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Earnings call: Boeing reduces 737 MAX production rate in the first 6 months

Published 2024-02-13, 07:56 p/m
Updated 2024-02-13, 07:56 p/m
© Reuters.

Boeing Company (NYSE:BA) CFO Brian West provided a comprehensive update on the aerospace giant's operational and financial status during the recent earnings call. West opened with an apology for the January 5 Alaska Airlines incident and assured stakeholders of Boeing's commitment to transparency and quality improvement.

He detailed plans for production adjustments, supply chain stability, and labor relations, as well as the financial outlook for the coming years. Despite challenges, the company remains optimistic about demand and its ability to clear existing inventory while improving margins in its Defense, Space & Security division.

Key Takeaways

  • Boeing CFO Brian West apologizes for the Alaska Airlines incident and emphasizes quality enhancement.
  • 737 MAX production rates to be lower in the first half of the year, aiming for 38 per month in the second half.
  • Engine anti-icing system redesign to take 9-12 months for completion.
  • Certification for 737-7 and 737-10 models is advancing smoothly.
  • Positive labor dynamics with low attrition and high acceptance rates noted.
  • Plans to clear inventory of 140 airplanes built before 2023 by year-end.
  • Boeing Defense, Space & Security (BDS) margins expected to reach high single digits by 2025-2026.

Company Outlook

  • The focus on stability in supply chain and factory operations to enhance quality.
  • Shadow factories to deliver around 10 aircraft per month; shutdown planned after clearing inventory.
  • BDS division aiming for high single-digit margins by 2025-2026, with stabilized fixed-price development programs.
  • First quarter of 2023 to see lower cash usage; cash taxes to start in 2023, posing a continued cash drag.
  • Optimism about marketplace growth, despite exceptional demand last year.

Bearish Highlights

  • Lower production rates for the 737 MAX in the first half of the year due to quality focus.
  • Cash taxes commencement in 2023 will be a drag on finances in the coming years.
  • The profitability profile for 2024 and 2025 is expected to be challenging.

Bullish Highlights

  • Strong order backlog with continued demand for fleet replacement and growth.
  • Positive labor trends with engineering and manufacturing hires up since 2019.
  • Confidence in maintaining consistent production at the Moses Lake shadow factory.

Misses

  • The necessity to redesign the engine anti-icing system, with a 9-12 month completion timeline.

Q&A Highlights

  • Upcoming labor contract negotiations with IAM in September expected to be constructive.
  • International sales to contribute to profitability in the BDS division.
  • Commercial crew and presidential aircraft programs are on track, enhancing BDS prospects.

In summary, Boeing's CFO Brian West conveyed a message of resilience and forward planning amidst current challenges. The company is taking deliberate steps to ensure quality and efficiency in its production while preparing for potential financial headwinds in the near future. With a strong demand environment and a clear strategy for its defense segment, Boeing remains focused on returning to a positive cash flow position and delivering value to its stakeholders.

InvestingPro Insights

Boeing Company (BA) appears to be navigating through turbulent skies, according to the latest InvestingPro data and insights. As the aerospace giant aims for recovery and growth, let's look at some key metrics and tips that could help investors gauge Boeing's financial health and market position.

InvestingPro Data highlights that Boeing's market capitalization stands at $124.69 billion, reflecting the size and scale of the company within the Aerospace & Defense industry. Despite a challenging profitability profile, with a negative P/E ratio of -55.28 as of the last twelve months ending Q4 2023, the company's revenue shows a growth of 16.79% during the same period, indicating potential for future profitability.

The gross profit margin, however, remains weak at 11.89%, which aligns with one of the InvestingPro Tips suggesting Boeing suffers from weak gross profit margins. This could be a concern for investors as it may impact the company's ability to generate profit from its sales.

InvestingPro Tips further suggest that Boeing is a prominent player in its industry, yet it is currently not paying dividends to shareholders and has been unprofitable over the past twelve months. Analysts predict the company will become profitable this year, which is crucial information for investors considering the company's future prospects. Additionally, with 6 analysts having revised their earnings downwards for the upcoming period, investors should keep a close eye on forthcoming earnings reports.

For those looking to delve deeper into Boeing's financials and market predictions, InvestingPro offers additional insights. Currently, there are 9 more InvestingPro Tips available for Boeing, which can be accessed for in-depth analysis. To get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, savvy investors can use the coupon code PRONEWS24.

