Boeing Company (BA) — Q2 2025 Earnings Call Transcript

Thank you and good morning. Welcome to Boeing's quarterly earnings call. 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. This quarter's webcast, earnings release and presentation which include relevant disclosures and non-GAAP reconciliations are available on our website. Today's discussion includes forward-looking statements that are subject to risks and uncertainties, including the ones described in our SEC filings. As always, we will leave time at the end of the call for analyst questions. With that, I will turn the call over to Kelly Ortberg.

Well, thanks, Eric, and it's great to have you onboard, and thanks to everyone for joining in today's call. First, I want to express our sincere condolences to the loved ones of everyone onboard Air India Flight 171 as well as those affected on the ground. Our team continues to provide technical assistance to the ongoing investigation led by India's Aircraft Accident Investigation Bureau, or AAIB, and we're supporting our customers in any way we can. So now let's shift our focus to the quarter. It's clear our recovery plan is taking hold. We're making steady progress to stabilize our business, strengthen development program execution, and change our culture to set up for the future. In May, we announced our largest wide-body order ever for up to 210 commercial airplanes, which adds to the momentum from recent wins in our defense business like the F-47. Our market demand remains strong. We're just over halfway through 2025, and I'm pleased with our progress. We're starting to see real momentum, and the nice thing is that we're seeing it across the business. At the same time, we also have to acknowledge the remaining work ahead of us on this recovery. And while we continue to manage through a dynamic environment, we're certainly encouraged with the very recent trade deals. Turning now to BCA. We're seeing the benefit of our ongoing investments to stabilize our production system as we continue to remain on track with the safety and quality plan that we established and submitted to the FAA. A few highlights are we've reduced traveled work at roll-up by 50%. We've addressed employee feedback from our safety and quality standdowns. We've employed structured on-the-job training, and we simplified more than 1,500 work instruction documents. This is critical to our performance to deliver safe and high-quality aircraft on time to our customers and steadily execute our planned production increases. With more stability in our operations, we delivered 150 commercial jets in the quarter and 280 in the first half of the year. That makes it the most deliveries in the second quarter and first six months of the year since 2018. More importantly, almost every customer I talk to has said they're seeing higher quality airplane deliveries. On 737, you'll recall our plan was to methodically ramp up to 38 per month, stabilize at that rate and then request approval from the FAA for the next rate increase to 42 aircraft a month. In the quarter, we achieved a rate of 38 airplanes per month, and we're now focused on demonstrating stability at that rate. We'll continue to use key performance indicators that have been agreed to with the FAA to measure the health of the production system. Those KPIs continue to steadily progress in line with our expectations we set at the beginning of the year. We expect to be in a position to request approval from the FAA in the coming months to increase to 42 aircraft per month. On 787, we successfully completed a Capstone review in the quarter, and the program is now at a production rate of 7 airplanes per month. Like our team in Renton, our team in Charleston is now focused on stabilizing at the new production rate and using KPIs that we're tracking, and they still look good. They're all green. We'll continue to track those over the near term before preparing for the next rate increase. Turning now to our commercial development programs. We continue to progress with our 777X flight test program and remain focused on the work ahead to get the airplane certified and delivered to our customers. With our full test fleet activated, including 4 dedicated airplanes, the program has completed more than 1,400 flights and 4,000 flight hours. Flight testing continues with no new technical issues to report. So good progress so far, but we still have a lot of work to do. Production of the first 777X-8 Freighter is underway with the first hole drilled in the wing spar this month and work on major assemblies at Boeing and key suppliers is in progress. On 737-7 and -10, we continue to mature the technical solutions for engine anti-ice and the certification path for the 737 MAX family derivatives. Work on the solution is taking longer than expected, and we now expect certification in 2026. As we previously said, we don't expect a material impact to our production plans, and we're prepared to build other 737 models for our customers. Switching now to Boeing Defense and Space. As you know, we recently named Steve Parker as our permanent Defense business CEO. Steve is a terrific leader and has guided the team in our recovery, helping to stabilize our defense business, improve our customer relationships while developing his people with a focus on building a strong culture. And I look forward to his continued leadership in this turnaround. We had another good quarter on our fixed price development programs and held our EACs for the second consecutive quarter. Our renewed efforts around baseline and risk management of these programs are producing early results. Again, like in commercial, we have a lot of work to get these programs through the development phase, but I do like the direction we're headed. On MQ-25, the team began ground testing and successfully worked through the production move to our new facility, bringing the program closer to first flight for the U.S. Navy. On T-7, we finalized the MOA with the U.S. Air Force to build 4 production representative aircraft and now have completed 5 milestones associated