Boeing Company (BA) — Q3 2024 Earnings Call Transcript

Thank you, and good morning. Welcome to Boeing's quarterly earnings call. I am Matt Welch, and with me today are Kelly Ortberg, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer. And as a reminder, you can follow today's broadcast and slide presentation at boeing.com. 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 presentation. We also refer you to the disclosures relating to non-GAAP measures in our earnings release and presentation. Now I will turn the call over to Kelly Ortberg.

Thanks, Matt, and thanks to everyone for joining today's call. Let me start by saying that it's an honor to be leading the Boeing Company. I've spent my entire career in the aerospace and defense business and one constant has always been the critical role that Boeing plays, not just to the A&D industry, but to our national security and the overall global economy. But we're clearly at a crossroads. The trust in our company has eroded; we are saddled with too much debt. We've had serious lapses in our performance across the company that have disappointed many of our customers. But by the same token, we have great opportunities ahead. Our company backlog is roughly $0.5 trillion. We have a customer base that wants us and needs us to succeed. We have employees who are eager to get back to the iconic company they know, setting the standard for the products that we deliver. So my mission here is pretty straightforward: turn this big ship in the right direction and restore Boeing to the leadership position that we all know and want. Now, to do this, it's going to require changes in four particular areas. And let me introduce them, and I'll come back and discuss each one. First, we need a fundamental culture change in the company; second, we must stabilize the business; third, we need to improve our execution discipline on new platform commitments across the company; and fourth, while doing the first three, we must build a new future for Boeing. So let me start with arguably the most important change: the culture at Boeing. I spent the last two decades working with Boeing in the supply chain. So I have an outside-in view of Boeing, which is very helpful. That experience, combined with now seeing things from within the company, has helped provide an informed view of some of the actions we need to take. Much has been written about how we got to where we are, but most also recognize that Boeing was once a benchmark for what good culture looks like, and I believe we can return to that legacy. I know culture change starts at the top. Our leaders, including myself, need to be closely integrated with our business and the people who are doing the design and production of our products. We need to be on the factory floors, in the back shops and in our engineering labs. We need to know what's going on, not only with our products but with our people. Most importantly, we need to prevent the festering of issues and work better together to identify, fix and understand the root causes. I've already introduced a much more detailed business cadence to drive this across the organization, and this process of change is underway. Culture is driven by values, and we will redefine those for the company together. This has to be more than a poster on the wall. These values will be used to hold leaders accountable in how they lead our teams and deliver safe, high-quality products and services to our customers. I recently had a meeting with our top executives in the company, and we talked specifically about this culture change. I see this more as a continuous process improvement rather than a milestone. We will be relentless in changing the Boeing culture through action, not just words on a page. Now let me shift to the second item, which is stabilizing the business. This has been central to my focus since starting the job in August. We have some really big challenges that we need to get behind us to move the company forward. The first and foremost on everybody's mind today is ending the IAM strike. We've been working diligently to find a solution that works for the company and meets our employees' needs. I've met with the union leadership in the first week on the job and let them know that I am committed to resetting the relationship. I remain committed to getting the team back and improving our relationships, so we don't become so disconnected in the future. I'm very hopeful that the package we put forward will allow our employees to come back to work so we can immediately focus on restoring the company. Once we get back, we have the task of restarting the factories and the supply chain, and it's much harder to turn this on than it is to turn it off. So it's critical—absolutely critical—that we do this right. Our safety and quality management system will guide us through the restart, and we have a detailed return-to-work plan in place. I'm sincerely looking forward to getting everybody back and working on that plan. One additional area of focus that is critical to our stability is the implementation of the safety and quality plan. As you know, this is a plan that we have reviewed with the FAA and will be part of the criteria we use to measure the stability of our production system, which is necessary to gain authority to increase 737 rates. I'm encouraged by the progress we're making already, and we need to continue that momentum. Another big challenge to stabilize the company is managing our balance sheet to best support retaining our investment-grade credit rating. We have a plan, and we're executing that plan. I'm confident that we have a good path forward to manage the realities of our business and retain our investment-grade rating. So I've talked about culture and stability. The third area is improving the execution discipline on our new platforms, whether this be the commercial derivatives of the 737 MAX and 777 or the series of programs in our BDS business. We have to be better at understanding and managing the risk on these projects more proactively. This includes disciplined program and risk management in all phases of the project, including the bid phase. Again, this is an area where we need the management team much more focused on their programs and much more active in working with their customers to ensure success and anticipate risks before they happen. Supply chain management improvements will be critical to this effort. Clearly, we have some difficult contracts in our defense business, but we have to do a better job of executing on the things that we can control. Lastly, the fourth area to discuss is building a new future for Boeing. While we're somewhat consumed with the challenges of today, we need to be setting the foundation for the future of Boeing. Boeing's an airplane company, and at the right time in the future, we need to develop a new airplane, but we have a lot of work to do before that. This includes stabilizing our business, improving the execution on the development programs, streamlining the portfolio to do what we do well, and restoring the balance sheet so that we have a path to the next commercial aircraft. We need to reset priorities and create a leaner, more focused organization. We've recently announced a workforce reduction, which will concentrate on the consolidation of areas where we're not efficient. We need to continue to focus on reducing nonessential activities. So before I hand it over to Brian, let me summarize by saying that we have a lot of work to do. We have a plan and changes already underway. This is a big shift that will take some time to turn, but when it does, it has the potential to be great again. This is a company that ushered in the new era of air travel and helped place the first man on the moon. Getting back to the values that help define this legacy is what will define our future. I'm excited about the opportunity, and I look forward to working with all of you. So with that, let me hand it off to Brian to cover the financials, and then we look forward to coming back and answering your questions.

