The Boeing Company Q2 2023 Earnings Conference Call Insights

Key highlights from The Boeing Company (BA) Q2 2023 Earnings Concall

Management Update:

• [00:02:49] BA said commercial airplanes booked 460 net orders in the quarter, including 220 for Air India and up to 300 with Ryanair. The company delivered 136 commercial airplanes in the quarter, including 103 737s and 20 787s.

• [00:05:18] Boeing Defense is still facing challenges, but the portfolio is well-positioned and the company is making progress.

Q&A Highlights:

• [00:22:46] Sheila Kahyaoglu from Jefferies asked how BA is seeing Commercial Airplanes turning its operating loss into a profit, and what are the biggest drivers of this change. Brian West CFO said BCA margins have improved sequentially from negative 9% in 1Q to negative 4% in 2Q. BA is confident that margins will be positive by the end of the year or early next year, driven by rate ramp, abnormal costs behind BA, and good pricing environment.

• [00:24:30] Peter Arment with Baird enquired how will cash profitability improve with the scheduled rate breaks, and will BA need to hit a higher rate of 42 a month or wait until the liquidations are complete in 2024. Brian West CFO replied that the liquidation of the MAX dual factories and the rate breaks will both contribute to improving BCA margins. By 2025-2026, BCA margins are expected to be in the low double-digit area.

• [00:26:01] Myles Walton at Wolfe Research asked if 737 deliveries will be at the top-end of the delivery range. David Calhoun CEO replied that Boeing is confident in the 737 delivery range, with the middle of the range being the most likely outcome. The company is working to improve production rates and deliver more airplanes, and will update the delivery range as BA gets more data.

• [00:26:13] Myles Walton at Wolfe Research also enquired if there is regulatory progress that’s helping to pull forward the 777X production schedule. Brian West CFO answered that BA is confident in the regulatory process for the 777X and is simply looking to get ahead of the production curve. The company still has margin in the regulatory timeline and hopes to beat it, but all projections are still intact.

• [00:27:53] Jason Gursky from Citi asked when will the services business margins return to normal levels, given the current mix of inventory. Brian West CFO said BA expects the services business to continue to perform well, with margins in the mid-teens. The company is confident in the business and will continue to push for improvement.

• [00:28:11] Jason Gursky from Citi enquired if the 60/15/25 mix is still the right mix for the defense business, and what are BA’s assumptions for getting back to high single-digit margins in 2025-2026. Brian West CFO answered that BA plans to stabilize the fixed-price development programs and improve the margins of the legacy programs in the defense business. The company is confident that it can achieve high single-digit margins in the 2025-2026 time frame.

• [00:35:08] Robert Spingarn with Melius Research asked if BA believes the Transonic Truss-Braced Wing aircraft has a chance to enter service with current-generation engines, and could it service the large narrow-body market as well. David Calhoun CEO replied that BA is heavily invested in the Transonic Truss-Braced Wing aircraft and is hopeful that it will mature and see service. The company is considering a variety of power plants for the aircraft, including existing engines and open rotor engines

• [00:39:09] David Strauss from Barclays asked about the recent slowdown in 787 deliveries and the rumored new issue on the 787? Brian West CFO said that BA is confident in the 787 program and is on track to deliver 70-80 aircraft this year. There is no new issue with the 787, but there was a recent increase in stringer repairs.

• [00:40:15] David Strauss from Barclays enquired what is driving the upside in BA’s BCA operating cash flow forecast, and is it just from working capital or are there other factors. Brian West CFO clarified that it’s due to orders and advances is just better than BA had thought.

• [00:41:16] Doug Harned at Bernstein asked how will BA use the new MAX production line in Everett, even if it is not initially used to reach the planned rate of 60 aircraft per month. David Calhoun CEO answered that BA is currently focused on stability and is not concerned about having excess capacity. The company wants to be ready for the next increment of production and is working on transitioning the workforce to that level.

• [00:44:22] Seth Seifman of J.P. Morgan asked about the key supply chain risks for the 787 program, and the potential for deliveries next year. Brian West CFO replied that BA is confident in the 787 program and is making progress towards achieving the planned production rate of 5 aircraft per month by the end of the year. The supply chain is improving, but there are still some risks that need to be managed.

• [00:46:16] Ron Epstein from Bank of America enquired about an update on the status of BA’s business in China and the company’s expectations for delivering new aircraft to the Chinese market. David Calhoun CEO said BA reduced its finished goods inventory in China to 85 aircraft and is hopeful that deliveries will resume, but the company is not dependent on it for its guidance.

• [00:51:20] Noah Poponak from Goldman Sachs asked about the current realized aircraft pricing. Brian West CFO said that the industry is short of airplanes, and BA is competing for every order. As a result, the market is constrained and prices are likely to be high.