Thank you for standing by. Good day, everyone, and welcome to The Boeing Company's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised this call is being recorded. The management discussion and slide presentation plus the analyst question-and-answer session are being broadcast live over the Internet. [Operator Instructions] At this time, I'm 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 Kelly Ortberg, Boeing's President and Chief Executive Officer; and Jay 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 uncertainties, including the ones described in our SEC filings. As always, we will leave time at the end of the call for analyst questions. With that, I will turn the call over to Kelly Ortberg.

Thanks, Eric, and good morning, everyone. Thank you for joining today's call. I'd like to take a moment to welcome our new CFO, Jay Malave. It's been great to have Jay on board and officially welcome him to his first quarterly earnings call for Boeing. So now let's take a closer look at our business as we enter the final quarter of the year. Our sustained focus on safety and quality is driving better performance across the enterprise, and we are reearning the trust of our stakeholders, including customers, regulators and employees. Our focus on culture change continues to energize our teams and improve how we work together. By August of this year, we have delivered more commercial airplanes than all of last year. Our defense business is well positioned in the current geopolitical environment, and our service business continues to deliver in a robust aftermarket. Across all of our market segments, we continue to see strong demand, which is reflected in our growing backlog. We marked important milestones in our recovery as the operations generated positive free cash flow in the quarter for the first time since 2023. And earlier this month, we jointly agreed with the FAA to increase 737 production to 42 airplanes per month. While we're turning the corner, we're well aware of the work ahead of us to fully recover our performance, particularly on our commercial development and certification programs. We'll talk more about our status but I want to emphasize that we're exploring every lever to deliver better performance on all of our programs. Now turning to the businesses. Let me start with Boeing Commercial Airplanes. We're making meaningful progress in line with our safety and quality plan and our investments here continue to improve the health of our factories. Notably, we've seen 75%…

Thanks, Kelly, and good morning, everyone. Let me start by saying that it has been an honor to join Boeing at such an important time in the company's history, and I'd like to thank the team here for the warm welcome these last few months. Throughout my career, I've always been impressed with Boeing's people, products and services and iconic legacy. I'm very excited to partner with Kelly in support of our continued recovery and delivering for our global customers and stakeholders. Boeing is in a much stronger position than it was a year ago. It's my job to help Kelly and the leadership team build on that progress. I'd also like to thank Brian West for his role in getting us to where we are and for his support throughout this transition. Now let's start with the total company financial performance for the quarter. Revenue was up 30% to $23.3 billion, primarily driven by improved operational performance across the business, including higher commercial deliveries and defense volume. The core loss per share of $7.47 primarily reflects the $6.45 impact of the $4.9 billion charge on the 777X program. which I'll discuss in more detail shortly. Free cash flow was positive $238 million in the quarter, primarily reflecting higher commercial deliveries and working capital that improved compared to both the prior year and the prior quarter. Importantly, this was the first positive free cash flow quarter since the fourth quarter of 2023 and serves as an important progress point in our company's recovery. These free cash flow results were better than expectations in July, driven by higher commercial deliveries as well as the potential DOJ payment shifting to the fourth quarter. Turning to BCA on the next page. BCA delivered 160 airplanes in the quarter, the highest quarterly delivery total…

[Operator Instructions] Our first question comes from the line of Myles Walton from Wolfe Research.

Jay, what is the negative cash flow in 2026 on the 777X in totality or versus this year? And as you look out, how soon after first delivery can that program get to a neutral position from a cash perspective?

Sure. Thanks for the question, Myles. So as I mentioned before, it's a headwind relative to our prior expectations of $2 billion. So I'd expect the overall absolute cash flow to be usage. It's a little bit higher than that. As far as how we get to call it, I'd say, breakeven neutrality type of free cash flow, we've talked about this a little bit in the past. So next year will be a heavy use year. The year after that will be better in 2027. And then we would expect ourselves to get closer to neutral in 2028. And that's all on the back of improving payments from aircraft deliveries and advances. So again, next year, we'll build up inventory. There'll be limited advances and delivery payments. But in 2027, we'll start to see those benefits and those will continue to ramp up in '28 and beyond. So I would expect, starting in 2029, neutrality will go to a benefit of positive free cash flow for the program. And so look, all told, next year is going to be a little bit heavy, but it will continue to improve from year-over-year from that point.

Okay. And sorry, just to clarify one thing. Is that 2026 usage of cash on 777X, so it's about similar to 2025 usage when all is said and done?

Yes, that's a good way of looking at it, but perhaps maybe a little bit higher, but in that zone.