Thanks Kelly, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $17.8 billion, down 1%, primarily driven by lower commercial wide-body deliveries, including impacts from the IAM work stoppage. The core loss per share was $10.44, primarily reflecting impacts from the IAM work stoppage and previously announced charges across certain commercial and defense programs. Free cash flow was a use of $2 billion in the quarter, with results impacted by lower commercial wide-body deliveries and unfavorable working capital timing, including impacts associated with the work stoppage. Improvement versus prior expectations was driven by better-than-expected BCA advanced payments. Turning to the next page, I'll cover Boeing Commercial Airplanes. BCA delivered 116 airplanes in the quarter. Revenue was $7.4 billion, and operating margin was minus 54%, primarily reflecting previously announced charges of $3 billion on the 777X and 767 programs, the IAM work stoppage, and higher period costs, including R&D. Backlog in the quarter ended at $428 billion and includes more than 5,400 airplanes. Now I'll give more color on the key programs. The 737 program delivered 92 airplanes in the quarter. As noted in mid-September, we had been making good progress on stabilizing production and preparing for 38 per month by year-end, but those objectives will now take longer due to the IAM work stoppage. Given the strike and our need to conserve cash, we've made near-term adjustments to broadly stop supplier shipments. We continue to manage supplier by supplier based on inventory levels, and for certain suppliers, this will allow them to catch up. We maintain our objective to position the supply chain to support our ramp post-strike. The quarter ended with approximately 60 737-8s built prior to 2023, the vast majority for customers in China and India, down 30 from last quarter. Additional progress on shutting down the shadow factory has been impacted by the work stoppage, which will now extend into next year. On the -7 and -10, inventory levels remained stable at approximately 35 airplanes, and the certification timelines remain unchanged. On the 787 program, we delivered 14 airplanes in the quarter. As previously noted, we continue to work through production recovery plans on heat exchangers and delivery delays associated with seat certifications. The program is currently producing at 4 per month and still plans to return to 5 per month by year-end. We ended the quarter with 30 airplanes in inventory built prior to 2023 that required rework, down 5 from last quarter. Our ability to finish the rework and shut down the shadow factory has also been impacted by the work stoppage, which will now extend into next year. Finally, on the 777X program, as previously announced, the $2.6 billion pre-tax charge primarily reflects our latest assessment of the certification timelines to address the delays in flight testing of the 777-9 as well as anticipated delays associated with the IAM work stoppage. We'll continue to follow the lead of the FAA as we progress through the certification process and now expect first delivery in 2026. Year-to-date, 777X inventory spending has averaged a bit below $800 million per quarter. The cash profile will look similar to prior development programs, with the year before the first delivery typically being the largest use of cash driven by inventory build associated with the production ramp, which will unwind as deliveries commence. Moving on to the next page, Boeing Defense & Space. BDS booked $8 billion in orders during the quarter, including definitizing a $2.6 billion award from the U.S. Air Force for 2 rapid prototype E-7A Wedgetails aircraft, and the backlog ended at $62 billion. Revenue was $5.5 billion, stable year-over-year, and BDS delivered 34 aircraft in the quarter, including the first production MH-139A Grey Wolf to the U.S. Air Force. As previously announced, BDS recognized $2 billion of pre-tax charges on the T-7A, KC-46A, commercial crew, and MQ-25 programs in the third quarter, and operating margin was minus 43.1%. In September, we indicated that margins would again be negative due to two things: First, on the 25% of the portfolio, primarily comprised of fighter and satellite programs. Our fighter programs recognized losses in the third quarter due to disruption as the F-15EX ramps up on a shared production line, along with additional cost pressures and winding down F-18 production. Second, additional cost pressures on fixed-price development programs. The magnitude of these losses expanded as we closed the books, primarily reflecting higher estimated production costs on the T-7A program, mainly on contracts in 2026 and beyond, and an updated assessment