Boeing Company (BA) — Q3 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 Jay Malave, 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.

Thanks, Eric, and good morning, everyone. Thank you for joining today's call. I'd like to take a moment to welcome our new CFO, Jay Malave. It's great to have Jay on board and officially welcome him to his first quarterly earnings call for Boeing. So now let's take a closer look at our business as we enter the final quarter of the year. Our sustained focus on safety and quality is driving better performance across the enterprise, and we are reearning the trust of our stakeholders, including customers, regulators, and employees. Our focus on culture change continues to energize our teams and improve how we work together. By August of this year, we have delivered more commercial airplanes than all of last year. Our defense business is well positioned in the current geopolitical environment, and our service business continues to deliver in a robust aftermarket. Across all of our market segments, we continue to see strong demand, which is reflected in our growing backlog. We marked important milestones in our recovery as the operations generated positive free cash flow in the quarter for the first time since 2023. And earlier this month, we jointly agreed with the FAA to increase 737 production to 42 airplanes per month. While we're turning the corner, we're well aware of the work ahead of us to fully recover our performance, particularly on our commercial development and certification programs. We'll talk more about our status but I want to emphasize that we're exploring every lever to deliver better performance on all of our programs. Now turning to the businesses. Let me start with Boeing Commercial Airplanes. We're making meaningful progress in line with our safety and quality plan and our investments here continue to improve the health of our factories. Notably, we've seen a 75% reduction in traveled work on our 737 and a reduction of 60% across all airplane programs. Supported by greater stability, we successfully ramped up the 737 production to 38 airplanes per month as we had planned. We then focused on enablers such as improved quality, training, and workplace coaches to help stabilize at that rate and demonstrate that all of our key performance indicators are healthy. Once we are satisfied with the sustained health and stability of the production system, we then presented our disciplined plan to the FAA to increase production to 42 airplanes a month. We continue to be guided by our safety and quality plan and we'll monitor our performance against these 6 KPIs as we methodically move to higher rates. As a reminder, we expect rate increases beyond 42 per month will go in increments of 5. And while rate increase breaks won't be earlier than 6 months apart, we will remain disciplined, and we won't move to higher rates until we achieve stability and readiness. Also in the quarter, the FAA announced it will allow delegation to Boeing to issue airworthiness certificates for some 737 MAX and 787 airplanes. Our team continues to work under the oversight of the FAA in building safe, high-quality commercial airplanes that comply with all airworthiness certification requirements, and we appreciate the FAA's confidence in Boeing and earning limited delegation authority is a responsibility we take very seriously. On the 787, the team is performing well, and the program continues to work towards demonstrating stability at rate 7. As we previously shared, we'll be guided by our KPIs before we transition to planned higher rates and aim to move to 8 per month in the near future, having recently completed a successful rate 8 Capstone review with the FAA. At the same time, we're investing in the expansion of our South Carolina site to ensure we're prepared to meet exceptional market demand, and we look forward to an exciting future for the 787 program. Turning now to our development programs. On 777X, as we announced earlier this morning, we have delayed our expectations for certification and first delivery, resulting in a $4.9 billion non-cash charge during the quarter. As we've previously said in the third quarter, completion of our certification program is taking longer than expected. We have worked to understand the implications to our go-forward plan and now we anticipate first delivery of the 777-9 will occur in 2027. Jay will provide further details on this in his prepared remarks. We've accumulated more than 4,000 flight hours, more than double a typical flight test program. And so far, there are no major technical issues on the airplane or on the engine. In the quarter, we completed critical testing of the airplane's brakes, engines, takeoff performance, and aerodynamic performance. However, we still have a significant portion of the Flight Test Certification Program to go and our team is executing plans to complete this certification as part of the schedule we shared today. The airplane and the engine are performing well. Demand for the airplane remains strong, and we remain confident that the 777X will be the next flagship airplane for our global customers. This is obviously a disappointment, but we just need more time to complete the certification process. With this charge, we