David L. Calhoun
President and Chief Executive Officer at Boeing
Thank you, Maurita. And good morning, everyone. I hope you're all staying well as we continue through this global pandemic. And please encourage everyone you know to get the vaccine, if they haven't already.
With the onset of COVID-19 roughly a year-and-a-half ago, our worlds were turned upside down. As an industry, we faced it head-on and worked together every step of the way. While there is still ways to go before a full recovery, we're encouraged by the continued progress on vaccine distribution and the uptick in domestic travel. We're also looking forward to further progress on coordinated international travel policies and protocols.
I've said before that we view this year as a critical inflection point and it's proving to be just that. We're turning a corner and the recovery is gaining momentum. Throughout all of this, we are continuously learning and adapting how we operate to best serve our customers, our suppliers, our teammates, our communities and other stakeholders. And I'm proud of how our team has remained focused on our mission.
Before I go through our business update, I'd like to take a moment to recognize and thank Dave Dohnalek for serving as our Interim CFO. Dave is a proven well-respected leader here at Boeing and I'm grateful for his partnership as we transition. And as you know, we have appointed Brian West to serve as Boeing's next CFO, it's effective August 27. Brian is an exceptional leader with significant financial management and long-term strategic planning experience in complex global organizations across the aerospace, manufacturing and services industries. And thanks to Greg Smith's legacy. He's inheriting a world-class finance team here at Boeing. I've worked directly with Brian previously in my professional career. He has broad operational expertise and will bring great perspective to our business transformation journey and post-pandemic recovery as he joins the team this month.
With that, let's start with an update on our business on the next chart. Overall, we've made important progress in the quarter as our transformation actions began to take -- or get traction. And we focused on improving in performance and driving stability across all of our operations.
Let's start with the 737 program where we've made significant headway. We resumed 737 MAX deliveries in May and have continued to support our airline customers efforts to return those fleets to service. Keep going.
In the second quarter, we delivered 47 737 MAX airplanes, including our first 737-8200 delivery to Ryanair. The 737 MAX 10 also completed its first flight in June, marking an important milestone for the largest member of the 737 family. As you may recall, roughly nine months ago, we had approximately 450 airplanes in inventory and we were awaiting approval from the FAA to begin returning the 737 MAX to service.
Fast forward to today and the progress is noteworthy. 175 countries have now approved the resumption of 737 MAX operations. We've delivered more than 130 airplanes. Our airline customers have returned more than 190 previously grounded airplanes to revenue service. 30 airlines have returned their fleets to service. And those airlines have safely flown nearly 95,000 commercial flights totaling more than 218,000 flight hours. Importantly, the fleet has an impressive schedule reliability rate of more than 99%.
Airlines are operating over 1,000 revenue flights daily. And just last week, added nearly 3 million 737 MAX seats in the second half 2021 schedule operations, a testament to the value proposition the airplane family offers. And as domestic traffic recovers, we believe we've started to turn a corner from an overall demand perspective. This is reinforced by five straight months of positive net commercial airplane orders, driven primarily by the 737 MAX.
We are honored by the more than 280 additional orders during the quarter, including those from United Airlines and Southwest Airlines. And we appreciate the trust our customers are placing in Boeing and the 737 family. These orders underscore our customers' commitment to continued fleet modernization as well as the accelerating demand for air travel. These new 737 airplanes are designed to improve the customer experience, while significantly lowering carbon emissions per seat. At the end of the quarter, we had over 3,300 aircraft in our 737 backlog.
We're currently producing 16 airplanes per month and continue to expect to gradually increase the rate to 31 a month in early '22 with further gradual increases to correspond with market demand and, importantly, supply chain capacity. We will continue to assess the production rate plan as we monitor the market environment and engage in customer discussions. As we previously communicated, the timing of remaining regulatory approvals will shape our delivery plans and our production ramp -- rate ramp. We continue to work with global regulators and still anticipate that the remaining regulatory approvals will occur this year, including China. And as always, we will follow global regulators lead in the steps ahead.
Now, I'd like to spend a bit of time on our business transformation efforts. As we discussed before, our activities in this area are organized around five pillars; infrastructure, overhead and organization, supply chain health, portfolio and investment and operational excellence. We've put rigor around each pillar and have detailed projects supporting each one. We are implementing these projects to create long-lasting change, which will improve our competitiveness, help us grow our cash flow and create a foundation to enable us to return to healthy margins even at lower production rates.