with the original agreement. As we've said, active management is a win-win for both us and our customers and shows us how this approach works to derisk some of our development programs while delivering capability to our customer. On KC-46, we delivered 5 tanker aircraft in the quarter. Recent global events remind us this platform continues to deliver unparalleled capability, versatility and operational flexibility for the warfighter no matter where we are. As the customer gains confidence in our stability and operations, the U.S. Air Force recently shared its sole source approach for the next batch of KC-46 tankers beyond the current program of record. Turning now to our space portfolio. We recently captured an important win with the U.S. Space Force awarding Boeing a $2.8 billion contract for the development and production of 2 satellites to deliver resilient space-based nuclear command and control and communications for the United States. This contract is consistent with our strategy to ensure we enter into the appropriate contract type for the appropriate type of work. Furthermore, this award is a testament to our role as a leader in national security space, and we stand ready to support future programs like the Golden Dome. Looking forward, the recently enacted reconciliation bill also increases national defense spending by $150 billion through fiscal year 2029, providing funding for Boeing defense programs like the F-15EX, the MQ-25, the E-7 and proprietary programs, among others. Our portfolio is well-positioned to meet the priorities of our customers and the current global threat environment. Next, we'll discuss Boeing Global Services. BGS had another strong quarter, continued to deliver great performance for our company as they support our defense and commercial customers. In the quarter, we delivered the first P-8 with enhanced anti-submarine warfare technology to the U.S. Navy, marking a major milestone for our team in Jacksonville, Florida. BGS also secured a contract to provide P-8A aircraft training systems and support to the Republic of Korea Navy. And in Commercial Services, we opened our third parts distribution center in Germany and our ninth global location dedicated to shipping spares. Our network of distribution centers enables quicker repairs as well as maintenance and overhaul work to keep airplanes in service, all focused at serving a growing aftermarket. Turning now to global trade where the environment has been dynamic. We continue to simultaneously monitor policy developments while mitigating the potential impacts of tariffs as trade negotiations continue. As a reminder, about 80% of our commercial supply chain spending goes to U.S. suppliers and about 80% of our commercial deliveries are to customers outside the U.S. As a leading U.S. exporter, ongoing free trade is important to our business. Our top priority is promoting continuity of supply, and we're working across the supply chain to ensure suppliers are focused on meeting the strong market demand. You'll recall that we framed the risk of higher input costs in our first quarterly call, and our team is doing well to manage within that framework. We are seeing some of these input tariffs resolve through negotiation agreements like the one announced over the weekend between the U.S. and the EU and the bilateral with the U.K. So overall, we're probably feeling better today, but we still need to actively manage through this dynamic environment. We appreciate the Administration and Congress for championing the U.S. aerospace industry around the world and applaud President Trump and the EU Commission President Ursula von der Leyen for reaching a negotiated agreement that will be good for the aerospace industry in the U.S. and Europe. The Administration understands the role of our sector in strengthening the U.S. trade balance, and we're optimistic that future agreements will address aircraft and parts as we work through our diverse backlog of more than $600 billion for our global customers. During the past several quarters, you've heard me talk about 4 key areas that will enable our recovery. This morning, we've touched on the progress to stabilize our business, improve program execution and build on our future with key wins. I'd like to now spend a few moments going through our progress on our culture change. You may recall earlier this year, employees helped create a new set of values and behaviors that we shared across the company. I'm very excited about how the employees have embraced this. It's simple, it's straightforward, and it's helping people rally around change. This month, we took our next step in rebuilding our culture by introducing our new performance management approach to strengthen accountability, develop careers and measure what they accomplished and how they achieve their goals through our values and behaviors. These measures will be important because they determine how we reward, develop and promote our people. I'm confident as we continue to change our culture, work to rebuild trust and strengthen accountability, we'll continue to move Boeing forward. We have an incredible opportunity ahead. Now before I conclude my prepared remarks, I'd like to give special thanks to our employees for their dedicated and hard work throughout the quarter. The energy that they're creating here and the focus on delivering to our customers, meeting commitments and execution is really paying off. And I also want to extend my deep appreciation to Brian West for his outstanding work over the last 4 years to stabilize our business and navigate the recovery, all while continuing to position the company for our future. And I particularly want to thank him for the support he's given me this past year. As you know, we recently announced Jay Malave will join Boeing in a couple of weeks as our new CFO as Brian transitions into a senior advisory role. I look forward to welcoming Jay to Boeing and Brian's continued counsel in his new role. Thanks, Brian. Now I'll hand it over to you to discuss the operating results before we move to questions.