of impacts on the KC-46A program associated with the IAM work stoppage and the decision to conclude production on the 767 freighter. Given the fixed-price nature for these contracts, we'll continue to be transparent about impacts as we work to stabilize and mature these programs. While acknowledging these are disappointing results, these are complicated development programs, and we remain focused on retiring risk each quarter and ultimately delivering these mission-critical capabilities to our customers. The plan to improve BDS margins in the medium to long term remains unchanged. Our core business remains solid, representing about 60% of our revenue and generally performing in the mid-to-high single-digit margin range, with commercial derivatives experiencing margin compression in Q3 due to the disruption in Puget Sound factories, including the work stoppage. Broadly, the demand for our defense products remains very strong, supported by the threat environment confronting our nation and our allies. We still expect the business to return to historical performance levels as we stabilize production, execute on development programs, and transition to new contracts with tighter underwriting standards. Moving on to the next page, Boeing Global Services. BGS continues to perform well in the quarter. The business received $6 billion in orders and the backlog ended at $20 billion. Revenue was $4.9 billion, up 2%, primarily on higher commercial volume. Operating margin was 17%, up 70 basis points compared to last year on favorable volume and mix. In the quarter, BGS secured several key services agreements with ANA as well as a KC-135 spares contract from the U.S. Air Force. It’s a terrific long-term franchise focused on profitable, capital-efficient service offerings and executing well with mid-single-digit revenue growth, mid-teen margins, and very high cash flow conversion. Turning to the next page, I'll cover cash and debt. On cash and marketable securities, we ended the quarter at $10.5 billion, primarily reflecting the $2 billion use of free cash flow in the quarter. The debt balance remained stable, ending at $57.7 billion. Last week, we entered into a new $10 billion short-term credit facility and now have access to credit facilities totaling $20 billion, all of which remain undrawn. We expect Q4 free cash flow to be a usage driven by the timing of return to work, the pace of our production ramp, and the unwind of inventory in the balance sheet. While we expect 2025 to be another use of cash, we anticipate a significant improvement over this year. Importantly, we expect to exit next year with real momentum in the business as we return to normal production rates. We continue to take tough but necessary actions to preserve cash and safeguard our future. We've worked across our supply chain partners to significantly reduce expenditures while balancing the associated trade-offs. We've shared plans to reduce our workforce to align with our financial reality and a more focused set of priorities. We're decisively implementing reductions to our discretionary spending across the company. As we move through this process, we'll maintain our steadfast focus on safety, quality, and delivery for our customers. We remain committed to managing the balance sheet in a prudent manner with two main objectives: First, prioritize the investment-grade credit rating; and second, allow the factory and supply chain to reset, which will take longer as a result of the work stoppage. We're constantly evaluating our capital structure and liquidity levels to ensure we can satisfy our debt maturities over the next 18 months while maintaining confidence in our credit rating as investment grade. The actions we've recently taken, including establishing the universal shelf registration, which is now effective, directly support these priorities, and we have a plan to comprehensively address the balance sheet in the near term that could include an offering of equity and equity-linked securities. We're confident that over time, the business performance and capital structure will return to levels fully aligned with an investment-grade profile. Near term, we're focused on reaching an agreement with our representative workforce to allow our factories in the Puget Sound area to resume and then ramp production in a stable fashion for years to come. Stepping back, the markets we serve are significant, and our product portfolio is well positioned, demonstrated by our backlog of more than $0.5 trillion. Long-term, these fundamentals underpin our confidence as we manage the business with a long-term view built on safety, quality, and delivering for our customers. With that, Matt, let's open up for questions.