Your next question comes from the line of Ron Epstein from Bank of America.

So maybe back on the 777, certainly you're going to get bombarded with these, so apologies for that. But what's driving this now? Like what changed from like just 2, 3 months ago to reevaluate what's going on with the program. Yes. So I guess that's the question. Like what changed to really make the focus on this now?

Yes. So Ron, first of all, let me reiterate what I said in the prepared remarks. There's no new issues with the airplane itself or the engines, the test program. Ironically, we have more hours and the maturity of this airplane is probably higher than any other airplane we've been through the test program. The issue is solely around getting the certification work complete. We had anticipated getting TIA approval. That's what's needed to actually get cert credit when we fly those particular tests. We have not been able to achieve the certification credit and that's because we haven't gotten the TIA approval. So look, we've taken a step back. We very much underestimated how much work it was going to take for us to get the TIA approvals and for the FAA to have the opportunity to review all the data submissions that are required. So we stepped back and we've rebaselined this program to incorporate those learnings as Jay said. And the philosophy I want here is I don't want this to be a continuous quarterly issue for us to make sure we have a solid financial estimate here that we have a high level of confidence that we can get this certification work done. Now recognize that some of this is still not in our control. We're working very closely with the FAA. I'm hopeful that there's opportunities for us to improve upon some of this. I think I've talked to the administrator Bedford. And I think he also agrees that we need to look for ways to streamline the process. But in effect, this is a result of us realizing that the plan we had in place to get the certification approvals just was not realistic going forward.

And just one clarification, if I may. On the TIA, what's really slowing that down? Is it on the FAA side? Or is it that there was something that you guys didn't understand about what would be...

It's a little of both, Ron. I would say it's that this is the first airplane that we've gone through this incremental TIA process like this. And I think there was learning in what analysis and data we had to have complete and submitted to get the TIA approval. So some of that's for us. And I think it's taken longer as well for the FAA to go through those submittals and get the approval. So I'm certainly not throwing the FAA under the bus with this. This is a learning collectively for the both of us in terms of what it takes to get through the new process. And again, as I said, we've tried to do our best to put a conservative estimate here in place that accommodates us continuing having a slower process than what we had originally planned for these TIA approvals. Now I don't anticipate because of the maturity of the airplane. Once we get the approvals, I think the flight testing should go reasonably quickly. But again, it's the analysis, the paperwork to submittal and the approval process is really the big learning here.

Your next question comes from the line of Robert Stallard from Vertical Research.

Welcome back, Jay. I hate to do follow-up on the 777X here. The charges of $4.9 billion is perhaps larger than was anticipated. So wondering if you could maybe work through some of the moving parts here. And then probably for Kelly, in conjunction with that, how are you expecting to manage the 777X supply chain given this delay?

All right. Let me start with the magnitude of the charges to build upon the comments that I made during the prepared remarks. With the delay in the certification, we had to revise our production plans on the program with a focus on mitigating additional precertification airplane builds and provisioning for a higher confidence long-term production plan, the primary driver of the charge. And when you kind of break that down, the scheduled delay simply had a broad impact through the elements of the production system. The longer period of performance or holding period, however you want to describe it, combined with a slower ramp rate, it adds substantial carrying cost to the program. It also affected the learning curve with the slower ramp. And even the aircraft that are going to be reworked are also going to be held for a longer period of time, adding cost to them. So as we mentioned, we have a higher confidence plan from a schedule and cost perspective on here so that we've got ourselves protected. If you compare this to other charges, particularly those that we had last year, as I mentioned during my prepared remarks, we are carrying higher provisions for the built aircraft require rework, the production disruption and the learning curve, all of which are simply better informed by current experience. So as you would expect, the team is just not going to sit here and take this lightly and hasn't taken it likely. They're going to -- they're all focused, we are all focused on doing everything we can to improve the long-term productivity on this program, while also working to mitigate the total delay impact to our customers the best we can. But this baseline puts us in that position to be able to not only beat it, but potentially beat it.

Yes. And Rob, let me just talk a little bit about the supply chain. I think the answer is we just have to flow the new revised schedule out to our suppliers. And then we're going to have to negotiate on a case-by-case basis the impact that has to the various suppliers. And depending on the commodity, the impact might be significant or might be fairly insignificant. So we're going to have to work through that. I'll just say that the revised estimate and the charge here contemplated the impact of the supply chain as well.

Your next question comes from the line of Noah Poponak from Goldman Sachs.

