FINAL TRANSCRIPT
BA - Q4 2007 The Boeing Company Earnings Conference Call
Event Date/Time: Jan. 30. 2008 / 10:30AM ET
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
CORPORATE PARTICIPANTS
David Dohnalek
The Boeing Company - VP of IR
Jim McNerney
The Boeing Company - Chairman, President and CEO
James Bell
The Boeing Company - CFO
Tom Downey
The Boeing Company - SVP of Corporate Communications
CONFERENCE CALL PARTICIPANTS
Steve Binder
Bear Stearns - Analyst
Doug Harned
Sanford Bernstein - Analyst
Howard Rubel
Jefferies & Co. - Analyst
Robert Spingarn
Credit Suisse - Analyst
Ron Epstein
Merrill Lynch - Analyst
Cai Von Rumohr
Cowen and Company - Analyst
George Shapiro
Citigroup - Analyst
Joe Campbell
Lehman Brothers - Analyst
Robert Stallard
Banc of America Securities - Analyst
Heidi Wood
Morgan Stanley - Analyst
Troy Lahr
Stifel Nicolaus & Company - Analyst
Joe Nadol
JPMorgan - Analyst
David Strauss
UBS - Analyst
Myles Walton
Oppenheimer & Co. - Analyst
James Gonzalez
Bloomberg News - Media
Julie Johnson
Chicago Tribune - Media
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FINAL TRANSCRIPT
Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Sebastian Synkey
PLU Review - Media
Lynn Linford
The Wall Street Journal - Media
PRESENTATION
Operator
Good day, everyone, and welcome to The Boeing Company's fourth quarter and 2007 year-end earnings conference call. Today's
call is being recorded. The management discussion and slide presentation, plus the analyst and media question and answer
session, are being broadcast live over the Internet.
At this time for opening remarks and introductions, I am turning the call over to Mr. David Dohnalek, VIce-President of Investor
Relations for The Boeing Company. Please go ahead.
David Dohnalek - The Boeing Company - VP of IR
Thank you very much. Good morning and welcome to Boeing's fourth quarter and full year 2007 earnings call. I'm Dave Dohnalek,
and with me today are Jim McNerney, Chairman, President and Chief Executive Officer, and James Bell, Boeing's Chief Financial
Officer.
After brief comments by Jim and James we will take your questions, and in the interest of time we ask that you limit yourself to
one question, please. As always we've provided detailed information in our press release issued earlier today, and as a reminder
you can follow today's broadcast and slide presentation through our website at Boeing.com. Before we begin I need to remind
you that any projections and goals we may include in our discussions this morning are likely to involve risks which are detailed
in our news release and in our various SEC filings and the forward-looking statement at the end of the Web presentation.
Now I will turn the meeting over to Jim McNerney.
Jim McNerney - The Boeing Company - Chairman, President and CEO
Thank you, Dave, and good morning everyone. Let me begin with a few comments about our 2007 performance ,and then
James will walk you through the details of our results. After that I'll say a few words about the road ahead and then we'd be
glad to take your questions.
2007 was a very good year for financial performance at Boeing. With our continuing focus on both growth and productivity,
we achieved solid increases in revenue and another year of double-digit growth in core earnings per share. We delivered a
record year in many important measures including revenue, earnings, cash flow, total backlog and commercial airplane orders.
We executed our existing production and services programs well, meeting our commitments and providing valuable solutions
to our customers. All of this gives us a solid foundation for even better performance in 2008 and beyond.
To hit just a few of the highlights. Cash flow in 2007 went from strong to stronger, reaching a record $9.6 billion, and that's after
investing in our growth programs and adding to our pension plan. Our total company backlog also grew robustly, climbing to
a record $327 billion as of the end of December. Backlog growth was driven by a third consecutive record order year for our
commercial airplanes business, and by key defense program wins at IDS. In fact, IDS captured 9 of the 11 major competitions
it entered; an outstanding success rate in our industry. These wins included key orders for the tracking and data relay satellites,
joint cargo aircraft, AEW&C in Korea, and two important pieces of NASA's Ares program.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Company-wide productivity improvements helped us generate the cash to invest in our major growth areas, such as the 787
and the 747-8. We also made progress on commercial derivative aircraft programs, including the P-8A Poseidon and international
tankers. These programs and others like them combined the best of our people and technology with BCA and IDS teaming
provide the right solutions for our customers. I expect more growth to come from this area, where we have a unique competitive
advantage. Among the most immediate opportunities of course is the U.S. Air Force tanker program. While this program won't
have a major impact on our near-term outlook, it is an important long-term program for us and our customer. We believe the
KC-767 is the best match for the Air Force's requirements, and that Boeing can uniquely deliver both the military and commercial
expertise and teamwork to make it successful. We expect a customer decision on the program this quarter.
During 2007 we also saw our commercial and government services businesses continue to grow at very attractive rates. We
successfully integrated several services acquisitions during the year, which have accelerated the strong organic growth we are
already delivering. We are now generating more than $10 billion of annual revenue in this area, and at strong double-digit
operating margins. We think the services area will continue to provide very attractive growth opportunities for us.
During the year, we also further enhanced the value we provide to shareholders by increasing our dividend 14%, and authorizing
a new $7 billion share repurchase program. We see more potential to return capital through share repurchase and dividends
as our financial performance gets even stronger. While 2007 was a year of solid financial achievement, it was also a year where
we faced some tough business challenges, most notably in our efforts to advance the 787 program into flight test and full
production. Earlier this month, Scott Carson and Pat Shanahan briefed you on our new schedule for first flight and first delivery.
While we are very disappointed about the impact the changes are having on our customers, we are committed to meeting
these milestones and to establishing a flight test and delivery schedule that we and our partners can achieve. As Pat and Scott
said on the call, we expect to complete the assessments necessary to define the flight test program and delivery schedules by
the end of the first quarter. We will share these details with you and provide our 2009 financial guidance when we report our
first quarter results in April.
While James and I will be happy to take any additional questions you have on the 787, what Scott said earlier this month bears
repeating. The fundamental technology of the 787 is sound. The challenge we face is resolving start-up issues in our factory
and in the supply chain, as they relate to completing airplane number one and initial full-rate production. We believe in both
the business case and the technology of the 787, and we look forward to getting the airplane in the hands of our customers as
soon as possible. Despite the challenges we faced on some of our development programs, the focus we maintained on improving
productivity and driving growth enabled us to deliver a strong fourth quarter and a strong year, and we see that momentum
continuing as we move ahead. As James will explain in a few minutes, we have raced our earnings per share guidance for 2008,
and we expect significant additional EPS growth for 2009.