Thanks, good morning. Nice to speak with you again, Kelly. In your remarks, you talked about Boeing as an airplane company. And so I just want to understand what is core and non-core outside of Boeing Commercial Airplanes as you see it and specifically, how significant portfolio shaping and simplifying the business is in your turnaround you're describing looking forward?

Yes. So first of all, good talking to you again, Myles. Look, as I look at the portfolio, I've made this comment: I think we're better off doing less and doing it better than doing more and not doing it well. So we're in the process of evaluating the portfolio. It's something a new CEO always does when they come into a business, looking at those things and asking in the filter of what do we want this company to look like 5 and 10 years from now. Do these things add value to the company or distract us? I'm in the process of going through that. Clearly, our core of commercial airplanes and defense systems are going to stay with the Boeing Company for the long run. But there are probably some things on the fringe that we can be more efficient with or that distract us from our main goal here. More to come on that, Myles, but I don't have a specific list in my hand today. I'd ask everybody not to get ahead of me on this; I don't have a specific list of things that we're going to keep and not keep. That's something for us to evaluate and the process is underway to start that.

Thank you.

Thanks. Hey Kelly.

Hey David.

I wanted to ask about the balance sheet and your plans regarding it. What are your thoughts on the size and timing of a potential capital raise? I assume this is influenced by your discussions with the lead agencies and your long-term cash generation capabilities. Could you share what feedback you're receiving from the rating agencies and your initial thoughts on the company's ability to generate free cash flow in relation to the $10 billion target? Thank you.

Thanks, David. I'll take a shot at that. We are in active engagement with the rating agencies, and it's a constructive dialogue that helps inform the plan we have. We do have a plan to address the balance sheet. From a timing perspective, we've done everything necessary to be in a position to raise capital, and we're monitoring events closely and will access the markets whenever we determine it's the right time. In terms of the size, here's what's important to us: we're focused on maintaining $10 billion of cash in addition to our revolving capacity, as we historically have. We're anticipating our near-term cash flows to be usage-driven mostly by timing, both in the fourth quarter and next year as we ramp production. The third piece of this is we have debt maturities in the next couple of years, all of which is contextual for how we would think about a funding raise to address the capital needs and ensure sufficient liquidity as we execute our recovery game plan. So we have a plan. We're focused. And again, it's all on the priority to protect our investment-grade.

Okay. And Kelly, maybe if you could take that question around the $10 billion target that's out there. Is that a realistic target to think about any time over the next several years for this company based on what you've seen so far?

Yes, it's too early for me to answer that. I would just say all the financial forecast, the long-term outlook are under review, and I need some time to assess that. Certainly, we need to see some stability in the business to be able to put any kind of target out there. So I'm evaluating that. But today, I'm not ready to provide any update to that.

Got it. Fair enough. Thank you.

Thank you. Kelly, nice speaking with you again. And Brian, thanks as always. So Brian, you mentioned free cash flow usage in Q4 and in 2025 as a whole. Obviously, that assumes the vote is positive today. Can you talk about some of the drivers that were more positive in Q3? How do we think about the Q4 outflow? And what are you assuming for BCA delivery ranges in your free cash flow outflow next year in BDS losses? Does it become positive anytime in 2025?

Thanks, Sheila. So earlier in the third quarter, we had expected working capital to be a drag in line with the first two quarters. And as we closed the quarter, we had a timing benefit from BCA customer advances that reduced the expected working capital drag by about half. So as we look into the fourth quarter, a lot is going to depend upon the timing of the return to work and the pace of the production ramp. But you could see a fourth quarter working capital drag similar to the first two quarters as we've essentially had a shift of deliveries to the right as we're building inventory. So net-net, free cash flow for the fourth quarter could look similar to the second quarter depending on a lot of factors coming together as we move through the end of the year. As for 2025, it will be significantly better than 2024. We expect the first half to be cash usage while the second half turns positive, building real momentum as we exit the year and return to more stable production rates. The calendar year is likely to experience cash usage, but the profile is important as we set ourselves up for the recovery and then for 2026 and beyond. In terms of the divisions, there's no doubt that BCA will be driven by those production rate ramps, which is too early to forecast today. BDS will be impacted by some cash implications of the announced charges, but we've got a good handle on that, and we'll be more descriptive as we get towards the end of the year.

