Boeing at Bernstein Conference: Strategic Focus Amid Challenges

On Thursday, 29 May 2025, Boeing Co. (NYSE:BA) participated in the Bernstein 41st Annual Strategic Decisions Conference. The event highlighted Boeing’s strategic efforts to stabilize production, enhance cash flow, and navigate complex tariff environments. CEO Kelly Ortberg emphasized cultural transformation and operational efficiency as pivotal to overcoming current challenges and sustaining future growth.

Key Takeaways

• Boeing is ramping up production rates for the 737 MAX and 787 models, targeting 42 per month for the 737 MAX by mid-year.
• The company secured its largest wide-body order and is focusing on cultural change to prevent future missteps.
• Tariffs pose a risk, particularly retaliatory ones affecting deliveries, but input tariffs remain manageable.
• Boeing aims to achieve positive free cash flow in the second half of the year, closely tied to production performance.
• The Defense, Space & Security division is stabilizing, with significant wins like the f 47 program.

Financial Results

• Positive Cash Flow: Boeing aims for positive free cash flow in the latter half of 2025, driven by increased production rates, particularly for the 737 MAX.
• Tariff Impact: Input tariffs are estimated to impact less than $500 million, primarily affecting 787 production. Retaliatory tariffs are a greater concern for deliveries.
• BDS Margins: The Defense, Space & Security division is working to restore margins to historical levels, addressing challenges from fixed-price development programs.
• BGS Margins: Boeing Global Services has maintained margins of at least 17%, though the divestiture of Jefferson may slightly affect overall margins.

Operational Updates

• 737 MAX Production: Production is ramping up to 38 per month, with plans to reach 42 by mid-year and 47 by year-end. Quality improvements have reduced defects by 30%.
• 787 Production: Boeing plans to increase production from 5 to 7 per month, with potential to reach 10 per month in the future.
• 777X Program: Certification work is expected to complete by year-end, with deliveries starting next year.
• Certification Challenges: The 737-7 and 737-10 certifications are on track for this year, with focus on the anti-icing design for the inlet.

Future Outlook

• Production Rates: Boeing plans to continue increasing production rates, potentially exceeding 60 per month for the 737 in the long term.
• New Airplane: No immediate plans for a new airplane, focusing instead on existing programs and market conditions.
• BDS Division: Stabilizing fixed-price development programs and benefiting from the f 47 program are priorities.
• BGS Division: Continued strong demand in the aftermarket is expected.

Q&A Highlights

• Tariffs: Boeing is closely monitoring the tariff environment and engaging with the administration.
• 737 MAX Ramp: The focus remains on stabilizing production and meeting performance indicators before increasing rates.
• Supply Chain: Efforts are underway to manage supply chain constraints and support production increases.
• Culture: Emphasizing cultural change to ensure long-term stability and high-quality product delivery.

For a detailed understanding, readers are invited to refer to the full transcript below.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Okay. Good morning. Let’s get started. I’m Doug Harned, Bernstein’s senior global aerospace and defense analyst. And I’m really happy today to have with us Kelly Ortberg, CEO of Boeing.

Kelly, don’t know.

Kelly Ortberg, CEO, Boeing: You may have a couple words you wanna say, and then we’ll get into the fireside chat. Well, I’ll just welcome everybody. Thanks for joining us here. Doug, I look forward to it. I I don’t have any opening comments.

I’ll we’ll get right into q and a.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Okay. Great. Well, you know, you’ve been you’ve been CEO now for a little over a year.

Kelly Ortberg, CEO, Boeing: No. August 8. So August 8? Yeah. That’s been a year.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: That’s okay. You’ve done a lot, so it seems longer. So but you’ve known Boeing for a long time. And, you know, in that time as in the role, what surprised you? You know, what are the hardest challenges you’ve faced?

And maybe you can give us a few comments just on how you see the progress going now.

Kelly Ortberg, CEO, Boeing: Yeah. You know, so I spent most of my career as a supplier to Boeing. So as you point out, I knew Boeing quite well from the outside. And I would say in the main, not a lot of surprises. I think I knew the situation is pretty well publicized.

You know, we had a lot of near term challenges as I started in August. We went through the strike, getting through that, getting our balance restored was a critical priority for me. And I think, you know, we’re making good progress. We put together a recovery plan. First focus is on stabilizing the business, and that includes ramping back up our production lines, which we’ll talk about, I’m sure.

And, you know, so far so good. I’m pretty pleased with the progress we’re making. Got a lot of work yet to do, but I think, the mantra of getting the company turned around, restoring Boeing back to the to the iconic brand that we all know and want is underway. And and our team is committed to to making the necessary changes to continue with the momentum.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Well, you were just on the trip with the president in The Middle East. And perhaps you could comment a little bit about certainly, you got some very big orders there on the commercial side. But if you think about both commercial and defense opportunities because some very big some very big defense numbers were put out there, but we don’t have a lot of detail on it. How how do you think about opportunities in The Middle East after that trip?

