BOEING CO Q3 FY2026 earnings call

Program Certification and Development:

• Completed FAA certification for the 737-7 and 737-10 after nearly 1,500 test flights and 4,000+ hours of testing.
• Focus shifted to the 777-9; first delivery expected in 2027, with current assumptions within the Estimated At Completion (EAC).
• Secured generational win with the U.S. Navy for the F-AXX 6th generation fighter jet, making Boeing exclusive for both USAF and USN.
• Starliner program risks reduced with an additional $359 million in NASA funding.

Production and Supply Chain:

• Delivered 161 commercial aircraft in Q3, the highest since 2018.
• 737 MAX: Working toward stabilizing production at 47 planes per month; full stability expected into next year. Targeting rate 52 in the back half of 2027.
• 787: Stable at eight planes per month; transition to ten per month expected later this year despite uneven delivery cadence due to seat certification challenges.
• Wings production is improving but requires sustained performance before stepping up to rate 52. Wichita fuselage integration is ongoing, with safety and quality plans being implemented.

Financial and Strategic Position:

• Record backlog of $745 billion supports long-term visibility.
• Restored trust with stakeholders through improved safety, quality, and culture.
• Avoided work interruptions via a new four-year union agreement.
• Continued investment in Charleston expansion to support higher 787 production rates.

Commercial Airplanes (BCA): Revenue was $10.7 billion, a 3% year-over-year decrease driven by less favorable delivery mix. Operating margin improved to negative 6.5%, up from the prior year's results which were impacted by the 777X charge, though this improvement was partially offset by reduced booking rates due to production adjustments and higher supply chain costs. BCA backlog reached a record high of $612 billion, including over 6,300 airplanes.

Defense, Space & Security (BDS): Operating margin was 6.2%, including a $252 million gain on the sale of HRL Laboratories. The segment booked $23 billion in orders, bringing the backlog to a record $101 billion. Notable wins include the U.S. Navy's selection for the F-AXX program and contracts for PAC-3 and F-15EX.

Global Services (BGS): Revenue increased 4% to $5.6 billion, or 11% excluding the digital aviation solutions divestiture. Operating margin improved to 18.3%. The segment received $5 billion in orders, ending with a backlog of $33 billion.

• Free Cash Flow Targets: Management provided specific multi-year free cash flow targets, narrowing their previous range.
  • 2026: Approximately $2 billion.
  • 2027: Approximately $3 billion.
  • 2028: Approximately $6 billion.
  • 2029: Approximately $10 billion.
• Capital Expenditures: Expected CapEx is approximately $5 billion in 2027, rising from roughly $4 billion in 2024. Normalized future CapEx is expected to be around 3-4% of revenue.
• Delivery Assumptions: The financial plan assumes 777X certification by mid-year 2027. BCA deliveries are expected to grow by more than 10% in 2027 compared to the prior year.
• Margin Outlook: BCA margins are expected to improve significantly, targeting breakeven in early 2028, though not returning to 2018 percentage levels immediately.

• Production Stability Risks: Achieving stable production at 47 units per month for the 737 MAX is taking longer than expected, with wing production yields failing to meet initial flow-enabler expectations. Full stability at rate 52 depends on resolving wing issues and synchronizing Wichita fuselage ramp-up.
• Certification Delays: While 737-7/10 are certified, the 777-9 still requires approval for the remainder of the flight test program, including ETOPS testing. A delay in 777X certification beyond mid-2027 could impact free cash flow trajectories.
• Legacy Cash Drags: Significant legacy cash drags continue to affect near-term free cash flow, particularly in 2027, though these are expected to abate by 2029.
• Supply Chain Disruptions: Recent disruptions from a wing component supplier caused temporary gaps in 777 freighter and 767 tanker production, with abnormal costs treated as period expenses over the next few quarters.
• Macro Economic Factors: High oil prices may impact airline growth demand, although replacement demand remains strong. Boeing monitors customer channels closely to assess potential order replanning.

Q: Analyst asked about the drivers of the $3 billion FCF target in 2027, specifically regarding the absence of the DOJ payment and the impact of lower BCA order deposits. / A: CFO Jay Malave explained that the $700 million DOJ payment benefit does not recur in 2027. However, FCF growth is driven by higher BCA delivery volumes, modestly improving cash margins on 737 and 787 programs (moving from break-even), continued BDS/BGS growth, and reduced legacy cash drags. These benefits are partially offset by lower customer deposit inflows and ~$1 billion in increased CapEx.

Q: Analyst queried why it takes two years to move from current rates to the higher production levels assumed in the 2029 FCF guidance, asking if supply chain conditions deteriorated. / A: CFO Malave clarified that this timeline represents upside opportunity rather than a deterioration. Deliveries lag production rates. The 2029 targets assume mid-to-high 50s for 737 deliveries and 12/month for 787. If production rates can be sustained at these higher levels, it provides significant upside to the $10 billion FCF target, supported by the robust backlog.

Q: Analyst asked about the operational status of the 737 MAX ramp to 52, specifically regarding wing and Wichita fuselage issues, and how management ensures stability before the next rate increase. / A: CEO Kelly Ortberg stated that wings are the primary bottleneck, as recent flow enablers did not yield expected savings. Boeing is adding capacity and re-testing improvements to ensure wings are stable before moving to rate 52. Wichita fuselage integration is proceeding according to plan, with a focus on implementing safety/quality protocols, though inventory is burning down faster than baseline. Fuselage ramp-up will be synchronized with final assembly at rate 52.

Q: Analyst inquired about the impact of a potential slip in 777X certification beyond mid-2027 on the $3 billion 2027 FCF guide. / A: CFO Malave noted that a slight slide (a month or two) would have limited impact and could be absorbed within the guide, primarily affecting delivery numbers slightly. CEO Ortberg added that management reserves were built into the EAC to handle schedule pressure, and resources are now focused on accelerating 777X testing following the completion of 737-7/10 certifications.

Q: Analyst asked how the strategic wins in Defense (F-AXX, PAC-3, F-15EX) change the growth and margin outlook for the BDS segment. / A: CEO Ortberg highlighted that BDS growth is expected to accelerate from low single digits to middle/high single digits. Crucially, new contracts are structured with appropriate risk-sharing models (e.g., fixed-price development), reducing past challenges. Programs like MQ-25 and T-7 have moved to Milestone C, and Starliner risks are mitigated, leading to stronger confidence in both revenue growth and margin performance.