Thank you for standing by. Good day, everyone, and welcome to The Boeing Company's Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Please be advised that today's call is being recorded. The management discussion and slide presentation plus the analyst Q&A session are being broadcast live over the Internet. To ask a question on today's call, please press *1 on your telephone.
At this time, I am turning the call over to Mr. Eric Hill. Vice President of Investor Relations for opening remarks and introductions. Mr. Hill?
Please go ahead.
Thank you, and good morning. Welcome to Boeing's quarterly earnings call. With me today are Robert K. Ortberg, Boeing's President and Chief Executive Officer and Jesus 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 uncertainty. Including the ones described in our SEC filings.
As always, we will leave time at the end of the call for analyst With that, I will turn the call over to Robert K. Ortberg.
Well, thanks, Eric, and good morning, everyone. Thanks for joining in today's call. As we enter the final months of the year, we are continuing to make progress across our businesses. having completed many of the key milestones in our 2026 plan, and building on the trust we have restored with our stakeholders.
Through the third quarter, we delivered 161 commercial aircraft. The most since 2018. We received FAA certification for the 737-7 in July, and the 737 dash 10 just last week.
We reached a new 4-year agreement with union representing our engineering and technical workforce the Pacific Northwest, avoiding any work interruption. And we secured major program awards across our defense and space portfolio, including multibillion dollar contracts on key programs like the PAC-3, and the F-15EX. And we scored a generational win with US Navy, they selected Boeing to design, build, and deliver its 6th generation fighter jet making Boeing the exclusive 6th generation fighter company for both the US Air Force and the US Navy.
These accomplishments reflect the significant progress we are making and they are made possible by the sustained focus of our team on safety, quality, and performance. We know there is more work to do, and I have said before, our progress is not always going to be perfectly linear. But we continue to improve and I am confident we are on the right track.
I will touch on the highlights I just shared as well as areas that require more attention in the quarters ahead and let's start with our development programs. All year, we have said that certifying our new aircraft models is 1 of our most important goals, The FAA certification of the 737-7 and the dash 10 represents the culmination of nearly 100 test flights more than 4 thousand hours of ground and flight testing. And I want to thank our employees who worked on or supported these programs and never lost sight of our mission.
And to our customers and partners, I extend my gratitude for the steadfast support and confidence in these airplanes. And we look forward to the newest members of the 37 MAX family delivering on their promise of greater efficiency, and more capability. With the 737-7 and -10 FAA certifications were complete, our focus now centers squarely on the 777-9.
We continue to make progress on flight testing and still need approval to begin the balance of the flight test program including ETOPS testing. We continue to expect first delivery in 2027 and all of our latest assumptions continue to be within the EAC we reset last year. Turning now to our commercial factories.
On 737, we continue to work towards stabilizing production at 47 airplanes per month. Our factory's key performance indicators are performing well, particularly in the final assembly where we have seen a 40% improvement in rework since the start of last year. However, as I mentioned at a conference last month, it is taking us longer than we had expected to demonstrate performance at rate 47.
We are making progress, but we still have more work to do And I am expecting it will take us into next year to get fully stable at this rate. Our output of wings is improving, but we need to demonstrate sustained performance at this level and ensure we have a high confidence plan to step up to rate 52 when the system is ready. To reach 52 aircraft per month, we have to get the North Line certified and producing, our back shops, including wings, stable and ready, and fuselages in Wichita stable at the higher rates.
Taken together and integrating our learning from this year, our financial plan will target rate 52 in the back half of 2027. And as I have said many times before, it is more important that we do this ramp right than in what particular month we achieve a rate break. And we will stay disciplined here.
Switching now to 787. We are stable at 8 aircraft per month, while the factory is performing well. While we have stability in our factory, delivery cadence has been uneven month to month due to the seat certification challenges we have discussed previously.
We are seeing increased stability in our supply chain and closely watch engine delivery performance as it remains the pacing item for rate 10. We still expect to start the transition to 10 per month yet this year and we are making good progress on our Charleston expansion to support even higher production rates. Beyond the progress we are making in our factories, also continuing to position Boeing for the long term.
That is showing up in the quality of our backlog, the demand we are seeing across the portfolio, and in the investments and program wins that position us well into the future. Last month, we achieved a transformational win that will shape the company for decades to come when the US Navy selected Boeing as the winner of the FA XX competition. To be selected for another 6th generation fighter program, is a testament to our innovation, our team, and the trust we have built with our customers.
It is a true honor to support the national security priorities and a responsibility we take very seriously. In addition to FAXX, we continue to see strong demand for proven franchises across our defense and space portfolio. Boeing received a 7-year contract to accelerate and eventually triple the PAC-3 Seeker production supported by our early investments in facilities, workforce, and supply chain.