now have a higher confidence that we'll complete the certification within the financial estimate. Better news on the 737-7 and -10 programs. With more than 3,000 hours of lab testing and analysis, we now have a final depth of design changes to permanently address the engine anti-ice issue. This effort remains on the critical path, and we're now following the lead of the FAA as we work to certify the suite of design updates. As we previously shared, we anticipate certification for the 737-7 and the -10 to happen in 2026. Looking now at our Defense business. We continue our active management approach, and we're making progress to de-risk our development programs. We again demonstrated stability on our EACs in the quarter, and our BDS team is working hard every day to earn the trust of our customers. We also continue to proactively engage with our customers and suppliers. In many cases, we've been able to revise contract baselines to lower execution risk and create win-win outcomes for the customer and for Boeing. We still have work to get these programs through the development phase and as I've said before, you're never done until you're done, but we clearly are making progress. In the quarter, BDS had several notable milestones, including delivery of the 100th KC-46 tanker across our combined U.S. Air Force and global customer base. We're proud our platform continues to provide unique value and capability to our customers. We also secured key contract awards in the quarter. The U.S. Space Force awarded Boeing a $2.8 billion contract for the Evolved Strategic Satcom program, solidifying our position as a leader in the national security space. More recently, we signed multiyear contracts valued at $2.7 billion to produce additional PAC-3 seekers, leveraging the advanced investments we've made to ramp up quickly and meet the demand. In St. Louis, we are executing our contingency plan as our IAM representative workforce remains on strike. While of course, we prefer not to be in this position, the team continues to work in support of our customers. We are building JDAMs without IAM workforce at about the same production rate as before the work stoppage, and the team is progressing on our MQ-25 and T-7A development programs. We'll continue to manage through this with a focus on supporting our customers. Now moving on to Global Services. BGS had another strong quarter, delivering exceptional performance for our company as they support our defense and commercial customers. The U.S. Navy awarded Boeing contracts totaling more than $400 million for the repair of the F-18 landing gear and outer wing panels. We're still on track to close the sale of Jeppesen and the other portions of our digital business later in this quarter. At the same time, the BGS team continues to secure deals for the digital capabilities that we'll retain related to fleet maintenance, operations, and repair. A good example, we recently announced an agreement with EVA Air that includes digital diagnostic tools and advanced analytics to improve efficiency and maintenance operations. Now lastly, I'll share another update on our company's culture change. This remains a topic of interest and conversations with many of our stakeholders. I'm pleased with how the employees have embraced culture change. You'll recall that we use feedback and direct employee input to help shape our new values and behaviors earlier this year. Since then, as I've traveled around the company, I'm excited to see how many teams are using the values and behaviors to effect change in their daily work. For example, I have come across production teams that are using their daily tier meetings to call out which values and behaviors help them work better with each other. And during my recent visits in Miami and some of our global sites, teams told me how championing our values around safety and quality is strengthening our relationships with our customers. I'm confident that with our new values, behaviors, and the processes we're putting in place with performance management, leadership development, and new training opportunities will continue to see positive culture change. Before we close out the year, we're also going to do another voice of employee survey like we did back in February. We'll get a feel for how we're doing on the culture change and get feedback on the areas that are working and where we still need to improve. All this work is going to take time to really take hold and while I don't expect overnight improvement, we'll continue to listen to our people and use the values and behaviors. Now before I finish my prepared remarks, I'd like to say thank you to our employees for their dedication to safety and quality and enabling another quarter of improved performance. While we're all disappointed with the 777X delays, it shouldn't overshadow the progress we're making. Our customers are giving us great feedback on the quality and delivery performance. We're increasing production rates. We turned cash positive in the quarter, and we're winning in the market. We're well positioned to build on the momentum, delivering on our more than $600 billion backlog and restore Boeing to the company, we all know it can be. Now let me hand it over to Jay to further discuss our operating results.