Kelly Ortberg, CEO, Boeing: Look. The Middle East is a is a very big market for us, both defense and commercial. You’re right. We we announced the single largest wide body order in the history of Boeing and with Qatar, and that was a great order to continue to fill our backlog and I think demonstrates the strength of the product line, particularly the wide body product line that we have. But also our defense products with tanker tankers going into the region, f 15 fighters, and upgrades to the f 15 fighters are also great opportunities for us in The Middle East.

So that’ll continue to be a a strong market for us. Orders in Ethiad as well in the wide body, So feel pretty good about that. And, you know, as you look at this tariff environment, as people look to try to rebalance trade with The US where there’s a trade imbalance, you know, there are no better way to do that than through the purchase of aircraft if you wanna do that that quickly. So, we’re excited about the future here. We’re excited about the opportunities.

You know, backlog’s not our challenge. We have a very, very strong backlog. Our challenge is ramping up production and and delivering on that backlog and making sure that we, you know, have slots available for the customers who want who want the aircraft.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Well, actually, one aspect of that that is a challenge is this point about slots available. When you’re getting new orders like this, when you’re effectively sold out into the 20 thirties, how do you manage new orders? I mean, are you are are you actively thinking about higher rates a few years out? How do you manage the skyline?

Kelly Ortberg, CEO, Boeing: Yeah. So we commit to a planned skyline in terms of our our orders and then, you know, essentially, customers get in line as we go go do that. And and as you point out, we are essentially sold out through the, you know, through the end of the decade. We are gonna increase production rates on virtually all of our aircraft. We’re in the process of doing that now on the seven three seven MAX.

As you know, we’re capped at 38 a month with the FAA, but we’re very quickly approaching that rate, and we’ll be going through a rate increase there. We’re in the process of increasing seven eight seven production from five a month to seven a month. And then the triple seven x is getting through the certification process, and then we’ll be ramping that up. But we we would expect to have continued ramp up in all those programs here over the next several years to support the market demand. Well,

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: one of the topics that we talked about in the last earnings call was tariffs because, you know, you’ve, I know, been actively engaged with the administration on this topic. I’m guessing it came up on your Middle East trip. You had said that for Boeing this year, the impact should be less than 500,000,000, but a lot’s happened and continues to happen. We’ve had new news in the last twenty four hours with respect to technology exports to China, you know, a legal opinion against the tariffs this morning. How do you think about that now, and what has the dialogue been like over the last several weeks?

Kelly Ortberg, CEO, Boeing: Yeah. So I’ll just say it’s been very dynamic. It’s a dynamic environment. I think we’re gonna be in a dynamic environment for a while here until some of these unilateral or bilateral agreements are are put in place. Having said that, as you point out, we identified from an input tariff perspective about less than $500,000,000 of impact.

It’s primarily in a product we’re importing from Japan and from Italy and also primarily on the seven eight seven. You know, the the we are paying duties today, tariff duties on on those imports. But in many cases, those airplanes get re exported, and there’s a duty drawback process. So we’re able to recover the duties we pay. The only duties that we would have to cover would be the duties for a delivery, say, to a US to a US airline.

So we’re gonna manage through that. I personally don’t think these will be there in the you know, permanent in the long term. If you look at the agreement that was reached with The UK, that doesn’t include tariff in in on our aircraft and so or the components we would buy there. So, you know, we’re gonna just have to manage through the input tariff side. The more impactful and thing we watch more closely is is any retaliatory tariffs.

And we saw that in China where there was an increase in tariff. And sure enough, the Chinese airlines immediately said, I can’t take delivery of the airplanes. And that’s way more impactful to us. Now that’s been reversed. China has now indicated the the airlines have indicated they’re gonna take deliveries.

The first deliveries will be next month. So we’re yet to accomplish that accomplish that task, but they’re planning and telling us they’re gonna take delivery. So, you know, we have to watch that and make sure we don’t have other regions of the world where we get retaliatory tariffs, and we’re unable to deliver aircraft that we have produced, for those for those areas. I would say in the main, though, since we talked at the earnings call, it’s not a lot different. The it it is a dynamic environment, but I don’t see the impact a lot differently than what we saw then.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Now important important topic clearly is the seven three seven MAX ramp. You’ve talked about getting up to 38 a month in production fairly soon, but perhaps you can give us some more insight onto where you stand right now.

Kelly Ortberg, CEO, Boeing: Yeah. So we’re ramping up to the 38 a month as you as you point out, and that’s happening as we speak. We’re very close getting very close to achieving that 38, per month rate, which is what we’ve been planning. We will produce at that rate for a period of time to make sure our production system is stable, and that stability is measured with key performance indicators that have been agreed to with the FAA. And then once we get through that stability and the performance indicators look good, which they do right now, then we’ll we’ll go have a review with the FAA and move to 42 a month from that production.

An important milestone we had in this last month is we completed our milestone review with the FAA on the seven eight seven to move from five to seven a month. So the good news with that is that was successful. It’s the exact same process we’re gonna use for the seven three seven max increase. So I feel pretty good. And we’ve talked with the FAA extensively to make sure we’re aligned on what are gonna be the criteria that we need to demonstrate to move to the next next rate.