In the quarter, we also received a contract to manufacture 22 more F-15EX aircraft for the US Air Force. And this award brings the total number of aircraft under contract to 120 with the potential for additional upside as the F-15EX continues to demonstrate the value of its unmatched payload and range capability. Beyond new franchise wins, we also continue to see tangible benefits from the active management approach we have talked about.
As I said last quarter, Starliner was a program where we still had work to do with the customer. We have since worked with NASA on a path forward to support future flights while reducing our program risks, including $359 million of additional NASA funding. Taken together, these are the kinds of actions and outcomes that will support our customers, strengthen Boeing, and position us well for the future.
That long term position is also beginning to give us greater visibility into the financial path forward. As I mentioned, over the last 2 years, we have made exceptional progress restoring trust retiring risk, and transforming our culture and rebuilding the foundation of safety and quality that will help ensure durable success. We have also been deliberate about not getting ahead of ourselves given the range of outcomes tied to the production ramp, certification timing, and other critical program execution.
But we appreciate that it is been difficult for shareowners to assess how our progress will translate into financial performance. We are now at a point where the range of outcomes is narrowing. As we look ahead, our outlook is supported by a record backlog of $745 billion with improved pricing dynamics, a more stable production system, and better underwriting on development programs, and our plans for continued progress on aircraft certification.
Taken together, those factors give us confidence to share a multiyear free cash flow target for the business. We have narrowed our range and expect to generate approximately $2 billion of free cash flow in 2026, I am expecting that will improve to about $3 billion in 2027. Inclusive of the additional CapEx to support the FA XX development.
We believe this should improve to about $6 billion in 2028 as we start to burn off some of the headwinds and accelerate from there. And I expect to achieve the $10 billion target in 2029. Jay will provide further color on the elements driving this trajectory in his remarks, but it is important to highlight we continue to see significant growth potential beyond $10 billion in line with our prior comments.
To sum it up, we remain well positioned for the long term. I am pleased with the progress we have made so far, We have come a long way but we are entering a new phase, and the bar is higher now. As it should be.
Our job is to keep raising our performance to meet higher expectations while always prioritizing safety, quality, and stability. I am confident we will get there because we are doing the right work, and taking the right actions to build more durable, dependable performance over time. So before I close, I want to thank all of our employees for the work they are doing every day to move Boeing forward.
And with that, I will turn it over to Jay to discuss our financial results in more detail before we move to Q&A.
Thanks, Robert, and good morning, everyone. Starting with consolidated financial results for the quarter. Revenue of $24.2 billion was up 4%.
Primarily driven by higher defense and services volume, partially offset by less favorable commercial delivery mix in the quarter. Operating margin improved to 1.5% and core earnings per share improved to a loss of $0.34 reflecting higher segment earnings and lower corporate expenses. Free cash flow was positive $464 million in the quarter, an improvement versus the prior year, driven by improved working capital partially offset by the Department of Justice settlement payments approximately $700 million and planned CapEx for our investments to expand capacity in Charleston and Stephanie.
St. Louis. Turning to BCA on the next page.
BCA delivered 161 airplanes in the quarter. Revenue was $10.7 billion, down 3% year over year driven primarily by less favorable delivery mix. Operating margin of negative 6.5% improved materially versus the prior year's results which were impacted by the 777 x charge.
That improvement was partially offset by a reduction in booking rates associated with production rate adjustments and higher estimated supply chain costs. Backlog at BCA increased again to a new record level of $612 billion. It includes over 6.3 thousand airplanes.
This includes orders during the quarter from Turkish Airlines, Ethiopian Airlines, and Lufthansa. Drilling down on commercial program performance, Starting with the 737, we delivered 124 airplanes in the quarter. As we close out the year, the delay in stability at 47 per month is expected to translate to the lower delivery output and come in shy of the 500 delivery target.
Let me remind you that we have built dash 7 and dash 10 aircraft prior to certification that will start delivering early next year. Going forward, we expect longer intervals between rate steps the higher we go, we go. Which is more in line with our historical demonstrated performance.
That said, our team has detailed plans for what is required to get to higher rates. And we continue to make investments to create more capacity and resiliency in our production system. That will enable stronger performance at higher levels.
With a consistent focus on safety and quality. On the 787, we delivered 22 airplanes in the quarter, We continue to expect to deliver 90 to 100 airplanes in the year, but expect it to be closer to the lower end given the delays in getting to rate 10. In Charleston, our factory expansion is underway and we expect the majority of the capability to come online late next year.
In addition to the 2 lines in our current footprint, our second final assembly building will add a third line that increases capacity, flexibility, and resiliency in our production system. On the current 777 metal wing freighter, we received FAA approval for incremental production of up to 35 units. Further extending the most popular dedicated freighter of all time.