Thanks, Kelly, and good morning, everyone. Let me start by saying that it has been an honor to join Boeing at such an important time in the company's history, and I'd like to thank the team here for the warm welcome these last few months. Throughout my career, I've always been impressed with Boeing's people, products, and services and iconic legacy. I'm very excited to partner with Kelly in support of our continued recovery and delivering for our global customers and stakeholders. Boeing is in a much stronger position than it was a year ago. It's my job to help Kelly and the leadership team build on that progress. Now let's start with the total company financial performance for the quarter. Revenue was up 30% to $23.3 billion, primarily driven by improved operational performance across the business, including higher commercial deliveries and defense volume. The core loss per share of $7.47 primarily reflects the $6.45 impact of the $4.9 billion charge on the 777X program, which I'll discuss in more detail shortly. Free cash flow was positive $238 million in the quarter, primarily reflecting higher commercial deliveries and working capital that improved compared to both the prior year and the prior quarter. Importantly, this was the first positive free cash flow quarter since the fourth quarter of 2023 and serves as an important progress point in our company's recovery. These free cash flow results were better than expectations in July, driven by higher commercial deliveries as well as the potential DOJ payment shifting to the fourth quarter. Turning to BCA on the next page. BCA delivered 160 airplanes in the quarter, the highest quarterly delivery total since 2018. Revenue was up nearly 50% to $11.1 billion, primarily reflecting higher deliveries compared to last year. Operating margin of negative 48.3% was impacted by the charge on the 777X program. BCA booked 161 net orders in the quarter, including 50 787 airplanes for Turkish Airlines and 30 737-8 airplanes for the Norwegian group. Backlog in the quarter ended at $535 billion and includes more than 5,900 airplanes with the 737 and 787 both sold firm into the next decade. Now let's click down to the commercial programs. The 737 program delivered 121 airplanes in the quarter, including 41 in September. On production, the factory stabilized at 38 per month in the quarter. Importantly, we jointly agreed with the FAA in October to increase to 42 per month and the program is now focused on continuing to drive a stable production system as they transition to this new rate. Spirit continues to deliver fuselages with improved quality and flow, which sets us up well for both our future production ramp and the planned reintegration. That transaction is still expected to close this year. The quarter ended with approximately 5 737-8s built prior to 2023, down 15% from the second quarter. Importantly, we completed the rework on the last of 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 have made good progress on the suite of engine anti-ice design updates over the past few months and continue to work with the FAA on the certification path for these programs. On the 787, we delivered 24 airplanes in the third quarter and ended with approximately 10 787 airplanes in inventory that were built prior to 2023, down 5 from last quarter. We still expect to deliver these airplanes through 2026, which is aligned with our customers' fleet planning requirements. Finally, on 777X, during the quarter, we recorded a $4.9 billion loss provision net of a cost-based extension benefit to reset the development and production schedule on the program with first delivery now expected in 2027 versus the prior expectation of 2026. To provide more background and color, we received approval to begin the second phase of certification flight testing in early 2025 and had anticipated authorization to start the next major phase of certification flight testing in the third quarter. However, this authorization has been delayed as Boeing and the FAA work through the supporting analysis that enables the next phase of certification flight testing. Given this delay and our assessment of the time line to enter future certification phases, we have shifted our flight test and production schedules to reflect these learnings. We now expect the next major phase to start later this year or early 2026. The certification program delay, coupled with our reassessment of production costs constitute the basis of the incremental loss provision this quarter. The charge amount includes additional customer concessions, the cost of incremental rework on build aircraft, learning curve adjustments, and the carrying cost of production operations spread out over a longer period of time. On a comparable basis to last year's total charges on