The performance indicators look good. Supply chain’s stable. So I feel pretty good here in the next period of time. We’ll be we’ll be through that first rate increase, which is critically important because the if you think about the overall cash flow performance of the company moving from negative to positive cash flow, as we’ve said in the second half of this year,

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: it’s important that we get to a higher production rate on the seven three seven MAX. And and you’ve talked about getting to 38, stable, meet all the KPIs, work with the FAA, and then you could go to 42. How should we think about the size of that interval going from 38 to 42 once you’re comfortable that you can go to the FAA and say, you know, we’re we’re producing repeatedly at 38 a month?

Kelly Ortberg, CEO, Boeing: Well, I think, you know, I think this first rate increase, we actually go pulse parts of our production line at a higher rate to ensure that when we do move to the 42 a month rate that we can actually achieve the stability. So we’re pretty confident in our ability to move from 38 to 42. Now after that, we do have subsequent rate increases in our plan, and and they will typically be in that five per month rate. So that feels like a good increment. So the next one would be to 47.

I would not expect those to be any earlier than six months apart. And, you know, so, you know, that could get us to where we’d like to get to 47 here by the end of by the end of the calendar year. But we’re not gonna move to the

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Forty forty seven by the end of By

Kelly Ortberg, CEO, Boeing: the end of the next? But no. By the end of this calendar year. 47? If we could do to forty two year midyear, then by the end of the calendar year, six months later, we’d be doing the next Okay.

Increment to go to 40 to 47 a month. So we’ll continue that process. Having said that, if we’re not ready, we won’t do it. So the production system has to be stable. The key performance indicators have to be there for us to to move to the next rate.

And you don’t know where you are until you move there. So we’ll we’ll see how things how things progress. What I will say is moving from, you know, essentially a a stop production post strike up through 38 a month, the improvements we’ve made to our safety and quality plan, to our production processes have really paid big dividends. And we are seeing the the improvement. In fact, we we’re producing a little higher than I even expected.

So in some cases, going slow and delivered has allowed us to actually go faster. So we’re gonna keep disciplined here, and we’ll move to the next rate when the indicators say we’re ready to go there. We’re in pretty good shape from a supply chain too. I’ll say that supply chain stability has has improved, and we’re, of course, sitting on a tremendous amount of inventory with particularly on a seven three seven MAX. So that’s helping us also with the buffer any supply chain issues with the rate rate increase that were were upon us.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: I mean, as as we’ve kind of looked at this, you’ve got a lot of engines, a lot of fuselages, you know, 38 to 42. You know, our expectation was not a lot of supply chain issues there. You start to go to 47 and then ’52, that’s when I would expect you may have another set of challenges. How do you look

Kelly Ortberg, CEO, Boeing: at that? So you’re you’re right. I think as we move up and as the buffer inventory comes down, then the supply chain performance gets much more, important that they’re right on schedule. But, you know, we’re, many of our suppliers are also producing at a higher production rate. So and they’ve been there before.

So I think we’ll be able to ramp, this up. Having said that, we’re always working with the the supply chain. You know, we had the precision cast parts fire, here in the last, quarter, and we’re managing through supply of those parts. We’ll always have those kinda challenges. When you’ve got over a million parts in some of these aircraft.

It’s we need all of them. So supply chain management continues to be a a focus item for us, but we don’t have anything right now that I’d point out as chronic concerns relative to the rate increases. Once we get to those higher rates, we’ll see. And and, you know, when I think about that, if

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: you were to look at six month intervals, if you look historically at Boeing sort of pre pre grounding of the MAX, we we didn’t see a six month cadence of rate increases. And in fact, ’52 was a a very problematic one, with Spirit. I mean, do you feel when you look at the system today that you’re in a much better place than the company was even, you know, sort of pre COVID on the ability to make these rate breaks?

Kelly Ortberg, CEO, Boeing: There’s no question the production system’s way more stable. So that’s one thing. And the other thing I’d just point out is remember that that we’re returning to rates we’ve been at before. So in some of the cases in historically, we’re achieving a rate that we’ve never achieved before. So all the way through the supply chain, we’re doing things at at higher rates than they’ve ever been achieved.

That’s not the case here. We’re kinda recovering. So in many cases, our supply chain has the capacity, has the capital in place. They’re ready to go at a much higher rate. We’re the one what’s holding what’s holding them back.

So I do think we have a more per a stable production system. We’ve made massive changes in our safety and quality plan in in how we’re building the airplanes. I think that’s gonna pay dividends for us as well. But I’ll just say again, if we aren’t ready to move to the rate, and I think this is the big learning, is we’re not gonna go to a 50 a month rate and have an unstable production system. We’re just not gonna do it.