In conclusion, while Boeing is working on improving its operational efficiency and financial outlook, as detailed by CFO Brian West, the InvestingPro data and tips provide a real-time snapshot of the company's current financial status and market expectations. These insights can be particularly valuable for stakeholders as they align with the company's focus on quality enhancement and financial resilience.

Full transcript - Boeing Co (BA) Q1 2023:

Cai von Rumohr: Time. Thank you all for coming. We're delighted to have with us The Boeing Company. And from Boeing, we've got Brian West, the CFO. And Brian, you may want to make some forward-looking comments first or comments about forward-looking comments?

Brian West: It's in front of the screen. But other than that, I would say upfront, once again, on behalf of Boeing, we apologize to Alaska Airlines, its crew, its passengers for the accident on January 5 and to our customers broadly who were impacted by the disruption. We will continue to cooperate and work transparently with all stakeholders and move forward. Second thing is, we had earnings 2 weeks ago. So I don't have a lot of new information to report, but certainly provide any color or context that you might find helpful.

Q - Cai von Rumohr: Well, in that regard, so the FAA has talked of tighter oversight. Obviously, they did oversight before the Alaska incident. So what are you seeing in terms of -- or what do you think they might do in terms of what does tighter oversight mean? And does it also extend to other planes other than the MAX?

Brian West: So as you point out, we are familiar with the FAA inspectors and auditors being in the factory. Of course, they still check it, the 37. But we take full accountability for what's happened here. And we have a comprehensive view of how we go in and help the factory get to a different spot and strengthen quality. And the FAA has increased oversight, and we welcome it. We believe the scrutiny from ourselves, from the regulator, from our customers, is only going to work to make us stronger. We also have to acknowledge that if we go slow and we stay at these capped rates for longer, we respect that. And right now, we have a 38-per-month cycle the supply chain is cycling to. First half output will be lower than that because we have to acknowledge that we have lots of things to focus on in terms of keeping the airplanes in position longer so that we can incorporate all the learnings that we're finding. And that's just fine. And then in the second half, I fully expect us to move toward that 38 per month, but it will be dictated by the regulator. Regarding the oversight itself, there are 26 inspectors. They are focused on the MAX, both in Renton and in Wichita. The audit plan has been outlined. It's clear. We're 2 weeks into a 6-week audit. The next milestone will be the conclusion of the audit. And then from there, it will be whatever the FAA decides to do, and they'll determine next steps. In the meantime, we'll learn lots of things. And we will make sure that we continue to build every next airplane with higher and higher quality. So we are perfectly fine with where we're at, and we'll be cooperative.

Cai von Rumohr: So you said you're cycling at 38. I think Pat Shanahan said we're going at 42, but really we're building at 38. What's the rate at which you're building?

Brian West: So right now, we're in the position where we have to do things like pause the line.

Cai von Rumohr: Right.

Brian West: And we are doing that so that we can get the benefit of our audit, we can get the benefit of our own inspection protocols, and that will just slow the line.

Cai von Rumohr: Right.

Brian West: It'll slow final assembly and slow output. And again, we are perfectly comfortable to do that so that we get to a point we are even more stable and more predictable.

Cai von Rumohr: So -- but I mean, what's -- is that like a 30 to 35? I mean, what -- any sort of range you can give me?

Brian West: Really what I would only say is that the first half will be lower output, and the back half will be towards cycling to that 38 mostly because it's an uncertain moment.

Cai von Rumohr: Right.

Brian West: And the last thing I need to do is put the kind of expectations. It's a little too quick.

Cai von Rumohr: Absolutely. So I guess one of the big issues is you kind of dropped the seeking the exemption for the engine anti-icing redesign. I think Dave talked of 9 months to kind of get it done. And he said, but we're going to put engineers on to see that you can get it done more quickly. How much more quickly could you get it done? Any rough range?

Brian West: So we are adding and applying resources and engineering at this problem to solve it. We are not doing anything other than applying the appropriate levels. And in terms of the timeline, I would go back to what we said at earnings, which it will be inside of a year. Keep in mind that we have to get a robust design. We have to do all sorts of analytical and test protocols, both with the team in Renton as well as the engine manufacturer. And that just takes time, and we'll take the time. It's intense, and it will be robust. And we have to just allow them to do the work. Just applying resources is only part of the answer. We have allowed them to do their work at pace and then ultimately provide to the FAA all of the things that they require for them to make the determination of certification. And we will do that diligently. But I wouldn't try to suggest that it's any sooner than 9 months. I think it's between that 9- to 12-month range that we talked about in earnings.