the program, the costs are higher due to rework on build aircraft, incremental production disruption, and learning curve adjustments. As far as the cash profile, we see 2 impacts. The first is related to delivery timing, where we expect headwinds of about $2 billion in 2026 as deliveries move to the right. This converts to a tailwind later in the decade as we deliver delayed units. Second, the cash roll off of the $4.9 billion accounting charge is expected to be spread into the next decade. While disappointing, the reset allows us to operate to a higher confidence plan and allows our customers to manage their operations accordingly. As Kelly mentioned, this confidence also stems from our completion of dry run flight tests. While we have not received certification credit with the FAA for those flights, we have obtained important verification data to support technical risk burn down. Okay. Let's shift over to BDS on the next page. BDS delivered 30 aircraft and 2 satellites in the quarter and revenue grew 25% to $6.9 billion on improved operational performance and higher volume. Operating margin of 1.7% was up significantly compared to last year, also reflecting the better operating performance in the third quarter. These results also included immaterial impacts associated with the IAM work stoppage as we continue to execute our contingency plans. BDS booked $9 billion in order during the quarter and backlog grew to a record $76 billion. Overall, we continue to make progress stabilizing our fixed-price development programs even with minor cost updates on a few programs, such as for the tanker, which absorbed additional Everett shared costs from the 777X update. We have seen benefits from our active management approach and retiring risk and developing win-win opportunities for both us and our customers. We remain focused on delivering these important capabilities to our customers and met several important milestones in the quarter. For example, on a T-7A program, we achieved 4 additional customer milestones under the MOA and started assembly on the first production representative test aircraft. The remainder of the portfolio continues to benefit from exceptional demand supported by the global threat environment confronting our nation and allies. Performance on these programs also continue to stabilize and build on the improved operational performance that began earlier this year. Overall, the defense portfolio is well positioned for the future as evidenced by our record backlog, and we still expect the business to return to historical performance levels as we continue to drive execution and transition to new contracts with tighter underwriting standards. Moving to Global Services on the next page. BGS continued to perform well, again delivering strong financial results in the quarter. Revenue was up 10% to $5.4 billion, primarily reflecting improved commercial and government volume. Operating margin was 17.5% in the quarter, up 50 basis points compared to last year, unfavorable commercial volume and mix. Both our commercial and government businesses again delivered double-digit margins. The business also received $8 billion in orders with a year-to-date book-to-bill of 1.2. Okay. Shifting to cash and debt. Cash and marketable securities ended at $23 billion and the debt balance ended at $53.4 billion. The company also maintains access to $10 billion of revolving credit facilities, all of which remain undrawn. We remain committed to strengthening the balance sheet and supporting our investment-grade rating. Regarding cash flow, we still expect the fourth quarter to be positive before any impact from a potential DOJ payment. This outlook continues to assume significant capital expenditures for future products and growth, particularly in St. Louis and Charleston. This ramp-up was seen in our third quarter CapEx spend, which we now expect to be closer to $3 billion for the year. Net-net, even with the higher CapEx, our better-than-expected performance year-to-date supports updating our 2025 outlook to a free cash flow usage of about $2.5 billion, barring the impact of a prolonged government shutdown. Okay. Let's sum it all up. Another quarter of progress in our recovery. While the 777 reset was disappointing, our overall performance continues to trend favorably. This includes receiving limited FAA delegation to issue 737 and 787 airworthiness certificates, transitioning to higher 737 and 787 production rates, delivering improved performance across the company as well as generating positive free cash flow in the quarter. Broadly speaking, the markets we serve continue to be significant and our backlog of more than $600 billion demonstrates the strength of our 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 the call for questions.

