Thank you for standing by. Good day, everyone, and welcome to The Boeing Company's Second Quarter of 2018 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 am turning the call over to Ms. Maurita Sutedja, Vice President of Investor Relations for The Boeing Co. Ms. Sutedja, please go ahead.

Thank you, and good morning. Welcome to Boeing's second quarter 2018 earnings call. I'm Maurita Sutedja and with me today is Dennis Muilenburg, Boeing's Chairman, President and Chief Executive Officer; and Greg Smith, Boeing's Chief Financial Officer and Executive Vice President of Enterprise Performance & Strategy. After management comments, we will 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 discussion today are likely to involve risks, 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 will turn the call over to Dennis Muilenburg.

Thank you, Maurita, and good morning. Let me begin today with a brief overview of our second quarter operating performance, followed by an update on the business environment and our expectations going forward. After that, Greg will walk you through the details of our financial results and outlook. With that, let's move to slide 2. Thanks to the dedicated efforts of employees throughout our company, Boeing delivered strong second quarter 2018 financial results that included higher revenue and earnings and strong operating cash flow, driven by solid execution across the company. During the quarter, we generated $4.7 billion of operating cash and repurchased $3.0 billion of Boeing stock. We also paid $1.0 billion in dividends, reflecting a 20% increase in dividends per share from last year. We continued to deliver on our commitment to returning cash to shareholders, while investing in our people, innovation and future growth. Revenue in the second quarter was $24.3 billion, reflecting higher volume of commercial deliveries and favorable mix, along with services and defense contract volume. Core earnings per share of $3.33 was driven by strong performance across the businesses, volume and mix and lower tax rate, partially offset by a write off due to the previously announced Spirit litigation outcome and cost growth on the KC-46 Tanker program, which I'll address shortly. For the full-year, we are raising guidance for revenue to reflect higher volume at BDS and BGS. Additionally, we are adjusting BCA and BDS segment operating margin guidance. Greg will discuss these in more detail in his section. Before we delve into the second quarter operating performance for our businesses, let me spend a minute on the KC-46 Tanker program. We continue to make steady progress towards final certification for the KC-46 Tanker and recently completed all flight tests required to deliver…

Thanks, Dennis, and good morning, everyone. Let's turn to slide 4 and we'll discuss our second quarter results. Revenue for the quarter was strong at $24.3 billion, reflecting higher volume of Commercial Airplane deliveries, favorable mix, along with an increased volume at both Defense, Space & Security, as well as Boeing Global Services businesses. Core earnings per share of $3.33 reflect solid execution across the businesses, higher volume and improved mix, along with a lower tax rate. The results were partially offset by an after-tax charge of $124 million related to a receivable write-off due to the previously announced Spirit litigation outcome and cost growth of $334 million after-tax on the KC-46 Tanker program. As Dennis mentioned, we're raising our full-year revenue guidance to reflect higher volume at Defense, Space & Security and Global Services; and additionally, we are adjusting Commercial Airplane and Defense, Space & Security segment operating margins. I'll provide more details on our 2018 outlook further in my remarks. Now let's discuss Commercial Airplanes on slide 5. Our Commercial Airplane business revenue increased to $14.5 billion during the quarter reflecting higher deliveries and improved mix. BCA operating margins increased to 11.4%, driven by strong operating performance on production programs, higher 787 margins and timing of some period expense, partially offset by a $307 million pre-tax charge on the KC-46 Tanker program. Second quarter BCA operating margins excluding the Tanker charge were 13.3%. BCA captured $16 billion in net orders during the second quarter and the backlog remains very strong at $416 billion and nearly 5,900 aircraft equating to approximately seven years of production. On the 787 program, we delivered 38 aircraft and booked 59 net orders in the quarter; and additionally, we extended the 787 accounting block by 100 units. This resulted in higher margins on the…