Next slide, please. On balance, we still see strong global economic growth, along with our record backlog, underpinning our
continued success. Against the backdrop of some recent volatility in the U.S. economic situation, it's important to note that
only 11% of BCA's $255 billion backlog is from airlines based in the U.S. The vast majority of our backlog is with customers
outside the U.S., including fast growing regions like Asia, the Pacific Rim and the Middle East. Our backlog has never been more
diversified by region, airplane type, business model and customer. We have only modest exposure right now to airlines in the
U.S., where near-term economic growth is less certain. In fact, last year less than 10% of BCA's revenues and less than 5% of the
Boeing Company's total revenues came from airplane deliveries to U.S. carriers. However, with high fuel prices and aging fleets,
the U.S. carriers who have not yet responded during this replacement cycle have an acute need to do so, and we expect them
to order airplanes over the next couple of years.
Notwithstanding some recent events and market volatility, we continue to forecast an extended commercial aerospace cycle
driven by strong economic growth and solid traffic demand in much of the world. We currently expect airplane deliveries to
remain robust, at least into the early part of the next decade. hough we don't see it now, even if we encounter a more significant
economic downturn in the future, I believe the industry is better positioned than in past cycles, and Boeing is even better
positioned within the industry to weather any storms.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Turning to the defense side, IDS continues to provide a solid foundation from which we can grow. While we expect budget
growth in the U.S. to moderate, we still zero bust spending for the next several years and an opportunity for Boeing to win some
key growth programs. This includes some of the best opportunities in the international defense market that we have seen in
sometime. So with the combined strong global economic growth, solid defense markets and extended commercial aerospace
cycle, plus the largest backlog in history and an exceptional balance sheet, I believe we are well-positioned in this business
environment. Our commercial airplane products and services are helping the growing economies of the world build out needed
infrastructure and provide business and consumers with save, efficient air travel; and our defense business is helping to meet
the enduring needs of our military customers in an uncertain world.
You've heard me say that we are committed to delivering financial results that match the quality of our people and our technology.
With our momentum and continued focus on growth and productivity, we have a great opportunity to do just that.
Now let me turn it over to James, who will provide more details on our financial results and outlook. James?
James Bell - The Boeing Company - CFO
Thank you, Jim, and good morning.
Let's turn to slide 4 and go through our 2007 financial results. We delivered strong revenue growth, double-digit gains in core
earnings and another year of outstanding cash flow in 2007. Total company revenues grew 8% to a record $66.4 billion, driven
by higher commercial airplane deliveries and stable revenues in our defense business. Reported earnings grew 84% to a record
$4.1 billion, and EPS grew by a similar rate to $5.28 per share. EPS adjusted for charges that affected 2006 results grew by an
impressive 37% on strong core business performance, and operating cash flow grew to another record of $9.6 billion.
Now turning to our fourth quarter performance on slide 5. Fourth quarter revenues were stable at $17.5 billion, as growth in
commercial airplane revenues was offset by lower revenues at IDS due to lower military aircraft delivery and formation of the
ULA joint venture in late 2006. Earnings per share grew to $1.36 in the quarter and operating margins increased to 8.7%, an
improvement of 210 basis points over the same period last year, driven by company-wide productivity gains.
Turning to highlights from our business segment, starting with commercial airplanes, on slide 6. BCA continues to profitably
manage its production ramp-up while achieving record orders and investing in its growth. BCA delivered 112 airplanes in fourth
quarter and 441 for the year. Revenues grew 17% in the quarter, driven by a 9% increase in airplane deliveries and double-digit
growth in airplane services. Fourth quarter margins expanded 230 basis points to 11%, due to productivity improvements,
which more than offset higher R&D spending and the absence of supplier cost-sharing payments. For the year, BCA grew
revenues by 17% on an11% increase in airplane deliveries. Operating margins expanded to 10.7%. BCA's backlog grew 46% to
more than $255 billion on record orders, with strong performance across all aircraft types. The 787 program is moving towards
first flight around the end of the second quarter, and entry into service in early 2009. To date we have won 857 firm orders from
56 customers. BCA expanded its large service business in 2007, with solid organic growth complemented by the successful
integration of Aviall. Driven by its industry-leading products and services, commercial airplanes expect significant growth in
airplane deliveries, revenues and earnings during the guidance period. I'll speak more about that in a moment.
Now moving to slide 7 and our defense business. IDS delivering doubled-digit operation margins of 11.7% for the quarter on
$8.4 billion of revenue. Margins were driven by outstanding performance in all segments. Revenues declined during the quarter,
due to the timing of aircraft delivery and the formation of ULA joint venture near the end of 2006. For the year, IDS generated
revenues of $32.1 billion, and operating margins expanded 140 basis points to 10.7%. S results reflect strong profitability across
all business segments, including capturing a 99% award fee on the EA-18G, and 100% award fee on ground-based missile
defense. IDS also added to profitability by achieving 100% of the incentive milestone criteria on the future combat systems
program.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Now as Jim mentioned, IDS added to its large contractual backlog by winning the vast majority of major competitions it entered
last year. During the fourth quarter, IDS was selected for the NASA Ares 1 instrument and avionics contract, and won the tracking
and data relay satellite award. IDS also added to its international backlog by booking additional F-15 orders from the government
of Singapore. Looking ahead, despite uncertainties in the U.S. defense budget during the next few years, IDS is positioned to
deliver modest revenue growth and excellent profitability with its well-balanced portfolio of defense programs.
Now turning to our backlog on slide 8. Over the past two years, our backlog has grown over 60% to a record of $327 billion, the
highest in the aerospace industry. This is important for two reasons. First, and most importantly, it indicates that our products
and services are meeting our customers' vital needs. Second, with a backlog of five times our current annual revenue, it gives
us great visibility into our financial growth over the next few years, and positions us to deliver significantly-improved financial
performance. That is reflected in our financial guidance, and gives us confidence in our continued expand beyond the guidance
period. The order totals get a lot of attention, and that's great, but executing on our record backlog is what really counts. That's
our focus for 2008 and for every year beyond that.
Now let's turn to slide 9 and talk about our other businesses. Boeing Capital delivered solid pretax income, reduced its portfolio
size and continued to return significant cash dividends to Boeing. BCC generating pretax income of $30 million for the quarter
and $234 million for the year, while its portfolio declined 20%, as planned, to $6.5 million. BCC contributed $408 million in cash
dividends to the company during 2007. The aircraft financing markets remain healthy, and BCC is executing will on its mission
to support Boeing core businesses while reducing its portfolio size and risk. Centralized costs declined during the quarter, as
the management actions we took last year to address these costs continue to bear fruit.