Jay, what is the negative cash flow in 2026 on the 777X in totality or versus this year? And as you look out, how soon after first delivery can that program get to a neutral position from a cash perspective?

Sure. Thanks for the question, Myles. So as I mentioned before, it's a headwind relative to our prior expectations of $2 billion. So I'd expect the overall absolute cash flow to be usage. It's a little bit higher than that. As far as how we get to call it, I'd say, breakeven neutrality type of free cash flow, we've talked about this a little bit in the past. So next year will be a heavy use year. The year after that will be better in 2027. And then we would expect ourselves to get closer to neutral in 2028. And that's all on the back of improving payments from aircraft deliveries and advances. So again, next year, we'll build up inventory. There'll be limited advances and delivery payments. But in 2027, we'll start to see those benefits and those will continue to ramp up in '28 and beyond. So I would expect, starting in 2029, neutrality will go to a benefit of positive free cash flow for the program. And so look, all told, next year is going to be a little bit heavy, but it will continue to improve from year-over-year from that point.

Okay. And sorry, just to clarify one thing. Is that 2026 usage of cash on 777X, so it's about similar to 2025 usage when all is said and done?

Yes, that's a good way of looking at it, but perhaps maybe a little bit higher, but in that zone.

So maybe back on the 777, certainly you're going to get bombarded with these, so apologies for that. But what's driving this now? Like what changed from like just 2, 3 months ago to reevaluate what's going on with the program. Yes. So I guess that's the question. Like what changed to really make the focus on this now?

Yes. So Ron, first of all, let me reiterate what I said in the prepared remarks. There's no new issues with the airplane itself or the engines, the test program. Ironically, we have more hours and the maturity of this airplane is probably higher than any other airplane we've been through the test program. The issue is solely around getting the certification work complete. We had anticipated getting TIA approval. That's what's needed to actually get cert credit when we fly those particular tests. We have not been able to achieve the certification credit and that's because we haven't gotten the TIA approval. So look, we've taken a step back. We very much underestimated how much work it was going to take for us to get the TIA approvals and for the FAA to have the opportunity to review all the data submissions that are required. So we stepped back and we've rebaselined this program to incorporate those learnings as Jay said. And the philosophy I want here is I don't want this to be a continuous quarterly issue for us to make sure we have a solid financial estimate here that we have a high level of confidence that we can get this certification work done. Now recognize that some of this is still not in our control. We're working very closely with the FAA. I'm hopeful that there's opportunities for us to improve upon some of this. I think I've talked to the administrator Bedford. And I think he also agrees that we need to look for ways to streamline the process. But in effect, this is a result of us realizing that the plan we had in place to get the certification approvals just was not realistic going forward.

And just one clarification, if I may. On the TIA, what's really slowing that down? Is it on the FAA side? Or is it that there was something that you guys didn't understand about what would be...

It's a little of both, Ron. I would say it's that this is the first airplane that we've gone through this incremental TIA process like this. And I think there was learning in what analysis and data we had to have complete and submitted to get the TIA approval. So some of that's for us. And I think it's taken longer as well for the FAA to go through those submittals and get the approval. So I'm certainly not throwing the FAA under the bus with this. This is a learning collectively for the both of us in terms of what it takes to get through the new process. And again, as I said, we've tried to do our best to put a conservative estimate here in place that accommodates us continuing having a slower process than what we had originally planned for these TIA approvals. Now I don't anticipate because of the maturity of the airplane. Once we get the approvals, I think the flight testing should go reasonably quickly. But again, it's the analysis, the paperwork to submittal, and the approval process is really the big learning here.

Welcome back, Jay. I hate to do a follow-up on the 777X here. The charges of $4.9 billion is perhaps larger than was anticipated. So wondering if you could maybe work through some of the moving parts here. And then probably for Kelly, in conjunction with that, how are you expecting to manage the 777X supply chain given this delay?

Let me begin by discussing the extent of the charges to elaborate on what I mentioned earlier. Due to the delay in certification, we had to adjust our production plans to focus on minimizing additional precertification airplane builds and ensuring a more reliable long-term production plan, which is the main reason for the charge. When we analyze the situation, the scheduled delay had a significant impact on various aspects of the production system. The extended period of performance or holding time, combined with a slower ramp-up rate, leads to considerable carrying costs for the program. It also affects the learning curve due to the slower ramp. The aircraft that will need rework are going to be held for longer periods as well, increasing their costs. However, as we mentioned, we now have a more reliable schedule and cost plan in place. If we compare this to previous charges, particularly those from last year, we are accounting for more provisions due to the aircraft that require rework, production disruptions, and the learning curve, all informed by our current experiences. As expected, our team is taking this matter seriously and is dedicated to enhancing long-term productivity on this program while also striving to lessen the overall impact of delays on our customers. This baseline enables us to not only meet our goals but also potentially exceed them.

Yes. And Rob, let me just talk a little bit about the supply chain. I think the answer is we just have to flow the new revised schedule out to our suppliers. And then we're going to have to negotiate on a case-by-case basis the impact that has to the various suppliers. And depending on the commodity, the impact might be significant or might be fairly insignificant. So we're going to have to work through that. I'll just say that the revised estimate and the charge here contemplated the impact of the supply chain as well.