All right. Thank you, Greg. With a strong couple of quarters providing solid momentum for the year, our team remains focused on further driving both growth and productivity. We wouldn't have been able to achieve these strong results without the hard work and dedication of our employees and the great partnership we enjoy with our customers and suppliers. In addition to the strong Commercial Airplane market dynamics I mentioned earlier in my remarks, we have taken our own actions to reduce cyclicality in our business. This includes remaining disciplined in our production rate decisions, de-risking our pension liabilities, strategically phasing our research and development spending, creating labor stability with long-term contracts, and expanding our services business, which is also less cyclical. We've executed on our long-term strategy of robust and continuing organic growth investment in returning value to shareholders, complemented by strategic acquisitions and partnerships that enhance and accelerate our growth plans. The recently-announced planned strategic partnerships with Embraer and Safran and agreement to acquire KLX Aerospace are entirely consistent with this strategy. As the world's largest aerospace company spanning Commercial, Defense, Space and Services, we are as optimistic about our future and the future of our industry as we have ever been. Our priorities, going forward, are to leverage our unique One Boeing advantages, continue building strength on strength to deliver and improve on our commitments and to stretch beyond those plans and sharpen and accelerate our pace of progress on key enterprise growth and productivity efforts. Achieving these objectives will require a clear and consistent focus on the profitable ramp-up in Commercial Airplane production; continuing to strengthen our Defense and Space business; growing our integrated services business and leveraging the power of our three business unit strategy; delivering on our development programs; driving world-class levels of productivity and performance throughout the enterprise to fund our investments in innovation and growth; disciplined, leading-edge investments and balanced value-creating cash deployment; and continuing to develop and maintain the best team and talent in the industry, all of which position Boeing for continued market leadership, sustained top and bottom line growth, and increasing value for our customers, shareholders, employees and other stakeholders. With that, we'd be happy to take your questions.

As a reminder, in the interest of time, we are asking that you limit yourself to one single-part question. First, we'll go to the line of Peter Arment of Robert W. Baird. Your line is open. Peter J. Arment - Robert W. Baird & Co., Inc.: Thanks. Good morning, Dennis, Greg.

Hey.

Hey. Good morning, Peter. Peter J. Arment - Robert W. Baird & Co., Inc.: Dennis, could you address the kind of the supply chain readiness, I guess, particularly on the narrow-body side? Some of the comments coming out of Farnborough is that the engine OEMs are still studying these higher rates and they don't seem to be ready to committing to them yet. Maybe if you could just give us some color. And do you still need that 18-month to 24-month kind of lead time to make a right decision? Thanks.

You bet, Peter. Hey, first of all, very important that we continue to work with our supply chain on our overall production ramp-up. So, as I mentioned in my comments, we've just moved to 52 a month on the 737 line, as of June. We're still planning to ramp-up to 57 a month next year, and as I've mentioned in my comments, we continue to see upward pressure from the marketplace. We are selling and filling skyline out in the 2023 and beyond timeframe. Now in our current production system, while we see challenges and you've heard from our supply chain on some of the pressure points, things like fuselages and engines, which are well acknowledged and those are items we work on a day-to-day basis, we're continuing to ramp-up our supply chain and it's healthy and we're meeting our customer delivery requirements. And I think that's the key as we're continuing to hit on deliveries. And as we contemplate future rate increases, we're going to continue to look at the supply chain in an integrated manner. And there are no doubt pressure points as we ramp-up, that's why we need to continue to be very deliberate, very disciplined in these decisions. We've done that. We've done more than 20 rate breaks since 2010, so we know how to do this. We're going to continue to apply that same disciplined approach. But I will say that the market pressures indicate upward pressure, and as we approach our decision points with the lead times as you outlined, we'll do that in a very deliberate and disciplined manner.

Next, we have the line of Sheila Kahyaoglu with Jefferies. Your line is open.

Good morning, everyone.

Good morning.

Good morning.

Can we talk about commercial aircraft profitability? Given margins excluding the Tanker costs were over 13%, so maybe could you talk about the moving pieces as we move through the remainder of the year?

Yeah, Sheila. Well, I mean, to-date, you've seen improvement kind of across the board on the production programs and obviously with the block extension on the 787, we've seen the results of that this quarter. And going forward, you're going to continue to see a lot of productivity efforts across the programs, but you're going to see some shifts in period expense, in particular, R&D. So, we'll have some more R&D in the back half and I think of that as just timing, primarily driven by 777X. And then, we've also got some investments that we're making around productivity in the back half that aren't reflected in the first half. So, I'd say, those are the big moving pieces, but we're seeing obviously great performance across the board. Obviously a lot of focus, in particular, around taking best practices across the enterprise, and bringing them not only to Commercial Airplanes but across all of the portfolio. So there's a lot more, I'd say, One Boeing effort going on leveraging best practices and we're going to continue to do that as we strive to increase margins and cash flow going forward as Dennis and I have articulated.

Next, we have the line of Seth Seifman of JPMorgan. Your line is open.

Thanks very much, and good morning.

Good morning.