We’ll stay at at the lower production rate until, we demonstrate the performance, and then we’ll move to the next rate. And that performance includes the supply chain. So several of the six KPIs that we have are clearly flowing through the the supply chain. So if we’re we’re being shorted out of the supply chain or we’ve got a lot of escapes coming out of the supply chain, then we’re gonna have to stabilize that before we move to a higher rate.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: So so if you look at this now after all of the scrutiny that’s going on over the last sort of eighteen months with respect to the seven three seven, you had issues like the junction box problem last year, things like that. Are are you more comfortable now that escapes those types of escapes are less likely to occur? Yeah. I mean, notice of escapes is one of

Kelly Ortberg, CEO, Boeing: the six KPIs, and that KPI is is green right now. So we have made significant improvements. Now I would also say we were stopped with production during the strike. I do think that we and our supply chain worked hard during that period to improve where we had supply chain constraints. We’re further away from the COVID recovery that everybody’s had to manage with the with workforce.

And so I think we are seeing a much more stable supply chain and production system. We’re not seeing the level of of quality defects that we’ve seen before. I think our quality defects are down over in approximately 30% on the seven three seven max line. So we are seeing significant improvement in the quality. The fuselages, I’ll point out specifically from Spirit.

The the quality of the fuselage is much, much better than what we were saying beforehand. We worked closely with Spirit to drive some of those quality defect issues back into their into their build process so they’re eliminating those defects. And the fuselages are flowing through the factory much faster than what they were. Prior, we were bringing in fuselages that had no defects on them, and then we were fixing the defects while we’re building the airplane. And that was just kind of a recipe for for quality issues, delays, inefficiencies.

So I think we’ve got that significantly improved, and that that will help us here going forward.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: So when you look longer term, talked about it before being sold out into the twenty thirties, There’s clearly more demand. And, you know, I know that you you once got to, like, maybe a very short period of time to 57 a month with the three lines in Renton. You’ve got a fourth line now for the $7.03 7 in Everett. If you look longer term, do you can you envision this program going, you know, above 60 a month? Because you would have at least internally the capacity to do it if you wanted to.

Kelly Ortberg, CEO, Boeing: Look. We are we are gearing up so that we both have the capacity and the agility in our production system. As you point out, we were producing at a pretty high rate with the just the rent and lines, and we’ve added a fourth line or we’re adding a fourth line in Everett. What we’re gonna do with that fourth line is primarily focus it on the dash 10 variant of the seven three seven. It’s the most different from the other.

It has the most complexity, meaning it’ll probably flow through the factory in a slower rate, and that’ll allow us to to keep the Renton the three lines in Renton flowing much more efficiently. So, yeah, we have we have plans to increase rates. We’ll see how the production system and the supply chain performs as we get to those much higher rates. That’s ways ahead of us right now. That would be a good problem.

Be good problem. Maybe next year, we’ll talk a little bit about that problem. But right now, our focus is is getting, the production system, through the the first rate increase. I will also say, which I I think is important, virtually every one of our customers is reporting a higher quality of airplane, at delivery. So we’re doing this, and we’re not sacrificing the quality of the airplane.

And we’re we’re gonna continue to do that. I think the financial performance will follow the production performance of the company, and I think we need to think about it that way. So you mentioned the dash 10. Where do where do you stand now, on the MAC seven and the 10, with respect to certification given that you’re working through? I know the inlet design has been the biggest issue here.

Yeah. So both the seven three seven dash seven and dash 10 are slated to complete the certification this year. And the critical path right now for us is the anti icing design for the for the inlet, and we’re in the process of finalizing that design. We’ve got some testing underway, critical path testing, that should complete in the June, July time frame to move to move forward with that. So, that’s important that we get through that deicing.

It has taken a little longer than what I expected, but the team’s working through. We’ve got multiple solutions that we’re working, in trying to select the right and best solution going forward. You know, having said that, you know, if if if there are any delays in getting the the through the certification, which we’re not anticipating right now, we will just continue to build the dash eight. So I don’t think it’s like a production output concern, but many cast customers are waiting on the dash 10 and dash seven. So we wanna get those through the certification process.

The dash seven’s essentially there except for the the deicing work that we have to do.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: So switching over to the seven eight seven. As you said, you’ve got the okay to go to seven a month now. Here’s the the heat exchanger supply problem is, I guess, largely resolved to be at seven?

Kelly Ortberg, CEO, Boeing: Yeah. Yeah. So we made great progress there. There that’s an example of where the supply chain has stabilized. That problem was a result of the, you know, the the Russian invasion situation and and having to move the production line.

It took them a while to get back on plan, but right now, the we’re the heat exchanger production output is meeting our demand and allowing us to go to seven months. If it wouldn’t have been, we wouldn’t have moved. It was quite impactful to build a eight seven and and put this air conditioning pack in out of cycle. So getting that back to where we’ve got the product so that that’s built that’s not traveled work is really important for us.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: So when you look at the rates now, can you give us a sense of when you think you’ll actually be at seven in production? And then Soon. I know 10 is at soon

Kelly Ortberg, CEO, Boeing: on seven. Soon on on eight eight seven. So the way these work is we have a capstone review, which is think of it as a rate readiness review with the FAA. And we’re at that review, we’re basically have everything laid in place to be at that rate. So provided we go and get approval on that rate, then we start cycling most of the components right away at that 7 a month rate.