Kelly, Jay, could you speak a little bit more about the 737 ramp from here? And I guess, do the remaining months of this year have 42 production units? Or is there some spacing before we actually see that for any reason? And then as you go higher, on the one hand, it's not easy and supply chain is still tough, but on the other hand, I think you're intentionally holding inventory for that reason. And it seems like you have a lot of buffer in the stations at 42 to break to 47. Then I think beyond that, you start to layer in a new line. So I guess, that 6 months you've spoken to you, Kelly, should we all be assuming that for the 42 to 47 to 52? Or is each of those breaks? Or is that too aggressive of an assumption?

Okay. So let me start with the first part of the question, which is just when do we get to 42 here for the balance of the year. So recognize, Noah, when we say we're at a 42 rate, that's a rate that we flow in the factory. Not every month, depending on the number of days in the month, the number of workdays in the month, would that necessarily equate to a rollout of 42. And just recognize that for the -- we've got the holidays coming up in both November and December. We are, as we speak, rolling at the 42 rate. So we've, as you know, we test our supply and our own processes before we actually go to that rate, we do some pretesting. So we've gone ahead and we're loading now at the 42 rate. So I'm planning that we will exit the year very soundly at the 42 a month rate. So that's our plan, and I think we're in good shape to do that. As you mentioned then, we'll go to the next would be the 47. I mentioned in the prepared remarks, not earlier than 6 months because we need time to go to the new rate, demonstrate stability. And then as we did this time, test ourselves at a higher rate. And in many cases, when you test yourselves at the higher rate, there's actions you have to take to go improve and ensure that we're ready to go. So we don't think we can do that faster than 6 months. And I will just reiterate what I said when we started this campaign here a year ago is it's way more impactful for us to move when we're not ready then to hold off and wait until we're ready. And…

Okay. And how will the process with the FAA compare going to 47 and 52 compared to when you did getting to 42?

Yes, we're going to use the exact same process. In fact, when we did the 5 to 7 on the 787, we use the same metrics and the same Capstone review process that we used just now moving from 38 to 42. I think both sides will understand the process and think it's a good process. So we just use that same one as well on this mini break up rate 8 on the 787. So I feel pretty good that the process is in place. I don't think getting through that, it might have taken a little bit longer with this first approval with the FAA, but they did a good job in moving pretty quickly. They have to coordinate with a lot of stakeholders as well. So I think -- I don't think the process is going to be an impediment in the future. I think it's more are we ready? Is the supply chain ready? And when that happens, then I think we have a good process to go get approval.

Your next question comes from the line of Peter Arment from Baird.

Welcome, Jay. Kelly, maybe could you talk a little bit more about the -- what's left for certification on the -7 and 10? It sounds like you've got a lot of confidence around it. But what are the milestones or the way we should be thinking about what's left here just given the enormous amount of testing hours and things that you've done here?

Yes. So we've got -- as I mentioned, we've got a significant number of hours of testing on this anti-ice design. So what we've got to do is go make modifications to the test aircraft and they're both hardware and software modifications and then we go through the process, the certification of those steps with the FAA. It's pretty straightforward. And the anti-ice is still the critical path, is still the critical path for both certifications. Now if you take the engine anti-ice out of it, there is still work to be done to complete the certification. Probably a little more work on the -10 than the -7 but not near the magnitude of what we're experiencing with the 777X program. So we think it's pretty straightforward to get through the certification of the design. We've got a lot of test data, a lot of analysis that will help us move quickly through that. And as I said, we're still planning on getting that done here in '26.

Your next question comes from the line of Seth Seifman from JPMorgan.

I wanted to ask about the 87. You mentioned the recent Capstone review and how we can think about kind of the way you went through the 37, the flow of rate increase is coming on the 87 and what some of the kind of key things you're watching are there, whether it's internal or whether it's in the supply chain, having to do with structures or engines or anything like that? And then also, whether you've kind of burned through some of the concessions there and starting to get to a better place of cash profitability on that program?

Yes. So the cadence of production increase is a little bit different story than on MAX. Obviously, the -- we weren't shut down on MAX. And so we didn't -- on 787 through the strike. So we didn't -- we don't have the level of inventory that we have on the MAX program. So our next rate increase will be from this 8, which we should be at 8 by the end of the year and then we'll move to 10 next year. I do think on 787, the move from 8 to 10 will be more challenging for us with the supply chain, particularly seats. We're continuing, as I've mentioned in previous calls, we're continuing to struggle with seat certifications. I think that's going to be with us for a little bit longer. We are making progress on that. But I think seats will continue to be a constraining item for us. And then just the general supply chain on 787 because we don't have the buffer. We want to make sure that we're stable here at 8 a month rate before we go to 10. So we're planning to do that sometime next year. I'm not going to put a month on that yet. Maybe as we get to some stability at rate 8, we'll fine-tune that.