Let's turn to slide 10 and talk about our cash flow. Our cash flow generation remains outstanding, with operating cash flow of
$1.9 billion in the quarter and a record of $9.6 billion for the year. This performance reflected strong earnings growth, excellent
working capital management and a record volume of commercial airplane orders. We are deploying that outstanding cash flow
to grow our business, while returning value to shareholders. We've invested in organic growth programs including the 787, the
747-8 and international tankers. In December we announced a 14% increase in our dividend that reflects our strong operational
performance, excellent cash generation and expectation of financial growth ahead. During the quarter we used over $890
million of cash to repurchase 9.4 million shares. For the year, we repurchased 29 million shares for $2.8 million. We intend to
remain very active in our share repurchase program.
We made excellent progress in further strengthening our pension plans in 2007. Our plans are more than fully funded at 110%
of our projected benefit obligation. We reduced the risk profile on our pension plans by transitioning our asset allocation to
less volatile asset classes. Required cash contributions to our pension plans are expected to be modest over the next few years.
We forecast non-cash pretax expense to be approximately $800 million in 2008. We expect pension expenses to decline again
after that, with 2009 pension expense likely to be about half of the 2008 level, depending on market conditions at the end of
the year.
Now let's turn to slide 11. We have a very strong balance sheet with outstanding liquidity. We ended 2007 with cash and liquid
investment balances of $12.1 billion, which is up 30% from the same time last year. Boeing's debt levels continued to decline
during the year, as maturing debt was not refinanced due to our strong cash position. Total Boeing debt dropped 14% from
the same period last year, driven primarily by lower debt levels at BCC. Financial strength and solid credit ratings are priorities
for us, and we continue to enjoy the highest ratings in the industry.
Now moving to slide 12 and our financial outlook. Today we are raising our EPS guidance for 2008 and forecasting additional
EPS growth for 2009. As previously reported, we will provide complete 2009 guidance when we report our Q1 2008 results in
April. Boeing's revenue guidance for 2008 is between $67 billion and $68 billion, reflecting the revised 787 schedule. We are
are raising our earnings per share guidance for 2008, from between $5.55 and $5.75 per share to between $5.70 and $5.85 per
share, due to strong performance in our core BCA and IDS businesses. We expect quarterly EPS to bill during the year, with the
first quarter of 2008 being the lowest, at about 20% of our annual EPS guidance. This is driven by BCA airplane deliveries and
margins in the first quarter. We expect 2009 EPS to show strong growth over 2008 levels. We will provide those numbers, along
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
with the entire 2009 guidance package, in April. We expect operating cash flow to exceed $2.5 billion this year. This is slightly
below our previous estimate of $3 billion, due to the new 787 schedule.
Now turning to our segment guidance, we are reducing capital airplanes revenue guidance for 2008 by $500 million to between
34.5 and $35 billion, to reflect the new 787 schedule. For the same reason, we are lowering our airplane delivery guidance by
about 5 airplanes, to between 475 and 480 airplanes. We are raising 2008 operating margins for commercial airplanes from
approximately 11% to approximately 11.5%, reflecting continued productivity gains. In terms of airplane orders, after three
consecutive years of record orders we still expect the strong demand for our products will keep our book-to-bill ratio above 1
for 2008, resulting in further increase to our record backlog. Our 2008 revenue guidance, our forecast for IDS is unchanged at
approximately $32 billion to $33 billion, and we expect continued double-digit margins at approximately 10.5%. We expect
total R&D expense to decline more than 10% during 2008, to a range between 3.2 and $3.4 billion. Additional segment guidance
is provided in our earnings release.
Now I'll turn it back over to Jim, who will give you some final thoughts. Jim?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Thank you, James.
Well, this is the third time I have addressed you to discuss our year-end performance and the road ahead. Each year I've told
you about our management model, dedicated to the simultaneous pursuit of growth and productivity, and founded on the
principles of leadership development. I think our results show that we are making very good progress on this course. Be sure
we have a lot of work ahead of us, but we are in a very strong position as we move forward to address the challenges ahead.
2008 will be an exciting year. We are forecasting even stronger financial performance across our core businesses. We are
preparing for the 787s first flight and flight test program. We are anticipating another good year for commercial airplane orders
and defense program wins. Our deliveries will rise at a steady yet prudent rate, and our defense business will continue growing
by delivering below-risk cost-effective solutions our government customers need. With the great success we've had in winning
new orders, our focus, as James said, is on executing that $327 billion backlog better than we ever have, and increasing that
backlog at the same time. We will heighten our focus on growth and productivity, we will expand our leadership development,
and we will redouble our efforts to meet commitments while living the Boeing values. Our fundamental goal remains unchanged
- to be and to be seen as the world's strongest and best-integrated aerospace company for today and tomorrow.
Now we'll be happy to take your questions.
QUESTIONS AND ANSWERS
Operator
(OPERATOR INSTRUCTIONS) Our first question comes from Steve Binder of Bear Stearns.
Steve Binder - Bear Stearns - Analyst
Good morning. James, could you maybe just touch on the '08 BCA guidance as far as margins? Obviously it's not - productivity
is one of the drivers of the margin improvement. Is it coming at all from block changes or is that is that coming simply from
productivity improvement, and maybe you could address which lines that pertains to?
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
James Bell - The Boeing Company - CFO
Yeah, it really is coming from productivity improvements across the in-production airplane productions, Steve. We are clearly
are continuing the focus on driving our productivity initiatives at BCA and we are starting to bear those fruit, and it's primarily
what we are seeing off the 777 moving line, as we get into its implementation, and we continue to harvest the kind of productivity
we've seen in the past going forward on the 737.
Steve Binder - Bear Stearns - Analyst
Jim, if I could just follow up with - you addressed the cycle to some degree about growth in demand across the globe, maybe
just address how do you believe the so-called credit crunch we are seeing today, both in rate increases and availability of credit
in the aviation industry, granted that's mainly tied to the U.S. carriers, but certainly it's affecting the ability of some leasing
companies and some lower rate airlines around the world to get financing. How does that affect your decision on whether to
raise the [3.7] rate further, number one? And two, how does it affect you achieving you achieving your rates that you plan to
get to by the 2010 timeframe?