I wonder. Good morning. If you guys could talk a little bit about the cash flow profile of the Tanker program from here and maybe thinking about a couple of the different elements, including any additional cash that might be needed on other aircraft that are in inventory beyond the ones that you mentioned? Any penalties that the Air Force might be entitled to, along with on the positive side the inventory reduction that comes from the deliveries?

Yeah, I'd say, Seth, obviously Tanker is going to continue to improve the cash profile going forward as we make more progress and then reach the milestones that Dennis articulated in the first delivery, there being in October. So, we've got a number obviously of aircraft in work now and as we deplete that inventory and start delivery, you'll see improved cash in the years to come. So, it won't be anything near-term, everything has been contemplated on the near-term for the balance of this year. But even as we talked about cash flow growing going forward, this is a key element of that, but not a significant moving piece when you think about the broader, I'll say cash levers of the company.

And, Seth, just to add a little more color on Tanker itself, I think a key thing to note, again in the quarter as I mentioned, while we took the charge on those early-build aircraft and flight test aircraft, I think, it's very important to note the milestone we achieved in the quarter of completing all of the flight testing associated with first delivery, getting all of our artifacts submitted for final certification, and getting crystal clarity on what is left to build out these aircraft. So, we have a known configuration, flight testing is completed. Now, we need to finish the work to get to delivery and that'll produce the results that Greg mentioned.

And next, we have the line of Rajeev Lalwani of Morgan Stanley. Your line is open. Rajeev Lalwani - Morgan Stanley & Co. LLC: Hi, Dennis. Hi, Greg.

Good morning, Rajeev. Rajeev Lalwani - Morgan Stanley & Co. LLC: Just given, staying on the Tanker, obviously, you've had some challenges on the program, you've managed them reasonably well; but as we look forward to the 777X and maybe the NMA, what are you doing to just de-risk those programs so that you don't have similar obstacles like you did on the Tanker? Is it more of a digital approach? Or are you trying to manage a timeline a bit? Just some color there to help us get comfortable with any risk going forward?

You bet. Yeah, Rajeev, on that we've got a very focused effort on enterprise development programs and lessons learned and learning from each of the programs as we execute them. And while Tankers had its challenges, we have learned a lot through that process, especially in our commercial derivative lines and how we do development programs that span our commercial production, and military certification requirements. Tanker was especially complex because of the multiple certifications required both commercial and military. That's not a complexity that we have on a product like 777X or NMA. That said, several lessons learned. One includes digitizing our engineering at a more detailed level upfront. This is the model based engineering initiatives that we have underway, as an example. Also, more significant investments in system integration labs upfront to de-risk development and eliminate downstream discoveries, and that's been very effective for us on 777X, and also some of the early prototyping in the production systems, again to de-risk key areas as we move into the production flow. And we're seeing that reflected again on 777X as the first two airplanes have now moved into the low-rate initial production line. All of these early de-risking steps are showing up in a positive way on 777X and we're going to be keeping a close eye on that as we build-out the flight test aircraft and move into flight test; but given that we're into the heart of 777X right now, we've got a healthy development program on track to deliver on 2020 as scheduled. We're seeing clear signs of improvement in our overall development program process. So, that's our headset going forward and we'll continue to learn. I think this is one of the benefits of our phased R&D approach. Rather than doing multiple development programs in parallel, we're now doing a much more sequential approach, so that we can learn program-to-program and continue to reduce risk going forward.

Next, we have the line of Hunter Keay of Wolfe Research. Your line is open.

Hey. Thank you. Good morning.

Morning.

Hi, Hunter.

Hey. So, you talked about mix driving some pressure on BGS margins and I think you called out parts sales as a driver of the top line.

Yeah.

As we learn more about this business, what are some of the moving parts that help and hurt mix there that we should think about going forward and whether that's like by end-market or contract type? And the second part of the question is, as the business fills up, would you may be willing to trade a little bit of margin for some top line opportunities? Thanks.

Yeah, Hunter, you're right. I mean, it's a very different portfolio than the other businesses, so you're dealing with thousands of contracts and a couple million different, I'll say, kind of offerings through parts or other services. So with that, just the nature of that business, you're going to end up with some ebbs and flows quarter-to-quarter depending on how that mix plays out. So, the portfolio is very different obviously and that's going to drive some of that change; but beneath that, the focus continues to be on core operating performance, the cost structure, the working capital around that business. So that engine is going to continue to run quarter-over-quarter, week-after-week, month-after-month, but you are going to end up seeing these movements quarter-to-quarter. But end objective, grow the business as we've talked about a lot, at the same time grow the bottom-line and expand margin, and that's the underlying objective of this business and ultimately, we think we can serve our customers much better in doing that.