Cai von Rumohr: So is that the long pole in the tent? Like if you get it done in 9 to 12 months, it will just be a couple of weeks till you certify because I assume all the other activities with certification are kind of moving forward?

Brian West: So with regards to certification broadly, maybe we'll talk about the big ones in front of us. On the 7 and the 10, things are progressing pretty well. On the 7 specifically, very close to finishing the analysis and the documentation that we're required to provide, and now we focus on this anti-icing. On the -10, the -10 is progressing well with the flight test plan that commenced in December of last year. Keep in mind that the airplane has been flying for 2.5 years ahead of when the FAA started its flight test program. So there's lots of experience. And on the -10, we will finish the flight test certification. We will do the anti-icing solution from the 7. It's common. And then we will do all of the analysis and documentation that will be required and take lots of lessons learned from the -7 process that we just, hopefully, we'll finish at some point soon. And then the FAA will make a decision. The good part is that across the 7, the 10 and the anti-icing, those are 3 different teams working on that importantly. And those teams will move forward. As long as we keep applying the resources and the regulator keeps applying the resources, we see that these will get certified. Trying to call a timing relative to the 7, anti-icing, too hard right now.

Cai von Rumohr: Right.

Brian West: But the resources are there, and it's very collaborative with the regulator.

Cai von Rumohr: So you said -- you mentioned you're going to be held to 38 a month. You get there in the second half. What does that mean for the supply chain? Because some guys are going a little bit faster, some guys are still catching up. What does it mean for your inventory?

Brian West: So holding the rate is a chance for us to double down in stability. So supply chain issues, we can continue to work on them. The factory stability, we can continue to make operational improvements. We will strengthen quality. And all of that, I think, is good news. We will keep the master schedule ahead of final assembly. And while we will still supplier by supplier maintain flexibility, our overall approach will be that we could avoid instability and broad movements in the supply chain by holding supplier build rates pretty steady. And that's important because that's what they've asked us to do. And yes, if that means we have to hold more inventory, we'll do that because our view is that if we could keep everyone focused on stabilizing at these levels, then we can make sure that we do rate breaks that will be in a much more stable position to be able to not have some of the issues that have been hampering us historically. So it's an investment that we'll make, and we think it's a good investment. And if inventory spikes as it will this year, we feel like we can handle it from a cash flow perspective.

Cai von Rumohr: Got it. So obviously, less out-of-station work is better productivity. When you stand back, if you think about what's going to be in the second half, is this a blessing in disguise because my recollection is whenever this -- you try to move up more quickly and work that's done, it's traveled here or there, but basically, the numbers don't do what you want the numbers to do.

Brian West: That's true. Moving work out of station or traveled work has been a long journey for the company. And I view it, yes, as a productivity benefit but is dwarfed by the quality benefit. By having less traveled work, it's more predictable, it's more steady, it's more repeatable, it's higher quality. And that is our focus. Yes. Will some productivity come out of it? Sure. But it has to be rooted in an effort around quality. And if we reduce the traveled work, quality will certainly get better. And for us, what that means is that you have to get the supply chain, who is a very big part of eliminating travel work, to a spot of stability, reinforcing what I just said a minute ago because ultimately, getting the right part and the right tool at the right time for the mechanic so they can go apply it to the airplane is job 1. And we have made improvements in that area. We'll make even bigger improvements. And yes, it is a bit of a silver lining because we're going to be able to go a little slower so we could get it right and then be able to do rate breaks in a much more predictable manner. So we will take advantage of this window we have and do our very best to get it right.

Cai von Rumohr: So what about labor availability and attrition rate? Is that getting better, about the same, a struggle?

Brian West: So we have been and we continue to invest in our workforce. I would say that retention is low -- sorry, attrition is low. And our ability to do offer acceptance rates is pretty high. Just to get some numbers out there, in 2019 or since 2019, our engineering is up 10%. Our manufacturing is up 11%. Both are higher than they were pre-pandemic on an absolute basis. So there's more resources coming in. Attrition is 3%, which is better than it's been the last couple of years. Our offer acceptance rate is over 80%. That's better than it was last year. So just a few data points. But what we take away from that is people still want to come work at Boeing, and that's important. And secondly, we have the opportunity to give our people very fulfilling careers, and they want to stay. So pretty good on that front. We spent a lot of time investing in it.