Thanks, Kelly, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $22.7 billion, up 35%, primarily driven by higher commercial delivery volume. The core loss per share of $1.24 was a significant improvement compared to last year, driven by higher commercial deliveries and improved operational performance across the business. Free cash flow was a usage of $200 million in the quarter, reflecting higher commercial deliveries and working capital that improved compared to both the prior year and the prior quarter. Our free cash flow was better than expectations shared in April, driven by higher commercial delivery volume and better wide-body mix as well as favorable timing of CapEx. Turning to the next page, I'll cover BCA. BCA delivered 150 airplanes in the quarter. Revenue was $10.9 billion, and operating margin was minus 5.1%. BCA booked 455 net orders in the quarter, including 120 787 and 30 777-9 airplanes for Qatar Airways and 32 787-10 airplanes for British Airways. Backlog in the quarter ended at $522 billion, which was up more than $60 billion sequentially. This includes more than 5,900 airplanes that translate to over 7 years of production, and the 737 and the 787 are both sold firm into the next decade. Now I'll give more color on the key programs. The 737 program delivered 104 airplanes in Q2, including 42 in June. On production, the factory steadily increased rate during the quarter, with monthly production reaching 38 per month in May, and the team remains intent on stabilizing at that level. Importantly, the operational KPIs continue to progress, and we still expect to be in a position to request approval to go above 38 per month in the coming months. Spirit continues to deliver fuselages with improved quality and flow, which sets us up well for both the production ramp and the reintegration. Closing on this transaction is expected later in the year. More broadly, on the master schedule, we continue to make adjustments as needed and manage supplier by supplier based on inventory levels. Over the past year, our buffer inventory has grown to promote stability across our production system. As production continues to stabilize and rates increase over time, we plan to deliberately return buffer inventory to more normal levels. The quarter ended with about 20 737-8s built prior to 2023, down 15 from Q1, which are for customers in China. We now expect to complete the rework on these airplanes and shut down the shadow factory in the third quarter. On the 7 and 10, inventory levels were stable at approximately 35 airplanes. As Kelly said, we continue to mature the certification path for these programs. The engine anti-ice solution has taken us longer, and we now expect certification next year. As we've said, we will build other MAX models for affected customers and don't expect an impact on our planned production rates with the financial impact of this revised timeline reflected in the program margins this quarter. On the 787, we delivered 24 airplanes in the quarter as the program continued to demonstrate improved stability. After stabilizing at 5 per month and completing a successful Capstone review in the quarter, the production rate is now at 7 per month, and the program is focused on stabilizing the production system prior to future rate increases. Q2 ended with about 15 airplanes in inventory built prior to 2023, down 5 from Q1. The rework on these remaining airplanes is complete, and we expect to deliver about half of these units this year and the other half in 2026, in line with our customers' fleet planning requirements. Finally, on 777X, flight testing activities with the FAA continue to progress, and we remain focused on the work ahead to deliver the airplane next year. 777X inventory was up about $900 million in the quarter and will continue to grow as we move towards entry in service, as we've previously shared. Moving on to the next page and BDS. BDS booked $19 billion in orders during the quarter, and the backlog grew to $74 billion. Revenue was $6.6 billion, up 10% on improved operational performance, and BDS delivered 34 aircraft and 2 satellites in the quarter. Operating margin of 1.7% was up significantly compared to last year, also reflecting the better operating performance in Q2. The business continued to make important progress in its recovery, and the game plan to get BDS back to high single-digit margins remains a key focus. Our core business remains solid, representing approximately 60% of our revenue and performing in the mid- to high single-digit margin range. The demand for these products remains very strong, supported by the global threat environment confronting our nation and allies. On the roughly 25% of the portfolio that's primarily comprised of fighter and satellite programs, operations continue to reflect the stabilizing performance trends that began in the first quarter, which drove relatively consistent sequential margins. Lastly, on our fixed price development programs that represent the remaining 15% of revenue, we continue to work to stabilize and mature these programs. This quarter's results reflect improved operational performance, and we remain focused on retiring risk and ultimately delivering these important capabilities to our customers. In the quarter, we made progress on the MQ-25 program, which started ground testing as well as the T-7A program, which achieved 3 additional customer milestones. Overall, the defense portfolio is well positioned for the future, and we still expect the business to return to historical performance levels as we continue to stabilize production, execute on development programs, and transition to new contracts with tighter underwriting standards. Moving on to the next page and Boeing Global Services. BGS continued to perform well, delivering very strong financial results in the quarter. The business received $5 billion in orders and the backlog ended at $22 billion. Revenue was $5.3 billion, up 8% year-over-year, primarily reflecting improved commercial and government volume. Operating margin was 19.9% in the quarter, up 210 basis points compared to last year on favorable performance and mix, including a one-time gain. Both our commercial and government businesses again delivered double-digit margins. In the quarter, BGS completed the sale of its maintenance, repair, and overhaul facility at Gatwick Airport and secured a contract to provide P-8A aircraft training systems and support to the Republic of Korea Navy. BGS remains a terrific long-term franchise that is focused on profitable, long-term efficient offerings, and the team continues to execute very well. Turning the page, I'll cover cash and debt. Cash and marketable securities ended at $23 billion, primarily reflecting the debt repayment and free cash flow usage in the quarter. Debt balance ended at $53.3 billion, down $300 million in the quarter on the paydown of maturing debt with $300 million of maturities left in the year. The company maintains access to $10 billion of revolving credit facilities, all of which remain undrawn. We remain committed to managing the balance sheet in a prudent manner with 2 main objectives: first, continue to prioritize the investment-grade rating; and second, allow the factory and supply chain to stabilize. Let me provide some additional context on the macro backdrop before getting into the free cash flow outlook. We continue to closely monitor ongoing policy developments and work to promote our industry's importance to the long-term economic and trade objectives of the administration, and we were encouraged by certain bilateral trade deals that were announced in the quarter, including the recent agreement with the EU. Given our position as a top U.S. exporter, free trade policy across commercial aerospace continues to be very important to us. On the input cost side, we continue to work closely with our suppliers to promote continuity of supply and pursue options to mitigate tariff cost pressures. And as we said, any financial impact is not significant. Regarding free cash flow, we expect third-quarter free cash flow to be more or less in line with the second-quarter usage before any impact from a potential one-time DOJ payment. That sets us up for positive free cash flow in the fourth quarter as long as the global trade environment continues to remain favorable for the industry and our commercial delivery forecast remains intact. Broadly, the markets we serve continue to be significant, and our backlog demonstrates the strength of our product portfolio. Long-term, these fundamentals underpin our confidence in managing the business with a long-term view built on safety, quality, and delivering for our customers. With that, let's open up for questions.