So you should think that on seven eight seven, we’re cycling at that rate right now, which will lead to deliveries, you know, in the coming months at at that rate. So production goes pretty quick to to the new rate.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: One of the issues though in deliveries has been interiors. So you’ve got a lot of airplanes that are essentially produced but Yep. Not ready to deliver. How do you see your ability to close that gap with your interior suppliers and certification?

Kelly Ortberg, CEO, Boeing: Yeah. It’s primarily the seating interiors where we’ve had problems, and it’s specifically focused where we have a new configuration of seating that’s that we have to go through a new certification, that’s still a problem for us. We’re still working through that with all the seating manufacturers. Where we have a customer who’s taking a new seat that’s not certified, that’s where we’re seeing the delays. If it’s a customer who’s taken an existing seat configuration that is certified, there are there’s no delay.

So it’s it’s more of a certification than it is a production output problem for us, and we’re working through that. My guess is that’s gonna be with us through the end of the year as I look. And it’s it’s with all the seating manufacturers. It’s just taken us a lot longer to get through certification, and it’s primarily these new larger, first class, business class configurations with doors. And so the full certification process has gone much slower than anybody anticipated with that.

But we’re working it. We do have some airplanes on ground that are done Yeah. For certain aircrafts that we’re waiting on the cert of the seats. And once we get the certs of the seats, we’ll be able to deliver.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: And and is there any parallel issue? I know there I know some airlines have some fairly exotic configurations on the MAX 10 too. Is there any do you foresee any issues with with certification? Well, we’re watching

Kelly Ortberg, CEO, Boeing: it real serious. Yeah. We’re watching that real closely to make sure that we aren’t overcommitting in terms of of how many different seat configurations we can get certified in a certain period of time and the the complexity. So it will it’s something that we’ve gotta watch on, as you point out, on on these particularly the dash tens that have, you know, these types of of complex seat configurations. It’s gonna be with us also on the the triple seven dash nine as we bring that into service, making sure we incorporate lessons learned here so that we don’t have seating delays on those aircraft.

Because those aircraft will have the most complex configurations in the front of the airplane.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: And and when you look at production going to seven soon on the seven eight seven in Charleston, my understanding is that without a lot of capital investment, you could get to 10 there. And but now with the demand, particularly with these new orders, it looks like there is potentially demand pressure to go higher. Can you give us a sense of perhaps when you might end up going to 10, and then what has to happen should you later want to invest to go higher?

Kelly Ortberg, CEO, Boeing: Yeah. You know, I haven’t put a specific date on the move to 10. We’ll move there as soon as we can. The demand is to your point, the demand is is there. So once we get to seven, we can get to that 10 within the existing production, generally within the existing production footprint.

I think to go beyond that’s gonna require some additional investment in our facilities there. We’ve authorized that, so we are investing in expansion so that we can go to rates beyond a 10 a month rate. And, you know, the beauty is, as you point out, there’s tremendous demand for the airplane. So I have no concern about our ability to to sell into a higher production rate there. It’s an execution performance

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: challenge for us. So jumping over to the triple seven x, how does that look? Can you update us now on what you’re seeing as the entry into service timeline and the production?

Kelly Ortberg, CEO, Boeing: Yeah. So we wanna get most of the certification work done by end of the year on the triple seven dash nine. We have four flight test aircraft now of all in flight tests. So the flight test program is progressing, and it’s progressing well. Though we don’t have major any major technical issues coming out of the the flight test program.

So I’m hopeful that we’ll get through the certification flight tests by the end of the year. We may we may still be doing some ETOPS testing going into next year, but no real change to our forecast of getting that certification, done so that we can start deliveries next year. Obviously, again, a part of The Middle East, order that we just, that we just talked about included triple seven dash nines to the strong demand for that aircraft. It’ll be the largest twin in the market, and there’s a lot of folks who who really are looking forward to to bringing that airplane along. I will also say it’s the an airplane that has had the most flight testing done of any other aircraft we’ve ever done in terms of hours.

So we feel pretty good about the stability and our entry into service for for the airplane that we’ve done enough flight testing on that that it’s gonna be a great airplane.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Now another airplane there’s still very good demand for is the current triple seven freighter. But at, you know, 2027, I mean, that that’s supposed to stop delivering.

Kelly Ortberg, CEO, Boeing: Yeah. That’s our current plan. Yep. Is that Yeah. We’ll wrap the triple seven.

We call it the metal wings, the existing configuration. We’ll we’ll wrap up that freighter configuration expecting a a dash nine freighter configuration the year after that. Okay. But we’ll be transitioning from the existing triple seven freighter to, you know, a triple seven x freighter configuration.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: When you look farther out, how are you thinking about a next generation airplane? We had, you know, both GE and RTX here yesterday talking about thoughts on next gen engines. From a Boeing standpoint, what are you looking at here?

