Thank you for standing by. Good day everyone and welcome to The Boeing Company's Second Quarter 2016 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. Troy Lahr, Vice President of Investor Relations for The Boeing Company. Mr. Lahr, please go ahead.

Thank you and good morning. Welcome to Boeing's second quarter 2016 earnings call. I'm Troy Lahr and with me today is Dennis Muilenburg, Boeing's Chairman, President and Chief Executive Officer and Greg Smith, Boeing's Chief Financial Officer. After management comments, we'll take your questions. In fairness to others on the call we ask that you limit yourself to one question. We have provided detailed financial information in today's press release and you can follow the broadcast and presentation through our website at boeing.com. Before we begin, I need to remind you that any projections and goals in our discussions today are likely to involve risk which is detailed in our news release, various SEC filings and the forward-looking statement disclaimer in the presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of non-GAAP measures that we use when discussing our results and outlook. Now I'll turn the call over to Dennis Muilenberg. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Thank you, Troy, and good morning. My comments today will focus on our second quarter results, the health of our business environment and our growth plans going forward. After that, Greg will walk you through the details of our financial results and outlook. Now let's move to slide two. Our second quarter financial results included both the continued solid underlying operating execution and strong cash flow performance of our commercial and defense businesses and a substantial impact to earnings from decisions we made on the 787 and 747 programs and increased investment needed on the KC-46 tanker program. I'll come back to explain each of those items in a moment, but let my say up front that we're confident that the decisions we made on 787 cost reclassification and 747 production…

First with Cai von Rumohr with Cowen & Company. Please go ahead. Cai von Rumohr - Cowen & Co. LLC: Yes. Thank you very much. So if you back the charges out of your BCA results, they look particularly strong. You did better on 787 deferreds. Could you comment on any profit accrual rate changes you had, any block changes you had in the quarter, and how should we think about those opportunities and the deferreds on the 87 going forward? Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah, Cai, on 737 we did have a block extension there and we had an increase in overall booking rate on program, and also on 67 we had a block extension there. We had a little bit better spending with regards to G&A and some other period expense, in particular fleet support. Those were really the primary drivers in the quarter. Just good solid performance across the programs. On the deferred, I'd say the profile of the deferred remains intact of what we talked about. Again, as we focus on unit cost day by day, airplane by airplane improvement and getting that model mix up with more -9s, now the introduction of the -10, it's all about cash. and so how are we improving the overall cash flow of that program. Teams are doing a great job. We got certainly lots of work in front of us, but I think when you're out in the factories today, you'll see some very good momentum and very good focus on overall productivity initiatives that are also obviously going to help that cash profile going forward. So the fundamentals as far as the cash flow story on 787 remain intact. Cai von Rumohr - Cowen & Co. LLC: Thank you. Gregory D. Smith - Chief Financial Officer & Executive Vice President: You're welcome.

Our next question is from Jason Gursky with Citi. Please go ahead.

Yeah, good morning everyone. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Good morning. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Hey, Jason.

Hey, Greg, I think this one will be for you. I wanted to talk a little bit about working capital and apply that to cash. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah.

There's been a lot of chatter out there in the media, even amongst some of your suppliers that have hosted earnings calls this quarter about a lengthening payables cycle at Boeing. So I was wondering if you could just chat a little bit about your strategy there, how long it's been in place, how much more we have to go, and tie that to the sustainability of cash flows. Are we getting a one-time bump this year, or have you been working on this for a while and it's been masked? I just want to get a sense of whether we're going to have some lumpy cash flow outcomes here really in the next several quarters or the next several years because of this deployment of your new strategy here. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah I mean, Jason, I'd say this is just back to fundamentals around working capital, how we're collecting, how we're paying and then ultimately how we're managing our inventory. And we've got initiatives in place for each. When it comes to payables, we have changed our frequency of pay that we have gone from daily to twice a month. Again, that's in line with industry practices. At the same time, we're looking at terms across all of our contracts and again looking to get those to industry standards, but ultimately we want to get those to top quartile standards. And there's no reason why we shouldn't, and frankly a lot of our supply chain is already there. And then again, finally on the inventory, we're looking at all aspects of the inventory across the programs. Float time on 787 is a great example of that, and we're going to continue that focus. So I wouldn't view it as anything special or different. Is there enhanced focus on those elements of cash flow, there certainly is. But that's the objective, certainly get to industry standards and then beyond that as Dennis has talked about, what is top quartile or a global industrial champion look like, and there's no reason why we shouldn't be able to get to those levels of efficiency. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: And Jason, to the second part of your question there, as Greg has pointed out, this is not a one-time event or implementation. We see this as a key element of our longer-term cash growth plan and consistent with our plans for the business to grow cash year over year.