Brian, thank you for all your support over the past four years. You have always provided clear assessments of the fluctuations we've experienced. It's encouraging to see us currently on the upswing. Could you explain the $2 billion improvement in free cash flow during the second quarter? How much of that should we associate with the previous $4 billion to $5 billion target? Are we reasonable in estimating it to be around $3 billion? Additionally, what potential upside risks do we have for the year?

Well, thank you, Myles. That number you threw out there in terms of $3 billion, that's probably a pretty good assumption. And let me just walk you through some of the pieces. The first half free cash flow usage of $2.5 billion exceeded our expectations and the second quarter use of $200 million was quite a bit better, and it's primarily driven by better BCA delivery performance as well as some timing items. And let me highlight one important one on the 777 program. Usually, we see 6 to 7 777 deliveries in a given quarter. We had 13 in the second quarter, which drove an incremental $700 million of positive free cash flow. Now as we think about the third quarter, before we adjust for a potential one-time item, free cash flow, as I mentioned, is going to look a little bit more like the second-quarter usage more or less. And here are the things that are driving it. The benefit of lower interest payments will be offset by this 777 second-quarter reversal that I just outlined. On volume, 737 could be a bit better. And I think the 787 is going to be pretty steady. And there's a few hundred million dollars of unfavorable timing shift from second-quarter to third-quarter, mainly CapEx spend. On top of this in the third quarter, there's a potential for a $700 million one-time payment related to the DOJ non-prosecution case. So that's the third quarter, which then sets us up for the fourth quarter to be positive. And as long as the global trade environment remains favorable and we make progress on the rate increases, we expect the fourth quarter to turn free cash flow positive and sets us up to exit the year with a very nice positive momentum heading into 2026. So when I put all that together, I think your number there of $3 billion is pretty reasonable for the full year.

