting our commitments and delivering safe, high-quality products to our customers. I do want to acknowledge and thank the incredibly talented employees at Boeing. Your resiliency and commitment gives me confidence in our path forward. It's going to take all of us working together. Next, let me turn it over to Brian to cover the operating results, and after that, we'll be happy to take your questions. So, Brian, over to you.

Thanks, Kelly, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $15.2 billion, down 31%, primarily driven by lower commercial deliveries associated with the IAM work stoppage. The core loss per share was $5.90, primarily reflecting previously announced impacts of the IAM work stoppage and agreement, charges on certain defense programs, as well as costs associated with workforce reductions announced last year. Free cash flow was a usage of $4.1 billion in the quarter, in line with the expectations shared at our last earnings call. Results were impacted by lower commercial deliveries and unfavorable working capital timing, primarily driven by the IAM work stoppage. Turning to the next page, I'll cover Boeing commercial airplanes. BCA delivered 57 airplanes in the quarter. Revenue was $4.8 billion, and operating margin was minus 43.9%, primarily reflecting previously announced impacts from the IAM work stoppage and agreement, including pre-tax charges of $1.1 billion on the 777X and 767 programs. Backlog in the quarter ended at $435 billion and includes more than 5,500 airplanes. Now I'll give more color on the key programs. The 737 program delivered 36 airplanes in 4Q including a step up to 18 in December and as of yesterday we've delivered 33 airplanes in January with four days to go. On production we restarted the factory in December and plan to gradually increase rate. We expect to be in a position to go above 38 per month later in the year. All free lines in our rent and factory recycling and monthly production is already in the low to mid 20s for January. More broadly on the master schedule we continue to make adjustments as needed and manage supplier by supplier based on inventory levels. Over the past year our buffer inventory has grown to promote stability across our production system. As production stabilizes and rates increase over time, we plan to deliberately return buffer inventory to more normal levels. The quarter ended with 55 737-8s built prior to 2023, the majority for customers in China and India, down five from 3Q, with about another 10 already delivered in January. Given the impact of the strike we now expect to shut down the shadow factory mid-year and deliver all the remaining airplanes to customers within the year on the dash 7 dash 10 inventory levels were stable at approximately 35 airplanes and testing on the anti-icing design solution is ongoing with certification expected to follow later in the year on the 787 program we delivered 15 airplanes in quarter as we made progress on working through production recovery plans for heat exchangers and delivery delays associated with seat certifications. The program exited the year at a production rate of five per month and it recently announced plans to expand South Carolina operations as we prepared for anticipated future need of the commercial market. We are intent on ensuring the production system and the supply chain demonstrate stability prior to making the next increase on rates sometime this year. We ended the quarter with 25 airplanes and inventory built prior to 2023 that require rework, down five from last quarter. Our ability to finish the rework and shut down the shadow factory was also impacted by the work stoppage and we expect to complete this work in early 2025. Finally, on 777X, as previously announced, The $900 million pre-tax charge primarily reflects higher estimated labor costs associated with finalizing the IAM agreement and will be incurred over the next several years. Flight testing recently resumed, and we still expect first delivery in 2026, and will continue to follow the lead of the FAA as we move through certification. 777X inventory spend in 2024 finished at $2.6 billion as 4Q spending levels moderated due to the work stoppage. As noted previously, we expect the cash profile to look similar to prior development programs with a first year prior to first delivery, typically the largest use of cash driven by inventory build associated with the production ramp, which will unwind as deliveries accelerate. Moving on to the next page in Boeing Defense and Space. BDS booked $8 billion in orders during the quarter, including awards for 15 KC-46A tankers from the U.S. Air Force and seven P-8A aircraft from the U.S. Navy, and the backlog ended at $64 billion. Revenue was $5.4 billion dollars down 20 percent year-over-year on volume and program charges and operating margin was minus 41.9 percent. BDS delivered 34 aircraft and two satellites in the quarter including the final T78 EMD aircraft to the U.S. Air Force. The 15 percent of the portfolio comprised of fixed price development programs recorded a 1.7 billion dollar pre-tax charge as previously announced. The fixed price development cost pressures were driven by the KC46A and T7A programs, with KC46 primarily reflecting higher estimated manufacturing costs, including the impacts of the IAM work stoppage agreement, and T7 driven by higher estimated production costs on contracts in 2026 and beyond. Roughly one-third of these new charges will work through the cash flows in the next few years with remainder spread over the coming decade given the fixed price nature of these contracts we'll continue to be transparent about impacts as we work to stabilize and mature these programs we acknowledge that these are disappointing results these are complicated development programs and we remain focused on retiring risk each quarter and ultimately delivering these mission critical capabilities to