During the quarter, our 777 freighter and 767 tanker production lines were disrupted by a supplier of wing components. Shipments from that supplier have resumed. However, there will be a gap on our production system that gradually flows through these production lines over the next few quarters.
The cost of that disruption was not material in the third quarter, but will be treated as abnormal cost and period expense over the next few quarters. Finally, on 777 x, as Kelly mentioned, we remain on track for first delivery in 2027. As we get closer to certification, we have firmed up our production and delivery plan.
We are currently producing airplanes at a rate of approximately 1 per month and expect to stay at that level for most of 2027. These latest assumptions are within our EAC. With respect to program cash flow, we continue to expect 2027 to be a significant use of cash with 2028 improving before turning positive in 2029.
Like the rest of our programs, we are prioritizing safety, quality, and stability. As we ramp this new production system work towards a delivery schedule that our customers can reliably plan for. Okay.
Let's shift over to BDS on the next page. 30 aircraft and 3 satellites in the quarter. Revenue increased 15% to $7.9 billion. Driven primarily by higher volume, including growth on classified programs in missiles and weapons.
Spirit contributed approximately $150 million of sales in the quarter, or 2 points of growth. BDS operating margin was 6.2% in the quarter, and includes $252 million gain on the sale of HRL Laboratories. Across the BDS portfolio, we continue to see operating performance gains in line with our expectations of steady margin improvement.
And we remain confident in our path to high single digit operating margins by the end of the BDS booked $23 billion in orders during the quarter, with record backlog of $101 billion. And we remain committed to our strategy of entering into appropriate contract structures on new business. Importantly, in the quarter, BDS was selected by the US Navy to design, build, and deliver the FA XX next generation fighter aircraft.
This order was not included in our third quarter backlog, pending completion of the source selection and evaluation process. Now moving to global services on the next page. BGS sustained its momentum and delivered another quarter of strong financial performance.
Revenue was up 4% to $5.6 billion Excluding the impact of the digital aviation solutions divestiture, revenue was up 11% over the prior year, primarily driven by government and commercial modifications volume. Operating margin of 18.3% was up from prior year, on favorable volume and mix partially offset by the divestiture last year. Both commercial and government businesses delivered double digit margins in the quarter.
Operationally, the BGS team continues to demonstrate process improvements across the business. For example, on the C-17 heavy maintenance program, continue to perform work at record low rework levels, while taking on greater scope of work for our customer. Supporting revenue growth, and margin performance.
BGS received $5 billion of orders and ended the quarter with a backlog of $33 billion Shifting over to cash and debt. Cash and marketable securities ended at $20.7 billion. Primarily reflecting cash flow generated in the quarter.
The debt balance was unchanged from the prior quarter at $45.9 billion We continue to maintain access to $10 billion of revolving credit facilities all of which remain undrawn. And we remain committed to strengthening the balance sheet, supporting our investment grade rating. Now let me provide some additional context on our free cash flow outlook and targets.
First, as Kelly noted, we have narrowed our prior range and expect to deliver approximately $2 billion of free cash flow in 2026. This includes the assumption of the KC 46 a tanker lot 13 order in advance as well as other seasonal working capital benefits in the quarter. As Kelly said, we have increased clarity into our medium term financial plan.
In 2027, we expect to generate approximately $3 billion of free cash flow. Followed by approximately $6 billion in 2028 and $10 billion in 2029, with significant growth potential beyond that in future years. For financial planning purposes, these targets assume that 777 x will be certified by midyear 27.
For 2027, in addition to the absence of the DOJ payment made in 2026, we expect free cash flow growth to be driven by higher commercial deliveries, modestly improved cash margins on the 37 and 787 programs, continued improvement at BDS, and continued steady growth at BGS. We expect these fundamental growth drivers to be partially offset by the impact of less favorable working capital. Including lower year over year BCA order deposits and around $1 billion of increased CapEx which includes the growth associated with recent awards in BDS.
Keep in mind, as we discussed earlier this year, 2027 free cash flow will be significantly impacted by the legacy cash drags. Beyond 2027, we expect these legacy cash drags to continue to abate in the path to $10 billion to be underpinned by higher 737 and 787 deliveries with improving cash margins. Positive cash contribution from 777 x, profitable growth at BDS and BGS, and still elevated but lower CapEx.
As we have said before, there remains significant growth beyond $10 billion in the future. All of this is underwritten by the robustness and pricing included in our record backlog of $745 billion As we advance, we would expect to provide additional assumptions in support of this free cash flow plan and other elements of the P&L. Okay. Summing it up.
Our focus remains on deliberate and disciplined execution. Consisting of steady deliveries, validated rate step ups, and operational performance that builds upon itself. We will not sacrifice long term durability.
