Boeing Company (BA) — Q1 2024 Earnings Call Transcript

Thank you, and good morning, everyone. Welcome to Boeing's quarterly earnings call. I am Matt Welch, and with me today are Dave Calhoun, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer. As a reminder, you can follow today's broadcast and slide presentation at boeing.com. As always, detailed financial information is included in today's press release. Furthermore, projections, estimates and goals included in today's discussion involve risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the beginning of the web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of certain non-GAAP measures. Now I will turn the call over to Dave Calhoun.

Thanks, Matt. Good morning, and thanks for joining us. Although we report first quarter financial results today, I will direct my comments toward the dramatic actions we've taken since the Alaska Airlines accident in January. First, we began by taking responsibility. We immediately and transparently began supporting the NTSB to identify the cause of the accident. We supported the FAA investigation of the 737-9 fleet in its entirety to perform comprehensive airline inspections, and the aircraft were cleared to go back into service. We immediately acted, working alongside our supply chain, to ensure the door plug depressurization event doesn't ever happen again. We held quality stand-downs across all of our production lines in BCA and sought the advice and counsel of more than 70,000 employees to improve our factory disciplines and adherence to our quality standards. All in all, we collected over 30,000 ideas, and the list continues to grow. We have categorized and prioritized all. Employee engagement has been energizing for all. Actions are being taken across all of our factories, and areas of focus include: training, particularly on the job, taking advantage of our slowdown and adding hundreds of hours of training for each of our manufacturing employees; tooling, more of it and improve maintenance; work instructions, simplify, simplify, simplify; compliance checks, discipline; traveled work controls, don't travel work; incentive structures; employee listening; and maybe above all, culture improvement. We transparently engaged with the FAA and immediately went to work on a 90-day plan of quality action to drive improvements throughout our production system. We completed our 30-day review, and we're regularly checking in with the FAA as we complete our 90-day plan. We engaged a team of independent quality experts to systematically review our quality control process and provide long-term recommendations. They are roughly 60 days into their work beginning with Renton and Spirit, and we expect them to stay for several years. We have appointed several new leaders into critical BCA leadership roles in the last couple of months. All have jumped in with both feet, alongside our world-class workforce. They are seasoned operators and all with a critical eye. Effective March 1, we moved inspection and rework teams to Wichita. Since then, we have only allowed fully inspected fuselages to be shipped to Renton, which has dramatically reduced our nonconformances entering the Renton factory. This started as a trickle, and it has been slowly improving over time. The visibility in Wichita will help the Spirit team prevent nonconformances from being created in the first place. We are already beginning to see signs of more predictable and reduced cycle times in our factory as a result of these enhanced quality control standards. We expect this will continue to improve. We've extended our commitment to reduce traveled work across all of our assembly lines and deep into our supply chain. While near-term delivery shortfalls hurt and will affect our performance during our first half of the year, the long-term benefits from a synchronized supply chain will be substantial. We are absolutely committed to doing everything that we can to ensure our regulators, our customers, and most importantly, our employees and the flying public are 100% confident in Boeing. And while I have shared my plans to step down as CEO by the end of the year, I will be very focused every day on seeing that commitment through. As we move through this period, it is important that our people and our stakeholders understand how promising Boeing's future looks. Demand across our portfolio remains incredibly strong. Our people are world-class. There's a lot of work in front of us, but I'm proud of our team and remain fully confident in our future. While this effort will slow our recovery timing, we are now seeing these proof points that give us confidence that we'll begin to stabilize and improve performance moving forward. By the end of this year, we expect to have largely delivered our 737 and 787 inventory, effectively shutting down our two large shadow factories. Our commercial business will be more stable. Our defense unit will be progressing towards more historic levels of performance. And our services team will continue to deliver exceptional results. Most importantly, we will have embedded all of the important lessons we've learned in the last few months and over the last several years. During that time, I've had the opportunity to speak to many of our frontline team members, engineers and mechanics. I continue to be amazed by the pride they take in their work, their commitment to getting things done the right way, the safe way, and their willingness to raise their hands and offer ideas for how to do things better. With that, I'll turn it over to Brian.