our customers as kelly shared we continue to make progress in 4q including key order and delivery milestones already noted. Importantly, the updated acquisition approach for the T7A is a proof point for how we are working with our customers to find better overall outcomes for both parties. And those efforts will continue as we work through other parts of the portfolio. On the 25% of the portfolio primarily comprised of FIDER and satellite programs. Our FIDER programs again recognize losses in 4Q due to disruptions associated with the F-15EX ramp-up and the F-18 production wind-down. We also recognize impacts across satellites and a few other legacy platforms tied to development realities as we work to refresh the capabilities of these platforms to support our customer needs. The remaining 60% of revenues of the portfolio are generally performing in the mid- to high single-digit margin range, although the P8 commercial derivative program experienced margin compression in the fourth quarter due to the IAM work stoppage and agreement. While still more work in front of us, we continue to be confident that BDS margins can improve to high single-digit levels in the medium to longer term. The demand for our defense products remains very strong, supported by the threat environment confronting our nation and our allies. We still expect the business to return to historical performance levels as we stabilize production, execute on development programs, and transition to new contracts with tighter underwriting standards. Moving on to the next page, Boeing Global Services. BGS continued to perform well, delivering record operating margins in the quarter. The business received $6 billion in orders, and the backlog ended at $21 billion. Revenue was $5.1 billion, up 6%, primarily on higher commercial volume. Operating margin was a record 19.5% in the quarter, up 210 basis points compared to last year, with both our commercial and government businesses delivering double-digit margins. In the quarter, BGS secured awards for C-17 sustainment, as well as a contract for F-15 Japan Super Interceptor upgrade and services from the U.S. Air Force. BGS is a terrific long-term franchise focused on profitable capital efficient service offerings and executing well with mid single-digit revenue growth, mid-teen margins, and very high cash flow conversion. Turn to the next page. I'll cover cash and debt. On cash and marketable securities, we ended the quarter at $26.3 billion, primarily reflecting the successful $24 billion capital raise in October, partially offset by the free cash flow usage and debt repayment the debt balance ended at fifty three point nine billion dollars down 3.8 billion in the quarter driven by the early repayment of a 3.5 billion dollar bond originally set to mature in 2025 importantly this prepayment de-risks our 2025 maturity profile resulting in 800 million dollars of debt maturities remaining in the year The company maintains access to $10 billion of revolving credit facilities, all of which remain undrawn. We remain committed to managing the balance sheet in a prudent manner with two main objectives. First, continue to prioritize the investment grade rating, and second, allow the factory and supply chain to reset. We will continue to evaluate opportunities to further supplement the balance sheet as we make certain portfolio decisions through the course of the year. Turn to the next page. I'll cover the total financial company results for the full year. Full year revenue was $66.5 billion, down 14% year-over-year, driven by lower commercial deliveries, including impacts of the IAM work stoppage. The core loss per share was $20.38, down from prior year primarily on lower deliveries and commercial and defense program chargers, including impacts of the IAM work stoppage in agreement. Free cash flow was a $14.3 billion usage for the year, down versus prior year on commercial deliveries and unfavorable working capital timing, including the impact of the work stoppage. Stepping back, let me provide some additional context on 2025 free cash flow. 2025 will be an important year in our recovery, and while we still expect it to be a use of cash, we anticipate a significant improvement over 2024. Within 2025, we expect 1Q free cash flow will be a usage and similar to 4Q24, driven by continued working capital headwinds as we ramp production, as well as normal seasonality. We still expect the first half to be a use of cash, with the second half turning positive and accelerating as we exit 2025. CapEx investments stepped up last year and could increase by approximately $500 million in 2025 to support planned growth across both the commercial and defense businesses. Importantly, we expect to exit the year with real momentum in the business as we return to normal production rates. This outlook will be underwritten by a few critical factors. increasing 737 production rates through the year, moving 787 steadily towards its long-term production rates, liquidating our legacy 737 and 787 inventory and shutting down both shadow factories, strategically investing in the business, including the 777X production ramp and CapEx to support planned growth across the portfolio. Improving our defense business as we continue to mature the fixed price development programs and work to transition recently challenged programs with our renewed focus on disciplined program management and stabilizing the business. And finally, continuing to demonstrate strong performance across our services business. Broadly, the markets we serve continue to be significant and our backlog of more than half a trillion dollars demonstrates that our product portfolio is positioned to win long term these fundamentals underpin our confidence as we continue to manage the business with a long-term view built on safety quality and delivering for our customers with that let's open it up for questions Thank you.