Kelly, Jay, could you speak a little bit more about the 737 ramp from here? And I guess, do the remaining months of this year have 42 production units? Or is there some spacing before we actually see that for any reason? And then as you go higher, on the one hand, it's not easy and supply chain is still tough, but on the other hand, I think you're intentionally holding inventory for that reason. And it seems like you have a lot of buffer in the stations at 42 to break to 47. Then I think beyond that, you start to layer in a new line. So I guess, that 6 months you've spoken to you, Kelly, should we all be assuming that for the 42 to 47 to 52? Or is each of those breaks? Or is that too aggressive of an assumption?

Let me start with the first part of your question regarding when we will reach a production rate of 42 for the remainder of the year. It's important to note that when we mention a 42 rate, it refers to the rate we achieve in the factory, which may not be consistent each month due to variations in days and workdays. Additionally, keep in mind the upcoming holidays in November and December. Currently, we are operating at the 42 rate, having conducted pretests on our supply and processes beforehand. I anticipate that we will finish the year at the 42 per month rate, and I believe we are well-positioned to achieve that. As you pointed out, the next target will be 47. I noted in my prepared remarks that we won't reach that rate in less than six months. We need time to transition to the new rate, establish stability, and perform tests at the higher rate. When testing at higher rates, we often need to make improvements to ensure we are prepared. Therefore, I don’t expect we can accomplish that sooner than six months. I want to emphasize that we must only increase our rate when we are ready; it’s better to be a month late than a month early in this process. I believe we have shown that by being deliberate and focusing on key metrics, we can actually progress faster than planned. Regarding our current inventory, you’re correct that it is significant, which is assisting our increase from 38 to 42. This will also be beneficial as we move from 42 to 47. However, after reaching 47, I think we'll need to be more aligned with the supply chain concerning inventory levels and expectations. We will need to monitor that closely. For rates above 47, it will depend on our system's maturity and the supply chain's progress. We have time to address these aspects, and I currently do not see any issues that would prevent us from moving forward. If you are considering these transitions in six-month intervals, I believe the initial six months will be smoother compared to subsequent rate increases in achieving those six-month timelines exactly.

Okay. And how will the process with the FAA compare going to 47 and 52 compared to when you did getting to 42?

Yes, we're going to follow the same process. When we moved from 5 to 7 on the 787, we used the same metrics and Capstone review process as we did moving from 38 to 42. I believe both sides will recognize and appreciate this process. We will apply the same approach to the mini break-up rate 8 on the 787. I'm confident that the process is established. Although the initial approval from the FAA may have taken a bit longer, they handled it efficiently, coordinating with many stakeholders. I don't see the process being a barrier going forward. The key factors will be our readiness and the readiness of the supply chain, and once everything aligns, we have an effective process in place to gain approval.

Welcome, Jay. Kelly, could you elaborate on what’s remaining for certification on the -7 and 10? It seems like you have significant confidence in this area. What are the key milestones or aspects we should consider regarding the remaining tasks, given the extensive testing hours and efforts you've already invested?

Yes. We have a significant amount of testing completed on this anti-ice design. Our next steps involve making modifications to the test aircraft, which include both hardware and software changes. After that, we will go through the certification process with the FAA, which is quite straightforward. The anti-ice system remains a critical path for both certifications. If we exclude the engine anti-ice, there is still work necessary to complete the certification, likely requiring a bit more effort on the -10 than the -7, but it is not as extensive as what we are encountering with the 777X program. We believe that the certification of the design will progress smoothly, supported by a wealth of test data and analysis. As I mentioned, we are still aiming to finish this by 2026.

I wanted to ask about the 787. You mentioned the recent Capstone review and how we can think about kind of the way you went through the 737, the flow of rate increases coming on the 787 and what some of the kind of key things you're watching are there, whether it's internal or whether it's in the supply chain, having to do with structures or engines or anything like that? And then also, whether you've kind of burned through some of the concessions there and starting to get to a better place of cash profitability on that program?

