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Boeing (BA)

Q4 2011 Earnings Call

January 25, 2012 10:30 am ET


Greg Smith -

Scott Fitterer - Vice President of Investor Relations

Tom Downey - Senior Vice President of Communications

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


Dominic Gates

Molly McMillin

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Joseph Nadol - JP Morgan Chase & Co, Research Division

Robert Spingarn - Crédit Suisse AG, Research Division

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Susanna Ray

Heidi R. Wood - Morgan Stanley, Research Division

Carter Copeland - Barclays Capital, Research Division

Michael Mecham

Brendan Kearney

Ronald J. Epstein - BofA Merrill Lynch, Research Division

Joshua Freed

Cai Von Rumohr - Cowen and Company, LLC, Research Division



Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's Fourth Quarter and Full Year 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, 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 Fourth Quarter and Full Year 2011 Earnings Call. I'm Scott Fitterer, and with me today are Jim McNerney, Boeing's Chairman, President and Chief Executive Officer; and Greg Smith, Boeing's Chief Financial Officer Elect.

After comments by Jim and Greg, we'll take your questions. 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 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 and our various SEC filings and in the forward-looking disclaimers at the end of the web presentation.

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

W. James McNerney

Thanks, Scott, and good morning, everybody. I'll begin with a few brief comments on the business environment, followed by some thoughts on our strong performance during 2011. After that, Greg will walk through our financial results and our 2012 outlook. And then we'd be glad, as always, to take your questions.

Starting with the business environment on Slide 2. While global economic growth slowed during 2011, air transportation remained notably resilient on balance, adjusting to various regional economic impacts throughout the year. Passenger traffic grew at a pace slightly above the long-term average, while cargo traffic was flat for the year and even saw declines in recent months. With load factors at record highs and utilization rates near prior peak levels, we expect passenger growth rates to remain in line with historical trends during 2012.

Growth in cargo traffic is expected to trend below the historical average, although we expect to see improvement in the second half of this year. Emerging markets continue to fuel worldwide airline fleet expansion. Demand in developed markets also remains high, driven by retirement and replacement of older, less efficient airplanes.

The combination of strong demand and our customer-preferred line of more fuel-efficient products and services generated orders in 2011 that significantly exceeded our initial expectations. Our orders were balanced across programs, geographic regions and airplane business models.

Twin-aisle demand was exceptionally strong, with the 777 reaffirming its market leadership with a record 200 net orders across both passenger and freighter models. The 767 program also had a big year, extending its production well into the next decade with the U.S. Air Force tanker contract and signing an important order for new freighters with FedEx.

On the single-aisle side, we capped the year and a series of major wins with our largest Commercial Airplane order ever: the $19 billion deal with Southwest Airlines for 208 737NG and MAX airplanes.

Customer response to the 737 MAX accelerated rapidly through the fall, and orders and commitments now total more than 1,000 airplanes from 15 customers. We anticipate finalizing most of these arrangements this year.

The rapid uptake on the MAX since its August launch has validated our decision to address this important market segment with the solution our customers want, along with the timeline they need and an airplane that maintains a sizeable economic advantage over its competitors.

With $75 billion in new orders for the year, Commercial Airplanes' backlog grew by $40 billion to a record $296 billion, further solidifying the unprecedented growth opportunity we have in front of us. While we continue to monitor the European debt crisis, we foresee a manageable situation for aircraft financing in 2012. Boeing airplanes are attractive, value-creating assets, and sources of financing for them remain broad and diverse.

Turning to Defense, Space & Security. Despite growing constraints on U.S. government spending plans, we were pleased with the results of the fiscal year 2012 budget process and the level of funding approved for Boeing programs. Our portfolio of proven, affordable and reliable systems and services continues to advantage us in U.S. and international markets.

While tough contracting conditions and flat to declining budgets will continue to characterize the U.S. defense budget -- the U.S. defense market, we foresee significant upside potential in international markets, which we expect will generate 25% to 30% of revenues within just a few years and offer an opportunity to offset domestic reductions.

Our core strategies for Defense, Space & Security are as I've described them before: extend our existing programs by bringing capability and affordability to our customers; capture a growing share of international opportunities; and continue investments and expanding target markets such as unmanned systems, cybersecurity and intelligence, surveillance and reconnaissance. These strategies along with a relentless effort to maximize efficiencies and reduce infrastructure costs in support of the Defense Department's affordability initiatives will ensure continued success in the current environment and maintain our ability to invest in the future and respond to customer needs.

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