In order that your question be heard, clearly heard, we ask that you not use a speaker phone, cell phone, or phone headset. Please use your handset to ask a question. If you're using a speaker phone, please be sure to mute, I'm sorry, please be sure your mute function is switched off so your signal can reach the equipment. As a reminder, in the interest of time, we are asking that you limit yourself to one single part question. And our first question is from the line of David Strauss from Barclays. Please go ahead.

Thank you. Good morning. Good David. Kelly, I wanted to ask how you viewed the restart on MAX, how that's gone. You mentioned some of the or you mentioned KPPs that you have with the or KPIs that you have with the FAA. Can you maybe elaborate on what exactly those are how close you are to hitting what's necessary to get to uh to go about 30 a month and then brian can you just give us an idea of what to expect for all in max and 787 deliveries in 2025 thanks yeah david so let me let me talk about the production startup on max so as you know we came out of the the strike and didn't actually jump right on building aircraft.

We spent time training the workforce, getting them all up to speed, but also really, as I said, balancing the line, which is really important, starting the line up in a stable manner. And it already is paying dividends. We're seeing the production process come back very well. And I feel pretty good about where we are right now with the the production rate remember that we've got a significant amount of inventory both in airplanes and in uh supply parts so uh you know i don't see any constraints right now from the supply chain for us in ramping up the 737 to the 38 a month rate and notably the the work at spirit has during the strike has really paid off that team has done a great job of improving the overall performance and quality of the fuselages, which are going to help flow, you know, through the factory. So as I said, you know, it's early days, but I feel really good. And I think our deliberate plan, you know, is going to pay dividends for us going forward.

David, a little bit on how to think about 737 deliveries for the year. You know, we're not putting out formal guidance a little too early for that but let's just talk about a framework for the year um so january is off to a very solid start and uh delivery should be in the high 30s uh for the month now keep in mind some of these airplanes are the benefit of clearing the delivery center ramp that had accumulated in the november december time frame so uh there's an advantage of a nice tailwind entering the year um we expect february will be lighter because there's fewer manufacturing days and also the timing of the factory restart and then march is likely to be better than february as we begin to get more predictability so as we've said the first half is going to reflect our gradual steady restart of the factory and the second half is likely going to benefit from achieving higher production rates which include the 38 per month target and possibly higher based on approval from the FAA, as Kelly mentioned. So as we sit here today, you've got a lot of work in front of us. You know, 2025 in some ways could look like 2023, maybe a bit better if things go our way.

Hey, David, let me come back also and talk about the six KPIs that you asked about. So these are KPIs that we've agreed with the FAA on what the threshold is and where the control limits we want to operate. And these are what we've collectively determined will measure the stability of our production system. I'll quickly tell you what the six are. They're NOE, notice of escape hours, shortages, part shortages, employee proficiency, rework byline, traveled work at rollout, and the ticketing performance and so I will say it's a little bit early because we have a lot of inventory yet of planes that were in process that we're going through but early indications is that all the KPIs are looking and trending in the right direction so I feel you know so far so good but it will be important to see and continue to measure these KPIs as we continue to ramp up And remember, you know, we need to get to 38 and show stability at 38 with these KPIs, and we won't go to the FAA for a rate increase. We won't request one if we don't see these KPIs performing the way that we want to. And so, you know, I think we've got a disciplined approach. As I said in my remarks, I'm pleased that it's pretty well grounded in facts and data, so there's no subjectivity here as far as what it's going to take. but we've got to perform, and Stephanie and the team are clearly focused on performing to these KPIs.

Thank you. And the next question is from Peter Hermet from Bayard. Please go ahead.

Yes. Good morning, Kelly and Brian. Hey, Brian, maybe if you could walk us through a little bit on the free cash flow dynamics for 2025. I know you called out a few things, some of the moving parts but just you know thinking about working capital headwinds or triple 7x spend or bds losses we we've been estimating about a five billion dollar outflow this year i think it's a little above the consensus of four um anything to highlight that you could help us maybe that potentially could be you know reduce that outflow or or how are you how are you thinking i know you gave us the first half versus second half dynamics but anything else that you could provide more color on thanks yeah sure peter um so 2025 free cash flow is largely going to be consistent with with what we'd said at our October earnings call with the two adjustments that I noted, which is CapEx, a little bit higher based on some growth programs that we're anxious