Jim McNerney - The Boeing Company - Chairman, President and CEO
I don't think the credit situation, while it has had an impact in parts of the capital markets, I don't think it's changed our thinking
on the near-term, medium-term opportunity in front of us. You know, most of our planes are financed by non-capital market
institutions that have remained in pretty good shape throughout all of this, whether it's sovereign credit, XM, the leasing
companies themselves have been doing recently well. I think in the capital markets, you've see a risk premium built-in, and
some of the frothier deals aren't getting done, but we are actually seeing a little bit of a loosening up there as some paper that
wasn't being sold maybe 4 or 5 months ago is now being sold again in the capital markets, albeit at a higher premium. But I
would characterize that as marginal and not yet impacting, nor do we see it impacting quite frankly, our prospects for growth.
Steve Binder - Bear Stearns - Analyst
Thank you.
Operator
Doug Harned of Sanford Bernstein, you may ask your question.
Doug Harned - Sanford Bernstein - Analyst
Good morning. On the 787, now we are looking at a delay of at least 9 months in delivery off of the original schedule. I just
wonder if you could give a perspective on, when you look at the areas that we might see higher cost and financial impact, and
I classify those as customer penalties, supplier costs, or your own operational costs as time stretches out, where do you see the
greatest risk financially?
Jim McNerney - The Boeing Company - Chairman, President and CEO
This is Jim. The business case remains sound, and obviously we are very disappointed with the delay in terms of its impact on
our customers and the - but the backlog remains in place. The profitability of the airplane could be marginally impacted, and
will be marginally impacted, by the delay in terms of some increased costs in the supply chain and some possible penalties on
the customer side. But we don't see those kinds of costs having a significant impact over the huge volume base that we are
fortunate to have on this airplane. So this is a case where I think the value of the plane to our customers, as borne out by the
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
record order book, is helping mitigate what are bound to be some costs in the meantime. James, do you have any further
comments there?
James Bell - The Boeing Company - CFO
Yeah, I think, Doug, the other side of that equation is that the schedule stretch-out that we've experienced is going to allow us
to work harder on finding opportunities for productivity that would also offset some of the cost we would experience as a result
of the delay. So we haven't gotten through the assessment yet to really know where things are going to fall out, but I think
along with the risk there will be other opportunities that we had not foreseen previously.
Doug Harned - Sanford Bernstein - Analyst
So I would assume, particularly from your guidance at least in the near term and even as you go out a couple of years and
looking at margin, it sounds like you are not seeing anything that really changes your economic case for the airplane, even over
the next couple of years, other than a push-back?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Absolutely not.
Doug Harned - Sanford Bernstein - Analyst
Okay. Thank you.
Operator
Howard Rubel of Jefferies, you may ask your question.
Howard Rubel - Jefferies & Co. - Analyst
Thank you very much. I want to talk for a second on the FAA certification process that you're going through on the 78. I know
you can't fly the airplane but there's a whole bunch of things that you can do in the process to get there. Could you sort of touch
on that and then, again, Jim, maybe talk about how this delay has been able to have been insulated from the core business
which really showed terrific results?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, you're right about your observation on the cert process. About 70% of the certification effort and documentation comes
from -- doesn't have to come from the flight test program. It can come from things we are doing today, and we've got about
half of that done, and we've got a clear plan with the FAA. So we are feeling pretty good about that. Obviously the flight test
program has its own set of risks but we are feeling pretty good about it, and we are certainly working as well with the FAA on
this program as we have on any that I can remember.
Now one of my jobs, I think, is to work with Scott Carson to make sure that when you have a program that is struggling and in terms of schedule, that you get as much focused effort on that program as you can. You get the best leadership; and we've
done a lot of that over the last months. And we have got a best of Boeing team working on that program now, on the 87, and
a lot of folks from BCA obviously and some help from IDS, depending on the task at hand. And at the same time we have to
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
make sure that that effort doesn't impinge on the fundamental running of the business. The 87, while a critically important
program for us, is one of 300 programs we manage here at Boeing, and we have to make sure that the leadership understands
that struggles in one part of the our company don't mean distraction; rather, it means intense focus to make sure that we keep
delivering the results that the total corporation is aiming for. So that's a leadership challenge and it's all about how we work
together and help lead and manage each other, and that's one of my tasks and I'm very sensitive to it.
Howard Rubel - Jefferies & Co. - Analyst
Thank you very much.
Operator
Robert Spingarn of Credit Suisse, you may ask your question.
Robert Spingarn - Credit Suisse - Analyst
Just a follow up on your answer to that last question, on leadership and particularly on communication within Boeing between
Seattle and Chicago, between suppliers and Seattle, how has your oversight and your involvement in 787, recognizing it's one
of many programs, how has that evolved over the past 6 months or so?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, as is typical in big corporations like we are part of here, there are days when Scott and his team probably feel I'm too
involved, and then there are days I wake up and say to myself, why aren't you more involved? But the fact is, I think we have a
pretty good balance. I mean there's a very good team out there. I am probably more involved now, as you can imagine. I mean
I think part of my job is to get involved when help is needed, and that's been the case on the 87 over the last few months, as
we've all tried to understand together the issues, tried to understand the right way forward. And I think it's done in the spirit
of, less of oversight and administration, more in the spirit of all getting in the boat together and trying to figure out. And so,
yeah, I'm a little more deeply involved now than I was. But that could be said about some other programs that we are trying to
manage to the success we know they can have.
Robert Spingarn - Credit Suisse - Analyst
Would you say that you're involved to the point that you're very comfortable that your R&D guidance of 3.2 to 3.4 in '08 will not
go up?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, look, I am comfortable with that guidance and that's why we are giving it. But are there some risks inherent in research &
development? The answer is yes. But I feel comfortable with that guidance, and we've been through it pretty thoroughly and
Scott and his team are committed and I'm in the boat with them.
Robert Spingarn - Credit Suisse - Analyst
Thank you.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Operator
Ron Epstein of Merrill Lynch, you may ask your question.