Many of the projects that we're executing have been shared previously and are widely visible such as consolidating the 787 final assembly in Charleston, optimizing our facilities' footprint to reduce nearly 6 million square feet of real estate and forming strategic partnerships with IT vendors accelerating our migration to the cloud. Other projects may be less visible externally, but they're improving our productivity, simplifying our operations, reducing bureaucracy and driving first-time quality.
Through our business transformation efforts over the past year, we've reduced billions of dollars of costs. And our objective is that the majority of the savings is long-lasting even when volume returns. At the same time, we remain focused on identifying new opportunities to further streamline how we operate. We've started to see the benefits of these efforts in our quarterly financial results, which Dave will go through in more detail.
As we've discussed previously, we've been adjusting the size of our workforce to align with the commercial market environment reality and lower production rates. We now plan to keep our overall workforce size roughly consistent with where we are today at approximately 140,000. This will allow us to support the encouraging trends we've seen in the commercial market recovery, the growth opportunities in our defense and government services business and increased investments to strengthen engineering and drive quality and stability into our production system where the payback is large.
Going forward, the pace of the commercial market recovery, trade relations with China, production rates and our own performance, our execution, will be key factors of our overall employment levels.
Turning to our efforts to drive stability. With every action we're driving toward engineering excellence, production system stability and first-time quality and delivery predictability, which holding ourselves accountable to the highest standards. We're implementing comprehensive quality and productivity initiatives in our factories and strengthening our quality reviews within our supply chain. We conduct regular audits internally with suppliers to ensure adherence to improve processes and practices, ranging from production methods to documentation standards.
And as part of our process, we proactively and transparently keep the FAA fully aware of our efforts. This enhanced rigor has helped identify areas that we can improve. And by identifying and correcting any issue at the source while our rates are still relatively low, we can strengthen first-time quality, eliminate traveled work and drive stability and predictability as demand returns. These efforts have played a key role in supporting a healthy and stable rate ramp on the 737 MAX and we're applying this same approach to the 787.
Now, specifically on the 787 program, I understand the difficulties we have caused by the inconsistency in both our production rate and our delivery cadence. The impacts are felt by our suppliers and by our customers. I also recognize these uncertainties create challenges to the investment community to forecast our performance.
We are determined to address these issues and will work tirelessly to do so, just like we have and continue to do on the 737 MAX. We're fully committed to this methodical approach to driving first-time quality and stability in our operations. The issues that our engineering teams have identified and we are now addressing are part of this purposeful process and we have transparently communicated with our regulators and customers every step of the way.
We're progressing through these inspections and rework, including the additional work we shared earlier this month. We continue to engage in detailed discussions with the FAA on verification methodologies for the 787. And based on our assessment of the time required, we're reprioritizing production resources for a few weeks to support the inspection and rework.
As that work is performed, the 787 production rate is now lower than five per month and will gradually return to that rate. The exact timing of returning to a rate of five per month will depend upon our progress on production stability and delivering airplanes from inventory. Of the approximately 100 787s currently in inventory, we expect to deliver fewer than half of them this year. While this has a near-term impact to our operations, I'm confident it's the right course of action and we will continue to take the time necessary to ensure the highest levels of quality. Although it's been a long journey, we believe we're closer to the end than the beginning.
Let me touch on the 777/777X program before I move to other segments. The combined 777/777X production rate is two per month. We continue to see strong freighter demand, as evidenced by orders for 13 777 freighters in the quarter, providing a solid bridge to the 777X. On the 777X program, we are subjecting the airplane to a comprehensive test program designed to demonstrate its safety and reliability as well as meet all applicable requirements.
We continue to communicate transparently with the FAA and other global regulators about certification. And like any development program, we learn every step of the way. We incorporate feedback from our regulators and we mature and advance our product with every conversation, every engagement, every test, every review. We continue to make progress to the previously shared schedule, including certification work with regulators and conducting Boeing flight tests.