to invest in, and the impact of a few hundred million based on the updated BDS charges. So it's consistent with those two adjustments. Now, in terms of profile, as we've discussed and you mentioned, the first half will be negative, the second half will be positive, it'll be a net usage in the calendar year, but importantly, positive momentum as we accelerate cash flows exiting the year that sets us up very nicely for 2026. Now, in terms of levers, the first half of the year, BCA is going to be negative driven by the working capital usage and continued investment in the 777X program. BDS is going to be negative due to the prior period charges running through as well as normal seasonality as pertains to customer receipts, and BGS is going to be nice and steady contributing in the first half. As we go to the second half, BCA is expected to flip positive because then it'll get the benefit of the working capital as deliveries accelerate while we still invest in the 777X program. Again, it's all going to be a function of our ability to work those higher deliveries in the back half. Now, BDS is going to move positive despite a continued drag from the charges, primarily from the benefit of favorable receipt timing that's natural and seasonal in that part of the business. And then BGS, we tend to have a better second half than first half, so it's going to be a nice steady but growing profile for the second half. And as I mentioned, the CapEx is going to be a bit higher, but for good reason, because that's all about growth. So in terms of the numbers that you described, that's a reasonable ballpark of what we're aiming at, and we're managing all the levers and, you know, keep you updated as we move through the course of the year. Appreciate it. Thanks.

The next question is from Sheila Kayaglu from Jefferies. Please go ahead.

Hey. Good morning. This is Kelly. Maybe on the fixed price development programs within BDS, it seems like the timing to stabilize those keeps getting pushed to the right. How are you actively managing those programs? And what are you looking to change? And then, Brian, related to that, you know, how do you correlate those charges? I think you mentioned one-third is now. Can you maybe size that cash outflow for 25? Is it $3 billion related to BDS? And then $1 billion in 26? Does the business become break-even in 27? And when does it become positive?

Okay, Sheila, I'll go first and then ask Brian to follow up. Yeah, so obviously the quarter was disappointing here on the fixed price development programs. But as I said in my remarks, we're very actively now working all these programs with our customers. And, you know, we've got the U.S. Air Force is clearly working with us to find a better path forward on these programs, both for us and for them. So, you know, de-risking through this active management process is different. And it's, you know, we still have to convert it. These MOAs, which are memorandum of agreements, We have to convert them to contract changes, so we're in early stages, but the customers are working with us in that regard. And then I think, just as I said, taking a real clear look at the EACs and the SMS2 complete and making sure that we're, you know, reflecting the realities of the risks that we have. And so I'm very hopeful that we're going to see a much more stable performance here this next year. But, again, we're not done with these until we're done with these. And they are fixed price, so we've got to continue to work at this. Our team is very, very focused on program management discipline, making sure we're managing the tasks at hand. But, you know, a lot of work yet to do, Sheila, on these. I think we're making progress, but I certainly can't claim victory yet.

And, Sheila, in terms of the cash flow, you're correct. The new charge of $1.7 billion, we characterize about a third of that is going to be over the next three years. So it's a little bit front and loaded. So a few million dollars, a few hundred million dollars of pressure that we see in 2025 versus what we said back in October. Now, in terms of the broader question on the full way the charges are going to tend to flow through, I think BDS for 2025, for cash flow performance, is going to look a little bit like 2023. And then once we get through 2025, it'll be in a much different spot because a lot of that headwind from the charges will be behind us. And when we get exactly to break into even positive, won't be this year, but can't wait to have that discussion as we move out beyond exiting this year.

Got it. So break even could be possible in 26 or maybe 27.

Yeah, for sure.

Got it. Thank you.

Thank you. And our next question is from Ron Epstein from Bank of America. Please go ahead.

Hey. Yeah. Good morning, guys. Kelly, could you talk about how you're thinking about Boeing's portfolio? I mean, there's been a fair amount of press about maybe some things could be up for sale, maybe not. You know, what's core? What isn't? You know, so like the way I've been thinking about it, one of the things that's been talked about is maybe selling Jefferson. But on one hand, maybe that's a good idea. But on the other hand, that puts Boeing's name in pretty much every cockpit of every airplane on the planet. And is that a bad thing? So, I mean, how are you thinking about it?