Ron Epstein - Merrill Lynch - Analyst
Good morning, guys. Just kind of going back to the 787 for a minute, when we think about the compressed flight test schedule,
Jim, how do you get comfortable with that? If you compare it to previous aircraft, all the new stuff on this airplane, it seems like
getting the airplane out on this new schedule is really contingent upon that flight test schedule. And my understanding -- you
mentioned in the past, "we're going to run it like an airplane," it isn't so much flying the plane but its crunching the data and
dealing with the issues when they arise?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, I think it's not a non-aggressive flight test program. It is a little less aggressive than the flight test program schedule we
had earlier, but still aggressive. And I think one of the silver linings of the delay is we've had more times to test systems which
are critical elements of the flight test program, ensure software compatibility, and have a little more time with static and fatigue,
which I think all are giving us reassurance that some of the more mundane things that can happen during a flight test program
won't happen. Which still leaves some of the fundamentals risks, but we think the program is eminently doable. The head start
we have with the FAA is helping us here. And so I think it's one airplane type, it's not multiple airplane types. One engine type,
so - or engine configuration, I should say. So there is less complexity in this flight test program than there is in our usual set of
flight test programs. So we are confident we can do it.
Ron Epstein - Merrill Lynch - Analyst
Just one follow on, if I may. You have roughly $12 billion of cash on the balance sheet and you're deploying it for share buybacks.
What else are you thinking about?
Jim McNerney - The Boeing Company - Chairman, President and CEO
James, why don't you grab that that one?
James Bell - The Boeing Company - CFO
Well, clearly what you see is our fundamental basic deployment strategy, and obviously other things that we are looking at we
couldn't talk about in any detail, but we are always looking at better ways to provide value to our shareholders with that cash,
and that can include some things like you've seen in the past, particularly with the additional of Aviall and and how we can
support our capabilities in our support business, and how we can look at, are we - is our strategy in terms of being horizontally
versus vertically integrated, we will look at that as we always do and see if there's opportunity there to create better value than
our current cash deployment strategy provides. But we are looking at a lot of things.
Ron Epstein - Merrill Lynch - Analyst
Okay. Thank you.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Operator
Cai Von Rumohr of Cowen and Company, you may ask your question.
Cai Von Rumohr - Cowen and Company - Analyst
Good quarter, guys. Your gross inventory went up $2.3 billion in the fourth quarter, and you're taken your cash flow guidance
for '08 down by $500 billion -- $500 million. Can you walk us through some of the items? You mentioned the 787 slip, but is that
offset by excess advances? Was that exacerbated by pull forward of cash flow into the fourth quarter? Give us a little more color,
if you would.
James Bell - The Boeing Company - CFO
Yeah, Cal, the inventory build is up predominantly the build up of 787 inventory, and the fact that obviously we are not going
to have that run-off, and clearly that's been part of it. What was the second part of your question, I'm sorry?
Cai Von Rumohr - Cowen and Company - Analyst
Were there any pull forwards, are there any increase - offsetting increases in excess advances? You know, what does it assume
about what you are going to pay or might not pay to suppliers?
James Bell - The Boeing Company - CFO
In terms of the guidance for '08, we did have some acceleration of some payments in the 2007, it does take into consideration
the fact that we are going to have some 787s that is we assume that we would deliver in '08 and get the final payments pushed
out to, now, '09 and that's about it. Now, the other thing that's going to happen is as we've seen cash before, we've had a
significant contribution from our working capital performance, but we expect the inventory to continue to grow in '08 as we
build out the 787 line and start building those airplanes. So we expect the working capital to be a use of cash in '08 versus an
addition to cash.
Cai Von Rumohr - Cowen and Company - Analyst
And the last one, you mentioned the excess advances were terrific last year. Will those continue to build?
James Bell - The Boeing Company - CFO
They will be more in line with the order traffic for '08, and so we don't expect them clearly to be as great as they were in the
past because of the exceptional order performance we had last year.
Cai Von Rumohr - Cowen and Company - Analyst
Excellent. Thank you very much.
Operator
George Shapiro of Citigroup, you may ask your question.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
George Shapiro - Citigroup - Analyst
Yeah, James, if you take a look at what I would expect commercial R&D to be in '08, maybe about 2.6 of the 3.2 to 3.4, your
guidance actually has the margin ex R&D down from about 19.6 recorded for '07, so around 19% in '08. So how do you reconcile
that, unless maybe my numbers are wrong, with your comment that you're expecting productivity to go up, because you would
expect the margin to be higher?
James Bell - The Boeing Company - CFO
Yeah, I think your math is pretty accurate and, quite frankly, it's going to be - it has in it, even as we take into consideration the
increase we would want to see out of the volume, we are going to have some model mix difference that's going to impact that.
We are looking at the cost associated with setting up the fleet support activity for 787 that has an impact on that. And so, you're
right, it is going to come down a tad bit as a result of those two things.
George Shapiro - Citigroup - Analyst
One quick follow up. You were saying you would have 5 lower airplane deliveries for '08 but if you really compare exactly it's 5
to 10 lower deliveries. So was the additional 5 expectation for maybe 10 787s, or was the additional 5 reduction reflecting
something lower in some other line?
James Bell - The Boeing Company - CFO
No, we were just taking -- we gave you a range, that's what the guidance was, and we took the range down.
George Shapiro - Citigroup - Analyst
But I mean the range was down by 5 to 10 and you were saying I thought on the - on your comments that it was 5 lower because
of 787s, so I was wondering what the other 5 might have been.
James Bell - The Boeing Company - CFO
No, it's just a range.
George Shapiro - Citigroup - Analyst
Thanks very much.
James Bell - The Boeing Company - CFO
Don't read anything in the comment.
George Shapiro - Citigroup - Analyst
Thanks.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Operator
Joe Campbell of Lehman Brothers, you may ask your question.
Joe Campbell - Lehman Brothers - Analyst
Good morning. Airbus is now - seems like firmly on the way to 40 narrow body a month, and with somewhere between 250
and 300 orders on the XWB pushing forward on that aircraft, targeted against the 777, I guess with delivery in 2015, but Boeing
thus far has said narrow body only to 31 a month, apparently constrained by factory production issues, your judgments about
what would be prudent in the ramp up, and perhaps some apprehension about the cycle and sustainability. But it seems to me
that most of these concerns in the narrow body have been allayed, but thus far we have not seen any comment from you on
plans to at least put in place the option of going higher with the 737, nor anything about the response to the A350. So I was
wondering whether that difference of almost 100 airplanes a year on the narrow body, and the threat from the 787 were seen
as serious, and will we see a response in '08?
Jim McNerney - The Boeing Company - Chairman, President and CEO
I will take that one. First the A350, I think the model that will compete with the long-range 777s, if the plane has the performance
that Airbus thinks it can have, is the 1000, and I think that is not a 2013 airplane, I think it's more 2015, 16, I'm not sure. It's
certainly later, could be 7, 8 years from now. So I think we have time to assess that plane, and we have time to assess what we
might need to do, if anything, with the long-range 777s. So that's one.