Thank you.

Hi, good morning. Thank you. Kelly, you've referred to the idea that Boeing was once a benchmark for culture. And that was a long time ago. I mean if you look over the last 5 years, Boeing's lost many experienced leaders from senior management to the factory floor, who were part of that culture. And you're also initiating a large headcount reduction. So how are you thinking about rebuilding leadership talent in this environment to make your goals for cultural change, stabilization of the business, and execution achievable? Should this involve internal and external approaches?

Yes, Doug. So first of all, I'm still in the process of traveling around, meeting our people, particularly 2 and 3 levels down. My first impression is we've got great people at Boeing. Fantastic people. We just got to get everybody in the right position, running in the right place, focused on the right things. I think we've got some work to do there. Of course, I'll supplement the team as needed if we see that we need additional resources from outside. I do think some outside views will help us think a little bit about culture change. But you're right, the culture I'm referring to at Boeing, probably most of the folks who lived in that culture have retired or moved on. So our culture change here is really going to be for the entire company. We've got to come back and reevaluate the values that we have. This starts at the top, and I know that it starts at the top. I've had a meeting with the top leaders in the company, and we've talked explicitly about what we need to do to change the culture. But it's going to take time, as I said in my prepared remarks. This isn't something that there's just a light switch that flips. We will continue to work on this. It's a never-ending process. We've got to get to a point where the organization itself holds everyone accountable to the cultural aspects and the values of the company. I know what that looks like. I've been in a place where the values and culture were very, very strong, and it becomes self-policing and self-developing as you bring new people in. So I believe this is something we can achieve. I think we may have to supplement in certain areas with some additional outside resources. But in the main, we need to turn the culture around with every employee here. We've got a large employee base. Now let me address the announcement about the workforce reduction. Look, as I've commented, we're inefficient. One thing I've heard from a lot of employees is there's just too much overhead, which slows them down in being able to get their work done. So we're going to concentrate this workforce reduction on streamlining those overhead activities, consolidating things that can be consolidated. And I wouldn't think of it as removing people from production or out of the engineering labs. That's not our intent here. It's about making ourselves more efficient and having a leaner and meaner organization going forward. I think that's going to be extremely important as we ramp up production, as Brian talked about, over the next year.

Thank you.

Hey, good morning, Kelly. Nice to talk to you again.

Hi, Ron.

When you sit back and think about where you want the Boeing Company to be in 5 years, how do you think about that? I mean this kind of addresses some of the questions we've already hit. Where do you think you could feather in a new airplane? Really, where could this company be? And as outsiders looking in, what should we expect that it will be?

Well, look, I'm still going through that process of carefully understanding what we want to look like. It's clear that I want to be the leader in the aerospace and defense market. I want to be setting the standard for the products that we deliver. I want our customers doing our marketing for us, not us doing our marketing. We've got to reach a point where our engineering and production capabilities are actually doing the talking. So execution is going to be extremely critical. I do think we need to focus on the things that we can be good at. This isn't a scenario where we need to figure out what market opportunities we should pursue. They're right in front of us. Our backlog is so strong. Our demand for our products is immense. This is about getting ourselves focused on executing well on what we can deliver. And if we do that, I mean you can run the numbers. The demand is fantastic for our product lines, and if we are efficient as we deliver those into the market, the sky's the limit for us.

Yes, thank you.

Hey, thanks very much and good morning. Good to speak with you, Kelly. Maybe if I could ask a question and seek clarification. Kelly, I wonder if you could talk a little bit about the defense business. I think a lot of us have been surprised by the magnitude of the charges there in recent years. There's obviously some tough contract terms, but the fact that the charges are so persistent suggests that there's an estimating problem as well. So what do you see as the core of the problem at BDS? What does it take to get to an acceptable level?