Well, so first of all, Ron, we've been through the detailed portfolio review, which was one of my early tasks, and that's complete. Highlighted areas that are questionable to our core. And we go through an analysis to look at each of those areas, and we're in process in that. You know, as I look at this, here's how I would think about it, Ron. this is not going to be a major restructuring of the Boeing company. The core business that you see us in, and we're going to continue to be in those core areas. But there are some areas, you named one, there are some areas where, you know, we can streamline the organization, or we may be better off focusing our energy elsewhere. And we'll be actioning those over the, you know, the coming months and year. The only thing I would say is that, you know, as you look at those part of that decision process is what do you do with something? You know, in some cases you have potential that you could sell it and there are buyers. In some cases that may not be a viable approach. We may want to just not continue with the next phase of the project or something like that. So we're going through that. But I think if I give you any guidance, think of it as more pruning the portfolio, not cutting down the tree.

Got it. Got it. And you'd expect maybe we'll know more about this in the next 12 to 18 months, something like that.

Yeah. Look, I can't really speak about individual portfolio decision areas, but as they come along, obviously, you'll see what we're doing Got it.

Thank you. The next question is from Myles Walton from Wolf Research. Please go ahead.

Thanks. Good morning. Still, so on the supply chain and maybe the spirit integration, how key is that to your ability to get to 38 and then get above 38? And then if you could just quickly touch on the 787 and the supply chain constraints you're observing there specifically on interiors and if heat exchangers are still the issue and how quickly you expect those to release within the context of 2025. Thanks.

Yeah, Miles, so look on spirit. I don't view spirit fuselages as a constraint right now for us to get to rate 38. As I mentioned in the remarks, they've done a really, really nice job of improving the quality of the fuselage and the flow of the fuselages. So we're in really, really good shape on fuselages with Spirit, which sets up a very successful integration. You know, we've got a team of Boeing folks at Spirit working hand in glove with them as they improve their production processes. And I think that sets us up well for the upcoming integration, which will happen sometime still we're projecting middle of the year. Relating to 787 inventory, or I mean supply chain, as Brian said in his remarks, you know, I think we're working through the heat exchangers. We still need some additional improvement there, but all the improvements look good. Seats remain a challenge for us, and it's not the seat. We call it seats, but it's the monuments, really, that go around the seats and the integration of the IFE and the certification associated with that. And we're still challenged in getting through cert on some new of type seats on 787. We've got a plan on that. You know, it's really a customer-by-customer basis. One of the things we're looking at for the future is we've got to spread these new seat configurations. We call them Code 1s. We've got to spread these Code 1s out to allow ourselves and the regulators more time to get through the certification. These things are complex. They're not a seat. They're a complex monument. And particularly as we move to doors, doors are a real challenge in the certification process. And so we've got to work through some of that. We've got a team really focused on that, but I think it's going to continue to be a challenge for those 787 deliveries where we have a new seat configuration that needs to be certified. So, for example, Luke Donza, we've got a lot of completed airplanes that are held up still on seats, and we're working through that. Hopefully we'll get through that, you know, this year and we'll have a more successful seed integration program as we ramp 787 up.

Okay. And Brian, the delivery number for 787 for this year, 75, 80, is that a doable number?

Yeah. So as we've said, we're at five per month. We want to get to seven sometime this year and we've got, you know, call it high teens coming out of inventory. So when you add all that together, for sure, you know, maybe a little bit better.

Great. Thanks.

Thank you. And our next question is from Scott Duscho from Deutsche Bank. Please go ahead.

Hey, thanks for taking my question. Kelly, can you characterize the pace at which you think the business can liquidate 777X aircrafts from inventory once EIS hits? And then are you expecting the first-class cabin seats to be certified for the 777X launch customers by the time 777X itself is type certified, or is there any risk of delay there on seating as well?

Yeah, let me take the seating first, and then I'll ask Brian to do the liquidation. So actually, the first delivery, 777X delivery, is also to Lufthansa, which is where I just mentioned we have had seats and continue to have seat challenges. So I guess the good news, bad news is we've had seat challenges, but we do know what those challenges are for Lufthansa deliveries. Now, 777X interior in general is a more complex interior, but that's baked into our overall certification program for the aircraft. So we've got time to go work the seat certification issues, and we've learned from our 787 what those issues are. So I think we'll be able to manage that for the initial deliveries.

And, Scott, in terms of cash flows, as is typical on a new program, heavy cash usage the year before EIS, which is going to be for 2025. In terms of 2026, when it goes into service, keep in mind the initial airplanes are going to be changing corp airplanes, which are going to be, you know, not high-cal cash flow airplanes. but once you get through those and you get out of 2026 and then in 2027, you're really going to start to generate pre-cash flows and that's going to accelerate as deliveries accelerate. So we're going to be set up very nicely once we get through EIS. Great. Thank you.