Joe Campbell - Lehman Brothers - Analyst
But not in '08?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Excuse me?
Joe Campbell - Lehman Brothers - Analyst
Nothing in '08?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Nothing -- in terms of, what, R&D on the 777?
Joe Campbell - Lehman Brothers - Analyst
Just response from you in order to get ready for whenever they are going to have their plane ready.
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, I think my point is that we don't have to do anything in '08, if I'm getting the sense of your question.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Joe Campbell - Lehman Brothers - Analyst
Yeah, that's right, I was thinking - so you are going to wait until '09 or '10 to do something?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Yeah, I think we need to wait to see what the performance of the A350 might be; we are just not sure. I know they have some
design goals but I think they have - just like anybody would, us included, 7, 8 years ahead of an introduction there's a lot of
unanswered questions about the performance of the airplane, and I don't think we want to put too many wheels in motion,
although we are obviously thinking through some contingencies and we're doing some preliminary work in the normal course
of events, but I wouldn't see a major program emerging until after this year. 787 -- 737, I should say, we have had a steady drum
beat of increases there, as you noted. I think we are about 40% higher in '07. It's another 10% higher coming up, and we have
the flexibility to go higher. And I think though that --
Joe Campbell - Lehman Brothers - Analyst
You've taken the steps made - before what Boeing said was, "we can't get any higher than 31 unless we take some steps to give
us" --
Jim McNerney - The Boeing Company - Chairman, President and CEO
That's what I was addressing. I think we do. I think it is a matter of what - whether our customers need it and whether the
business case is sound, and making sure our supply chain can catch up. But I think - I think we would have an option of going
over 31 if it was the right thing for the business to do it.
Joe Campbell - Lehman Brothers - Analyst
Will those decisions be made in '08?
Jim McNerney - The Boeing Company - Chairman, President and CEO
We will be studying it hard in '08.
Joe Campbell - Lehman Brothers - Analyst
Thank you very much.
Jim McNerney - The Boeing Company - Chairman, President and CEO
You're welcome.
Operator
Robert Stallard of Banc of America, you may ask your question.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Robert Stallard - Banc of America Securities - Analyst
Good morning. Jim, you made some comments about the potential impacts of the economy on U.S. airlines. Do you think it's
unlikely that U.S. airlines will be ordering aircraft from you in 2008, and if they do when will be the earliest they can get an
aircraft like the 737?
Jim McNerney - The Boeing Company - Chairman, President and CEO
We have been in extended discussions with a couple of the major carriers who have not yet participated in this order cycle. It
wouldn't surprise me if a couple of deals with those folks came to fruition in '08. It's hard for me to predict. It's a decision that
they have to make, and their requirements in terms of timing are being sorted out. And we have different arrangements with
each of them, too, in terms of the timing that we might be able to provide the technology to them. But I think - I'll just say
because I really don't want to get into the details of our customer discussions, but I think it's fair to say that the discussions we
are having fit their business plans pretty well.
Robert Stallard - Banc of America Securities - Analyst
What would you say availability on a new 737 is today, for any airline?
Jim McNerney - The Boeing Company - Chairman, President and CEO
I think it's different because in some cases we've started these discussions a long time ago. There are things that impinge on
availability and it's - it's sort of different by every airline.
Robert Stallard - Banc of America Securities - Analyst
Okay. Thank you.
Jim McNerney - The Boeing Company - Chairman, President and CEO
You're welcome.
Operator
Heidi Wood of Morgan Stanley, you may ask your question.
Heidi Wood - Morgan Stanley - Analyst
Good morning. Jim, I'm curious about your comment about another good order year for BCA. Can you define that for us a little
bit better, kind o talk about where you are seeing incremental demand coming from geographically, and perhaps where you
are seeing demand maybe exhausting? And what you're thinking also about '09 and 2010 in terms of units and book-to-bill?
James Bell - The Boeing Company - CFO
Well, Heidi, we think the traffic that we've seen in prior years remains, and so we think that's where we will continue to get it.
We also believe that it's going to pick up domestically, as Jim has mentioned and we talked about before, that although the
U.S. carriers really haven't engaged heavily in the cycle, that with the higher oil prices and their needs, at least as we understand
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
them, they'll have to get engaged soon. So that's kind of where we would expect to see the order traffic come from this year
and then going forward. There's a lot of aging aircraft in the U.S. that can't be operated economically and clearly can't be
competitive, and allow them to create value for their shareholders if they continue to operate them in this current environment.
And that coupled with all that's going on with green and the environment, I just think that there's going to be a lot of pressure
to replace old airplanes and that's what we see.
Heidi Wood - Morgan Stanley - Analyst
But do you see demand exhausting in the Middle East and Asia Pacific, where it's been inordinately robust the last couple of
years? I mean, does that slow down?
James Bell - The Boeing Company - CFO
At some point I think it will. We haven't seen it yet, but obviously at some point. We are not sure exactly all that drives their
needs. We know a lot of it has - the initial has been the infrastructure but we'll see.
Heidi Wood - Morgan Stanley - Analyst
And one last question, a little bit off of George Shapiro's question for you, about margins in BCA for 2008, both you and Airbus
have been seeing better pricing in aircraft, probably started to turn in 2006 and 2007, so doesn't that partly flow into the 2008
deliveries, and when do the bulk of the '06 and '07 planes start delivering out?
James Bell - The Boeing Company - CFO
They will be out in the '09 range, we'd start, but that did not - that wasn't really what we were looking at for '08, it was really
productivity.
Heidi Wood - Morgan Stanley - Analyst
All right. Great. Thanks very much.
Operator
Troy Lahr of Stifel Nicolaus, you may ask your question.
Troy Lahr - Stifel Nicolaus & Company - Analyst
Thanks. James, I thought you talked about aircraft service work and how it increased this year at a double-digit rate? Could you
maybe talk a little bit about what was driving that and do you expect that growth rate to continue at a double-digit rate next
year into 2007 - or into 2008?
Jim McNerney - The Boeing Company - Chairman, President and CEO
This is Jim, I'll take that one. We do have good momentum. The base business there is obviously spares and some routine work,
but more and more we are getting our technology into play. The drivers are conversions. There's a lot of passenger to freighter
conversions. That business is continuing to grow. And also modification kind of work. and then supply chain work, where
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
increasingly our customers are looking to folks like us to manage their supply chain for them more productively on an outsourced
basis. So those tend to be the drivers and we - and we see it going. And I would say on the productivity side, we are beginning
to share infrastructure across the two sides of our services businesses, the defensive and commercial side, that can give us a
little more productivity and best practices and things like that. We are beginning to leverage all of Boeing to improve that over
all businesses.