Congratulations on finishing strong, Brian. Kelly, I have a question for you regarding tariffs. Since April, we've seen several trade agreements that have lowered tariffs, which could positively affect Boeing orders this year. What are your thoughts on the current situation with the EU? How do you see order momentum developing from this point? Considering the 7-year backlog, how does that influence pricing, deal negotiations, and the potential impact on the supply chain?

Yes, Sheila. Some of the deals we've completed recently have positively impacted us in the last quarter. I want to start by discussing input tariffs, as that's crucial. We previously anticipated an impact of less than $500 million from these tariffs. A significant focus for us is the equipment we import from Japan. Securing an agreement with Japan that includes zero tariffs will be beneficial for our future operations. That's a major development for us. We also need to monitor the situation in Italy, where we import fuselage components from Alenia. We hope to achieve a similar zero tariff outcome there, as that appears to be the baseline negotiation strategy. On the demand side, companies are looking to address their trade imbalances, and placing large aircraft orders is an effective approach. The order environment looks promising. Despite the tariff-driven demand, the pricing landscape has been tight, and we have been adjusting our pricing accordingly. This will help us manage the inflationary cost increases we expect going forward. Overall, the outlook appears optimistic. However, we must remain vigilant about potential retaliatory tariffs from China, as we are currently making deliveries and hope for a resolution soon. The USMCA agreement is also critical due to our imports from Mexico and Canada; we hope it remains stable to avoid additional tariffs. If we can maintain the zero tariff situation, we may exceed the $500 million target we've set.

Thanks again, Brian, for all your support over the last 4 years. Really appreciate it. And Kelly, maybe we could talk a little bit about maybe the longer-term framework, how you're thinking on rates when you think about the progress you're seeing on the 737 MAX and the 787. And I guess, specifically on the 787, it seems like the demand continues to be really strong with obviously, the orders that you're seeing and there's the wide-body replacement cycle that seems to be heating up. How are you thinking about where the long-term rates could go there?

First of all, Peter, let's take it one step at a time. We have successfully transitioned from 5 to 7 units per month, and as I mentioned in my prepared remarks, our key performance indicators are showing positive results after this increase. We will stabilize at this rate before considering any further increases. We have a series of planned rate increases, and we're also investing in our Charleston facility to support growth beyond our current capacity there. The demand for the 787 is strong, and increasing the rates is part of our strategy to meet that demand. Currently, for the MAX, we are at a rate of 38 units per month and are in the process of stabilizing. I anticipate starting discussions with the FAA soon regarding potential rate increases. We still have one key performance indicator that is below our target, which we are addressing, specifically the rework hours on the airplane. Once we improve that KPI, we will engage in discussions with the FAA. We have stated that future rate increases will occur in increments of 5, no sooner than every 6 months. This means we won't necessarily increase rates at the 6-month mark, but we will ensure stability at our current rate and demonstrate that our production system meets the necessary metrics before requesting any increases. If we aren't meeting those metrics, we'll maintain our current rate until we achieve the desired stability. Thus, we have indicated that any increments will occur no sooner than every 6 months and will be in steps of 5 units per month.

Brian, I appreciate your assistance and wish you the best. I wanted to follow up on the delivery guidance for the MAX this year and the 787 as well. Previously, you mentioned around 400 MAX deliveries, and it seems you're exceeding that, possibly reaching 425 or more. Is the 787 still expected to be around 80 deliveries? Also, could you briefly discuss the changes in inventory for the quarter, especially considering the significant hit you took on the 777X, yet the inventory balance decreased?

Yes, we did see an increase in inventory as anticipated with the 777X, but we also reduced our stock of wide-body aircraft significantly. Overall, this aligns with our inventory management goals. We expect the 777X inventory to increase further as we approach its Entry Into Service, so there's no need for concern regarding this fluctuation as we transition into the latter half of the year. Regarding deliveries, we delivered 37 787 aircraft in the first half and are aiming to stabilize at a rate of 7 per month. We projected an annual delivery range of 70 to 80, and we're currently on track towards the upper end of that spectrum. For the 737, we previously mentioned a target of around 400 deliveries. We delivered 209 of those airplanes in the first half, including 37 from our inventory. Given our strong performance, we are optimistic about surpassing the 400 delivery target for the year, so we're feeling confident as we head into the second half.