Okay, let me start with the BDS portfolio. Everything you said is true. We've got some tough contracts, and there's no magic bullet to that. We're going to have to work our way through some of those challenging contracts. Having said that, the discipline about what we can control on those contracts needs to improve. Our EAC process needs to improve. Risk management—this is the issue that I think is so important: we're not just admiring these risks, we're actively managing them. We've been carrying risks in these programs. I don't think we've been doing enough work with our customers to figure out how to mitigate these issues before they become EAC overruns. We currently have the team focused on conducting deeper dives, and we're paying more attention to managing risks. We're not just dealing with today's problems; we need to look around the corner and anticipate issues before they arise. Some of that means being better at working with our customers. It's going to take a lot of work; we cannot just wave a magic wand and fix these troubled contracts. We signed up for agreements that are problematic. But I assure you, we're focusing on our bid and proposal activities, putting discipline around our approach to ensure we understand the risks taken on as we enter into new contracts as well. Essentially, we'll tackle the tough ones now and aim for better execution in the future. I believe the opportunities are there. We know how to run these programs; we've just lost some of our discipline. I also think our staff needs to be more connected with the teams in the labs and on the factory floor to identify what's hindering our success. We've already started making changes in that direction, and more will come to enhance focus on these EACs. We just have to improve.

And Seth, your BCA question: prior to the work stoppage, we had a plan in place to get to 38 per month on the 737. We were making significant progress and beginning to bring up that third line in Renton. Then the work stoppage happened. Our expectation is that once we get back to work, we can ramp production effectively and move through next year. We'll engage in discussions with the regulator about increasing the rate beyond 38 per month. While specific timing isn't defined, those milestones are what we look forward to achieving as we move through next year.

Okay, thank you.

Yes, good morning. Nice to talk to you again, Kelly. You spent a few decades as a supplier and are familiar with Boeing, now internally. Can you talk a little about Boeing's deal to acquire Spirit and how you're thinking about vertical integration and what kind of capabilities it brings? I recognize there's a lot on your plate still, but could you address that point?

Yes. First of all, just to clarify, there's no change in our commitment to the Spirit acquisition and the integration. That remains a major focus of our efforts to stabilize the business, as they are a significant part of the supply chain. The deal won't close until sometime next year, so it's critical that we work closely with Spirit, and we are making efforts to improve their performance to support our ramp-up. I'm pleased with the progress being made; we're seeing improvements in how defects are addressed and resolving root causes to enhance quality on the fuselages being returned to us. So there's no change in our strategy with Spirit. I believe that once we finalize the acquisition, it will allow us to integrate more tightly and significant improvements in performance will result. However, we still have extensive work to do with Spirit. We've got several hundred people on their site daily, assisting them through their local challenges, which is critical for our ramp-up.

Appreciate the color. Thanks, Kelly.

Hey, good morning everyone.

Hi, Noah.

Just to be clear, you guys are saying you expect negative free cash flow for the full year 2025?

Yes.

So Brian, can you elaborate on the pieces of that? Because I would have thought if you could have some momentum recovering MAX production exiting 2024 into 2025, you could certainly get that to a cash flow positive place. 787, it sounds like, is on decent footing exiting the year. You still have a lot of inventory to unwind. I'm curious where you stand with the advances relative to being behind schedule. And I guess, I don't know what you're assuming for defense, and maybe the MAX ramp back-up post-labor dispute is much tougher than I'm appreciating. If you could address those moving pieces, that would be helpful.

Sure. First of all, our expectation for 2025 is that free cash flow will be significantly better compared to 2024. The moving pieces include the commercial side of our business, as well as the 777X program, which will begin to experience the cash outflow associated with its investment as it prepares for entry into service in 2026. This will exert additional pressure on cash flows. Broadly speaking, the first step we need is to return to work; we're re-assessing the ramp since we have not met it due to the work stoppage, along with several unknowns at the moment. We're still making general forecasts on what that might look like. Our initial phases of cash will be usage-heavy, particularly in the first quarter, but we expect moves to positive cash flow in the second half as production stabilizes. In BDS, we have established charges that are going to be more near-term-focused. We anticipate the defense segment to better execute their game plan as we exit next year.

I guess what's your best guess of how many months it takes to get the MAX back to where things were at the start of September once you have a labor resolution?