Thanks, Dave, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $16.6 billion, down 8% versus last year, primarily reflecting lower 737 delivery volume. The core loss per share was $1.13, a slight improvement versus last year, also reflecting lower 737 deliveries. Free cash flow was a usage of $3.9 billion in the quarter, a higher usage than last year and in line with the expectations shared last month. Cash was impacted by lower commercial deliveries and unfavorable timing of receipts and expenditures. Turning to the next page, I'll cover Boeing Commercial Airplanes. BCA booked 125 net orders in the quarter, including 85 737-10s for American Airlines and 28 777Xs for customers, including Ethiopian Airlines. The backlog grew to $448 billion and includes more than 5,600 airplanes. BCA delivered 83 airplanes in the quarter. Revenue was $4.7 billion, and operating margin was minus 24.6%. These results were significantly lower than last year, primarily reflecting lower 737 deliveries and the 737-9 grounding impact for customer considerations of $443 million. Now I'll give more detail on the key programs. On the 737, we delivered 67 airplanes in the first quarter as we deliberately slowed production below 38 per month to incorporate improvements to our quality and safety management systems, including reducing traveled work and addressing supplier nonconformances. These continued efforts will cause April deliveries to be more in line with February levels as we complete our work. Production will remain below 38 per month for the first half of the year and will increase in the second half as we move back to 38 per month, with the timing of rates beyond 38 predicated on the work we're doing with the FAA. We've recently made adjustments to the master schedule, and we'll continue to manage supplier by supplier based on inventory levels and rate ramp readiness. Our objective remains to keep the supply chain paced ahead of final assembly to support stability and minimize traveled work. The quarter ended with approximately 110 737-8s built prior to 2023, the vast majority for customers in China and India. This is down 30 airplanes from last quarter and in line with our plans. We still expect to deliver most of these inventoried airplanes by year-end as we work towards shutting down the shadow factory. There were approximately 95 additional airplanes in inventory, about 35 of which were -7 and -10s, and the remaining are WIP airplanes impacted by factory and supply chain constraints. On the anti-icing, the timeline is unchanged, and we're making good progress towards resolution. As it pertains to the certification of the -7 and the -10, we coordinated with our customers and added more 8s and 9s into the skyline in the near term to mitigate impacts to their fleet needs and stabilize our production plans. The program margin has been updated to reflect these impacts as well as the slower production ramp. On the 787, we delivered 13 airplanes in the quarter. We're slowing near-term production and plan to return to 5 per month later this year. We expect to achieve rate increases, including 10 per month by 2026. We ended the quarter with about 60 airplanes of inventory, about 40 of which require rework, which continues to progress steadily and in line with our expectations. We still expect to finish the reworked airplanes and shut down the shadow factory by year-end, with most of these airplanes delivering in the year. Finally, on 777X, we continue to progress along the program timeline and still expect the first delivery in 2025. We'll follow the lead of the FAA as we progress through the process, including working to obtain approval from the FAA to begin certification flight testing. Moving on to Boeing Defense and Space, BDS booked $9 billion in orders during the quarter, including awards for 17 P-8 aircraft for the Royal Canadian Air Force and the German Navy, and securing the final F/A-18 newbuild production contract from the U.S. Navy. The backlog grew to $61 billion. Revenue was $7 billion, up 6% on improved volume, and BDS delivered 14 aircraft in the quarter. Operating margin was 2.2%, another quarter of sequential improvement, but still more work to do. First quarter results were impacted by losses on two fixed-price development programs totaling $222 million, $128 million on the tanker and $94 million on the T-7A. Our game plan to get BDS back to high single-digit margins by the '25, '26 timeframe remains intact. We've made important progress in 1Q. Our core business, representing about 60% of our revenue, is seeing solid consistent performance in the mid- to high single-digit margin range with strong demand across the board. On the 25% of the portfolio, primarily comprised of fighter and satellite programs, operational performance further stabilized in the quarter, which drove improved margin trends. We still expect to return to the strong historical performance levels as we roll into new contracts with tighter underwriting disciplines as we move into the '25, '26 timeframe. Lastly, we have our fixed-price development programs that represent the remaining 15% of revenue. Despite the relatively modest updates in the quarter, we continue to retire risks and remain focused on maturing these programs quarter in and quarter out. Importantly, on the MQ-25 program, the program was awarded a cost-type contract modification from the U.S. Navy that included two additional test aircraft, demonstrating our progress and our commitment to stronger underwriting disciplines in the area of the development programs. The program also delivered the first static test article to the Navy, and the airframe is ready to begin stress testing. And on the Starliner, the program continues to progress towards a May 6 crew flight test as the spacecraft was recently integrated on top of its Atlas V rocket, and prelaunch testing is underway. Lastly, the T-7A test aircraft completed climate lab testing in February, and the program continues to progress with Air Force flight testing. Overall, the defense portfolio is well positioned. As seen in the initial FY '25 presidential budget, there's strong demand across the customer base. The products are performing in the field, and we're confident that our efforts to drive execution stability will return this business to performance levels that our investors recognize. Moving on to the next page, Boeing Global Services. BGS had another strong quarter. They received $5 billion in orders, and the backlog is at $20 billion. Revenue was $5 billion, up 7% primarily on higher commercial volume and favorable mix. Operating margin was a strong 18.2%, an expansion of 30 basis points compared to last year. In the quarter, BGS opened a maintenance facility in Jacksonville, Florida, supporting our military customers. And the U.S. Navy exercised options on a P-8 sustainment modification contract. Turning to the next page, I'll cover cash and debt. On cash and marketable securities, we ended the quarter at $7.5 billion, reflecting the debt repayment activity and use of free cash in the quarter. The debt balance decreased to $47.9 billion as we paid down $4.4 billion of the $5 billion of maturities due this year. We continue to maintain access to $10 billion of revolving credit facilities, all of which remain undrawn. While we're still not in a position to provide a more detailed 2024 outlook today, I want to provide some additional context on the path forward. The 2024 free cash flow outlook I shared last month is still expected to be a generation in the low single-digit billions. Cash flow should improve as we move through the year and be back-end loaded, driven by BCA deliveries and receipt timing, including an expected Lot 11 award on the tanker. Second quarter free cash flow is expected to improve sequentially but be another sizable use of cash. We're committed to managing the balance sheet in a prudent manner with two main objectives: one, prioritize the investment-grade rating; and two, allow the factory and supply chain to stabilize for a stronger trajectory as we exit this year. As we operate at these lower production rates, we're actively monitoring our liquidity levels and believe we have significant market access, and are continuously monitoring and evaluating opportunities should we decide to supplement our liquidity position. Longer term, we remain confident in our ability to achieve $10 billion of free cash flow. However, given our continued focus on safety, quality, and stability, we continue to expect that this goal will take us longer than we originally planned and later in the '25, '26 window, primarily tied to the 737 and 787 production delivery ramps of 50 per month and 10 per month, respectively. Moving on, discussions with Spirit are ongoing. As with any large and complex deal, there are a number of terms and issues we need to work through, including price, financing, and other key items and the best approach to handling and potentially divesting certain work that Spirit does for other customers. We believe in the strategic logic of a deal, but we'll take the time needed to get this right before we decide to enter into an agreement. In the meantime, the focus is on factory stability in Wichita and in Renton. And as you saw yesterday, we agreed to advance Spirit $425 million, virtually all of which will be repaid in the third quarter. This will be accounted for as investing cash. Looking forward to the balance of the year, we're taking the time now to ensure our BCA factories are stable and positioned to ramp production. We'll also continue to make progress on other important objectives, including shutting down the shadow factories, maturing and derisking the defense fixed-price development programs, and building on the continued strong results in services. Our backlog of nearly $530 billion speaks to the breadth of our portfolio, and this demand backdrop underpins our commitment to drive long-term results, all enabled by the everyday execution of 170,000 incredibly talented and dedicated team members at Boeing. With that, let's turn it over to questions.