Kelly Ortberg, CEO, Boeing: Yeah. You know, I look at that, really kind of in three work streams. One is when is the market ready, and two, when are we ready, both financially and and from a capacity perspective? And third is when is the technology ready? And I would say the answer is not now on all three of those work streams.

As you point out, engine technology is gonna be important element of that. If you talk to our airline customers today, I think universally, they would say, we still have work to do in the durability of the existing the existing newer engines that are there, and we’d like to make sure that we don’t see the type of durability issues in the future. So I think ensuring we get through that step. And, you know, I wanna be ready when the time’s right. So we’re working all three of those work streams, but that time’s not here today.

We’ve got time to to to get ourselves prepared and do that right. I’ll also say that the, you know, the backlog is fantastic for our current product line, and getting the dash 10 into the market, I think, is gonna be an important step for us as well. So there there’s no hurry here. You know, we will do a new airplane when the market and the technology and we’re ready, And I don’t know when that’s gonna be right now.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Yeah.

Kelly Ortberg, CEO, Boeing: Yeah. Well, ’38 to ’42 will be the milestone review.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: So the four not the 40 yeah. Okay. That yeah. That’s what I okay.

Kelly Ortberg, CEO, Boeing: Yeah. We would let me just clarify. So what I’m we’ll go through the milestone review from ’38 to ’42, then we’ll move to ’42. What I was meant to say is at the end of the year, I would expect we’d be doing the milestone review from ’42 to ’47 so that we can move

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: to that. Okay.

Kelly Ortberg, CEO, Boeing: We won’t be outputting at ’47

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Okay. The next year. Good. Okay. That’d be clear.

Yeah. So go over to BDS. So this was the first quarter in quite some time that you had no charges. How are you thinking about BDS today, some of the programs, you know, KC 46, t seven a, Air Force one? You’ve got a number of these fixed price programs that have been problematic.

Do you think that risk is behind you now? Oh, not

Kelly Ortberg, CEO, Boeing: not totally. You know, the on a fixed price development program, the risk is not behind you until you’re done, and we still have a lot of work to do. Having said that, I think, we’re making good progress on how we’re managing those contracts. In some cases, it’s it’s a better baseline management, better program management, working with our customers on the requirements to make sure that we have an achievable path forward. We’ve done some things differently.

Like on the t seven program, we’ve worked with the air force to restructure that program, kind of in a win win, way that they get things that they needed, but we also derisked, some of the risks that we had, in the program. And I think that’s kind of the methodology, that we have to use for working together with our our customers going forward. So, you know, we got a lot of work yet to do, but I do believe we’re managing those risks better. We’re working with our customers better, and, you know, we just gotta get the programs through the development phase. We still have flight testing on several of these platforms, which is always a risky phase, to go through and make sure that the that the aircraft meets the performance.

So we’ll continue to manage those. I don’t think one quarter is a good quarter. I think we’re doing a better job of baseline management. But, again, we’re not done until we’re done on these on these projects.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: And and one one of the other issues that that we’ve seen in BDS is that even on the mature programs, they hadn’t really been delivering at the margins that one might have had hoped for. Because I I think back, you know, back in kind of the pre COVID times, you know, this used to be just a great free cash flow generator.

Kelly Ortberg, CEO, Boeing: Yeah.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: And so you had a lot of mature programs, which you still have a good number of those that throw off cash. How are you thinking about, aside from these fixed price development programs, the rest of BDS and what it needs to meet the goals you have?

Kelly Ortberg, CEO, Boeing: Yeah. I you know, look. I think we get those back to the historic margin performance. You’re you’re right. And some of the some of the legacy programs have been underperforming.

As we’ve made changes to the EX, for example, on the f 15, we’ve been slowing the ramp up in production. But I don’t see anything that keeps us from restoring that business back to the to the historical performance margins. So, you know, we did have a lot of post COVID, challenges there. We also had supply chain challenges in our in those legacy defense programs. All that’s getting a lot better.

So I I feel pretty confident that we’ll be able to restore those programs back to legacy legacy margins. The defense program or the fixed price development programs, it’s important that we stabilize and just keep those from being a headwind here for the portfolio going forward.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Now a big win was the f 47. Can you comment at all about what you think led to that win?

Kelly Ortberg, CEO, Boeing: Well, first of all, it is a huge win for us, and very important for our St. Louis operations. As you know, we do the f 15 and f 18 there. And to be a part of the next generation first six generation fighter really sets the stage for decades to come for our our Saint Louis operation. We did a very, very good the team did a very good job on pursuing that program.

We invested in this area more than any any investment we’ve ever made in our defense business, and that investment paid off. We had a we have a superior product, very mature in where we are in terms of the design of the product. Can’t talk a lot more about it, but we’re excited to have that program. And, again, I think it puts a boost to energy in our in our defense portfolio and our team to go win such an important program and prove that we still have the technology capability to go do that.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Well, as you look at this investment profile, knowing that you you did invest a fair amount,

Kelly Ortberg, CEO, Boeing: how does that look still? I mean, is there still significant investment from your standpoint? Less investment on the r and d, but more investment in the CapEx. So there will be a step up in some CapEx investment associated with that. And there’s another big program out there as well, so we’ll see where that that plays out.

