Boeing Company (The) (BA)

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The Boeing Company (BA)

Q4 2009 Earnings Call

January 27, 2010 10:30 am ET


Diana Sands - Vice President of Investor Relations

W. James McNerney Jr. - Chairman, President, Chief Executive Officer

James A. Bell - Corporate President, Chief Financial Officer


Ronald Epstein - Bank of America/Merrill Lynch

Samuel Pearlstein - Wells Fargo Securities

Joseph Campbell - Barclays Capital

Cai von Rumohr - Cowen and Company

Howard Rubel - Jefferies & Co

Joseph Nadol - J.P. Morgan

Doug Harnett - Sanford Bernstein

Heidi Wood - Morgan Stanley

Troy Lahr - Stifel Nicolaus & Company

Robert Spingarn - Credit Suisse

Myles Walton - Oppenheimer & Co.

Robert Stallard - Macquarie Research Equities

Noah Poponak - Goldman Sachs

Itay Michaeli – Citi

David Strauss - UBS



Good day everyone and welcome to The Boeing Company’s fourth quarter and full year 2009 earnings conference call. Today’s call is being recorded. The management discussion and slide presentation plus the analyst and media question-and answer-sessions are being broadcast live over the internet. At this time for opening remarks and introductions, I’m turning the call over to Miss Diana Sands, Vice President of Investor Relations for The Boeing Company. Ms. Sands, please go ahead.

Diana Sands

Thank you and good morning. Welcome to Boeing’s fourth quarter and full year 2009 earnings call. I’m Diana Sands, and with me today are Jim McNerney, Boeing’s Chairman, President, and Chief Executive Officer; and James Bell, Boeing’s Corporate President and Chief Financial Officer. After comments by Jim and James, we will take your questions.

In fairness to others on the call, we do ask that you limit yourself to one question please. As always, we have provided detailed financial information in our press release issued today and as a reminder you can follow today’s broadcast and slide presentation through our website at

Before we begin, I need to remind you that any projections and goals we may include in our discussions this morning are likely to involve risks, which are detailed in our news release, in our various SEC filings, and in the forward-looking disclosures at the end of this web presentation.

Now I’ll turn the call over to Jim McNerney.

W. James McNerney Jr.

Thank you, Diana and good morning. Let me start today with a discussion of our 2009 performance and the evolving business environment. After that James will walk you through our results and outlook and then we will be glad to take your questions.

Starting with Slide 2, 2009 was a challenging year for our company but in the end it was a year of significant achievement and one that we exited with momentum in our favor. We confronted an unprecedented market environment with the global recession affecting our commercial business in the form of reduced orders, softening services revenues, lower delivery price, escalation forecasts, and our decision to reduce 777 production rates.

At the same time, the US Defense Department and other agencies began re-evaluating their key priorities amid significant budget pressures which has impacted some of our defense programs, most notably in the areas of Army modernization and missile defense.

Despite these business environment pressures and development program challenges that I’ll speak to in a moment, our fundamental core operating engine continued to perform well. We delivered record revenue for the year in both our commercial airplanes and the defense space and security businesses while production programs like the 737, 777, and our portfolio of military aircraft delivered strong earnings.

Our defense services business earned double digit margins and grew its top line 18%, of which 16% was organic growth. Our commercial services business also maintained strong double digit margins even as it experienced marketplace realities that brought revenue down 6%. Our combined services business generated more than $13 billion of revenue in 2009 and this continues to be an area we are intent on growing and leveraging across the company.

Our cash performance was outstanding given both market and development program pressures during the year. Disciplined cash management across all areas of the company paid off as we generated $5.6 billion in operating cash flow while at the same time made significant 787 investments in both R&D and inventory.

Regarding our development programs, there is no question that the 787 side of body issue and the increased cost we experienced on the 747-8 significantly affected our overall financial results. But through the diligent efforts of our team, the signs of progress are evident and we are achieving important milestones toward getting the sought after products into the hands of our customers.

The 787’s first flight on December 15 was truly an historic moment in aviation as this game changing product has a level of technological advancement not seen since the 707. Since then, airplanes 1 and 2 have collectively made more than 15 flights encompassing more than 60 flight hours. Pilots have taken the airplane to an altitude of 30,000 feet and a speed of Mach 0.65. Initial stall tests and other dynamic maneuvers have been completed, as well as extensive systems checkouts.

Initial air worthiness was achieved earlier this month and in the weeks ahead we will continue to expand the flight envelope and move deep into a rigorous flight testing regime. While there is much work to be done and challenging days ahead, we are pleased with the progress we have made to date.

We expect that the third and fourth flight test airplanes will make their flight tests in February and that all six airplanes will be flying by the end of the second quarter. The production ramp up is also progressing as we prepare to deliver our first 787 late this year. We expect to be at a production rate of 10 airplanes per month by the end of 2013.

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