You gave color on the April MAX deliveries similar to February, but I'm really more interested in the production output, how it's going on the line, where you are relative to where you were when you started to give the no traveled work policy, how that's improving or not? And what specific metrics you're looking at to allow you to go higher over the next 6 months?

So why don't I start this off? It is going to stay sporadic through 2Q. The real pivot for us is the number of clean fuselages we get out of Spirit with the new inspection protocols. It started slow. In the meantime, we've been working on all the fuselages that were already trapped in the pipeline that did not go through that inspection process, which is why it's slow and inconsistent here in these couple of months, but we will be through that process within the next 60 days. Then we will just be dealing with clean fuselages out of Wichita. So far, we're encouraged by how clean they are and how quickly they move through our production cycle, substantially better and faster than before. So as we exit 2Q, we will know exactly what numbers are coming out of Wichita and what expectations are. We are not going to rush it; we will simply demand that they be clean. But I like all the signals. I was walking through the factory yesterday. When we get a clean one, it moves through the factory efficiently, and that's the most important thing.

When evaluating production on the 737 and considering the potential to reach $10 billion in free cash flow by the end of 2026 or 2027, it appears that achieving a rate of 50 per month is crucial. Historically, Spirit has struggled to increase production to that level, even before the MAX grounding. Given their current restart phase, what is your view on their ability to address current quality concerns and ramp up production to 50 units per month within two years?

