Boeing Company (The) (BA)

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Boeing (BA)

Q2 2011 Earnings Call

July 27, 2011 10:30 am ET


James Bell - Corporate President, Chief Financial Officer, Executive Vice President and Member of Executive Council

Scott Fitterer -

W. McNerney - Executive Chairman, Chief Executive Officer, President, Chairman of Special Programs Committee and Member of Stock Plan Committee

Tom Downey - Senior Vice President of Communications


Robert Stallard - RBC Capital Markets, LLC

Kenneth Herbert - Wedbush Securities Inc.

Cai Von Rumohr - Cowen and Company, LLC

Molly McMillin

Jon Ostrower

Jeremy Lemer - Financial Times

Susanna Ray - Bloomberg

Howard Rubel - Jefferies & Company, Inc.

Ronald Epstein - BofA Merrill Lynch

Joseph Nadol - JP Morgan Chase & Co

Joshua Freed - The Associated Press

Heidi Wood - Morgan Stanley

Douglas Harned - Sanford C. Bernstein & Co., Inc.

Carter Copeland - Barclays Capital

Robert Spingarn - Crédit Suisse AG

Ted Reed -

Dominic Gates - Seattle Times

Samuel Pearlstein - Wells Fargo Securities, LLC

Noah Poponak - Goldman Sachs Group Inc.

Glenn Farley

David Strauss - UBS Investment Bank



Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's Second Quarter 2011 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 Mr. Scott Fitterer, the Vice President of Investor Relations for the Boeing Company. Mr. Fitterer, please go ahead.

Scott Fitterer

Thank you, and good morning. Welcome to Boeing's second quarter earnings call. I'm Scott Fitterer 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'll take your questions. Again, in fairness to others on the call, we ask that you please limit yourself to one question. As always, we have provided detailed financial information in our press release issued earlier today. And as a reminder, you could 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 disclaimers at the end of this web presentation.

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

W. McNerney

Thank you, Scott, and good morning, everyone. Let me begin by addressing the current business environment, followed by some thoughts on our performance during the quarter. After that, James will walk you through our results and then we'd be glad to take your questions.

Starting with the business environment on Slide 2. The global economy continues to transition to a sustained recovery although uncertainties remain as air transportation has been adjusting to the economic impacts of the unrest in the Middle East, rising oil prices, sovereign debt issues in Europe and the U.S. debt ceiling discussion and its related impacts. Notwithstanding these uncertainties, airline industry fundamentals remain sound. The continued strength and resiliency of the global economy is supporting growth for both passenger and freight traffic, which we expect to increase at or above long-term historical trends during 2011. This growth is driving continued demand for both airline fleet expansion and importantly, replacement airplanes.

Previously, we announced our plans to increase the 737 production rate from 31.5 airplanes per month to 35 in the beginning of 2012 and then to 38 per month in the second quarter of 2013. In June, we announced plans to further increase the 737 production rate to 42 airplanes per month beginning in the first half of 2014 in order to meet the unprecedented single-aisle demand.

With over 2,100 737 airplanes on order, this rate increase allows us to increase -- to meet our customers' requirements and opens new delivery slots for customers who want these airplanes sooner than we could otherwise provide them. We are working closely with our supplier partners to ensure we increase the 737 rate and our other production program -- our other airplane production rates in an efficient and responsible manner.

Twin-aisle demand continues to be exceptionally strong this year with the 777 taking 70 orders to date and the 747-8 receiving 5 firm orders and 22 commitments so far this year. Add to this, the breakthrough capabilities of the 787 with over 820 airplanes in backlog and it highlights the strength of our industry-leading position in the wide-body segment of the market for both passenger and freighter airplanes. We intend to maintain this lead as we evaluate the potential for our 787-10 to follow the 787-9 and eventually take steps to further improve the 777, the leading wide-body operating in the marketplace today.

In the single-aisle or narrowbody segment, the direction we are heading was made clear as part of the big order announcement last week by American Airlines, which included 100 737NGs and a commitment by the airline for an additional 100 re-engined NGs pending launch approval of that program by our Board of Directors.

Over the past 1.5 years working with our customers and industry partners, we have evaluated in rigorous detail 2 potential options for our next narrowbody airplane, and we are prepared to either pursue the re-engining option that I just discussed with an entry into service around the middle of the decade or an all-new airplane if we could get it to market in the 2019 to 2020 time frame.

Over the past few months, we have worked hard to validate the new small airplane option, which is largely a technical and production question. Our primary challenge became that we do not yet have a clear answer on the architecture of a production system that would incorporate new product technologies available to us and could ramp up quickly with acceptable cost and risk profiles to 50 or 60 airplanes per month by the end of the decade, which is the range of demand we anticipate in that time frame.

Also in recent months, a broader customer view has emerged in support of the greater certainty of gaining significant incremental improvement in a re-engined 737 in the near to midterm over the more perfect solution which may be available further down the road. It has always been our view that if it looked like we are putting meaningful market share at risk by waiting to do a new airplane, we would re-engine instead. That combined with our new engine technical production assessment against lead time for new engine decision led us to the judgment that we have made.

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