Your next question comes from the line of Sheila Kahyaoglu from Jefferies.

The Q3 free cash flow number was solid. And Jay, you mentioned positive core free cash flow in Q4 pre the DOJ payment. So curious what BCA rates are underpinning that positive free cash flow. And just albeit a modest Q4 free cash flow exit rate, just a modest number, how do we think about 2026? Is it breakeven? Is it some low to mid-single-digit inflow of cash? Is that still doable?

Okay. Thanks, Sheila. Let me just kind of baseline you on our discussions and our update for 2025. If you recall last quarter, we talked about a usage of $3 billion for the full year. As I mentioned in my prepared remarks and what you just indicated as well, Sheila, is that's better by $500 million to about $2.5 billion based on the better performance year-to-date. Let me -- what I'll do is I'll bridge you from the third quarter into the fourth quarter, so $200 million. When you go from that number, we expect a nice inflow based on seasonality, particularly at BDS with the tanker award. And so we'd expect an uptick there about in excess of $1 billion from BDS. Partially offsetting that is BCA volumes. Right now, we're holding anywhere to slightly down from the third quarter in terms of deliveries to maybe flat. But more importantly, in there, even if we're flat, we will see lower receipts because we've got a kind of just a mix headwind where we're expecting lower 777 deliveries in the fourth quarter. So that will be somewhat of a headwind. The next is interest expense or interest payments. Again, we have a seasonality aspect to it. So the payments in the fourth quarter will be more similar to what we saw in the second quarter. So it's about $900 million plus in the fourth quarter, and that's a step up in outflow of about $600 million. And then finally, we've got the DOJ payment. We've talked about that in the past, which is about $700 million. So when you reconcile all those items before the potential DOJ payment, you're in the range of positive $500 million. With the payment, that would swing us into a negative net-net. But again, operationally, we'll see better performance in the fourth quarter relative to the third and a pretty good exit rate as we think about next year. As I think about next year, look, it's encouraging what we've seen so far. The performance has improved throughout the year. We see that particularly in the free cash flow on an operating basis. But it's early for me to really make a strong kind of call on that right now. I'm still going through the planning process. There's a lot more that I need to get into in terms of the puts and takes on the full year basis for next year. And I'll give you just a lot more color on that in January. But as I mentioned, things are trending favorably, and we're bullish on our outlook.

Your next question comes from the line of Scott Deuschle from Deutsche Bank.

Just a follow-up on that last question, Jay. I was wondering if you could share your perspective on this $10 billion free cash flow target, the company set out there for a while. And just more specifically, is that a target that you're willing to endorse? And if so, do you think the business is on the trajectory to achieve it in the next handful of years?

Thanks, Scott, for the question. Just maybe taking a step back in the 2.5 months that I've been here. Overall, as I mentioned in the prior question, we've made great progress this year. We still have plenty of runway to go as we stabilize the business and complete the development programs. Right now, my observation is the foundation is in place, and that will lead to steady and gradual improvement over the upcoming years and I expect the financials to flow. Again, just like for next year, it's really a little early for me to comment on a specific long-term framework, but I'm confident in the underlying cash generation capability for us to return historical levels that you've seen before. You've got a great backlog and operational excellence will be the key to unlocking our cash flow potential. Over the coming months, I plan on assessing our operating plans and the cash flow drivers to develop the framework and I look forward to presenting that to you at the appropriate time. But it's just a little early for me to do that right now.

Your next question comes from the line of Kristine Liwag from Morgan Stanley.

Kelly, you mentioned that the Jeppesen deal is closing next quarter. You also received approval from the EU for the Spirit deal 2 weeks ago. Taking a step back, can you share your thoughts on how you think about the Boeing portfolio today, your priorities for M&A? And also any color on the effect of these 2 items and free cash flow next year?

Well, look, I think the 2 items here that we've got imminently in front of us are our focus from an M&A perspective here right now. Getting through the Jeppesen close, we're pretty close on that. I think that's likely going to close a little bit before the Spirit transaction. And as you said, we've got EU approval on Spirit, but we're still waiting for the U.S. approval with Spirit. We don't see any showstoppers here, but we expect to get that done. And then we're on to the integration phase. We have to de-integrate the Jeppesen business from our digital business. We've got great plans to do that and then the reintegration of our Spirit business and that will be -- come over the next couple of months after we get into the close. So look, that's our focus right now. I don't have any other areas to point you to in terms of M&A for us right now.