We do. Spirit's committed to it. I believe the acquisition of Spirit will factor in significantly into that prospect. Clean fuselages in Spirit and in Wichita and fixes on all those nonconformances will reduce their cycle times and improve their output. So there are a lot of factors that contribute to it, Doug. If we get ourselves to 38, which is our first objective, and we do it steadily, moving up another 12, in my view, is attainable in the timeframe that we're discussing. So that's the expectation we are betting on, and I'm confident we can get there. But job one is the six months that commenced post-Alaska and the inspection protocols and the nonconformance fixes that will then be embedded into the Wichita facility.

Yes. So as a result of the production slowdown, presumably, you'll have late deliveries to customers. And traditionally, late deliveries require compensation. Could you give us some color in terms of what sort of a number we're going to look at? And basically, where are we going to see it? Is that going to be front-loaded, back-loaded? How should we think about that?

Cai, I'll take that one. Why don’t we discuss it in the context of 737 overall margins? The program booked about 300 basis points of impact in the quarter. That was primarily driven by the delayed rate ramp that you're describing as well as mixing in more 8s and 9s for 10s in the near term so that we can support our customers in their fleet planning. So that will all roll through, and the timing will be expanded over the next couple of years. What our expectation is that while these program margins won't return to 2018 levels, they will improve. And that will largely be driven by the rate ramps that Dave described. The main difference from where we were in 2018 is largely due to the customer mix and these delayed considerations. Overall, when we step back and think about the long term, structurally, particularly on the cash margin front, not much has changed. We just have to work through getting from here to those higher levels, including the considerations that we've described that we booked in the quarter. Overall long term, we still believe we will get there.

Brian, you talked a little bit about the cash balance and liquidity. I don't know if this is necessarily the right way to think about it, but I feel like there’s this conventional wisdom out there that Boeing should have roughly $10 billion of cash on the balance sheet. Maybe that can dip a little bit lower intra-year as we see now. But burning cash in the second quarter, kind of how low can that cash balance get before you have to do something? When you talked about additional sources of liquidity, what were you talking about? And how much room do you think you still have with the rating agencies to avoid getting put on a negative watch?

Thanks, Seth. First and foremost, I remind everyone that we do have $17 billion of liquidity today, comprised of the cash on hand as well as our credit lines. What we're focused on is a first-half cash usage that is resulting from all of the actions we're taking to stabilize both the factory and the supply chain to set ourselves up for success as we move to the second half and into 2025. Any supplemental funding that I spoke about would do two things. First, it would restore our cash balance to the historical level that you point out, around $10 billion. But it also means that we want to continue our practice of staying well ahead of our near-term maturities, which I define as roughly the next 12 months. That's what we're thinking about as we sit here today. We will be prudent and thoughtful. We believe the market would be open to us. And as we've said consistently, the most important thing is our investment-grade credit rating, which we take very seriously and it is a priority.

Can we talk about the 737 rate again? How much of that is self-inflicted versus the FAA processes that are in place? And when we think about the 90-day timeline that comes to a head with the IAM negotiations over the summer, I would assume. How do we think about the IAM progressing as well? And how much was incorporated into the $10 billion free cash flow target?

Okay, Sheila, that's a multi-part question. All of the 737 disruption that is going on today, in my view, is self-inflicted. We made the decision to dramatically reduce the amount of traveled work, particularly regarding the fuselage that was embedded and normalized in our factory. That decision was made by us; the FAA did not request it. They have approached this diligently and in a business-like manner. They require a control plan. They want a control plan in 90 days that monitors and measures whether our production system is in control moving forward. If it ever gets out of control, the signals are clear to both the FAA and to us. And if we don't get that right, we won't extend, we won't ramp up, and we won't do anything until it stays under control. So 90 days isn’t a magic flag that fixes everything; it involves a set of metrics and controls we both agree are appropriate for monitoring our factories' performance. The most important thing over the next six months is the pace at which clean fuselages come out of Wichita. That is the key element. With respect to IAM, we are having productive discussions between our team and theirs, and while I can’t say I’m perfectly confident that we will rush to an agreement, we're all working towards continuous production. I believe our chances are good, but we won’t know until we get closer to the deadline. The $10 billion free cash flow does incorporate the IAM negotiation.