Every decision is made to enable us to deliver on the full potential of the business. With that, let's open up the line for questions.
Will now begin the Q&A session. In the interest of time and to allow for broader participation, we ask that you limit yourself to 1 single-part question. Our first question comes from the line of Myles Walton from Wolfe Research.
Your line is open.
Thanks. Good morning, Jay. You went through a lot there on the walk from 26 to 27 free cash flow.
A lot of positives. But yet it is only, you know, ex the DOJ payment few hundred million dollars of growth. Could you size the advances as being abnormal in 2027 And then maybe walk us a little bit more on the 3 billion expansion in 2028 Is that 3 quarters from 777X?
Maybe just a combination of and 2029. Thanks.
Okay. Sure. Thanks, Myles.
Let me, maybe slow it down a little bit. I was moving pretty quick there through the materials. And just go back and another quick summary here.
As you mentioned, Myles, the DOJ payment does not repeat in 2027. that is $700 million benefit. As I also said during my prepared remarks, we will get the benefit from BCA delivery volume as well as modestly improving cash margins. You may recall, in the second quarter, I discussed BCA margins, and they were about for 2026, around breakeven.
So our contribution from BCA will be largely from the improving cash margins in 2027. Of course, we will have continued growth from improvement from BDS and BGS. So those all taken together provide positive benefit to cash flow in 2027.
As you mentioned and as I mentioned in my prepared remarks, we will expect to have lower customer deposits at BCA 2026 was, just a very strong year. it is trending to be a record year. The market is strong. Our campaign activity and pipelines remains robust.
So we still expect 2027, order cash to be pretty strong as well. But just not at the same record level of 2027. And, yeah, I would kind of size that in the range of a few billion dollars of impact.
And then as I mentioned, just to close it out, the CapEx will be higher at $5 billion, so it is about $1 billion higher than 2024. So those are all the building blocks of 2027 free cash flow. As we get into 2028 and really 2029, it is kind of a similar story.
These legacy drags continue to abate, and they come down. And so we will see improving cash margins and we will also get the benefit. A higher benefit from higher delivery volumes because now we will be working from a positive cash margins.
And so we will get a double benefit from both of those. And that is all supported by the backlog that we have. As we get to 2029 more specifically, we will be at higher production levels.
And so I have said in the past that we expect that the building blocks of $10 billion free cash flow on a normalized basis is around 52 on 737 for deliveries. On a delivery rate around 10 for the 787. On a delivery rate and positive cash generation out of 777 program.
In 2029 specifically, we will be operating at higher production levels, which translate into higher delivery levels. And so we will be closer to the to the mid to high fifties on deliveries. In 2029, we will be closer to around 12 per month on a 787, and we will be generating positive free cash flow or expect to generate positive free cash flow on the 777 x in 2029.
The reason we need to be at higher levels is because we will still have some residual drags in 2029 And I expect those to be fully behind us for the most part by 2029, there is runway, as I mentioned in my prepared remarks, in 2030 and beyond above $10 billion. So, hopefully, that encapsulates 2027 and also the future year outlook for you.
Alright. Thanks, Jay. Your next question comes from the line of Seth Seifman from JPMorgan.
Your line is open.
Hey, thanks very much and good morning. Wanted to ask a little bit about the unit returns on aircraft. You talked in the release about some cost growth that we are seeing.
If you could both from the supply chain and from the process of increasing rates, If you could give a little more color on what that is, and then also how it affects your thinking about unit cash profitability in the out years. And then on the, you know, on the pricing side, the fact that we are looking at kind of you know, more gradual ramp up in rates, is that affecting the ability to kind of.you know, the timing on moving beyond some of these legacy drags on unit revenue.
Seth, let me kind of walk you through. Let me start with the BCA margins here in the third quarter. I did talk about the them being impacted by the rate adjustments as well as higher supply chain costs.
We had to roll those, as you know, through our EACs, which resulted in impact to our booking rates. Specifically on. I also had to talk related to the 777 program, the existing freighter program and the 767 program, we expect some abnormal costs to carry forward now in the fourth quarter into the first half of the year.
I expect those to put some pressure on call it, third quarter run rate margins over that period of time, but they will abate and pretty much diminish in the second half of the year. When you take into account the benefit of cost based extensions at a higher price backlog, and other performance with the higher volumes, we will make some significant improvement in the back half of the year, put ourselves in a position to get to about breakeven in early 2028. As it relates to cash, all of this that we talked about in these impacts here in the third quarter, all contemplated and factored into our cash flow projections as well as the ramp in the cash margins over this period of time.
And so I do not really see much a difference there. We have absorbed it. We have contemplated that.
And with the price mix already in the backlog, highly confident in the, improving margin profile. Of the BCA programs, both 737 and 787.