Cai von Rumohr: Yes. So you talked about the shadow factories to deal with all the 37s and 87s that are there. It looked like you're able to deliver 50 MAXs in the fourth quarter from the shadow factory. What does that portend for the delivery rates in '24? How should we think about -- because now that you have the FAA in there, what should we think about a range of how many you can do from the shadow factories?

Brian West: So on the 37, it's a rate of probably about 10 per month is usually something that's fairly predictable. What you point out is a little bit of a spike that was driven by the Spirit, that pressured [indiscernible] at August. So at the end of September, we had about 30 airplanes higher in inventory. That balance actually grew if you remember by 30. So we were able to catch that up a bit in the fourth quarter, which is why it seemed like we are moving through them a bit quicker. We were just able to rectify that issue. And as we think about going forward, there are 140 airplanes in inventory that were built before 2023. We fully expect to have that largely behind us as we exit this year because we want to shut down that shadow factory and liquidate that inventory and get airplanes to our customers. That's incredibly important. So we're able to work through the issue in the fourth quarter. That part of the business continues to be steady.

Cai von Rumohr: So you think 10 a month, even with the FAA there, that sort of near that rate is feasible?

Brian West: The -- right now, because this is a contained factory in Moses Lake on the -8, we believe that we will just continue to be able to run that production line consistently. If there's FAA involvement, we welcome it, but I don't think that's going to keep us -- take us off track. We just have to make sure that our 2 big end customers, China and India, continue to want to take those airplanes.

Cai von Rumohr: Got it.

Brian West: And we expect they will.

Cai von Rumohr: I think you mentioned that, what, there were 25 737s in inventory that still have some work in process. What needs to be done with those?

Brian West: Yes. Those are airplanes that got caught up in WIP, given lots of disruption in the course of the last 12 months. In many cases, it's just -- they need -- the subject is part shortages. We'll expect to deliver those this year. That's not anything that's a concern.

Cai von Rumohr: Got it. Okay. And how about the shadow factory on the 87?

Brian West: So on the 87, we had, at the end of last year, 50 airplanes that required rework. And those 50 airplanes, we expect to move through the rework this year and gives us the ability to shut down that shadow factory. Not every 1 of those 50 will fly away by the end of the year. There's some customer fleet planning, things that will not make that 1 for 1. But the important point is that the rework will be complete. It allows us to shut down the shadow factory and move labor from reworking airplanes to working on new production.

Cai von Rumohr: Got it. So how many MAX 7s and 10s were in the delivery schedule for like '24 and early '25? And does the fact that you're moving the certification out in time, does that disrupt the total number of deliveries you can do? Or how does it impact it?

Brian West: So just some context, at the end of 2023, we had 35 -7 and -10s in inventory. And then certainly, those will get some level of delay, and we would expect to build on the -10 10 to 15 on the line. So those aren't significant numbers. I think the harder question really is the -10. And for us, we just think that the -10 is a great airplane. It's got high customer interest, and we're in a position where the skyline is flexible with the MAX family, where we can take manufacturing production plans matched up against customer fleet requirements and be able to satisfy the demand with our production profile that won't have a lot of disruption. And that's just the flexibility of the skyline. So we're working hard at that. Don't see a major disruption, and we'll continue to watch those certification milestones in front of us. That's job 1.

Cai von Rumohr: So I seem to remember from the Investor Day that someone, you, I don't know who said that basically, it takes 25% more man-hours to do a plane out of inventory for the 787 and so somewhat higher for the 737. So it's more man-hours than if you just were going through final assembly. What do those numbers look like today? Roughly the relatives relative to final assembly?

Brian West: So what I would -- you're spot on. For both programs, the way I would think about it is that the amount of hours it takes in the shadow factory is pretty much the same, if not a little bit more on the production line. And that just tells you the opportunity that sits there once we liquidate the inventory, shut down the shadow factories and then be able to take that highly experienced labor and point it towards new production.

Cai von Rumohr: And I think, what, your headcount, I think, in Seattle was up like 10% last year. Is that more or less right? But I mean, if that happens, I mean, so the shadow factories are shutting down, all these people are freed up, they move to the line. What does that imply for your overall hiring needs over the next year or so?