I guess this is sort of asked and you've alluded to pieces of the answer to this, but I’m just going to ask it anyway because it seems to be the most important thing, which is just how long does it take to do everything you need to do on product quality? And how much of it needs to be done before you can increase production again versus how much of it can be done as you're increasing production again? Because I've heard you reference six months a few times, and you've referenced the back half of the year looking a lot different than the first half of the year. Six months isn't a short window of time. But in the context of what you're doing and referencing 30,000 ideas, if you’re going to take Spirit in, that hasn’t even happened yet, and it’s almost May. When you were working with the FAA on the 787 a few years ago, you didn’t deliver one for 18 months. So I don’t know what you can say to that, but how do we get confident that the time just doesn't keep dragging on, and you're not iterating back and forth and there isn't a much longer window of time needed to do everything before you need to start ramping again?

Noah, I'm glad you asked about the six months. When I say six months, I’m specifically referring to the first half of this year, because we commenced all of these actions the day after the Alaska Air accident. The big factor moving forward is our commitment to eliminate traveled work in our factory, especially regarding the fuselage. That action started on March 1, with an inspection line in place and full inspections being performed in Wichita. Our rework teams regarding nonconformances that were identified in Seattle have been regularly visiting Wichita. I fully expect that as we enter the second half of the year, we will see progress towards clean fuselages. This is a significant productivity driver for the Renton factory. We also believe that cycle time improvements will lead to capacity improvements. The 30,000 ideas represent ongoing continuous improvement efforts from our workforce and leadership team. It doesn’t mean everything needs to be completed before we can ramp up production; rather, it’s an ongoing process that we will continue to embrace. I would say the most essential indicator in the second quarter will be the number of clean fuselages we receive from Wichita and how that informs our projections going forward.

Dave, Brian, you mentioned that the first half deliveries for the 737 will be under pressure as you focus on quality. However, stability of the supply chain is a priority as well. In the event that 737 MAX production and deliveries continue to be under pressure beyond the first half of this year, how long can you keep the supply chain at a higher rate? What does it mean to keep them stable? Additionally, as a follow-on to that, can you talk about the puts and takes of free cash flow generation in the second half of the year?

Yes. I believe Brian will address this one, but let me start. We have a rate increase plan that aims to get us to 50 as we enter the '25, '26 timeframe. Our job now, in light of the slowdown we’re experiencing in this first half, is to ensure we have enough inventory to meet that 50 rate and appropriate buffers to assure our supply chain can showcase its capacity. This slowdown, in my view, serves as an opportunity to shore up any supply chain issues one supplier at a time. If we find that this slowdown persists and the buffers exceed our requirements, we will adjust accordingly but not until that threshold is crossed.

The only thing I would add is tactically, we have adjusted the master schedule on a supplier-by-supplier basis. It's all laid out, and they are informed. We will continue to pace final assembly in line with that master schedule so that we don’t compromise stability, which is a vital short-term investment for us. We remain focused on this. We feel confident we can manage cash flow fluctuations as we transition from the first half into the second half and prepare for 2025.

Dave, could you further characterize what you're seeing with respect to supply chain performance on the 787? Where are the constraints that are driving you to drop back below 5 a month? I'm also curious if there’s been any change to the plan on the 777X ramp.

Yes. There’s no change on the latter. However, we really have two constraints to address on the 787. One issue is discrete, well understood, and known—it's heat exchangers. This component was initially produced in Russia but had to be moved after the invasion. The capacity of the new supplier has not kept pace with our needs. However, we expect an improvement plan to be effective by the fourth quarter, and we are confident that the issues will be resolved. The second issue is not directly our suppliers but relates to the capacities of seat suppliers, many of which are buyer furnished. They are also facing short capacities, which can delay plane production. This situation is more medium-term and should improve slightly longer than the heat exchanger issue. Nevertheless, it will impact us a bit. When you encounter buyer-furnished problems, there typically aren’t direct consequences involved, as you might know.

Regarding the large P-8 contract that you mentioned, I'm unable to provide specifics about that particular award. However, I want to ensure that there’s clarity on two things you inquired about: 777X, as we indicated, remains unchanged. We're starting to notice the inventory implications of that ramp, which is significant as we progress throughout this year, and we are excited to implement that service. However, it does create some working capital pressure that I believe we should not overlook. In terms of the 787, we are making solid progress on inventory liquidation, which is moving well. Please keep in mind that not all of that will get delivered, as the rest will need reworking and completion, but actual deliveries will lag. We expect production will fall a bit below the 5 per month rate for most of the year as our supply chain catches up. As Dave mentioned, we have a recovery plan in place and remain optimistic. Additionally, one encouraging aspect is that our second line has been activated, so once the supply chain stabilizes, we’ll be ready to escalate production.