We're staying very focused on our overall effort to drive to mid-teen margins across the entire business and so to your last part of your question, Hunter, on margin growth and BGS, we expect margins in BGS to be accretive to our overall enterprise margin, so this is all about profitable growth.

Next up, we have the line of Carter Copeland of Melius. Your line is open.

Carter, we can't hear you.

Wow. This is leaving mute on two days in a row. I'm losing my skills. Sorry, guys. Just a quick clarification and a question on expanding on what Seth asked. Greg, can you confirm if the 787 unit versus program was positive or negative in the quarter? And then just on this whole Tanker cash flow, just because the size of the charge and how we should think about impacting the cash, are the terms of payment with the customer on that payment upon delivery of the aircraft or milestone-based ahead of that? Thanks, guys.

Yeah, they're milestone-based, performance milestone-based. And with regards to the 787, we did see, obviously, we saw unit improvement this quarter across-the-board.

And next up, we have the line of Doug Harned of Bernstein. Your line is open. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: Good morning. Thank you.

Hey, Doug. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: I know at Farnborough, you got a number of 777 orders and can you help us understand where you stand on filling the bridge to the 777X? And then perhaps give us a sense of what you think that 777X ramp will look like, given the planned entry into service in 2020? And along with that, just when you expect we'll likely see more orders for the 777X rather than just the 777?

You bet. Hey, Doug. Great question. The key thing on 777 is, we've seen very strong recovery in the Freighter market, in particular, and you see that in the demand and recent orders. We've got 24 new orders year-to-date for 777s through the end of the second quarter. Since the end of the quarter, an additional five from Qatar, 777 Freighters. So, year-to-date, 29 new orders for 777s. Beyond that, we have the additional announcements that have been recently made, including the letter of intent from Volga-Dnepr for 29 777s. We continue to have a number of other campaigns underway as well. So, you really see the strength of the market there continuing to build our confidence in filling out the bridge. As I said, we're really now focused on skyline slots 2020 and beyond. We still have work to do, but our confidence continues to grow based on recent sales successes and what we see as sustained growth in the Freighter market. Now, as we look beyond that and headed towards 777X development, I think a key fact for you is, today, we have 340 orders and commitments in place for the 777X. For the Dash-9 variant of that, we have 273 orders of those 340 orders. And if you want to compare that to where we were at the same time on the 777-300ER back when it was introduced, at that same point in time, relative point in time, we had 70 orders. So 273 orders versus 70 orders. That should give you a sense of the confidence we have in the backlog for 777X. Now, we still continue to have additional campaigns and high interest in the 777X, but we're in very good shape as we look at our production pipeline and backlog position to ramp up successfully on the 777X. So, the key focus now is move into flight test on the 777X, finish out the current 777 bridge, where we have growing confidence again, and then get to EIS for 777X in 2020. And I would say all of the dimensions of that puzzle continue to firm up and we're seeing growing confidence, and that's why the production rate plan we've put in place, we see that as a very clear floor for the production program, and we look forward to moving into the 777X.

Next in queue, we have the line of David Strauss of Barclays. Your line is open.

Thanks. Good morning, everyone.

Morning.

Good morning.

I wanted to ask about cash flow. So, I think, Greg, you talked earlier about earlier in the year that you saw prepayments as relatively neutral for the year. I think year-to-date, we're running at $3 billion. Are you expecting those to reverse as we go through the second half? And then, second part on inventory, it looks like ex the drawdown in 787 deferred, you've had about $1 billion inventory build this year. Is that 777X? Or is that just related to the 37 ramp? Any color there. Thanks.

Yeah, the inventory is a little bit of both, David. Obviously, 777X inventory being the biggest driver and will continue to be through the balance of the year and into next year. With regards to the advances, yeah, you're absolutely right. I mean, they move around quarter-to-quarter depending on the PDP schedule, so we've seen some this year more front-loaded than we will in the back half of the year, and we've taken that into consideration with the guide.

Next in queue, we have the line of Ron Epstein of Bank of America. Your line is open.

Yeah, hey. Good morning, guys.

Thank you, Ron.

Hi.