Okay. Very much. Your next question comes from the line of Sheila Kahyaoglu from Jefferies.
Your line is open.
Jay, Robert. Thank you so much for all that long term color, Robert. But maybe if we could just step back and talk about the macro, lots of interest around how higher for longer oil prices might affect the aerospace industry.
And, obviously, you have a key unique perspective on that. Can you maybe talk to customer channels you are checking to assess the market, whether it is orders, the services business, or just how you are seeing lease rates move around just given the capacity cuts? And, you know, with your long term guidance of free cash flow, what sort of oil price does that assume?
Yeah, Sheila. So we are. We are to confirm, we are in constant contact with all of our customers here as we are navigating through these high fuel prices I think the actual impact is gonna be different depending on the airline.
Obviously, a large portion of our backlog is going into replacement aircraft. So for those customers who are bringing on new aircraft to replace older aircraft, these are much more fuel efficient. And in fact, the high fuel prices are driving them to really want these aircraft sooner.
So the area that we may see softness is in the overall growth. Depending on what the airline overall growth would be. So far, we have not seen that, Sheila.
We have not seen anybody, wanting to replan their order growth. If that should happen, quite frankly, given our oversold backlog, I think there is opportunity for us to shift around and manage through that. But, obviously, it is something we have to keep an eye on So far, the airlines have been for the most part, flowing the higher fuel into ticket prices.
Think over the next coming quarters, we will have to watch that. But, again, at a macro level, I feel pretty good about our ability to manage even if we do see some softening demand on the growth market because there is plenty of customers who are looking for airplanes faster for replacement. So we may have to rejigger a little bit of our firing order if that happens. it is not happening yet.
Well, I have just have to keep close to our customers here.
Brett. Thank you. Your next question comes from the line of David Strauss from Wells Fargo.
Your line is open.
Thanks. Good morning, everyone. Morning.
Good morning. Jay, the walk to 27, can you maybe just put a finer point on what you are expecting for max and, 87 deliveries and including what you are assuming for liquidation of the 7 and 10 inventory. And then you know, 777 x, I think that is, you know, obviously a pretty big You know, the timing there is a pretty big, you know, risk item Yeah.
Look, let's say that slips out of 27 in the 28. how much of a you know, how much of a risk could that be to that $3 billion cash guide? Thanks.
Okay. Just on the inventory aircraft, next year, we expect between a dash 7 and dash 10. Deliver around 30 aircraft that are that are prebuilt going into the year.
On the on the 27 cash bridge, what was it on the 777.
He was asking about the 777, if it would slip out.
Oh, in the triple. Okay. The 777 x program, you know, look. that is a that is a scenario that would be significant.
We are on a good path, though, as Kelly mentioned during his prepared remarks. I think the risk would be more of later in the year. Which would have a kind of some impact on deliveries.
About deliveries next year between 10 to 15 in that ballpark. And so you know, maybe you would see some deliveries come down a little bit. And so I think that is.
Could be absorbed within the guide that this $3 billion.
And I was also hoping to get just the. What you are exactly assuming for max deliveries and 787 deliveries in total next year.
Okay. So Yeah. that is the question I forgot. I missed a piece of that.
So that will. We will give more color in January. What I can tell you is think about total deliveries at BCA to be up 10% plus similar to this year.
We will give more color on that more specifically by program in January.
Your next question comes from the line of Scott Mikus from Melius Research. Your line is open.
Good morning, Robert and Jay. Jay, I think you mentioned in the out year 2029 time frame, you are expecting 37 production in the mid to high fifties. And 12 per month on the 787.
You are gonna be at 52 per month in the back half of next year on the 7 and moving to 10 per month on the 787. The end of this year. I am just curious why it will take roughly 2 years to move up to those higher rates contemplated in the 29 targets.
Just has the outlook for the supply chain deteriorated at all?
No, it is a good question. it is a very good question.
And typically, what we have is deliveries do lag the production. But what I would characterize the reconciliation of that is really the upside opportunity that we have at 2029 If we are able to deliver at these higher rates that we are producing at, then that would provide upside to the $10 billion target that we have out there.
And then if I could just follow-up real quick. Any assumption on cash taxes or cash interest by the time you get to 2029?
it is more of the same. We will not start to have taxes kick in until the early 20 thirties. Got it.
Thank you. Come down a little bit accordingly with the maturities. But not significant interest cash.
Your next question comes from the line of Douglas Harned from Bernstein. Your line is open.
Good morning. Thank you. You know, Robert, if I go back to August, on the 737, you know, we looked.
We talked in, and things looked pretty stable. It seemed at 47 a month, although you know, as you highlighted, there are. You know, there were wings, Wichita, engines, all those things to think about.