The the FAX. Yes. Right. And if that program moves forward and and we’re lucky enough to be selected there, then that will also require some additional CapEx investment. And and, you know, we had we had expected an announcement on that about a month ago, and it seems like I mean,

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: headlines we’ve seen and sort of put on hold by the navy. I mean, do you have any insight into I do not. How this is proceeding?

Kelly Ortberg, CEO, Boeing: I do not. So, you know, I’m hopeful that this goes forward. But I’ll just say the f 47 kinda went through the same phase as well as is that, wasn’t sure when the decisions were gonna be made. But once they were made, they went pretty quickly to, source selection. So I think we’re in the same boat here, and we’ll see.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Yeah. That’s a good point. Like, six months ago, NGAD looked like nobody

Kelly Ortberg, CEO, Boeing: knew GAD. And GAD means yeah. Right. So so, again, I think that the proposals are in. They have all the information they need to make a source selection.

This is more of, when do we want to launch the program? Are we gonna launch the program decision, and and, so we’re waiting on that. So this work will be presumably centered in St. Louis. Mhmm.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: And and that’s a facility. I’ve been in in a little while, but I would imagine pretty underutilized heading into this program.

Kelly Ortberg, CEO, Boeing: I think you’d be surprised if you came to St. Louis. We’ll have to bring you to St. Louis. There’s a a dramatic change in our facilities there.

We’ve we’ve just recently torn down the legacy McDonnell Douglas headquarters building, and we’re building new facilities to support the production of of the new aircraft. So the airplanes actually won’t be built in the existing facility for security and other reasons, but pretty big transformation in the in the overall footprint in Saint Louis. We have the land and the facilities and the people to do the job, but we’re investing heavily in the in the infrastructure.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Well, my my assumption would be also as as you put f 47 work in there, this should be helpful on margin. It that’s a and it’s a cost plus, but helpful on margin overall from an operational standpoint? Is that

Kelly Ortberg, CEO, Boeing: Well, you know, from an overall absorption perspective, obviously, any big contract is is beneficial to the overall absorption. You know, the margin rate on the program, like any new program or development program will be lower than the overall, you know, production margins.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: And and something that I know you have done in the past, certainly was true with the seven eight seven development, is there has been, you know, some transfer sort of things like virtual tooling, things like that that have come across defense to commercial. Do you expect to see any benefits from the the engineering talent you get and the things you’re doing on f 47 more broadly for the company?

Kelly Ortberg, CEO, Boeing: Yeah. Not not directly. They’re different widgets, but, I think indirectly for sure. We’ve that’s one of been one of the big advantages between the commercial and government portfolio is our ability to to take technology from one to the other, and and move that across, particularly how we build the manufacturing processes, material science areas. So, yeah, I would expect that we’ll get significant benefit from that across our entire portfolio.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Now just send me over to BGS. This has been a great performing business for some time, and you’ve been getting at least 17% margins there even though it seems like every year it’s guided to lower. Can you talk about, you know, what that profile looks like now? I mean, you’ve you’re divesting Jefferson. I don’t know if that changes much in your outlook.

Kelly Ortberg, CEO, Boeing: Well, you know, the divestiture of Jefferson would happen probably towards the end of the year. And, initially, there may be some slight deterioration in the overall BGS margins as we divest of that. But but as we incrementally grow the services business, I think we’ll be able to to cover that that deterioration. You know, look, I think everybody in the industry has seen stronger demand in the aftermarket than anticipated, and that’s the result of I don’t think we’re sandbagging. I think the the market performance has been a little bit better in the aftermarket.

You know, the the the BGS business is is critical and critically core to the company. So selling those the proprietary critical parts to support our customers, and the the demand just looks very good going forward demand signal. So I think our our BGS business is set very well to continue to to deliver the profitability we need.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: So so when you look at BGS today, you’ve certainly got things like Avial and KLX in in there. Do you is the portfolio you have really core at this point? How do you think of core and noncore in that business?

Kelly Ortberg, CEO, Boeing: Look. The BGS, the core parts business into our core, either it’s defense or you know? And all the services that go around that either defense or commercial is super core to us. It’s what allows our customers to operate our platforms, and we’ll always keep that. Now Jefferson was in our BGS portfolio, and we determined that that was something that wasn’t core to us.

But but if you look at a portfolio level, certainly, BGS is very important to our future.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Now when when you take all this together, you’re guiding to free cash flow positive h two.

