BOEING CO Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Stabilizing the Business: Restarted factories post-IEM strike, with 737 MAX production at 38 per month and 787 at 5 per month. Shored up balance sheet, with supplier part shortages within control limits. Engaged in dedicated sessions with suppliers for alignment.
• Improving Development Programs: Focus on stability in EACs for troubled programs. Worked with customers on contracts, including MOA with USAF on T-7A and discussions on VC-25B. 737-7/-10 testing ongoing, 777X flight test resumed.
• Culture Change: Rebaselining core values and behaviors, integrating into leadership development and performance management. Single enterprise score for annual incentives to promote unity and accountability.
• Building New Future: Reduced management layers, streamlined portfolio, and continued investments in core business while pruning non-core areas.

Segment Performance

• Commercial Airplanes: Revenue was $4.8 billion, operating margin -43.9%. Delivered 57 airplanes. 737 program delivered 36 in 4Q, with plans to go above 38 per month later in the year; 787 delivered 15, with a production rate of 5 per month at year-end; 777X had a $900 million pre-tax charge, with flight testing resuming. Backlog ended at $435 billion with over 5,500 airplanes.
• Defense and Space (BDS): Booked $8 billion in orders, revenue $5.4 billion (-20% YoY), operating margin -41.9%. Delivered 34 aircraft and 2 satellites. Fixed price development programs had a $1.7 billion pre-tax charge.
• Global Services (BGS): Revenue $5.1 billion (+6%), operating margin 19.5%, with record margins. Secured awards for C-17 sustainment and F-15 Japan upgrades.

Guidance

• 2025 free cash flow expected to improve from 2024, with first half a use of cash and second half positive. 737 production rates to increase, 787 moving towards long-term rates, legacy inventory (737 and 787) to be liquidated. CapEx to increase by ~$500 million in 2025. BDS fixed price programs: ~1/3 of $1.7 billion charge over next 3 years, with breakeven/positive expected later.

Risks

• Supply chain risks, including potential issues in ramping production rates. Fixed price development program cost pressures, particularly in KC-46A and T-7A. Challenges in 787 seat certifications and door integrations. Impacts of shadow factory wind-down on cash flow and margins.

Question and Answer

Q: How viewed restart on MAX and KPIs with FAA?

A: Kelly Ortberg discussed production restart post-strike, stable system with sufficient inventory, and 6 KPIs (NOE, shortages, etc.) agreed with FAA for rate increases.

Q: Free cash flow dynamics for 2025?

A: Brian West said first half use of cash due to working capital and investments, second half positive with BCA flipping positive, BDS moving positive, and BGS steady.

Q: Fixed price development programs in BDS?

A: Kelly Ortberg talked about active management with customers, working on MOAs to de-risk, with Brian West noting ~1/3 of $1.7B charge over next 3 years.

Q: Boeing's portfolio pruning?

A: Kelly Ortberg said pruning portfolio, not major restructuring, with potential sales or project halts in non-core areas.

Q: Supply chain and 787 seating?

A: Kelly Ortberg discussed Spirit fuselages not a constraint, 787 seat certification challenges due to complex monuments, with plan to spread new seat configurations.

Q: 777X aircraft liquidation and seating certification?

A: Kelly Ortberg said seating challenges but working on it, Brian West talked about cash flow profile post-EIS.

Q: Shadow factories and Spirit integration?

A: Kelly Ortberg said 787 shadow factory work to finish early, 737 shadow factory shut down mid-year, with Spirit integration on pace.

Q: T-7A cost creep?

A: Kelly Ortberg discussed fixed price development issues, MOA with USAF to eliminate concurrency risk, Brian West on long-term portfolio goals.

Q: Rate breaks beyond 38 per month?

A: Kelly Ortberg said focus on supply chain readiness and KPIs, Brian West on facilitation in Renton and Everett.

Q: BCA margins and X-66?

A: Brian West on BCA margins turning positive later, Kelly Ortberg on X-66 as technology development for future aircraft.

Q: 38 per month and 42 per month on 737?

A: Kelly Ortberg said will go to 38 per month when KPIs allow, with 42 per month later as trends indicate stability.