I think at Farnborough, Dennis, you mentioned on the 797, I think, the quote is, "We want to be in the 2025 window with maybe a 2019 launch". When we think about the 79 or the middle market, whatever it's going to be, maybe, should we start – in our financial forecast start building in something for that? Because it seems like the drumbeat is really gaining momentum. And then, the second part of the thing would be, when we think about it, is it a wide-body? Is it a narrow-body? I mean, where are you guys on that now?

Yeah, Ron. First of all, as you know, we haven't made a launch decision, but we continue to look at the middle of the market airplane. And as you heard at Farnborough continue to have very productive customer discussions on that topic. We do see a marketplace where for 4,000 aircraft to 5,000 aircraft and we're very focused now on deliberately going through our business case to make a good launch decision. We are protecting 2025 as the entry into service date that aligns with our customers' needs and desires. So, we're doing the appropriate long lead work to protect that delivery date and we're looking at making a launch decision in 2019. And again, we're going to be very deliberate about that and make sure business case that makes good, solid sense and that's our headset going in. So, we're not going to predetermine the answer there. We're talking to our supply chain and we're taking a look at every dimension of the program and we've got to look at this through a lifecycle lens both in airplane and downstream services and make sure we're producing value for customers. So, that's our headset. And in terms of your question about wide-body or narrow-body, again as we look at configuration options and details and begin firming that up, what we're hearing from customers is we need something that has the comfort and twin-aisle benefit of wide-bodies but has narrow-body economics. And that's frankly the challenge of closing the business case, and it goes back to all the work we're doing on transforming our enterprise to drive efficiency in development production and support. And if we build the confidence and the data we need to make a business case that closes, we'll launch and if we don't, we'll continue down the path with our current product lines.

Okay. Great. Thank you.

Next, we have the line of Robert Spingarn of Credit Suisse. Your line is open. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Good morning.

Good morning, Rob.

Good morning. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: With your very strong margins at BCA, especially ex that charge, clearly, you've done a lot with costs, you're going to continue to do that, but I wanted to ask about the pricing side of the equation, especially in the context of Airbus comments last week at the show about pricing opportunity, given the scarcity of slots. So, I know, you have to balance that against higher rates, but how should we think about pricing over the next few years?

Well, Rob, when we take a look at that, first of all, I think it's important to note that pricing is holding up. It's driven by a number of different parameters, includes supply versus demand as you're pointing out, but it's also value that we generate for our customers and making sure that that value proposition is clear. So, everything we do on the pricing front is looked through that customer value lens and that's our focus. And the fact that pricing is holding up and you can see that reflected in our performance is a good sign of the unique value that our product lines are delivering for our customers. I will say as you look across our narrow-body and wide-body product lines, it's very clear that our products deliver operating cost advantage and value advantage for our customers, and that's a key part of our equation going forward. We're also keeping in mind the fact that we have this enterprise-wide global support and services capability. So, in many cases, we think about pricing, we're looking at it holistically across airplanes and services, which I think is a unique part of the Boeing value proposition. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Between the pricing and the cost element, do you have a sense of when you can hit this 15% type margin at BCA?

Well, as we said we're driving towards that mid-teen margin by the end of the decade. That's been our objective. You can see the progress we're making, and as we mentioned before, we expect it to be continuing incremental progress. There's not going to be a big step function or a hockey stick. It's continuous, focused, incremental performance and I think as you can see in our data, Rob, you see the core BCA margins minus the Tanker charge up over 13%. That ought to give you a good indicator of the progress that we're making. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Yeah.

We are going to be relentless on this focus and it's really about driving out cost, driving productivity, working with our supply chain, and being diligent about our production rates. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Thanks, Dennis.

Next, we have the line of Noah Poponak of Goldman Sachs. Your line is open. Noah Poponak - Goldman Sachs & Co. LLC: Hey. Good morning, everybody.

Morning, Noah.

Hey. Noah Poponak - Goldman Sachs & Co. LLC: Greg, was the 787 cash unit margin up or down in 2Q versus 1Q? And then any willingness to even if in a wide range kind of give us an indication of where you've taken that to. And then similarly, on the program accounting margin, on the program even if in a wide range maybe help us out on how big of a change you made on it?