Kelly Ortberg, CEO, Boeing: Can you describe what goes into that, and what what gives you confidence in that guide? It’s all around production rates. You know, moving the max production up is the is really the story. Obviously, there are other things that impact it, but, you know, if we get through the production increase, get through the rate readiness review, that’s what will allow us to drive higher levels of cash flow. And I think you’ve seen that in our performance to date that the cash performance for the company is very much driven by the max production rates.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: And and so when you go forward, knowing that it’s quite difficult because the movement of advances and inventories are are hard to to project. But can you give us any sense into how you see that free cash flow profile going beyond 2025? You know, not yet. Let me get through the first, you know,

Kelly Ortberg, CEO, Boeing: the first production rate increase. Let’s get to a positive cash flow, and then we can start looking at how’s the cadence look going forward. I’ll just tell you, it’s gonna follow the performance of the production. As I said before, the financials will follow our our production performance. So the faster we ramp up, the better our cash performance will be.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: You know, something that, you know, a lot of investors have been concerned about given a lot of the missteps over the last several years is how can I be comfortable investing now and have more confidence that those aren’t going to happen again? And I’d say both on the on the BCA and on the on the BDS sides. I mean, how how how do you get confident that we’ve talked about that a little bit, but just

Kelly Ortberg, CEO, Boeing: Well, look. Look. We we put together a plan on what we need to do, and we’re tracking to the pay plan and measuring to the plan. You know, there’s still risk that we have to manage. I don’t wanna imply that we’re done here.

Restoring the company and stabilizing the company is our first step. We’re not through that yet. I’ll maybe claim victory on that when we get to a positive cash flow when we’re through our first rate increase, and we’ve got the certifications complete. We still have a lot of work to do. The only thing I will say is we’re tracking to our plan.

I feel good about our plan. Our team’s focused on this plan. It’s achievable, and, you know, we’re committed to bringing this bringing this home. We haven’t done it yet, so we’ve gotta, you know, still focus on being humble and and let our performance do the talking, and that’s what we’re gonna try to do.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Well, one of the things that you’ve stressed has been culture and thinking about the culture. Back Rockwell Collins, you know, from my standpoint, having been pretty deeply involved in Boeing, you know, twenty years ago or so. You know? As I was constantly told in Boeing, everything is about configuration control, making sure everything is absolutely perfect on timing, quality. And that, at the time, did a lot of that, but it had a lot of financial cost at the same time with people kind of checking checkers.

You know, today, it it it seems like the company has sort of swung back and forth in there. When when you think about the company going forward, how do you balance ensuring that you do have all of these details related to quality and performance and at the same time, do that in a way that’s financially successful? Look. I think you’ve just gotta focus on the performance first. We have to deliver it’s fundamental to us to deliver safe, high quality products, whether that’s a product going into our government customer or commercial customer.

It doesn’t matter. We’ve gotta focus on on the the ensuring that we’ve got a great product going into the market. So I don’t know

Kelly Ortberg, CEO, Boeing: what it was like twenty years ago. I can’t speak to when, you’re referencing, but but, the fact that people were focused on safety and quality sounds good to me. That’s what we wanna get back, back to. Then we do need just to focus on efficiency. I think there’s areas where we can be more efficient.

We just gotta be extremely careful as we do these efficiency initiatives that we don’t take away value, particularly if it’s value to the safety or quality of the product. So we’ll take that on, but I think just keeping that focus and look. We’ve been through trying times here. I think we know cutting corners can’t be an answer for our recovery. We gotta do this right.

And we keep saying, we gotta do this right. Focus on the right things, and good things will come from it. And that’s what we’re doing as a as an organization. We’re making large changes to the culture in the company to make sure everybody in the company is is focused on on doing the right thing, and delivering a high quality product to our to our customer. The good news is I’m hearing good feedback so far.

We’re early innings, I will say. So, you know, there’s more work to be done, but we have a plan. We’re making progress against that plan. Customers are feeling better about the products that we’re that we’re getting. The metrics are showing the quality, of the airplanes are better.

So we’re just gonna keep marching on that. Well, just to

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: finish, got a lot going on. What are you gonna be focused on the next twelve months?

Kelly Ortberg, CEO, Boeing: Yeah. Well, like I said, the the stability of the company is kind of the first thing. And so we gotta you know, I don’t we’re still not in a positive cash generating situation, and we we definitely have to get through all the milestones to achieve that. I think my energy in the next year is gonna be focused on probably less on the production ramp up and more on getting through the certification and the development programs and getting those things behind us. So we’re gonna spend a lot of energy in in in that.

Also, a lot of energy in the culture change within the company. Because I think the culture change is important not only to enable the improvements, but to ensure the stability and sustainability of the improvements we’ve to make sure we don’t you know, we’d we’d never digress, as we go forward. So those are the areas of focus. And, you know, obviously, the managing the supply chain here, as we ramp up is gonna be continually continually be a a focus area for the company, and the team team’s doing a great job. I’m really pleased with the the performance to date.

We’re focused on the right things. We got the right people in the right places to make to make this happen. So we just gotta stay focused, stay disciplined, and good things will come.

Doug Harned, Senior Global Aerospace and Defense Analyst, Bernstein: Very good. Well, Kelly, thank you very much for joining us.

Kelly Ortberg, CEO, Boeing: Okay. Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.