Your next question comes from the line of Doug Harned from Bernstein.

Kelly, at the beginning, you talked a little bit about investment in Charleston. And on the 787, though, our understanding had been that you can really go from 7 to 10 a month in Charleston without that much material CapEx adds, but going to 12 and 14 will require more and an expansion of the facility. So when you're looking at Charleston right now, what needs to be done to go to 12 to 14 a month? And then the investment you're discussing today is that related to the 10 a month? Or are you already making steps toward going to those higher rates?

Yes. We're already making steps for the higher rates. You're right, we could probably -- if we thought capping at 10 was as far as we go, we would not be investing in expanding Charleston. So we're going to have a formal groundbreaking. But essentially, what you're going to see if you've been to Charleston, we're going to double the footprint, the manufacturing footprint. Now we don't need double, but it also gives us a lot more flexibility for some storage space as well. So a major expansion of the Charleston facility, and it's all around getting to rates higher than 10%. We think that the market demand will allow us to get to rates in the teens and that's what we're focused on putting the capital in place, getting the facilities in place. Obviously, if the facilities come online, they'll help us at rate 10, but we don't need that. And I think we're looking at really 2028 before we're really utilizing that expanded facility.

Can you dimension at all the CapEx trajectory you're talking about for this?

We expect that to increase next year, Doug. Again, I think in the -- when we kind of give you the '26 framework in January, we can provide more color, but there will be some higher CapEx in '26 related to both this as well as the growth in expansion in St. Louis.

Your next question comes from the line of Gautam Khanna from TD Cowen.

Welcome, Jay. Kelly and Jay, I know you touched on seat certification as a potential constraint on 87 production hikes. I was just wondering more broadly, if you can talk about where you see the pinch points in the supply chain today and kind of across the programs as you move forward in rate, where are you most concerned that bottlenecks may emerge?

Yes. So again, I made a few comments on this already. I think you do need to break down between the 737 supply chain and the 787 or the widebody supply chain because we have this excessive amount of inventory. So look, I think in general, I would just comment that the supply chain is doing well. We do have constraints still around seating, but we know what those are. We've got specific actions with the suppliers. And some of that is on Boeing to get the actual seat installations certified on the aircraft. So we're working through those. There's nothing else I would highlight. I mean we have to watch the continued demand on the engines in both the forward fit and the aftermarket and the durability upgrades that are going on in the market. So that will be an area that we'll continue to work with GE and CFM on. But there's nothing I would particularly focus on. But this really is one of these things where that could change tomorrow. We have to keep tabs on all of our supply chain we need all the parts. But I think in general, we're doing well. I think people also are gaining confidence in our ability to meet our production output. So the fear of people discounting our production in the supply chain, I think, is diminishing going forward as well.

Rob, time for 1 more question here.

Certainly, your final question comes from the line of Scott Mikus from Melius Research.

Jay, you've been at the company for 2.5 months now. Just curious, what are your early observations? What are your priorities? And given that the company will end the year with about $33 billion of cash after Jeppesen is sold, how are you thinking about the balance sheet and what you want to do with that cash balance?

Yes. Let me then Scott kind of work maybe backwards here. On the cash balance sheet, I think with the completion of both transactions, we'd expect the cash balance to be closer to probably in that $28 billion range, so high 20s, not as high as $33 billion. As far as observations, look, I've come in here, there's been a lot of enthusiasm. As I mentioned in my prepared remarks, the team has embraced me with open arms. It's made my transition as seamless as it can be. There's a fair amount that I need to get up to speed on in the company and again, everyone is helping me do that. As far as some of the culture changes that we've seen, as Kelly mentioned, I see a lot of enthusiasm. I see a lot of excitement about the recovery that the company has embarked on. People are committed. They're dedicated and they want to be part of the improvement. So it's easy to walk in, at least easier for someone like me to walk in cold to an environment like this where everyone is really operating and working on the same direction. Overall, in terms of what I need to focus on and my priorities in the short term, it's really getting up to speed so I can put myself in a position to be a valued contributor. It's maintaining the focus on fully restoring the health of our balance sheet. It's enabling and driving the planned improvements of our recovery and ensuring that they are sustainable. And finally, it's keeping an eye on the future while maintaining the focus on the short-term and medium-term recovery. So again, first things first, get up to speed and then contribute and drive us and be a participant in this recovery. And again, we're on a good path here. So I'm very excited to be here.

That completes The Boeing Company's Third Quarter 2025 Earnings Conference Call. Thank you for joining. You may now disconnect.