Brian West: I think that's one of the best gifts we have is that we will be able to steadily have a labor environment that can handle one, being able to get the factory stabilized again; and that two, at the point where we're allowed to increase our rates, that we'll be ready for it.

Cai von Rumohr: Yes.

Brian West: Keep in mind, we've had -- since November of 2022, we've been staffed at 38 per month for the 37. And what that has allowed us to do is, yes, work on shadow factory but also create an environment where we're doing more and more training of our people so that when they get on the airplane, they have relatively more experience. That's very, very important so that, that's an investment in our workforce so that when we do get in a position where volume goes up, they're better positioned. And that's something that is going to, I believe, give us -- make us -- have us in a much better spot as we think about the future and where volume can go.

Cai von Rumohr: Got it. So how should we think about cash margins on the 87 and the 37 going forward?

Brian West: So long term, structurally, the cash margins for both programs are intact from what we talked about before. On the pricing front, we're sole firm on the 87 and the 37 through 2027 and 2028, respectively. So that is more or less set. When you think about the near-term margins for both of the programs, there'll certainly be volatility as we work our way through the recovery. But when you get out to our time frame of '25, '26, you have a 37 cash margin profile that gets back pretty close to what it was in the '18 time frame. You have a 87 cash margin profile that will be better than what it was in the '18 time frame largely driven by the -10 model mix. So we still believe that once we get through what , we get to a point where we have stability, you have a 37 and 87 that look different and better than what they're at today and pretty close to what we would expect from the last time we spoke about this. So all in all, I still feel good about it. A lot of work to do because don't -- I keep coming back to this, the leverage that we're going to get by shutting down 2 shadow factories and then ultimately, volume, those are important levers. And they're right in front of us, and we just have to be able to execute in a stable way for that to manifest itself.

Cai von Rumohr: Right, right. So the IAM labor contract at BCA, it's up in September. Give us like what percent of the cost of a plane is covered by that contract by those folks? And sort of how do you approach negotiating for a new contract?

Brian West: So broadly speaking, the cost of an airplane, 60% to 70% are parts. On the labor side, it's less than 15%, and that's touch labor, that's support labor and that's engineering resources. So there's a lot of pieces of that...

Cai von Rumohr: Those aren't all IAM?

Brian West: No, exactly. The IAM will be smaller than that. And our view is that it's incredibly important. We kind of kick off negotiations with the IAM in March. The contract expires in September. And we fully expect to get to a point where we have an agreement and work constructively with our partners in IAM.

Cai von Rumohr: So what's the impact been of -- I mean, you -- Dave has basically been on the factory floor. You're soliciting input from them. Has that had any impact just in terms of the relationship, how they feel about things, how you feel about things?

Brian West: Everybody at Boeing, all 170,000 people because of the recent events has a sense of ownership and accountability and a sense of confidence that we're going to fix this and get it better, everybody, our IAM constituents and everyone else across the company. Times like these might bring a little closer together. And I believe that as long as we stay constructive and collaborative and think about our customers who are long-standing customers who need airplanes and believe in our product and believe in our people and have confidence in Boeing despite what we're going through, I think that's a big deal. And hopefully, we can work together to get something that's fair and reasonable and then move forward.

Cai von Rumohr: Got it. So BDS, another loss in the fourth quarter. Where are you -- you've talked about the recovery. When do the loss contract on the 25% of revenues that are from fighters and satellites end and profitable contracts begin? And when do you expect the problem of fixed-price contracts to end?