So maybe, Kelly, if you could dig down a little bit more on the engine anti-icing issue with the Dash 7 and Dash 10. What's going on there? You mentioned in some your remarks on CNBC before that it's taking longer. What about it is taking longer? And how should we think about that?

Yes. We have several different design approaches that we have been exploring to solve the problem. The most recent delay is due to the fact that we have not finalized the design. We conducted some testing, and this is a very sensitive area concerning the inlet of the engines, as it can affect the airflow into the engines. We encountered some issues with the design implementation we previously had. Therefore, we will need to revisit and make additional design changes to meet the de-icing requirement. Essentially, the engineering designs have not progressed within the expected timeframe, and we still have work to complete.

Brian, thank you for all the help over the years, and good luck. On the rate increases that you were talking about before, you've had this goal in the future rate increases to 47 to 52 on the max of 6-month intervals. And I appreciate that you'll see how that goes and make a call if it needs to be longer. But that seems like a very ambitious target given Boeing hasn't really done that in the past. It's been more 9- to 12-month type intervals. What has given you the confidence that you can move to those levels potentially? And where do you see the biggest bottlenecks in getting there? And I'd say, including the supply chain. And I'll just throw in, how are you thinking of using the fourth line in Everett in conjunction with this?

Let me begin with the fourth line in Everett, which will mainly focus on the Dash 10 variant. This variant has undergone the most changes compared to the others, so it will naturally progress through the factory more slowly. By dedicating the fourth line in Everett, we can allow the three lines in Renton to operate more efficiently. This marks a significant shift from our previous operations with so many lines being active. This adjustment gives us added confidence as we have invested in our capacity. Regarding the supply chain, as Brian mentioned, we have a substantial amount of inventory on hand. In the near term, as we ramp up the MAX production, the supply chain will not pose a challenge due to our inventory levels. As we reach the higher production rates you're referring to, we will work towards balancing our inventory levels and ensuring that the supply chain can keep pace. Historically, we operate at higher rates than we currently are, allowing us to identify supply chain constraints early and address them proactively. This process involves resolving constraints as they arise while continuously facing new challenges since we're in a constant environment of increasing rates. There is strong market demand that we need to meet, which can only be achieved through methodical rate increases. However, our primary focus remains on maintaining stability and producing high-quality airplanes. If we encounter any instability, we will maintain our current rate until the production process stabilizes.

Brian, thanks for everything. Best of luck. Maybe since it's your last call, we could do an accounting question. And if you could talk a little bit about the progression in BCA margins from here, both as the different programs ramp up. And also, I think you mentioned maybe some margin consequences of the change in certification timing for the 7 and 10.

Yes. Let me hit that last one. So any kind of adjustments are really modest given the size of the program. So you're not really going to see, and I wouldn't have you worry about that. I would say, overall, BCA margins are expected to be negative for the year, as we've said before, although less so as we go quarter-by-quarter. So if you remember, the first quarter was negative 6.6%. The second quarter, we just posted negative 5.1%, and we expect to get better as we move into the second half for each quarter, but still negative. And if you step back, BCA margins will be better in 2026, but it's way too early to characterize that any further. And then as Kelly and I have both said consistently that long term, there's nothing that we see that would suggest that we can't get back to historical margin levels performance. So we just got to keep working the recovery plane, get back to these rates, get the productivity and then this should be something that is in much better shape as we move forward.

Kelly and Brian, I wanted to shift the focus to BDS. There seems to be good momentum in that sector, along with a favorable budget environment and now some permanent leadership in place. While there are concerns regarding work stoppages or strike risks, how should we view the opportunity and the pace of margin improvement in BDS? It appears you have navigated past certain risks. When can we expect that business to return to mid- to high single-digit margins? Additionally, what is the outlook for the second half of the year?