Yes. Noah, this is Kelly. I'm not going to give you an exact month because I don't have the specifics. Let me describe some steps we need to take that are in our plan. First of all, it will likely be a couple of weeks to bring the members back. We will also conduct a recertification and retraining effort for those who haven't had adequate time on airplanes since being laid off. It’s paramount that we do this correctly rather than quickly as we come out of the situation. We have to be realistic about the schedule issues linked to restarting the supply chain at the same time. I’ve tried to manage this as effectively as possible by keeping key suppliers like Spirit engaged. But some suppliers will need to start operations again. Importantly, we have a 38-per-month cap with the FAA, and we have a safety and quality management plan monitored with multiple key metrics. All those metrics need to trend upwards and hit certain thresholds before we’ll consider a rate increase. We won’t be taking it forward unless it’s ready. I think the initial rate increase will be challenging for everyone involved. This will be the first attempt at this with the FAA on record updates. So we cannot be overly aggressive in our forecasts as we move forward; we have the need to ensure everything is running well before progressing to ramp-up. I'm closely aligned with the FAA on this process. I anticipate that the first rate increase will be the hardest to handle, but subsequent increases could be easier as we advance through the year as production stabilizes.

Okay, thank you.

Hey, good morning.

Good morning.

Kelly, just following up on the supply chain. Can you provide more details on how you're managing the supply chain during this work stoppage? Also, what steps are you taking to ensure that the supply chain remains positioned to ramp up once the strike is over? Additionally, recalling the previous broad-based work stoppage, getting back on track was clearly challenging, and frankly, we continue to feel the impact of that 4 years later. I'm looking for clarity on how to avoid the pitfalls of the past.

Yes, managing supply chain relationships is critical. We have to work with every supplier on their current status as we reset. Some larger companies will take this time to improve their processes. We need to keep all parts flowing to build the airplanes effectively. Although we may encounter a few challenges, I've not expected major issues at this time since we haven't been on strike for too long that would necessitate permanently decommissioning facilities. I believe our approach in working closely with each supplier enables a more manageable transition back to normal operations, keeping our lines of open communication helps streamline the process as we bring the supply chain back online.

Thank you.

Yes, good morning, and Kelly, welcome back to the fun of quarterly earnings calls.

Thanks, Jason.

Let's talk a bit about the bigger picture turn-around here, particularly as it relates to the balance sheet. It seems to me like you're preparing to deploy a well-thought-out plan moving forward. You've mentioned cost-cutting, evaluating the portfolio, potential divestitures. Brian has discussed the capital raise, and you've talked about improved execution. What might be missing from that list, in my view, is the possibility of exiting programs or contracts that have no path to boost profitability or free cash flow over the long term. Can you share thoughts regarding whether this is an option you may consider and your strategy for that?

Yes. Regarding the significant defense programs with challenging EAC issues, walking away simply isn’t an applicable option. Even if it were possible to step away from these contracts which are vital to our core customers, we’re invested long-term in providing those capabilities. We're committed to working with customers to identify areas of trade-offs that are mutually beneficial. This means we must collectively manage risks to avoid different obligations from arising in the first place. Now, there are certain projects or activities—perhaps at the contract phase—that we may layer down or scale back. They could be noted in the overarching effort that I'm mentioning regarding streamlining processes. We must focus on balancing our portfolio with fewer risky programs and more profitable ones. This is the mission ahead.

Okay, that's helpful. Thank you.

Yes, thanks so much, and welcome back, Kelly. So, two questions for you. First, would you consider hiring from the outside to fill the BDS head position? It's clear the group has had significant challenges delivering results. Secondly, looking at your portfolio, you've got several properties in Global Services that seem like they could be highly valued and arguably aren't specifically required to build planes successfully. Would you consider divesting those to lower the amount you'd need to raise via equity?

Yes. Cai, I won't specifically address the BDS leadership role, but generally, as I evaluate positions and changes needed, we will examine existing team capabilities first. If we find the right candidate internally, we will progress there. If we require specific resources from outside, we will lean that way. I'm not opposed to bringing in external support. Concerning the second question about Global Services—yes, I'm considering our project portfolio thoroughly. While I won’t specifically comment on individual items like Jefferson, we will examine everything to see whether a particular property adds long-term value or could be better utilized elsewhere to maximize value. We will analyze if certain properties should remain part of our business or if they detract from our objectives—not that we haven't explored those options before, but it is imperative.

Do you have a time frame to clarify those decisions? Are we talking three months, nine months?

Yes, I aim to have a clearer understanding internally by the end of the year. We are underway with a long-range planning process, which will facilitate decisions. Some aspects may be rapidly actionable while others could take longer. It varies based on opportunities and our capacity to separate or discontinue work. For instance, with the 767 freighter, we assessed that it was coming to an end. Making a decision now helps eliminate distractions going forward. We want to refocus resources on what positively impacts our future.

Terrific, thank you very much.

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