Great. That's helpful. Thank you, guys. Gregory D. Smith - Chief Financial Officer & Executive Vice President: You're welcome.

Our next question is from Seth Seifman with JPMorgan. Please go ahead.

Thanks very much and good morning. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Good morning. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Good morning.

Dennis, you mentioned services in the monologue and it also was a little bit more prominent in the release than it's been in the past. And so I wonder if at some point maybe you'd consider disclosing the services contribution at Boeing commercial. And then just as a question, we talk about services, but I think it really means kind of aftermarket more broadly and that includes spares and parts. And so what part does that play in the strategy? And is there investment required there to either qualify new parts yourself or to incentivize the alternative suppliers to qualify new parts? Is that going to be meaningful at some point and it would it have only an impact on sort of new platforms going forward or could it have an impact on existing and production platforms? Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Great question, Seth. And what you're pointing out here is, as we discussed at our investor conference, we see services growth broadly as one of our strongest growth areas going forward, and that spans both commercial and defense. It is a place where we are investing for the future, have been all along, and you're beginning to see the fruits of that investment and we're going to continue to work on that front. That includes modifying our approach to our intellectual property and how we manage and control that, our proprietary parts business and what I'll call the traditional parts and modifications businesses that leverage our OEM knowledge base. It also includes a more significant investment in data analytics and information-based services, and you can see some of the progress on that front. I mentioned a couple in my opening comments, but more broadly, we now have for example 60 airlines enrolled in subscription contracts for Boeing maintenance and engineering work that covers about 2,200 aircraft. We have another 84 customers with about 3,800 aircraft that are benefiting from our airplane health management services, and we still see a lot of runway ahead of us in these data analytics and information-based services agreements where we can add value for customers and also add value for Boeing. And this includes a increased focus from our senior executive team on growing services, investments both inside of Boeing and with our supply chain as you pointed out, and we do see this as a long-term growth area both top line and bottom line. In general, services is accretive to our margins and our bottom line performance.

Okay. Thank you very much.

Our next question is from Rajeev Lalwani with Morgan Stanley. Please go ahead. Rajeev Lalwani - Morgan Stanley & Co. LLC: Hi, gentleman. Thanks for the time. As it relates to the 777, can you just talk about your comfort from here as it relates to getting the additional 40 orders that you mentioned as well as the point at which you'll know whether or not the production cuts going in next year are sufficient? Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Yeah Rajeev, let me just take that one head on here. On 777, we understand the reality of where we're at. And as I said, in 2017, we've already announced we're going to a seven per month production rate. We're 80% sold out against that production rate. In 2018, as we introduce the 777X into the line and we build test aircraft, as we have announced before, the effective delivery rate in 2018 will drop to 5.5 a month, and we're 60% sold out against that profile. So we know exactly where we're at today. Now the fact is year-to-date, we've got net orders for eight 777s against a target of approximately 40. So clearly we have work to do yet over the next few months to fill out that orders book. And we're working hard on a number of key campaigns. Ray and his team are out with our customers and we are aggressively working that every day. We do see that the value proposition of the airplane is holding up, but the wide body market is clearly a challenging place right now. So we've got work to do to find those additional orders. Now in the case of if those orders don't materialize, we're going to continue to keep a close eye on…

Our next question is from Rob Spingarn with Credit Suisse. Please go ahead. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Good morning. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Good morning. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): This question I think could be for either of you, but going back to the investor day, you talked about BCA margins improving double digit I think next year and mid teens toward the end of the decade, if I have that right. And obviously you have a lot of initiatives ongoing to get there. I wanted to ask you, how much of this margin improvement is negotiated or in place at this point, and how sensitive are those targets to any downside in 777 essentially relative to what you just talked about, Dennis? Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Yeah, Rob, let me just paint the broad brush on that and I'll ask Greg to tag team on this one. But our plans for the future remain consistent with what we described, and that is we're headed towards double digit margin in our commercial airplane business next year, and pleased with the performance this past quarter. But we still have work to do to make that sustainable. And then in the longer term, towards the end of the decade, headed towards that mid teen margin aspiration. And that's a tough, challenging target, but I think the right one for this business for the long term, and it will drive the right behaviors and investments for the future. And achieving those kind of margins spans all of our internal and external work, so it includes our internal productivity work, the relentless focus on capturing value of quality and…