Troy Lahr - Stifel Nicolaus & Company - Analyst
But the double-digit growth rate, that should continue?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Yes. There's - low double digits is the plan.
Troy Lahr - Stifel Nicolaus & Company - Analyst
Thanks, guys.
Operator
Joe Nadol of JP Morgan, you may ask your question.
Joe Nadol - JPMorgan - Analyst
Thanks, good morning. Jim, my question is on the 747-8 passenger variant. Just wondering what your outlook is perhaps for
this year for demand. You have the one order from Lufthansa so far, and the development program, how you characterize that
as progressing? And then stepping back after that, what's your commitment to the aircraft if your order outlook doesn't meet
expectations?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, our - we've got, I don't have the numbers right here in front of me, somewhere between 100 to 115 orders for the two
airplanes; we have got about 27 or 28 on the pack side; DLH with 20, as you pointed out; and then we have some other small
orders. So the majority remains freighters, which has been extremely well-received in the marketplace. We have about ten
discussions going on right now with folks for the Packs version. So we anticipate success here, we don't anticipate failure. So
none of our plans include an off-ramp here. All of our plans include making this a success, and it wouldn't surprise me in '08 if
you saw a few of those customers shake lose and we all felt a little differently about it a year from now.
Joe Nadol - JPMorgan - Analyst
Can you characterize the difference, or the incremental investment required to do the passenger in addition to the freighter?
Even very qualitatively, and maybe the commonality between the two aircraft?
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Jim McNerney - The Boeing Company - Chairman, President and CEO
Yeah, I mean as you can imagine there is a lot of commonality in the structure and the systems but there is some -- without
divulging the details of it, there's enough unique investment on both sides of the models so that you pay attention, but I think
the overall - the overall characterization would be tremendous synergy that affords you the opportunity to do both.
Joe Nadol - JPMorgan - Analyst
Thank you.
Operator
David Strauss of UBS, you may ask your question.
David Strauss - UBS - Analyst
Good morning, thank you. Looking at your BCAG revenue forecast for '08, you are forecasting about 40 additional deliveries,
yet you are only forecasting about $1 billion, $1.5 billion additional revenues, and you already talked about double-digit growth
in services, so it just seems that that revenue forecast would be a little bit light, given that and given what I assume is better
pricing coming through in '08?
James Bell - The Boeing Company - CFO
I think it's about right the way we've done it and the - you are going to see the bulk of the better pricing come through in '09,
and there's some product mix in there that would differentiate what we did relative to revenue.
David Strauss - UBS - Analyst
Okay. And then on the 787, can you just comment on the status of where you are with the supplier negotiations, I guess where
you were before the announcement of the latest delay and are we back to square one here or how progress is going there?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, I mean we are going through a process right now of adjusting the schedule and as we mentioned at the end of the first
quarter, we'll talk about the new schedule. It obviously needs the cooperation and committment of our supply base, who are
cooperating and who are committed, given the tremendous market success of this airplane. But there are discussions going
on because there is a new schedule, and there is shifts in cash flows and pain that has to be borne, but I would characterize
those discussions as constructive and heading toward a conclusion which we'll report on at the end of the quarter.
David Dohnalek - The Boeing Company - VP of IR
Operator, we have time for one more question from analysts, please.
Operator
Myles Walton of Oppenheimer & Co., you may ask your question.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Myles Walton - Oppenheimer & Co. - Analyst
Thanks, good morning. I guess this is kind of a follow-up to that last question. What kind of guidance are you giving in the
interim three months to the supply chain, such that you'll hopefully dissuade them from making some independent decisions
that could potentially exacerbate the delay, as far as their procurement of raw material goes?
Jim McNerney - The Boeing Company - Chairman, President and CEO
I'm sorry, which guidance are you talking about there?
Myles Walton - Oppenheimer & Co. - Analyst
Production on the 787, obviously over the next three months you are establishing a new production plan. They are making
their own production decisions.
Jim McNerney - The Boeing Company - Chairman, President and CEO
Yes.
Myles Walton - Oppenheimer & Co. - Analyst
How are you communicating with them in an effort to make sure that line of communication is open?
Jim McNerney - The Boeing Company - Chairman, President and CEO
I see. In all of our supplier partners we've got between 50 and 130 Boeing employees working hand-in-hand, minute-by-minute,
hour-by-hour, 24/7. So transparency on each other's issues is not our problem here; it's getting resolution. We are working very
closely with our suppliers, and they have their people in our facilities. So it's a pretty seamless operation right now, as we all
work hard to revolve the issues.
Myles Walton - Oppenheimer & Co. - Analyst
In the interim, they are shipping to the original plan?
Jim McNerney - The Boeing Company - Chairman, President and CEO
On the first - on the airplanes that lead up through the flight test program, yes, and then we are sorting out the supply chain
after that.
Myles Walton - Oppenheimer & Co. - Analyst
Okay. Thank you.
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Jim McNerney - The Boeing Company - Chairman, President and CEO
You're welcome.
David Dohnalek - The Boeing Company - VP of IR
Operator, we will now turn to the questions from media, please.
Operator
That completes the analyst question and answer session.
(OPERATOR INSTRUCTIONS)
I will now return you to the Boeing company for introductory remarks by Mr. Tom Downey, Senior Vice-President of Corporate
Communications. Mr. Downey, please go ahead.
Tom Downey - The Boeing Company - SVP of Corporate Communications
Thank you. We will continue with the questions now for Jim and James. If you have any questions after the session ends, please
call our Media Relations teamsat (312) 544-2002. Operator, we are ready for the first question, and in the interest of time we ask
that you limit everyone to just one question, please.
Operator
Thank you. One moment, please. James Gonzalez of Bloomberg News, you may ask your question.
James Gonzalez - Bloomberg News - Media
First question I had, you mentioned the amount of Boeing employees that are out in facilities and working overtime. I was
wondering if you guys have gotten any feedback from FIA or the machinists' union inquiring further on what the status of the
program is, and any kind of feedback from them on the working conditions, and what - the overtime hours that they are having
to put in?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, the - our unions, our union partnerships have been extremely supportive here. We are all trying to focus on the success
of this airplane and the success of the company, so I would characterize it as overall very supportive in general.