Brian West: Broadly speaking, on the BDS profile on margins, we still expect them to get to the high single-digit level as we think about our long-term '25, '26 time frame. I make the point that what that means high single digits, if you add in the benefit of the margins that sit over in our service business that's defense, add 200 basis points. So you're getting closer to the, call it, just double digits. And that's what the team is aiming at. You mentioned that we were negative 1.5 points in the fourth quarter. So we have a trajectory that we have to improve upon. There are 3 really important things we're working on. You mentioned the 25% that's fighters and satellites. We know how to make fighters and satellites. They've been knocked around by a variety of supply chain and labor issues that we have to sort our way out for contracts that were written in a different economic environment. And we're moving in the right direction. The good news is, is that we will lapse those contracts in this period, and we'll be able to underwrite it with tighter underwriting disciplines, reflective of the market environment. And we'll be able to make sure that we get their appropriate price points. We'll have to prove that out quarter in, quarter out as we move through this year, but the team is focused on it. On the 15% that's fixed-price development, again, we're working hard to derisk the programs over time. Couple of the programs, we'll just have to naturally fulfill the customer requirements, and we'll move on. Programs like the tanker is one that it's getting more stable, and we've got opportunities long term to have that be a little more relatively accretive. And then, of course, the T-7 and MQ-25, those 2 are the most true development parts of the portfolio. And those are ones that we're excited to fulfill the requirements to deliver perfect products to the customers. And while they might go a little bump in the night from time to time, there's nothing that concerns us because the customer needs both of those platforms, and we're going to deliver them. So there'll be much more stability, meaning our fixed-price development programs will settle down from what we've experienced over the last several quarters. And we'll move forward to derisk and deliver.

Cai von Rumohr: And what about...

Brian West: And then the last -- and the last piece is the underlying 60%, which is pretty good products with good demand in the marketplace.

Cai von Rumohr: Right. I was going to ask about the 2 bad guys, the Commercial Crew and the presidential aircraft. I think the presidential aircraft, '27. So I mean, those guys are going to be with you for a while.

Brian West: So there's big milestones that will continue to derisk that program. And we're quite confident with the team we have, the plan going forward and the work that's got to get done. We are applying even more engineering resources to help bring the whole enterprise to bear on that program, and we'll make progress. We're making progress every day. And yes, until it's delivered, we still have to think about ways to derisk.

Cai von Rumohr: Right.

Brian West: On the Commercial Crew, we expect to have a crew flight sometime this year. And then there are certain requirements that we have with the customer that we'll fulfill. But again, those are both fairly narrow, fairly bounded products and deliverables that we will fulfill and then we'll move on, and they'll be behind us.

Cai von Rumohr: Got it. So on the opportunity side, foreign sales were 20% of BDS last year. They should ramp like really nicely. I think, what, you were up 30%, 35% historically. That's a good, profitable business. Talk to us about what should we think about potential international orders this year, and where do you expect them to be as a percent of sales when they get out to '25, '26?

Brian West: So as you note, 20% of sales is historically on the lower mix side. And if you look at the backlog for BDS, the backlog would suggest 30%. So that tells you over time, we'll be able to move toward those historical levels. And we feel pretty good about some of the pockets of demand that we're seeing in our defense portfolio. On the P-8, we had the wins in Canada and Germany. In Australia, we've seen the Australian government increase its investment levels on the MQ-28. The recent far news sets the Apache (NASDAQ:APA) and Chinook up pretty nicely. And then don't forget, T-7 and tanker, we still think about international opportunities for those platforms as well. And as you point out, all of that creates a nice accretive margin benefit for that part of the portfolio. So there's a few things to feel pretty good about in the defense side of our business.

Cai von Rumohr: Got it. So you haven't provided a guide for '24. But I mean, when I've listened to you before, you usually have provided some useful color in terms of the upcoming quarter or things that people should be aware of. Anything -- give us a little color about how -- you mentioned the second half stronger. What about the first quarter we should think about?

Brian West: It's a good question. The first quarter will be a cash usage. There's no doubt about it. A couple of things going on there. Normal seasonality, it's always the lowest cash of any quarter in the year. We're also going to have lower volume versus what we expected because of the impact from trying to drive stability at BCA and having lower volumes. So volume will be down versus otherwise we expected because of we're trying to focus on the factory. We will also have the impact from customer considerations from the grounding. So all of those are going to be material headwinds to the quarter. I will say that the first quarter of this year will look a lot like the first quarter of last year, but you have to normalize for 2 things. One, you have to normalize for the tanker award we got last year, which was goodness. And then you also have to normalize for the customer considerations related to the 737-9 grounding this quarter. So when you factor in those 2 puts and takes, you get kind of a baseline to 1Q 2023.

Cai von Rumohr: And what about inventory? You mentioned kind of -- and does inventory kind of grow up a whole lot as a result?

Brian West: So that is the impact of us focusing on BCA and having lower volume because we're going to drive the stability as well as the impact of being able to hold higher inventory.

Cai von Rumohr: Got it.

Brian West: That will also be in there.