Engines I think, seem fine. But you know, in September, you described the challenges on drilling holes on the wing, but as we look at getting the stability now, you know, what has to happen is that is the wing issue resolved at this point? Where does Wichita stand?
And how do we get comfortable that if the visibility was not that good back earlier in the summer, how do we get comfortable that things are moving on to the right track to get to that 52 next year.
Yeah. Okay. So let me, first of all, say that engines are not a problem in this equation.
So you can kind of take that take that out of the equation. We had a series of flow enablers to allow us to ramp up production from 42 to 47 to support that in our wings back office or back shop. that is where we built all the wings for the 737 aircraft. And some of those flow enablers just flat out did not yield the flow savings.
Some did, some did not. So we had to step back and make some changes to that. We have got some additional flow enablers In some cases, we are adding some capacity, where we did not see the enablers yield, and we are going through that process right now.
Now, early signs are encouraging. We are improving but we are not yet to where I can say we are stably producing wings to support the 47 a month rate. So we are gonna wanna dwell on that.
For a little while to make sure we are stable and do not end up in an unstable situation with production. Now that informs our next rate increase, obviously. So we did not go as smoothly from 42 to 47 as we did from 38 to 42.
So we are gonna wanna make sure in the next rate break at 52, that we very much have understood and tested all of our rate enabling functions in the back up. Back shops to make sure that they are gonna yield. The other thing is recognize that for rate 52, we have gotta have, and the line up and running as well.
Really no change to our outlook there. that is going that is going well. In fact, yesterday, we rolled out our first dash 10 from the Everett production facility. So look, we gotta get wings stable, and that is been a challenge for us. and it is just as a result of the process improvement yields were not there.
And so what we are gonna do is learn from that and make sure before we go to the next rate, we have fully tested these improvement areas and make sure that they are gonna yield the next rate increase.
But if I can, are there any other watch items here? In other words, if you get the wings really that is done once that is done, things like fuselage is coming out of Wichita, other supply chain questions, are there any other significant watch items, or will you feel pretty good on this once you have cleared the wing situation?
Well, I think right now, wings are what have caused us the instability. Part of that is because we do have inventory and fuselages. But once we get through wings, fuselage will be an important focus area for us as well.
And backing up on that, remember that we are producing fuselages at a lower rate than the final assembly intentionally to burn down inventory. So the balance of this year and early into next year we do have to see the ramp up of fuselages also. And we get synchronized with the final assembly at rate 52.
So that is all in the calculus of our go forward plan here, getting wings stable, ramping up the fuselage. I would not point you to anything else in the supply chain right now. I mean, there is always the pop up kind of things like we have had with the GKN Windows that we are working to alleviate.
But there is no systemic challenge I see right now again, I think it is it is wings fuselage will be important for this next rate break.
Okay. Thank you. Your next question comes from the line of Peter Arment from Baird.
Your line is open.
Robert, you just touched upon Wichita a little bit, but maybe if you could just give us an update of the ongoing ramp of we are seeing in Spirit, any metrics you want to share on that progress? And then, Jay, just to confirming, BCA cycling at much higher levels, it sounds like you are calling out a potential breakeven margin in play for 2027. Are you expecting BCA margins to return to more historical levels with your kind of 2029 outlook?
Just maybe any color there on the slope of the margin recovery at BCA? That would be helpful.
Okay. Let me start with Wichita. So, you know, overall, the integration is going according to our integration plan. 1 of the things that we really are focused on while we kept, Wichita at a lower rate was to implement our safety and quality plan at Wichita that we were very successful in implementing in Renton, as you know.
And so we have been doing that. I would say that is probably slowed them down a little bit as we have implemented some of these safety and quality features. So you will see our inventory of fuselages is probably a little bit lower or burning down a little bit faster.
Than what our baseline plan said. But, again, we are we are. We have got the ramp up, plans in place that is contemplated in our forecast here as we go forward.
And also contributing to making sure we stay stable at 47 a little bit longer before we move to 52.
And the margin recovery, Peter, you know, we often anchor and compare to 38 margins. What I could say there is on a 737, it will ramp up the margin profile, but will not reach what it was in 38 either on a percentage or absolute basis. By contrast, the 87 by 2029 will exceed what it was on in 2018, both on an absolute basis as well as on a percentage basis.
Taken together, overall, will be a net benefit.
In 2029. Got it. that is helpful. Thank you.
You are welcome. Your next question comes from the line of Noah Poponak from Goldman Sachs. Your line is open.
Hey, good morning, guys. Good morning. Jay, it seems like a decent amount of the variance in the free cash trajectory you just provided versus maybe what some people are thinking is CapEx.