James Gonzalez - Bloomberg News - Media
And then just one other question for you, was the deliveries being revised for this year, do you still - this is for James, because
I remember you had said that you thought that '08 would be the year to surpass Airbus on deliveries. Do you think that's still
the case?
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
James Bell - The Boeing Company - CFO
I don't think I ever said that, that it would be the year we would, and I won't know that until we get through the year and deliver
them. We've given you our guidance, and I'm not sure what their delivery guidance is for '08.
Jim McNerney - The Boeing Company - Chairman, President and CEO
I think there have been some analyst projections that said that '08 would be the cross-over year, but quite frankly I don't think
we ever characterized it one way or the other.
Operator
Julie Johnson of the Chicago Tribune, you may ask your question.
Julie Johnson - Chicago Tribune - Media
Hi, guys.
Jim McNerney - The Boeing Company - Chairman, President and CEO
Good morning.
Julie Johnson - Chicago Tribune - Media
I was just wondering if you could just give us a little better idea of what you mean when you say you expect a good order year
for BCA? Are we talking about maintaining similar levels to '07 or '06 or are we looking at a slight drop-off?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, I think we are characterizing it as taking more orders than airplanes we built. And so it's not clear to me, nor do I think it's
clear to Scott Carson, that we will have as many orders in '08 as we did in '07. It would be lovely if we did, but that was an all-time
record year that was on top of another all-time record year in '06. So I would anticipate not quite that robust.
Julie Johnson - Chicago Tribune - Media
Okay. And then just a quick follow-up on the 787 supply chain, could you just give us a little bit of color on how you plan to
drive greater efficiency through the production process? And could that potentially mean dropping underperforming partners?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, I think obviously the whole concept here, when we get through the start-up, is to have an extremely efficient production
process, where multiple organizations or are each focusing on their piece and through the repetition become very good at
driving down their own learning curves, and when you add them all up it's better than if we were all doing it, that's the concept.
What was the second part of your question there?
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Julie Johnson - Chicago Tribune - Media
I was wondering if potentially you --
Jim McNerney - The Boeing Company - Chairman, President and CEO
Oh, dropping suppliers, sorry.
Julie Johnson - Chicago Tribune - Media
Yeah, yeah.
Jim McNerney - The Boeing Company - Chairman, President and CEO
By and large we have absolutely no plans to drop any suppliers. I think we - when we qualified our partners early on, we did it
with our eyes wide open and they did it with their eyes wide open. We've each put a lot of investment in it. Now, I think from
time to time we shift work around, we restructure relationships the way work flows in order to capitalize on things that emerge
as strengths or things that emerge as weaknesses, but I would characterize it more as fit and finish in that way than ever thinking
about dropping a supplier, except in some extreme circumstance, but we don't see that here.
Julie Johnson - Chicago Tribune - Media
Okay, great. Thanks.
Jim McNerney - The Boeing Company - Chairman, President and CEO
You're welcome.
Operator
Sebastian [Synkey] of [PLU Review], you may ask your question.
Sebastian Synkey - PLU Review - Media
Good morning, Sebastian Synkey here. I would like to ask another question on the 787 production partners, please. Has Boeing
any intention to maybe invest financially or organizationally in your production partners, in order to strengthen them and
maybe help them through the dire times when they don't get the money back in time? And if you would today have to decide
about a 737 further on, would you do the very same production set up or would there be something different, given the
experience you have made until today? Thank you.
Jim McNerney - The Boeing Company - Chairman, President and CEO
Two very good questions. I mean I think the form of financial support that we might contemplate in extreme circumstances
would be more jointly carrying inventory or material, if we put an undue hardship on somebody, rather than investing in their
own facilities. But it's -- we have a good feeling about the way we are approaching this airplane, despite the start-up difficulties.
Would we do it exactly the same? We might do it a little bit differently but the overall strategy would be the same. I think we
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Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
now have learning about the relative strengths between ourselves and our partners, and I think we might draw some lines in
different places, but we wouldn't change the concept.
Sebastian Synkey - PLU Review - Media
Thank you.
Operator
Lynn [Linford] of The Wall Street Journal, you may ask your question.
Lynn Linford - The Wall Street Journal - Media
Jim, this is kind of just a high level question here, but in the last several months it seems that your issues with having to push
out the schedule on the 787 have been kind of a result of this voyage of discovery you've been on. How do you feel right now
about - you know, are you at a point now where you can see to the bottom of the barrel to know that you don't have any more
surprises coming up, or when do you expect to be to that point?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, I think the - I think it's true, Lynn, that the projections we made earlier when we didn't have much experience with all the
work, the travel to our facilities, unanticipated, where we didn't have robust enough contingency plans when you look backwards,
it is true that we missed some projections. Now we are a lot closer today to completing the first airplane, now that we've properly
staffed the effort, we now more fully understand the requirements as they came in from our partners, and work that we thought
they were going to do, and just by virtue of being closer to the end than to the beginning. And having had experience with
working with the engineering drawings of our partners, having now rounded up the supply chain, a lot of the original supply
chain issues have gone away as we've gotten our arms around inventory that was going to travel to other places and things
like that. So I think just by virtue of having the experience of getting deep into the first airplane, and seeing the end of it, gives
us more confidence in our projections. It's not much more complicated than that.
Lynn Linford - The Wall Street Journal - Media
Okay. Thanks. And just one other thing is, do you anticipate as a result of some of the things you're seeing here that you might
ramp up a little more slowly than you initially expected, so that when you do actually start getting into the production airplanes
it won't be at a super aggressive rate? It will be more gradual?
Jim McNerney - The Boeing Company - Chairman, President and CEO
Well, that question has to be answered over the next couple of months, Lynn, but the - we are very mindful of committing to
a ramp that we can execute. We are also very mindful that we've already disappointed some of our customers in terms of when
we are getting them the technology that they - that they have faith in us to deliver. So that tension I think will produce a realistic
but aggressive ramp.
Lynn Linford - The Wall Street Journal - Media
Okay. Thank you.
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FINAL TRANSCRIPT
Jan. 30. 2008 / 10:30AM, BA - Q4 2007 The Boeing Company Earnings Conference Call
Jim McNerney - The Boeing Company - Chairman, President and CEO
You're welcome.
Tom Downey - The Boeing Company - SVP of Corporate Communications
Operator, seeing as there are no further questions in the queue, that will conclude our earnings call. Again, for members of the
media, if you have further questions please call our Media Relations team at (312) 544-2002. Thank you.
Operator
This concludes today's call. Thank you for participating. All parties may disconnect at this time.
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