The performance data we've collected to-date suggests the airplane is performing as we expected and to our customers' commitments. We will be validating these results in the near future, along with continuing to work with the FAA to ensure we meet the requirements prior to beginning certification flight tests. We continue to expect that we will deliver the first 777X in late 2023, as we shared previously.
Meanwhile, we continue delivering for our Defense, Space and Services customers. Dave will go through the financials in more detail in his remarks. But as you can see from the results, both our Defense and Services businesses had strong financial performance in the quarter.
Let me highlight a few accomplishments. Our Defense, Space & Security team made history as our MQ-25 test asset completed the first ever unmanned aerial refueling of another aircraft, the F-18. We also joined the front fuselage of the first production T-7A with its aft section in less than 30 minutes, a testament to the digital advancements of the U.S. Air Force first E-series aircraft and a demonstration of our model-based engineering and 3D design benefits.
Earlier this month, the U.S. Air Force approved the KC-46A tanker for Joint Forces operational use of the centerline hose and drogue refueling system, which provides more daily operational capabilities. KC-46A tanker is of critical importance to our customer.
Moving to Space. We began stacking the core stage of NASA's Space Launch System rocket with other Artemis 1 elements at Kennedy Space Center. And of course, we're looking forward to the uncrewed orbital flight test of our Commercial Crew Starliner vehicle later this week. Additionally, in our Global Services business, we announced that we will be opening two new Boeing converted freighter lines in 2022. We also signed a parts agreement with Turkish Technic and received a key contract to support C-17 training from the UK Royal Air Force.
In addition to program milestones, we made key progress on our sustainability, innovation and technology efforts. Just this week, we published Boeing's first Integrated Sustainability Report, which is an important step in our continued efforts to reinforce our environmental, social and governance principles. Also, we recently announced that we're collaborating with Alaska Airlines to fly an Alaska 737-9 aircraft in our ecoDemonstrator program. In fact, today, our ecoDemonstrator aircraft is at Reagan National Airport demonstrating to key leaders many of the new technologies and improvements we're making to enhance safety and support a more sustainable future.
Earlier this month, we also announced a partnership with SkyNRG focused on advancing the availability and use of sustainable aviation fuels, or SAF, globally. As part of this commitment, we will invest in SkyNRG Americas' first dedicated US production facility for SAF to help establish SAF supply for airports and airline customers largely on the West Coast.
Now let's turn to the next slide to discuss the industry environment. Our Government Services, Defense and Space businesses remain significant and relatively stable. While increased government spending on COVID-19 response is adding pressure to defense budgets in some countries, others are increasing spending on their security. Overall, the global defense market remains strong and we continue to see solid global demand for our major programs. The diversity of our portfolio will continue to help provide critical stability for us as we move forward.
Congress has kicked off the annual authorization and appropriations cycle for fiscal year 2022. The President's budget proposal called for strategic investments in Boeing products and services from across the BDS and our BGS portfolios. The budget proposal demonstrates confidence in the capabilities of Boeing's F-15EX and Apache as well as key commercial derivative programs such as the KC-46 tanker and space programs like the Space Launch System, SLS, among other platforms.
The FA-18 and the Chinook Block II remain critical capabilities for the war fighter, both domestically and for non-US customers. We will continue to work with the administration and work with Congress to ensure the necessary support for these key programs are in place.
In the commercial market, while near-term pressure due to COVID-19 remains, the recovery is accelerating, and many of the key long-term fundamentals remain intact. In June, we saw global departures approach 70% of 2019 levels, up from less than 60% in the first quarter. We've seen encouraging signs in some markets, although the recovery continues to be uneven. In the near-term, we expect the environment will remain very challenged for many of our of airline customers and the industry as a whole as they adapt to this rapidly evolving travel demand.
While vaccine dissemination is broadening and some travel restrictions are loosening, others are still in place and some even tightening, which keeps significant pressure on passenger traffic. Continuing the positive momentum we saw in the first quarter, domestic traffic is leading the recovery. May domestic traffic was 24% below 2019 levels compared to 50% the quarter before. Since then, it continues to pick up in regions like the US and Europe and we anticipate continued improvement this summer.