So you gave us 27 CapEx. Maybe you could just give us the capital plan for 2028, 2029, or when you get back to normalized as a percentage of revenue? And then on 777, I guess it is fairly surprising to hear the answer to the prior question that you could absorb another slip.
Just last time it had to slip, everybody had to move free cash around a lot. So should we interpret that as you are providing conservative numbers you want to be able to beat or is it just that the 777 delivery plan is so late in 2027 that it that it can slip?
Yeah. Let me let me address 777, and I will let you talk about the cash flow. We did the reset last you know, the last major reset on the 777 program, We definitely put management reserve in there to allow for additional, schedule pressure going forward.
Now I do not wanna imply that the 777 program has moved to the middle of next year. We are still driving the team to certification. But what we are saying is we have financially provisioned such that, if certification delays to the to the middle of the year, that we will still be able to do that within our EAC.
We are we are driving to a much earlier date right now. We do not yet, as I said in my prepared remarks, we do not yet have the full authorization for the flight test program. there is a couple things I will note is the FAA had a tremendous amount of work to do on the dash 7 and dash 10 certification as did our test teams. And having that work behind us really does allow us to.
Both parties to put more resources on the 777, test work that. that is yet ahead of us. So I am hopeful to see us accelerate that here as we run through the balance of the year and run into next year. Airplanes are flying.
We are making progress on the test program. We are getting some incremental authorization for additional flight testing from the from the FAA think of it as kind of an extension to the TIA 4 b We still have these big, these big flight tests yet ahead of us. Flight test authorizations yet ahead of us.
So we are working hard to get all that done. I will also say that I think we now know after the dash 7 and dash 10 what it takes to get certification complete in this new post-MAXA world of regulation. And so that is factored into our planning, and we are off ex executing that with the FAA now.
On your question, Noah, on CapEx, for 27, about $5 billion as I mentioned, 2028 and 2029 would be around $4 billion each in each year.
Just going back. Circling back on the on the 777 x on the cash, Again, it was in the context of really the way Kelly just laid it out. You are talking an impact of a of a few months, a month or 2.
Is what I was quantifying. Okay.
And, Jay, that. Going to 4 is still 3% of revenue. The company was running, you know, 2 or even a little below 2 for a while.
Is it structurally higher, or does that just have a lot of new projects and that does eventually work back down as a percentage of revenue?
Yeah. I do not. I would expect it to be higher than 2%.
It will it will come down, I think, over time. But I. It will it will be kinda 3 plus 3% to 4% is the right way to look at it on a normalized basis out in the future.
Okay. Thank you. Yep.
Your next question comes from the line of John Godyn from Citi. Your line is open.
Hey, guys. Thanks for taking my question. Robert and Jay, obviously, a lot of new detail about the free cash flow for the next few years.
If we took it at face value, it kinda seems like all the numbers are just sort of parallel shifting lower. And what I wanna ask about is just make sure we have not lost sight of the north Star beyond 2029. Obviously, you do not have specific numbers out there.
But if we thought about how our model should be changing in 2031, or 2030 and 2031 or whenever you kind of you know, view getting past this period of ramp. Has that ultimate number that kinda more full earnings power changed in your mind? Has that North Star shifted at all?
And any other color on that? That you are willing to give be helpful.
I do not believe so. I think both Kelly's and my comments both said the same thing, which was we expect significant growth beyond 2029. And so we will see runway continued runway on the margin improvement and that will be a continued source of increasing cash flow in addition to volumes.
Know, back on the prior question, we were talking about what we are assuming for 2029 from a delivery perspective. That also provides runway to deliver at a rate of 63 and at a rate of 14 and a 787. So that will be a compounding benefit going beyond 2029.
So is it fair to describe what is happening here as a steepening of the overall free cash flow profile, but getting to the same point?
You know, John, I kinda look at it as almost like a, from x expectations, more of a 1-year shift to the right. I do not think our expectations about the slope or the or the absolute endpoint has changed at all.
Appreciate that. Very clear. Thanks.
Your next question comes from the line of Ronald Epstein from Bank of America. Your line is open.
Robert and Jay, I promise I will not ask a cash flow question, but let's talk about something more fun. You guys won NGAD. You won F/A-XX.
It would appear that the future of tactical aircraft military aviation for The US is in Boeing's hands. So, Kelly, how are you thinking about that for BDS? Should we think more broadly about BDS? how could BDS grow? what is that mean for margin?
I mean, that is a real structural change. Right? I mean, just a couple years ago.
I do not think anybody thought that was in the cards. But here it is. Right.
So how should we think about it?
Yeah. So. Well, first of all, we are gonna see higher growth out of our defense portfolio than maybe what we thought a year ago.
I think we were thinking more in terms of low single digit revenue growth. Clearly, that is gonna be more towards the high. Middle single digit or higher going forward.