Cai von Rumohr: So I think you didn't change the ultimate outyear target $10 billion. We're not sure whether it's '25, '26, later. But if you think about when you get to that number, how is the cash flow mix going to be different, if at all, from what you laid out in Investor Day?

Brian West: So as we talked about on our call, we still have out there for '25, '26, $10 billion, although timing is -- you're right. And when we contemplated that, we knew that a large quantum was going to come from BCA. And it was going to come from the benefit of under -- unwinding 2 shadow factories and having the benefit of higher volume. The shadow factories will get shut down. Volume, we still expect to be higher, although a little bit on a less ramp than you otherwise would have expected but still pretty much intact, generally speaking. You then have BDS, which, looking a year plus back, got a little bit worse. So that will be a little bit of a pressure. But we still have confidence that by the time we're getting towards the end of that period, the BDS business will look a lot like you recognize. There might be a little bit of pressure from what I otherwise expected, but I can make it up in other places. BGS is better. The business continues to go -- perform very well, nice growth, accretive margins, high cash flow conversion. So those -- that's probably the piece going a bit better. So we still believe that all adds up to something around $10 billion. And it goes back to recover BDS and stabilize and grow BCA. The pieces aren't too different. And it all comes down to our ability to execute, which the underwriting case of that $10 billion was all about. We believe we know how to do this. It's right in front of us. There's no big stretches and what-ifs. It's grounded in execution, and that's what we're focused on.

Cai von Rumohr: Got it. So cash taxes started in '23, actually, the first year I think I can remember ever Boeing disclosing what cash taxes are. There always was like oh, lots of stuff on the taxes, but not what the cash is. So you started paying cash taxes in 2023. Where do they go in '24, '25? Is that a big change from the Investor Day?

Brian West: Not at the end because we always contemplated that there was another bucket that was going to be a drag, and that was going to be our responsibility to happily be cash taxpayers as we generate profitability. What the profile looks like for '24, '25 is going to be bumpy depending on the profitability profile. But what we're aiming at, at the end is unchanged, and it will be a user of cash.

Cai von Rumohr: Got it. So as you think about this, what -- I mean I think you know what the bigger risks are, but you've got big risks, bigger opportunities. If something goes better than expected, like the numbers are better, what do you think it's going to be? And if you kind of have a shortfall from what you guys are looking at internally, what do you think it's going to be?

Brian West: Cai, it's all going to be centered around our ability to stabilize the factory and move up in volume. And that is where our focus is on and do it in a way that is of highest quality to satisfy our customers and other stakeholders. So that's really the most important thing that we're focused on. Any puts and takes would be around our ability to stabilize at an appropriate pace governed by the FAA. We got to be really careful that we don't get ahead of ourselves on that front. But if I fast forward and I look to the future, I see a wonderful backlog. We have -- last year, we had 1,576 net orders in our commercial business. We had over 600 in the fourth quarter alone. There's 5,600 airplanes in backlog, the BCA, which just gives you an indication that our customers are voting with their feet in the airplane. And that's important to remember, the demand environment remains pretty good. There's pent-up demand for fleet replacement. There's good underlying growth fundamentals. So when you consider the resilience of demand and not necessarily having to "worry about that" then you focus all the attention on delivering on the supply side, and that's where we're squarely focused. Very fortunate to have the demand profile underwritten by strong products. We just have to get the supply chain in our own factory stable and growing. And we have high confidence we will, but we'll do it governed in the current conditions with the FAA. And like I said, hopefully, silver lining, as you pointed out at least once, is that the factory and the supply chain can get more predictable having been through this and another side of it, have more confidence with our customers.

Cai von Rumohr: So you talk about demand being better than last year. Clearly, it was like a whole lot better than I think anybody expected. Do you think that momentum carries into this year at some point or people are going to say, "Gee, I really don't want to order a plane for 2030?"

Brian West: Certainly, last year was big. I'm not suggesting it repeats.

Cai von Rumohr: Right.

Brian West: But there's still our active campaigns where we're out there trying to help our customers satisfy their replacement and their fleet renewal plans and their growth plans. So still pretty resilient. Doesn't have to be a repeat of last year for us to still be able to have some pretty good growth in the marketplace. So we remain optimistic on that front.

Cai von Rumohr: Terrific. Thank you very much.

Brian West: Thank you.

Cai von Rumohr: That was great. Thank you.

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