Thank you. The next question is from Seth Seichman from JPMorgan. Please go ahead.

Thanks very much and good morning. Warren, I guess I wanted to follow up on maybe two other items as we think about the cash flow this year. You talked about winding down the shadow factories, but both of them, I guess, that was something that in the past we've talked about as a key enabler of enhanced profitability. How do we think about factoring that into the cash flow improvement that we're seeing this year? And then also any, you know, the financial implications and cash flow implications of spirit integration in the second half.

Yeah, sure. Let me take a stab at that one. So, as you know, we've got two shadow factories. The 737 has largely been in Moses Lake. The 787 has been the joint verification work in Everett. And there is a lot of labor to go into reworking those airplanes. As pertains to the 787, we expect the very early part of this year that work will be done. Now, we won't deliver all the airplanes this year because we've got some customer fleet planning things we need to fit in with, so that'll bleed over into next year. But the factory itself and the labor associated with that is going to be over the early part of this year, and labor has already started to move towards other first-run production. On the 737, equally, Moses Lake, we've begun to take labor and move it from Moses Lake into Renton. We expect to shut that shadow factory down by mid-year, and then the corresponding deliveries will tail off towards the end of this year. So it's been a long journey. We look forward to that. It's all contemplated into the numbers I discussed and described in terms of how cash flows are going to move this year. I would say that over time, the benefit you're going to start to see is the margin improvement at BCA because you don't have these two very expensive shadow factories up and running anymore. They'll be done. So that'll be something that'll be 2026 and beyond. As it pertains to spirit integration, as Kelly said, we're anxious. One, they're doing a great job. We're anxious to get it closed. You know, we're not really describing what the financial impact on that is until we close but the good news is is that we're on pace it remains strategically important and the team's holding up really nicely at a pivotal point as we ramp production thank you very much thank you and the next question is from noah papaneg from goldman sachs please go ahead hey good morning everyone morning no hi no what is it about the t7a specifically that it keeps having so much cost creep and i guess kelly you know as you look at this portfolio um everything in defense is complex and appreciate

the amount of work that goes into these but i think there's been some investor confusion around the dollar size relative to the perceived complexity of these programs so what is what What is causing the cost creep and how do you fix it? And you mentioned the updated acquisition approach on that program specifically. Can you detail that a little bit further?

Yeah. So, you know, the fundamental on T7 is a fixed price development with a large fixed price production, and we did not have our supply chains back to back in the fixed price production. So it's much larger than what you would normally see because very rarely do you see where you have first of all where you have a fixed price development but certainly don't have multi-years of fixed price production we've been burned on that on the tanker program and clearly that's been a challenge for us on t7a so you know we've taken our medicine we're not going to do that anymore um now specific to the to the moa what we're doing is making changes the air force wants some additional test aircraft. That will allow us to eliminate concurrency. And by concurrency, what I mean is we're building production airplanes while we're testing and certifying the design. And that's a disaster because every time you come up with a change that comes out of that, you've got to go ripple that change back through the production process, either in process where airplanes are complete. So the major milestone with the MOA-1 that we've got with the Air Force really helps us get more aircraft into the test program, eliminates concurrency risk for us going forward. So it's not necessarily, you know, good news from an EAC write-up, but it's certainly going to eliminate risk that we are staring at on the program. And then on MOA-2, which is we're in active discussion with them. It's also on making some changes to equipment purchased by us versus purchased by the Air Force directly, which will also help them with their logistic support plans, but also de-risk our escalation risk associated with those commodity sets. So that's the type of stuff we've got to get get better at is working those things with the customer. But the fundamental to this is, you know, a fixed price development with with the fixed price production option and not having your supply chain back to back, you know, is not a good recipe. And we've learned and we're we're not going to do that anymore.

So appreciate learning that lesson and not doing that again. But if you live with the decisions that were made on the existing programs for, you know, until the end of those programs, how do you have confidence in the cash flow improvement in the segment in the near term that you've expressed here?

Well, so, I mean, we do an estimate at complete and look at the estimate to complete. So much of the charges that we're taking are not actual charges for overruns to date. their anticipated charges for increased cost from our supply chain. So we are getting the supply chain back-to-back in fixed price right now. Our goal is to get that 100% done. But as we're doing that, we're having to recognize the cost increases from the supply chain. So that's why I have confidence. We're getting closer to having that all back-to-back, so we've eliminated that large risk going forward. But obviously, it's resulting in pretty significant charges as we weep through that.