The important part is all these programs are also being underwritten with the right contract type. So not only are we booking more orders, we are booking more orders that will not result in some of the challenges we have had. And it is not just the order booking, Ronald.
We have, you know, we have moved MQT 25. We have moved T-7 to milestone C on both of those. A big new order on F-15EX.
And there is there is more to come on that. The PAC-3 seeker growth, And we have done MOUs with all of our customers on these big fixed price development contracts. And we have got Starliner under control here in the last quarter.
So, look, I feel much, much better about both the growth profile, but also the margin performance profile. We still have to get through. We are not done with the development programs till we are done.
But Steve Parker and his team are doing a really, really good job of finding win scenarios with our customers to get these projects, move forward. So the outlook is strong. Our products across the board are in strong demand.
And, you know, the budget supports additional growth. So look, I think our defense portfolio is a little bit of a sleeper here.
And just as a follow on, just to kinda reiterate a question we get a lot, and this is for either of you guys. On FA XX or F-47, if you can say, you know, people ask you know, is it fixed price development Can you give us a hint? Is it is it not I am hoping it is not.
Can you give us a hint there?
So the F/A--the NGAD is cost plus. And the FA XX, I cannot say, but I just say it is an appropriate contract type.
Thank you very much. Your next question comes from the line of Gavin Parsons from UBS. Your line is open.
Thank you. Good morning. Good morning.
I was hoping to get your latest thoughts on the possibility of a new single aisle aircraft and then separately whether or not there is any assumption for higher R and D and CapEx related to that in the 29 free cash guide? Thanks.
So really nothing's changed on our outlook on new airplane. We have got a team working in our product development right now trying to define what that what looks. That looks like and what the market, timing is.
So really no change in our outlook, and, certainly, that is any investment we need for that is contemplated in our cash outlook here.
Yeah. that is right. That. And it is there is, you know, not significant types of investments here.
More of our investments would be in a kind of R&D tech development type. And we will be ramping down as we finish the--well, we are ramping down right now as we finish the 737 program. When we finish the 777 program, you will see a shift of resources and spending from those development programs to new programs.
Thank you. Your next question comes from the line of Gautam Khanna from TD Cowen. Your line is open.
Yes. Good morning, guys. I was wondering if you could elaborate on the shape of deferred production across the 3 programs.
If you can give us some sense for how much the balances will grow in aggregate next year and then when they will decline and by how much in 2028 and 2029? In your assumptions? Thank you.
Yeah. Got it. I am not gonna get into the specific changes, but what I will tell you is on a 737 and 787, they essentially start to flatten out.
Next year. So they are a lower use of cash. Going into 2028 and 2029, they become sources of cash.
And they become pretty significant sources of cash and drive working capital, and, in total, to continue to be a source of cash. And so those are, you know, I think, directionally where they are going. The 777 x program, because it is gonna be early on in deliveries, that will grow, and that will grow over the next few years.
But, again, the cash drivers will be because of the improved profitability on the 737 and 787 programs, we will see nice benefit from deferred production reductions on those 2.
Operator, we have time for 1 more analyst question.
Certainly. Your final question comes from the line of Robert Stallard from Vertical Research Partners. Your line is open.
Thanks so much. Good morning. Good morning.
Robert, maybe just to round things off here. I was wondering if you could comment on what has allowed you to give this free cash flow guidance here. What has changed in terms of your outlook that gives you the confidence to give these numbers?
Yeah. Robert, look. it is been a couple years of really taking challenges, face on and getting those challenges, put to bed. We have significantly reduced the risk of this portfolio.
If you look at just 2 years back, every 1 of our fixed price development programs was challenged. We have got that at hand. We did not know whether we would won any of the next generation sixth gen fighters.
We have won both of those, so we have got that well at hand. And we can see the improved performance in how we are underwriting our defense business. We also were.
If you recall 2 years ago, we were coming out a strike, and we were producing at zero in our commercial factories. We have successfully ramped up to 38, albeit the ramp to 40 7's probably taken longer than anybody wants. Everybody wants us to go fast.
I get that. But we are gonna stay disciplined as we, ramp up here. And I think what we.
As we have looked at this, we feel like we have a better handle on the risk to where we can provide you an outlook that we can meet. And so I think now is the time The bar, as we said in a previous. In our prepared remarks, the expectations are rising.
We recognize that, and I think that is good. And the expectations on our on our selves are rising. And, so we are providing this with confidence that, that the team's ready to go execute. there is still things out there that we gotta you know, we gotta deal with, but not near the uncertainty we had before So I feel like it is a good time to do it.
that is great. Thanks, Kelly. And that completes the Boeing Company's third Quarter 26 Earnings Conference Call.
Thank you for joining.
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