Next we go to Doug Harned with Bernstein. Please go ahead. Doug Stuart Harned - Sanford C. Bernstein & Co. LLC: Thank you. Good morning. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Good morning. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Good morning, Doug. Doug Stuart Harned - Sanford C. Bernstein & Co. LLC: I'd like to, if we can understand a little bit more on the ramp down in deferred production for the 787 and there are really three aspects of it I'm interested in. One is, first if you end up not going to 14 a month and staying at 12, what impact would that as a rate, what impact would that potentially have? Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Yeah. Doug Stuart Harned - Sanford C. Bernstein & Co. LLC: Second, if on the 787, you've talked about the advantage of the -9. You've got better pricing and that costs ultimately can come down to be comparable to the -8, and what timeframe would we expect to see those -9 costs become similar on a unit basis to the -8? Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Yeah. Doug Stuart Harned - Sanford C. Bernstein & Co. LLC: And the third one of these is on the 787-10, what kind of disruption would we expect given the high degree of commonality between the -9 and the -10 when it goes into service? So sorry, it's three parts but all related to deferred. Gregory D. Smith - Chief Financial Officer & Executive Vice President: I think I got them all, Doug, and if not, I'm sure you'll tell me. So first one, if you looked at – obviously we're not at the point of…

Our next question is from Ron Epstein with Bank of America Merrill Lynch. Please go ahead.

Hey, good morning guys. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Good morning. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Good morning.

So I guess maybe a question for both of you just to see if we're thinking about this right. Does the roughly $1 billion of deferred that was moved pre-tax to R&D, does that imply if you take that $1 billion and divide it by what's left in the block that the profitability per airplane goes up by about $1 million on a program basis? And then I guess the second part of that question is, when do you expect the program on a unit basis to be cash flow breakeven for 78? Gregory D. Smith - Chief Financial Officer & Executive Vice President: Well, we broke even late last year.

Okay. On a unit basis? Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah, so obviously as we move forward with the supplier stepdown, contractual stepdown pricing, we improved productivity. But even more, as I mentioned at the investor conference, Ron, the mix is a big play in here going forward. So getting these -9s into the productions that we have and you heard me talk about the unit costs recently and where they are, getting that -10 in, are obviously big drivers of cash flow going forward. The program margin did go up slightly in the quarter overall, and but it's still very low single digits.

But just curious, Greg, is it about $1 million per plane? Are we thinking about it right? Is it essentially $1 billion divided by 900, what's left in the block? Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah, we're not really – I'm not really completely following your math there, Ron, but I would just tell you that we took $1 billion out obviously and put it into R&D. So obviously research and development went up, and the overall program margin went up slightly as a result of that move. But again these are obviously two aircraft that we've been heavily utilized in flight test, and we made the right decision because it was the time to start spending company funds to modify those airplanes, and a limited marketplace for them. So we made that decision and reclassed them and it was absolutely the right thing to do.

Okay. Cool. Thank you so much. Gregory D. Smith - Chief Financial Officer & Executive Vice President: You're welcome.

Our next question is from Carter Copeland with Barclays. Please go ahead.

Hey, good morning gentlemen. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Hey, Carter. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Good morning.

Just a clarification on that last answer, Greg, and then a quick question. But you said unit breakeven last year. Do you mean cash breakeven on the program last year? Gregory D. Smith - Chief Financial Officer & Executive Vice President: Cash on the program, yeah.

Okay. So we're close to eclipsing deferred production flipping over, but when do you -that's obviously at one end of the line. When you've got stuff coming off the line is when you'd get to see unit versus program. When should we expect that to flow from the deferred production all the way out to where we see it in the cash and unit. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Later this year.

Later this year. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah.

Okay. And I wanted to ask about the 737 margin increase that you referenced associated with the block extension. I know you had taken a rate adjustment downward associated with escalation in the past. Is this a reversal of that? And does it get it back to, have you recaptured that downward amount that you had before with this move? Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah, there's actually was still escalation pressure in the quarter across all the programs, not as much as prior quarters, but there was. And then the balance of that was offset by improved productivity and mix. Those are really the big drivers in there, Carter.

Just volume in there, okay. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah.

And with respect to escalation, when does that – I know it operates with a lag. And so you've seen the oil price come back up. That has a positive impact on that index. When does that make its way through the lag of the escalation formula? Gregory D. Smith - Chief Financial Officer & Executive Vice President: I'm hoping very soon. But again, we saw it minimized this quarter, and we'll have to wait until the publications come out for third quarter. But you're right. I mean the fundamentals are heading in the right direction. So we should start to see this as bit of more of a tailwind versus a headwind.