And what I would say long term, our objective has always been to get the 15% of the portfolio that's wrapped up in these fixed price development programs, including the T7, to not be a drag, to just be neutral, right? To be at the zero profit and not consume cash. The rest of the portfolio, when we get the 25% fighters and satellites performing as they should, given their legacy products and 60% of the portfolio that's doing quite well, if we can get that all moving in the right direction, that gets you to the path to high single-digit margins and BDS like they should be, even with a 50% of the portfolio that isn't going to do anything for us. And that's fine because long-term, outside of the planning period in front of us, those development programs, including Tanker, including MQ, including T7, There are longer-term opportunities with market demands, particularly internationally, that actually could have us do a little bit better, that we're not counting on, but longer-term. Those are the reasons why we stay in these programs and deliver capabilities to the customers that absolutely need.

Appreciate all that detail. Thank you.

The next question is from Doug Harned from Bernstein. Please go ahead.

Good morning. Thank you. You know, it sounds like you're in a very good position right now to get to the 38 a month level, given that you're already in the 20s on the max. But historically, upward rate breaks have been pretty challenging. And when you look beyond the 38 a month to 42 and subsequent rate breaks, how are you thinking about what you need to get done to make sure that you have the right team in place to make those rate breaks happen, given that a lot of people have left over the past five years or so?

You know, as I look at that, I'm less concerned about our, you know, the people resources to do that. I think we're in good shape. Once we get to these higher rate breaks, the most important thing is that we have the supply chain ready and mature. And one of the things we're doing right now, because, you know, we've forecasted rates that the supply chain has built to, and then we haven't met those rates. So I want to make sure that that supply chain isn't making independent decisions on readiness for these out-year production rates and continuing to invest in the capacity that they need to supply us. So we've started, as I said in the open remarks, open communication. And what that means is at various levels, including CEO level, we're making sure that they are investing in their supply chain. And if they're not, They're talking to us about why and we're working through what we do to make sure that we don't get to a point where we're ready to get to the next rate increase and the supply chain stability is not going to be there. Now, remember, these KPIs that I talked about earlier, those are going to stay with us for each rate increase. So we won't make a rate increase if we – well, we won't be approved for it, but we won't request it if our production system isn't showing that these metrics are indicating stability. So we've got to continue to work that, but I'm not too sure or too concerned about the overall staffing level of the production resources. It's probably more focusing on the supply chain for that growth.

And, Doug, the other good news is the facilitation. We're cycling at three lines in Renton, as Kelly mentioned, and we've got that fourth line in Everett. And that is going to create a lot of flexibility for us as we think about those rate breaks. So not only is it labor, parts, supply chain, et cetera, but the facilitation is there as well. So we feel pretty confident the tools are all there in place. And, of course, the demand is there, which is beneficial.

And is there anything you would point to in the supply chain that you particularly want to focus on to make sure you don't run into an issue when you take your next break up?

No, not in particular. I think there's multiple areas that will work with all of our tier one OEMs, probably have a commodity in their portfolio that we want to make sure. But it's generally more in the commodities where there's long-lead components like forgings, castings, that kind of stuff. I'm less worried about electronics. That's a pretty easy area to scale. But it's where you have to invest in that second- and third-tier supply chain that we want to make sure that they're making those investments and they haven't hedged their bets and don't believe we're going to build the airplanes. and then we find out that we don't have the capacity there. And, you know, one of the things that we're working very closely with GE on is that the overall, making sure they understand our overall market demand as well as the aftermarket demand for the engines as well because they've got a, you know, they've got a big challenge with supporting our rate increases, our competitor rate increases, and managing the aftermarket. And, you know, I work very closely with Larry and his team to make sure we stay aligned. Very good. Thank you.

The next question is from the line of Jason Gursky from Citi. Please go ahead.

Hey, good morning. Brian, one for you and then just a quick one for Kelly as well. Brian, for you, BCA margins. You know, you took some charges this quarter on the programs that were in forward loss positions. I suspect, though, that we'll have some impacts on the margins for some of your more profitable programs as well, given all those costs. I'm just kind of curious, you know, what does the margin cadence look like for BCA over the next, you know, six, eight quarters as you're ramping in production? When do we get the chance here to flip to the positive range on margins? And then just kind of the long-term implications of these cost increases coming out of the labor strike, that kind of thing on the financial model and what BCA margins are going to skate to over time once you're up at those, you know, targeted production rates. And then, Kelly, just really quickly for you, I received the company's corporate calendar. It's got the X-66 on the cover. I'm just wondering if you could comment a little bit on that aircraft and kind of what it means to the company and kind of your general views on that development program for NASA.