Yeah, Noah, I mean, I think overall you're seeing 787 improvement like I said across the board. As you look at kind of the big levers and the cost structure there that we've talked about, the mix improving, the overall productivity unit-over-unit in our factories and again really leveraging the best practices, looking at the commonality between a 9 and a 10, and I'll say kind of how that improves productivity in our factory and in our supply chain is pretty significant, combined with the supplier step-downs that we have in place contractually. And again, our own focus internally and even going out into the supply chain, taking our productivity where we've been successful in areas of productivity and bringing that out to the supply chain to help the overall program improve. So, I wouldn't say it's one thing, Noah. It's many levers that we're working on and trying to pull and you're seeing that in the unit margin and the overall cash profile of the program. And as we've said a number of times, I mean, the way the team looks at this, the way we look at it is unit-over-unit, what do we need to do to improve and be even more competitive in the marketplace and how do we leverage the best practices within our factories, combined within services, between defense-based security, and in commercial and also within the supply chain. So that's been I'll say the cadence and the level of effort that's been going on and that's going to continue. And like I said, you're seeing that in the overall cash profile of the program, improving, combined with going up in rates very smoothly and getting that Dash-10 into the production system smoothly where we're going to deliver approximately 14 aircraft this year, Dash-10s. Very, very smooth introduction, and that really goes to the commonality of that design versus Dash-10 and the team's relentless focus on ensuring that we get that into the hands of the customer on-time, minimized risk. Somebody asked about risk earlier on. It's a great example of de-risking how we bring up a derivative program into the production system. So, point is, a lot of different things, but you're going to see that continued effort going forward on this program and all the other ones. Noah Poponak - Goldman Sachs & Co. LLC: Appreciate that color. Any ability to give us a sense of where the program accounting margins sits at this point?

Well, it's improved, obviously, with the block extension, that helped and, again, if you go out in that further block you're seeing favorable mix, pricing, and supplier obviously step-down along with our own productivity. So, as we March through time, you're going to see an improvement overall to that margin incrementally as we move forward in those blocks. But like I said, here day-in and day-out, it's about unit performance, meeting our targets, utilizing all our working capital initiatives, and in all of our productivity, but we're focused. Unit-over-unit, ultimately will translate into program margin. Noah Poponak - Goldman Sachs & Co. LLC: All right. Thank you.

Next, we have the line of Sam Pearlstein of Wells Fargo. Your line is open.

Good morning.

Hey, Sam.

I was wondering if you could talk a little bit more about, you mentioned the joint venture with Safran and APUs and I guess I'm trying to think about how do you balance the spend on a new plane with some of the significant nonrecurring engineering in areas like nacelles, APUs, maybe even avionics that takes place. And that's typically borne by suppliers and how does that factor into your thinking about potentially launching a new plane?

Yeah, Sam, we figured that into our overall organic investment profile and that phased R&D plan that I mentioned earlier, and as part of our organic investment we're very focused on a few key verticals. We don't need to be vertical everywhere, but there are a few areas where when we look through a customer value lens, it's clear that we can add value. The work on APUs with Safran is one of those areas. You mentioned avionics. It's another area. Interiors is another area, we've looked at where we've announced a joint venture with Adient. So, those are very targeted areas, well-known investments. As part of our organic profile, those have been feathered in with our broader R&D investments in new platforms and product lines, including things like the 777X and some of our new defense products and services. So, that's all part of an integrated R&D plan. And the way we've laid that into the profile is done in a way to ensure synergy between our verticals that we're building and our future platform products, and it's important that we do that in a synergistic way. So, I would view that as an integrated organic investment plan, not something where we're trading verticals or platforms. It's doing it together with an eye towards creating value for customers, and then where it makes sense, we augment that with inorganic investments. That cash deployment strategy remains constant. And as we talked about, while we make those organic and inorganic investments, we've also committed to returning 100% free cash flow to our investors, and that commitment remains solid.

Okay. Operator, we have time for one more analyst question.

Thank you. Next, we'll go to the line of Ken Herbert of Canaccord. Your line is open.

Hi. Good morning, everybody.

Morning.

Good morning, Ken.

Hey, Dennis and Greg. I just wanted to follow-up, Dennis, on your comments earlier specifically on, as you look at everything now much more with a lifecycle lens, I'm just curious on the NMA, assuming you move forward there, how does that lens impact your analysis of the business case in terms of the market opportunity? And then second, and maybe more importantly, how that might potentially impact your go-to-market strategy as you obviously have opportunities now to capture economics in a much broader range. I'm just curious, if you can provide any more detail as to your thinking around that and how it might specifically get applied or used around the NMA.