The pace of production increase is different from the MAX program since we weren't shut down on MAX. Unlike the MAX, we didn't experience production halts on the 787 during the strike, so our inventory levels for the 787 are lower. We intend to increase our production rate from 8 to 10; we expect to reach 8 by the end of this year and move to 10 next year. However, the transition from 8 to 10 on the 787 may pose challenges, especially regarding seat supply. We are still facing issues with seat certifications, which are likely to persist for some time, although we are making progress. Because we lack sufficient inventory, we want to ensure a stable production rate at 8 before moving to 10. Our goal is to implement this change sometime next year, but we won't specify a month until we see more stability at the 8 rate.

The Q3 free cash flow number was solid. And Jay, you mentioned positive core free cash flow in Q4 pre the DOJ payment. So curious what BCA rates are underpinning that positive free cash flow. And just albeit a modest Q4 free cash flow exit rate, just a modest number, how do we think about 2026? Is it breakeven? Is it some low to mid-single-digit inflow of cash? Is that still doable?

Thank you, Sheila. Let me update you on our discussions regarding the outlook for 2025. Last quarter, we estimated a usage of $3 billion for the entire year. However, as I mentioned earlier and you highlighted, that's improved by $500 million to approximately $2.5 billion due to better performance year-to-date. To transition from the third quarter into the fourth quarter, we expect a positive inflow driven by seasonality, especially at BDS with the tanker award, which we anticipate will exceed $1 billion. On the other hand, BCA volumes are likely to be flat or slightly down from the third quarter, meaning we may experience lower receipts due to a mix headwind, primarily from reduced 777 deliveries in the fourth quarter. This will pose some challenges. Additionally, we have interest payments that will be higher in the fourth quarter, similar to what we saw in the second quarter, estimated at over $900 million, representing a $600 million increase in outflow. There's also the DOJ payment of about $700 million to consider. When we take all these elements into account, excluding the potential DOJ payment, we anticipate being in the positive range of $500 million. Including the payment would result in a negative net position. Nevertheless, we expect operational performance to improve in the fourth quarter compared to the third, which gives us a promising outlook for next year. Looking ahead to 2026, while it's still early in the planning phase and I need to analyze more factors for the upcoming year, I can say that things are trending positively, and we are optimistic about our outlook. I will provide more details in January.

Just a follow-up on that last question, Jay. I was wondering if you could share your perspective on this $10 billion free cash flow target the company set out there for a while. And just more specifically, is that a target that you're willing to endorse? And if so, do you think the business is on the trajectory to achieve it in the next handful of years?

Thanks, Scott, for the question. Just maybe taking a step back in the 2.5 months that I've been here. Overall, as I mentioned in the prior question, we've made great progress this year. We still have plenty of runway to go as we stabilize the business and complete the development programs. Right now, my observation is the foundation is in place, and that will lead to steady and gradual improvement over the upcoming years and I expect the financials to flow. Again, just like for next year, it's really a little early for me to comment on a specific long-term framework, but I'm confident in the underlying cash generation capability for us to return historical levels that you've seen before. You've got a great backlog and operational excellence will be the key to unlocking our cash flow potential. Over the coming months, I plan on assessing our operating plans and the cash flow drivers to develop the framework and I look forward to presenting that to you at the appropriate time. But it's just a little early for me to do that right now.

Kelly, you mentioned that the Jeppesen deal is closing next quarter. You also received approval from the EU for the Spirit deal 2 weeks ago. Taking a step back, can you share your thoughts on how you think about the Boeing portfolio today, your priorities for M&A? And also any color on the effect of these 2 items and free cash flow next year?

I believe the two main items we are currently focused on from an M&A perspective are finalizing the Jeppesen deal and progressing with the Spirit transaction. We are close to closing the Jeppesen deal, which is expected to happen a bit earlier than the Spirit deal. While we have received EU approval for Spirit, we are still pending U.S. approval. We foresee no major obstacles to this, and we anticipate completing that soon. After that, we will shift our attention to the integration phase, which includes separating the Jeppesen business from our digital operations. We have solid plans for this, followed by the reintegration of the Spirit business, which will occur in the coming months once the deals are finalized. This is our primary focus at the moment, and there are no other M&A areas to address right now.