Yeah, let me take the latter part of that first. So, you know, it's an important technology development program. It's very challenging. It's taking some dedicated resources that I think, you know, are learning new things and exploring new technologies for us. And then we'll look at what comes out of that and how that factors into, you know, our next airplane. So it's an important project that we're working on. You know, we've got some funding we're investing, but we've also got some funding there to support us. So, you know, we'll continue to explore that exciting opportunity and see what that portends for the future airplane. I will tell you, I've sat through with the team, and there's some exciting stuff that we're learning from that program. And so I think we want to continue that.

And, Jason, in terms of BCA margins, so as we think about 2025, margins will be negative. They'll be less negative as we move through the next few quarters, as we exit the year. And then beyond that, we're going to expect them to get better in 2026. We're not going to try to characterize it quite yet. It's too early. But in terms of the longer-term profile, You know, the IAM agreement did put pressure, but keep in mind, we're talking about a cost that's less than 5% of the airplane. Now, it's a little bit of pressure, but I characterize that versus the massive productivity benefit that we're going to enjoy by having two shadow factories behind us and a rate ramp that's going to accelerate productivity naturally. So it doesn't disrupt our margin expectations over the long term.

A lot of work in order to, you know, get this pressure behind us. but plenty of levers that we think work towards our favor it doesn't necessarily disrupt the long term okay thanks thank you thank you the next question is from gavin persons from ubs please go ahead thanks guys good morning good morning uh just wanted to follow up on that bca margin question a little bit with the the price uh side of that the price cost mix um you know how much of max 10 starting to contribute helps drive the margin up? How much of escalators or realized price increases over the coming years? And then a quick clarification on inventory, just how much cash is tied up in both completed aircraft and WIP? Thank you.

So in terms of the profile for BCA, Of course, we've got a backlog that is in place that has embedded escalation in it that hasn't changed. That's good. And in terms of our supply contracts, they're vastly signed up until end of this decade. So that doesn't really disrupt the near term or the medium term per se. I will tell you though as we move forward we will expect any kind of inflation pressure to be offset by an expectation that we continue to drive productivity so we think we'll be able to manage that mix more to come as we move out of this year and get into more of that normal stable position but nothing right now would suggest is going to disrupt that long-term margin outlook that bca has enjoyed historically and of course some of the mixed benefits that you mentioned both the 10 on the 3.7 and the 10 and the 8.7 are going to be natural tailwinds, including the consolidation at Charleston that we've always talked about and we still feel very good about as we move towards normal production rates. So more work to do, but no big disruptions we see as we sit here today. In terms of the inventory, we've got $87.5 billion worth of inventory in the company right now. That is too much. Now, it's been an investment in stability, and we're committed to make that investment so that we can get the factories in the right spot. But there will be a point when those inventories will begin to liquidate, and not only see the productivity benefit, the word capital benefit will be something that we're very interested in seeing, and we'll begin to lower buffer rates that we put in place deliberately as we get to more predictability. So that is the big cash flow benefit that we're going to see over the next couple of years-ish. And it's all because we've been sitting on this big investment that we look forward to having unwind with deliveries. And that's what we're focused at the team on out in Seattle. Thank you.

Well, thanks, Gavin. Lois, we have time for one final question.

Thank you. And that question is coming from the line of Garam Khanna. Please go ahead.

Yeah, thanks for the detail on the call. I just wanted to put a finer point on when you expect to be at 38 a month in terms of deliveries on the 3-7 and when realistically you could get to 42. I know you mentioned this year, but if you could put a finer point within the year. Thank you.

You know what? I'm not putting a finer point on it, both externally nor internally. We're going to go to that rate when the KPIs say that we're going to go to that rate. And we'll just see how that plays out. I mean, like I said, things look encouraging so far. We've got a lot of work yet to do. And we'll make those rate increases, hopefully sometime so that I do want to get through the rate 38 approval and move to that next rate of 42 you know get through the approval this year and get to that 42 sometime towards the end of the year but we'll put exact dates on it once we know and feel better about our KPIs and how the trends are are indicating yes thank you that's part of why we're you know we're not providing guidance yet I think we've got a little bit more work to do to see the system get stable uh before i feel like we can provide a guidance to you that that um you know we have a reasonable expectation that we'll be able to meet that that guidance so more to come as we mature things are you know off to a good start but we got a lot of work yet to do that completes the boeing company's fourth quarter 2024 earnings conference Thank you for joining and you may now disconnect.