Yeah, well, in particular, as we look at the business case for NMA, as I said, we're looking at it both from an airplane and downstream services standpoint, so an integrated lifecycle view, again, where can we create value for customers? And depending on the customer set, there's a different value proposition for different airlines. In some cases, we can reduce operating costs. In some cases, we can help them reduce capital investment costs. So, we're factoring that entire equation into our business case. It does give us more parameters to look at. It gives us more ways to construct a business case for the future, and taking that holistic lifecycle view, just gives us a more robust business case. It also, as you pointed out, will affect our potential go-to-market approaches, again, how we can tailor a value proposition for different customers. And it will drive different ways of how you might design such an airplane. Again, from the start, thinking about digital solutions and the architecture of the airplane, so that it can enable optimized services for customers. So, it's not only something that factors into the business case, it also affects how we would design the airplane. So all of that is being done in our business case analysis. And I'll go back to my earlier point that it's important that we get it right, and we're going to take the time to get it right. We're protecting the EIS date for our customers at 2025, and if we decide to launch this development program, the R&D profile would be on the back side of 777X, so it would feather in nicely and be consistent with our overall cash flow priorities.

And that does complete the analyst question-and-answer session for this morning. I will now return you to The Boeing Company for introductory remarks by Mr. Phil Musser, Senior Vice President of Communication. Mr. Musser, please go ahead.

Thank you very much, operator. We'll continue now with media questions for Dennis and Greg. If you have any questions following this part of the session, please contact our Media Relations team by e-mail or 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.

Certainly. And our first question comes from the line of Julie Johnsson of Bloomberg. Your line is open.

Hi. Good morning, everyone.

Hi.

Good morning, Julie.

Hey. Just to circle back on narrow-body rate, it seems to me that Boeing is taking sort of a more cautious or measured approach to evaluating rate increases into the 2020s, while your competitor is talking about rate 70 or even rate 75. I'm just wondering if the supply chain can actually support the rates that Airbus has been publicly mulling. And if they move forward, is Boeing going to have to keep pace, especially given the very strong demand environment?

Yeah, Julie, let me provide some additional perspective on that. Again, we're going to be very focused on being disciplined about our rate decisions and our production ramp up. We've got important work ahead of us. We've just moved to 52 a month on the 737 line. We're going to move to 57 a month next year. As we said the market pressures do indicate upward pressure on that rate. That's a challenge, but it's a good challenge to have, but at every one of these steps we're going to bring our entire supply chain along and I think you see that reflected in our performance. We're continuing to meet our delivery commitments to our customers. That's the lens that we put on these production rate decisions. We see pressure points in the supply chain. We work those on a day-to-day basis and we're very focused on maintaining our discipline. And we'll make rate decisions not only informed by market pressures, but informed by our ability to execute them successfully, and I think our track record of doing 20 successful rate breaks over the last several years speaks to our approach. And while I can't comment on our competitor's approach, what I can comment on is our disciplined approach. We're going to maintain that approach. We're working very closely with our supply chain to bring them along in an integrated fashion. That'll continue to be our focus going forward.

Next, we have the line of Brian Sozzi of TheStreet. Your line is open.

Hey, guys. Good morning. Thanks for taking the question.

Hey, Brian.

Dennis, since the last time we talked we got the Space Force announcement and I'm curious how you're thinking about it and what type of dollar impact could that potentially new program mean to a Boeing? And then on the Services business real quick for you guys, are you planning to get more aggressive on acquisitions there to build that out?

Yeah, well, first of all, Brian, on Space Force and more broadly on the Space business, I'm very encouraged by what I see as the administration leaning forward on investing in space, and all dimensions of the Space business, not only Space Force, but more broadly, the work that's going into space exploration and the reinvigoration of that entire ecosystem. And we've had the opportunity to participate as part of the National Space Council and be on the user Advisory Group there, partnered with the administration. So, we have industry voice at the table as we shape these potential opportunities. So from that standpoint, I'm very encouraged about the U.S. Government leaning forward and investing in space. It's good for business. It creates growth opportunities for us. It's also a great way to develop STEM talent for the future. Now, when we look at our growth opportunities going forward, we do see the Space business as an important part of that and that spans from low earth orbit commercial travel and access to the space station. It includes our satellite business and it includes deep space exploration, including the space launch system with a focus on returning to the moon and then stepping to Mars. So, we're going to continue to lean forward in that business. It's an important investment area for us. Stepping back to your second question on services, we continue to see that as a very attractive growth market for us, and we've set a high bar target of growing that to be a $50 billion a year business over the 5 year to 10 year timeframe. And while we're a year into that effort, I think we have some good signs, especially if you look at the growth year-to-date of 11% versus 3.5% in the market. Good signs that our strategy is working. A lot of work ahead of us and it's an integrated organic and inorganic investment strategy, primarily driven again by organic investment parts, mods and maintenance, our training business, our digital business, those are all known organic investments. And where it makes sense we'll complement that with inorganic investments, but we clearly see acquisitions as a bolt-on complement to what is primarily an organic investment strategy.