I just wanted to clarify your comments on the balance sheet and liquidity. Are you now considering equity issuance off the table as you think about the balance sheet and potentially funding Spirit?

As it stands now, we believe we can achieve the objectives I described in the near term without resorting to that option. Regarding Spirit, we’ve discussed that this is a complex deal with ongoing negotiations, and there are other parties involved. Once the agreement is completed, it will take time to close. In this interim period, we will explore optimal financing for that transaction to maintain our investment-grade credit rating, which remains critical. What that will look like is still unknown; however, we expect to achieve stability in our factory environment, allowing us to derive the best possible financing solution. Stay tuned for updates.

We can proceed without having full clarity about the Airbus operation. As you're likely aware, we encourage Spirit to take whatever steps are necessary to improve their business relative to our potential acquisition. However, we are not constrained by that.

Dave, can you talk about your pending leadership change? You have been on the Board for many years. You've been CEO for 5 years during what's obviously been a very challenging environment, dealing with MAX, COVID, and 787. As we consider this, Boeing is positioned for a multi-year improvement story. So what type of leader do you think is necessary to execute what is a very complex operation?

I appreciate the question, Peter. First of all, the process we have in place is solid. Steve Mollenkopf is in the Chair role, and Bob Bradway is in governance. The Board will look at the market in every way possible. They know there is an internal candidate whom I think highly of. I trust they will balance their insights and arrive at the right conclusion with my full support. I don’t expect this to happen in the next month or two, just to be clear. My main prescription is straightforward. You know, perhaps better than anyone, how long-term this business is. You also know that critical mistakes usually occur during the development of new aircraft, rather than in the production or supply chain issues we see today, which are, in the overall context of aviation, short-term problems that need to be managed diligently. On the other hand, if you mismanage substantial development programs, you pay a steep price, and it lasts long. Therefore, I believe the next leader should be prepared to make wise long-term decisions and oversee the development programs effectively. I have a broad internal succession plan in mind that I believe positions us well moving forward. Ultimately, we will see where things go, but they will have my full backing.

Okay. Great. Recognizing that you've got two other segments, the last caller here asked about the BDS segment. So first on the services business. The operating margins have been quite healthy for the last year or so, above your targeted medium-term margin range for '25, '26. Can we sustain the margins we're seeing today into that period? Regarding BDS, the incremental charges seem to be decreasing quarter-on-quarter, but Brian, are there any significant milestones or risk retirements you could point to for the next 12 to 18 months to offer an idea of when these issues will be resolved, allowing us to see the financial model you referenced solidifying in the '25, '26 timeframe?

Let’s split this, Brian. I’ll handle the services portion. One thing I don't believe anyone has factored into our service margins is a substantial profit pool from our distribution business—our acquisitions of Aviall and KLX over the years. This calendar year, we have a comprehensive integration plan for these two businesses. I have reviewed this plan, and it serves as a key productivity stepping stone for the business, potentially leading to sustainable margin improvements and a smarter way of doing business globally. We expect to implement these changes in the fourth quarter of this year or the first quarter next year, pending the readiness of that team. I believe that project is significant. It will unify our branding across aviation services, consolidating our warehouses throughout the company. Now would you like to take it, Brian?

Sure. On BDS, we’re retiring risks every day, particularly concerning the VC-25B program, which will conclude with the delivery of two airplanes. That point will signal the end of that program. There are two development programs that are particularly noteworthy: the T-7 and the MQ. We anticipate making important progress in flight testing for the T-7, which is proceeding well with the customer. Achieving a successful milestone as we exit this year will pay off. Similarly, for the MQ-25 program, we will reach build and software integration points, and we will also meet significant milestones with customers by year-end. Importantly, regarding the MQ-25 program, we recently received an award for two additional cost-type test aircraft, reflecting our progress and intent to de-risk that program. Additionally, we have a launch scheduled for commercial crew, which will help us in de-risking that initiative. As for the tanker, we are making good progress, although some impacts derive from our strategies to reduce traveled work. Nevertheless, the tankers are performing well in the field. We're gaining a better understanding of how it should evolve over time, and we're confident that we can effectively de-risk it. Overall, we still feel optimistic that we can navigate through these challenges, leading to a BDS margin level achieving high single digits in the '25, '26 timeframe. Nothing has changed regarding our commitment to this goal.

And that concludes our call today. Thank you, everybody, for joining.