Great. Thank you gentlemen. Gregory D. Smith - Chief Financial Officer & Executive Vice President: You're welcome.

And we'll go to Howard Rubel with Jefferies. Please go ahead.

Thank you very much. It's a two-part question related to some of the things you're doing internally. Greg or Dennis, you indicated the MAX EIS had accelerated so that, and I think Norwegian even used a May date which is pretty notable. Could you just address two things? One is what are you doing with the benefit of this acceleration and improved process, and how much of it is being used to either accelerate deliveries or do other things with the MAX? And then also you commented on G&A being better, and I suspect it's probably due to, I'll call it the 787 performance hitting some of the standards that you've aspired to. So could you maybe put it together in an answer that sort of talks about some of the other things you're doing too outside of just production to make The Boeing Company and its customers better? Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: You bet. Howard, I'll take the first part and then ask Greg to take the second part. On the MAX, as you've and, we have the opportunity to accelerate EIS. We had originally planned third quarter of 2017, but we now have publicly talked about that as first half of 2017. I won't be specific to individual customers as we have a number of discussions ongoing, but we have opportunities to accelerate into the first half of the year. And what you should read through that is that the MAX development program is going very well and running on cost and ahead of schedule. We've got all four test aircraft in the air, more than 300 hours on the airplanes, and the performance is looking solid, and the development program is clean. And more broadly, if you get to your underlying…

So I just want to make sure I understand then, that is some of this that you saw in this most recent quarter going to translate into either permanently lower G&A or also a little bit better R&D profile for the back half of the year? Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah, I think the R&D profile will be similar to what we outlined. I don't see that changing. On the G&A, I mean quarter over quarter, as you know, you're going to see it move around a little bit. But some of that certainly is sustainable, and some of that is just timing.

Thank you. Gregory D. Smith - Chief Financial Officer & Executive Vice President: You're welcome.

Operator, we have time for one more analyst question.

That will be from Sam Pearlstein with Wells Fargo. Please go ahead.

Good morning. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Good morning.

I guess really, Greg, I was going to ask you just we've seen a lot in terms of the interest rate move this year, and I know you don't include pension in the core earnings, but can you just talk about required contributions or how to think about pension contributions over the next several years and how that may be changing in terms of with lower interest rates? Gregory D. Smith - Chief Financial Officer & Executive Vice President: Yeah, no certainly something, Sam, we're watching. Obviously with the transition that we made from the defined contribution to the – or defined benefit, defined contribution, that certainly helps us going forward when it comes to pension contributions. But we're certainly monitoring the interest rate environment. This year is obviously minimal. As I see it today, there will be contributions required next year. They'll be again in the hundreds of millions, not more than that. And kind of see that in the year following, but again we'll have to see where interest rates fall, and we'll make the required contribution. But we run that at kind of various levels, and again, because of the pension turnover, I don't see obviously that kind of headwind that I would have normally seen as far as required contribution if we were stuck with a DB plan for the next five years.

Great. Thank you. Gregory D. Smith - Chief Financial Officer & Executive Vice President: You're welcome.

Ladies and gentlemen, that completes the analysts' question-and-answer session. I will now return you to The Boeing Company for introductory remarks by Mr. Tom Downey, Senior Vice President of Corporate Communications. Mr. Downey, please go ahead.

Thank you. We will continue with the questions for Dennis and Greg now. If you have any questions following this part of the session, please call our media relations team at 312-544-2002. Operator, we're ready for the first question, and in the interest of time, we ask that you limit everyone to just one question, please.

And we'll go to Julie Johnsson with Bloomberg. Please go ahead.

Hi, everybody. Good morning. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Good morning, Julie. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Hi.

Dennis, a quick question. Could you just step back and sort of spell out your expectations for 747 following this latest reset? Do you see a future for this program beyond Air Force One? Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Yeah, Julie, as we announced the decision we made here, it takes into consideration a sluggish cargo market, and our projections for future production rates. And the decision in essence that we made was to maintain our current production rate of half an airplane per month that we're implementing this year and to extend that out into the future rather than assuming we would ramp back up to one a month in 2019. That's the fundamental assumption change here, and it reflects what we see in the cargo market. Now we still see a cargo or freighter aircraft replacement cycle out in that 2019, 2020 timeframe. We have a number of ongoing customer discussions in the cargo marketplace in addition to the two Air Force One airplanes that you referenced. So a number of very viable campaigns underway to fill to that half a month production rate. That said, we still have our work cut out for us. Cargo is a tough market right now. I will say that the decisions we've made on 747 I think put that program in a much more solid footing for the future. It's aligned with the marketplace. As noted, we also wrote off any remaining deferred production inventory, so we've significantly derisked that program from a financial standpoint for the future. And we're going to continue to work to fill out the skyline.