Yes. Let me first address the strike issue. We're talking about approximately 3,200 employees involved, specifically those who work on the mechanics for the fighters in our munitions business located in St. Louis and St. Charles. This situation is significantly smaller than what we experienced last fall with around 30,000 machinists. We will manage through this without too much concern for the effects of the strike. As we mentioned earlier, we aim to restore our BDS business to high single-digit margins, and there’s nothing that will prevent us from achieving that. A few important points: as we enter into new contracts, we are carefully following our procedures to ensure we only engage in the appropriate types of contracts. The recent major wins we secured have all followed a cost-plus model, which means we are avoiding the past mistakes of committing to fixed-price, high-risk development programs. We do have some challenges ahead concerning these large development projects, but Parker is effectively collaborating with our customers to mitigate risks and navigate through the development phase. We need to continue this approach. Our proactive management approach with the T-7 program serves as a solid example of how we can influence outcomes favorably for both ourselves and our customers, and we are applying this strategy in other areas as well.

Let me add my thanks, Brian, for the work with us over the recent years. I would like some clarification on the discussion regarding free cash flow for this year. If the third quarter performs similarly to the second quarter, and I add the $700 million on top of that, the fourth quarter needs to be just slightly positive to reach a total of minus $3 billion for the year. Based on historical seasonality, this might actually be slightly better, assuming I’m not overlooking anything. Looking ahead beyond 2025, the consensus seems to center around the $10 billion framework that was previously anticipated for 2027 and 2028. I wanted to ask, without specifying a year, given the strong demand and the profitability and working capital situation, is the $10 billion target still a viable framework, and is it just a matter of time? Or is that figure significantly distant?

Let me have Kelly respond to the last part. I'll address the first part of your question regarding this year. The global trade environment is stabilizing and becoming more favorable each day. We expect some positive rate increases as we aim for stability heading into the second half of the year. Q4 is anticipated to be positive, but the extent of that positivity will depend on our delivery and rate performance, which does have some uncertainties as we need to exceed the 38. So, I just ask for a little more time. It will be positive, and I believe the $3 billion net is a reasonable assumption at this moment. Throughout the rest of the year, we will keep you updated on our progress. Now, Kelly, could you handle the other part?

Yes, Noah, I believe there's nothing fundamentally preventing us from reaching that $10 billion mark. You've framed it perfectly; it's not a question of if, but rather when. I'm not in a position to specify a timeline just yet. We have a considerable amount of work ahead regarding production rates, understanding the intervals between those rate increases, and evaluating the supply chain. However, I still consider that target to be a reasonable one. I don't see any obstacles that would hinder us from achieving that, but we need to carefully assess when we can reach that level.

Kelly, it seems that Airbus will be making some architecture decisions on its next-generation single aisle within the next few years, I think potentially selecting the engine architecture by around 2027. So in that context, do you have a sense for when BCA will need to begin making these types of design decisions in order to have a competitive entry into service date for its own next-generation single aisle?

Yes. We're working through that. I'm not in a position where I want to announce any decision dates at this particular time. I've said this in the past, we've got 3 work streams here that we've got to mature. One is the readiness of the market for the new airplane, and that needs more work. I don't think the market is ready yet for a new airplane. When are we ready, and this whole discussion around turning the company around and generating cash flow is really important to when we're ready to launch it as well as when is the technology ready? And engine technology is a part of it, but it's beyond just engine technology. So we're maturing all of those, and we'll do that when those 3 work streams all kind of converge. That's not today and probably not tomorrow.

Rob, we have time for one more question.

Brian, echoing everyone's thanks for all your help. Kelly, congrats on your first full year at Boeing. It's great to see stability in aircraft production. I guess looking back, what surprised you most in your year 1 at Boeing? And where do your priorities lie for 2026?

Well, thanks, Kristine. First of all, it's not a year yet. It's August 8 when it's a year. So I still have some work to do. But I'm pretty pleased with where we are through the first half and through my first year. Clearly, the surprises have been just a lot of the macro dynamics that we've been through. I mean, we've been through quite a bit. I'm not surprised with the performance of the company and the recovery; we've got great people in the company. We've got great market positions. My role here is just to help everybody get organized and headed in the right direction. It's turning a big ship around. I think that we're turning it. I don't think it's turned. We still have a lot of work to do. But I haven't been overly surprised with what I learned. As you know, I spent a lot of my career working very closely with Boeing. So not a lot of surprises with what we're dealing with. It's just one day at a time, improve our performance, address the issues that we have, restore trust and build confidence with our customer base and the end-users of our products. And I think you're seeing that. So like I said, I feel pretty good with the first half, but we've got a lot of work yet to do in the second half.