Next, we have the line of Dominic Gates of Seattle Times. Your line is open.

Good morning, everyone.

Hi, Dominic.

I want to ask about the maturity of the 777X, the new automated technology that you've introduced there. So you have both the new wing center and you've added the wing assembly automated equipment now for that and you've also got the FAUB fuselage robotics. Both of those initially had some issues, challenges as they were new. Are they now, both the fuselage and the wing automated systems, now operating the way that you want them to? And how will you plan to use any of that for NMA?

Yeah, Dominic, we continue to make very good progress on those automation systems and while I won't declare them to be in final state, it's very clear that we've made progress both on the fuselage automated systems as well as the wing build system. And I think the key thing that you see in our focus here is that while those automation systems were designed purpose-built to be used for 777X production, we've de-risked those systems by pulling them forward in the factory and applying them to the current 777 program where it makes sense. So, we've been able to use that as a way to de-risk and as you pointed out, there have been some challenges as we've ramped up those automation capabilities. That's exactly why we pulled them forward into the 777 line is to experience and de-risk those systems. We've seen them continue to mature. We're seeing operational efficiency gains in our factory. We're seeing safety benefits for our workforce. We're seeing quality benefits. All of the things we hope to get out of the automation are coming to bear and we're going to continue to mature those as we move into the test program for 777X. And if we decide to launch NMA, part of that would leverage the next generation of automation technology. Again, as we digitize our airplanes, it becomes even more straightforward to apply these automation techniques and we're going to see costs and schedule benefits. We're going to see safety benefits for our workforce, and this is a key part of how we're transforming the Boeing enterprise for the future.

Operator, we have time for one more question from the media.

Certainly. Our last question will come from the line of Andrew Tangel of Wall Street Journal. Your line is open.

Hi, there. Thanks for taking the question.

Hi, Andrew.

Hey. The Chinese carriers and lessors have previously played a significant role in the orders and commitments at the airshows in Paris and Farnborough, but there weren't that many fresh deals from Chinese companies. At the recent airshow in Farnborough, by one estimate, almost half of Boeing's new orders and commitments at last year's Paris airshow came from Chinese companies. What do you make of the relative absence of a large number of Chinese buyers at this year's airshow, especially in light of how much growing demand you expect from China over the next couple of decades? And does this potentially signal that Chinese buyers are holding off making orders or commitments because of some of the trade friction including between the U.S. and China right now?

Yeah, Andrew, look at our total orders book, as we noted, very strong. And in fact, if you look at total orders and commitments year-to-date of more than 900 aircraft, commercial aircraft, that gives you a sense of the overall strength of the market. I don't find it surprising one way or the other that we may or may not have orders from a particular region or a particular customer at the airshow. We don't design our orders profile around airshows. We have some customers who want to make announcements at airshows and we work with them to do that, but our view is much more of a steady, sustained growth and orders throughput and you see that reflected in our month-to-month orders and sales. Our Chinese customers are exceptionally important to us. They're a big part of the backlog we have of the 5,900 aircraft we have in backlog. They're a strong portion of that. The future market we talked about, the world needing 43,000 airplanes roughly over the next 20 years, about 7,200 of those are in China, so it's an important customer for us. We're well-positioned in China. We're working closely with our customers there. We're ramping up capability in China, while we ramp-up in the U.S. as well. And I'll go back to my fundamental point that as we think about China-U.S. trade relationships, aerospace is something that's good for both countries. It's mutually beneficial. It creates growth capacity in China. It's helping them grow their economy, it's growing jobs in China, and as China grows, it's growing jobs in the U.S. and our 737 production line for example, as we ramp-up building on Chinese demand, that's growing U.S. manufacturing jobs. And it's very clear to us that free and open trade environment and good relations between China and the U.S. is not only beneficial to the aerospace business, but in turn the aerospace business is beneficial to the economies and jobs of both countries.

Thank you. That concludes our second quarter earnings call. Again, for members of the media, if you have further questions, please contact our Media Relations team at 312-544-2002 or via e-mail. Thank you very much.

Ladies and gentlemen still connected, that does conclude the presentation for this morning. Again, we do thank you very much for your participation, and for using our executive teleconference service. You may now disconnect.