Our next question is from Jon Ostrower with The Wall Street Journal. Please go ahead.

Hey, good morning, guys. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Good morning. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Hey, Jon.

A question about this change in supplier payment frequency. You talked about the need to be more competitive, aligned with how your suppliers are paying their own suppliers. But ultimately what is the goal here? What are you trying to be more competitive on? You've riled up GKN and Rockwell Collins, two of your closest suppliers that have – Rockwell Collins most notably has been held up as your sort of greatest example of how you want to be partnering for success as far as part of your cost cutting, and now they're out there really upset that they're missing their bottom line targets in the quarter. So I just want to understand what exactly you're trying to accomplish by doing this beyond just an industry norm practice when you've got your closest suppliers who very rarely air public grievances calling you guys out. Gregory D. Smith - Chief Financial Officer & Executive Vice President: Well, Jon, I guess I would start with, obviously we're in a competitive environment, and so it all starts with market-based affordability and then how does that impact your business. So as I indicated, when it comes to working capital, we're looking at where we are on different measures around working capital, and where everybody else is in this industry. And certainly the two suppliers you called out are great suppliers to us, and we've been working with them over the last year on transitioning to a more, I'll say, industry standard around payments. And we were paying daily millions of transactions, and we were paying daily. That's not an industry standard. We're going to twice a month. And then we're looking at terms again to be competitive, managing our working capital efficiently, and allowing us to invest in our future that ultimately everybody will benefit from, from our customers down to our suppliers. These are important partners. But hey, we got to face into the environment that we're in and be efficient across the board. And as you know, under partnering for success, this is also us reaching back into the supply chain, taking best practices that we have encountered in other parts of our business or the supply chain and sharing those with the supply chain to ultimately make them better. So I'd say it's across the board, and again it's all about being market based and facing into those realities. And frankly in this case just getting to industry standards.

Our next question is from Al Scott with Reuters. Please go ahead.

Hi. Good morning. Dennis, you mentioned the slowing wide body sales and keeping an eye on rates to maintain balance and it seems like there's a bit more emphasis there on that rate adjustment possibility. Given your pledge really not to cut prices to win orders, is the 1 to 1 book-to-bill ratio now really an aspirational goal? And if not, what are you doing to improve sales? Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Yeah. Hey Al, first of all more broadly, we're still targeting a book-to-bill of 1 to 1 for the year. And again, we don't get too encumbered with the exact timing of those orders, and it's very clear that this year's order cycle is more favorable on the narrow bodies. And so if you're looking at numbers of aircraft, we expect the predominance of that orders flow this year to be in the narrow bodies arena. That all said, we're going to continue to work hard to fill out the wide body skylines as well. We don't need to make drastic changes to pricing in order to capture market share. We're not going to be driven to just get market share for market share's sake. I will say in the wide body marketplace, even though we're seeing some hesitation in buying, the value proposition of our airplanes is holding up well. So this is all about a look ahead to efficiently managing our production skyline and keeping supply and demand in balance. And clearly we've got more work to do on the wide body front while narrow body orders are trending to be very healthy and continuing to be healthy this year. So that's our headset. And as normal, we do a lot of scenario planning around this and different assumptions around wide body orders and what that future skyline will look like. And as you heard earlier, our commitment is to make the decisions that allow us to make the transition on the 777 efficient and productive. And we will do that.

Operator, we have time for one last question if there is anyone remaining in the queue.

And we'll go to Benjamin Zhang with Business Insider. Please go ahead.

Good morning gentlemen. Dennis A. Muilenburg - Chairman, President & Chief Executive Officer: Good morning.

I just wanted to take a step back and talk about the 787 program. I was wondering if you guys could give us an update on the remaining terrible teens inventory of the early build aircraft. How many do you guys have left and what are your plans for them?

Yeah, they're all sold. And so they'll deliver here over the next couple years.

That concludes our earnings call. Again, for members of the media, if you have further questions, please call our media relations team at 312-544-2002. Thank you.