The US domestic market is showing remarkable recovery with summer bookings consistent with 2019 levels, according to several airlines. TSA average daily throughput has already reached over 2 million passengers, around 80% of 2019 levels. Additionally, some regions such as Europe, India, Latin America are recently seeing double digit monthly improvements in operations as vaccine rates improve and travel restrictions begin to loosen. While a recovery in China has wavered at times due to case rates, it remains robust with operations above 80% of pre-pandemic levels. However, passenger traffic in other parts of the world such as Southeast Asia remains significantly lower due to travel restriction uncertainty and new strains of the virus. International operations remain extremely low and May traffic still 85% of 2019. And concerns about virus variants and limited coordination on cross-border entry protocols are still, significantly hindering recovery in the international segment.
Nevertheless, on average, roughly 100 aircraft per week have returned to service over the past four months, making the active fleet now approximately 80% of its previous size with single aisle activity levels slightly above twin aisle. And although utilization rates and load factors are increasing in some areas, they are still below historic levels, which means airlines are flying around 70% of their normal capacity at the global level.
With the toughest impacts appearing to be in the rearview mirror, airlines are shifting their focus to medium-term fleet planning. The number of aircraft being retired from the active fleet is significant with around 1,500 airplanes and growing retired or announced to be removed since the onset of the pandemic. We anticipate this trend will continue as our customers focus on replacing the oldest, least efficient airplanes with new airplanes that will be as much as 25% to 40% more fuel efficient with commensurate reductions in emission.
The freighter market continues to be strong with cargo traffic year-to-date through May at 8% higher than 2019. Limited belly cargo capacity from passenger airplanes has resulted in more freighters flying with high load factors. In fact, 72% of air cargo is now being carried on dedicated freighters. That compares to 48% pre-pandemic. This demand is evidenced by orders in the quarter for 31 additional freighter airplanes and strong demand for Boeing-converted freighters.
Longer-term, cargo demand will continue to be driven by global trade and GDP growth, both of which experienced improvement in the second quarter. And we've shared previously and consistent with IATA and other industry groups, we expect passenger traffic to return to 2019 levels in 2023 to 2024 and then a few years beyond that to return to long-term trend growth.
We still see recovery in three phases. First, domestic, then regional markets such as intra-Asia, intra-Europe, intra-Americas and, finally, long haul, international routes. Therefore, we expect demand for narrow-body aircraft to recover faster, as evidenced by our year-to-date orders for 737 MAX airplanes and demand for wide-body aircraft to remain challenged for a longer period.
On the global trade environment, we welcome the agreement between European Union and United States that all future government support for the development or production of commercial aircraft must be provided on market terms. We will fully support the US government's efforts to enforce this agreement.
We are also monitoring US trade -- US-China trade relations, given the importance of the China market to our economy and our industry's recovery as well as our near-term delivery profile and future orders, all of which influence future production rates. We remain in active discussions with our Chinese customers on their fleet planning needs and will continue to engage with leaders in both countries to urge a productive dialogue, reiterating the mutual economic benefits of a strong and prosperous aerospace industry.
Ultimately, America's leadership in aerospace as well as the health and stability of millions of commercial aerospace jobs rely on free and fair trade. And we're confident our leaders understand the importance of this area not just for our business but for the overall health of our economy and competitiveness.
Turning to the commercial services market. We saw improved demand in the second quarter as we are rebounding from the trough and as airlines prepared for the summer season. We expect this trend to continue near-term slightly ahead of our expectations. That said, we still anticipate a multi-year recovery that may be uneven.
Overall industry liquidity, which remains critical for our industry and our industry's bridge to full recovery, it's been improving. Product differentiation and versatility will also be key as airlines adapt to the evolving market realities. I'm confident our product lineup is well-positioned and we're focused on executing to meet our customers' needs.
The impact of COVID-19 has been significant and a number of challenges remained, but we are seeing signs of recovery. More broadly, across the economy, we're now seeing positive indicators for economic growth. And we believe bipartisan agreements on infrastructure investment can further support growth across the economy, not just for airports and highways, but also for the tens of thousands of small businesses and suppliers that contribute to industries like ours across the country. With economic activities picking up, labor availability within our supply chain is a watch item.
As we position for a market recovery, we're taking the right actions to manage liquidity and drive long-lasting change to make our business leaner, sharper, more sustainable. We remain committed to safety, quality, transparency and I'm confident in our path forward.
And with that, let me turn it over to Dave Dohnalek.