Kelly, at the beginning, you talked a little bit about investment in Charleston. And on the 787, though, our understanding had been that you can really go from 7 to 10 a month in Charleston without that much material CapEx adds, but going to 12 and 14 will require more and an expansion of the facility. So when you're looking at Charleston right now, what needs to be done to go to 12 to 14 a month? And then the investment you're discussing today is that related to the 10 a month? Or are you already making steps toward going to those higher rates?

We are already taking steps to accommodate higher rates. If we believed that capping at 10 was our limit, we would not be investing in expanding Charleston. We plan to have a formal groundbreaking soon, and we will essentially be doubling the manufacturing footprint in Charleston. Although we don't need the full doubled space, it will provide us with additional flexibility for storage. This major expansion is focused on achieving rates higher than 10%. We anticipate that market demand will enable us to reach rates in the teens, and that is where we are directing our capital and facility preparations. While the new facilities will assist us at the 10% rate, they are not essential for that level. We expect to fully utilize the expanded facility around 2028.

Welcome, Jay. Kelly and Jay, I know you touched on seat certification as a potential constraint on 787 production hikes. I was just wondering more broadly, if you can talk about where you see the pinch points in the supply chain today and kind of across the programs as you move forward in rate, where are you most concerned that bottlenecks may emerge?

Yes. So again, I made a few comments on this already. I think you do need to break down between the 737 supply chain and the 787 or the widebody supply chain because we have this excessive amount of inventory. So look, I think in general, I would just comment that the supply chain is doing well. We do have constraints still around seating, but we know what those are. We've got specific actions with the suppliers. And some of that is on Boeing to get the actual seat installations certified on the aircraft. So we're working through those. There's nothing else I would highlight. I mean we have to watch the continued demand on the engines in both the forward fit and the aftermarket and the durability upgrades that are going on in the market. So that will be an area that we'll continue to work with GE and CFM on. But there's nothing I would particularly focus on. But this really is one of these things where that could change tomorrow. We have to keep tabs on all of our supply chain we need all the parts. But I think in general, we're doing well. I think people also are gaining confidence in our ability to meet our production output. So the fear of people discounting our production in the supply chain, I think, is diminishing going forward as well.

Rob, time for 1 more question here.

Jay, you've been at the company for 2.5 months now. Just curious, what are your early observations? What are your priorities? And given that the company will end the year with about $33 billion of cash after Jeppesen is sold, how are you thinking about the balance sheet and what you want to do with that cash balance?

Yes. Let me then Scott kind of work maybe backwards here. On the cash balance sheet, I think with the completion of both transactions, we'd expect the cash balance to be closer to probably in the $28 billion range, so high 20s, not as high as $33 billion. As far as observations, look, I've come in here, there's been a lot of enthusiasm. As I mentioned in my prepared remarks, the team has embraced me with open arms. It's made my transition as seamless as it can be. There's a fair amount that I need to get up to speed on in the company and again, everyone is helping me do that. As far as some of the culture changes that we've seen, as Kelly mentioned, I see a lot of enthusiasm. I see a lot of excitement about the recovery that the company has embarked on. People are committed. They're dedicated and they want to be part of the improvement. So it's easy to walk in, at least easier for someone like me to walk in cold to an environment like this where everyone is really operating and working on the same direction. Overall, in terms of what I need to focus on and my priorities in the short term, it's really getting up to speed so I can put myself in a position to be a valued contributor. It's maintaining the focus on fully restoring the health of our balance sheet. It's enabling and driving the planned improvements of our recovery and ensuring that they are sustainable. And finally, it's keeping an eye on the future while maintaining the focus on the short-term and medium-term recovery. So again, first things first, get up to speed and then contribute and drive us and be a participant in this recovery. And again, we're on a good path here. So I'm very excited to be here.