Brian West
Chief Financial Officer, Executive Vice President, Finance at Boeing
Thanks, Dave. And good morning, everyone. Let's jump right in. Cash flow, as Dave mentioned, is our primary financial metric and it was positive in the quarter. Operating cash flow was $3.2 billion and free cash flow was $2.9 billion, both up pretty significantly versus both prior year and prior quarter, essentially driven by higher deliveries and some receipt timing.
Revenue, earnings, both impacted by charges in our defense business, where we took a $2.8 billion hit across five fixed-price development programs, which I'll go into. The macro-environment challenges that Dave described required us to make certain adjustments, including a reassessment of future period cost forecasts. These adjustments are important to our go-forward momentum as we de-risk our defense portfolio and move to more predictable performance.
And we still think about our performance in three parts and are positioning ourselves for an improving trajectory. First, we have reached important milestones across the business and made progress on commercial deliveries with the resumption of the 787 in August. Also, the 737 MAX return to service is largely complete, and we're de-risking the near-term delivery skyline for China.
Next, we started to see improvement in our primary financial metric of free cash flow. This third quarter performance puts us on track to be positive for both the second-half and the full-year of 2022. And finally, as we look to 2023, our operational and financial performance should continue to improve. The acceleration will not be as significant as previously anticipated, and our path to recovery is taking a bit longer than expected driven by the challenging macro-environment. But longer-term, there is a significant opportunity for our company to return to sustainable growth. As we liquidate the 777 and the 787 inventory, we improve execution on a de-risked BDS portfolio, and achieve certification on the MAX, dash-7, the dash-10, and the 777X development programs. We look forward to sharing our plans at our investor conference next week.
Before getting into the financials, I want to make a few points on the current business environment. Slide 3. While the turnaround is taking a bit longer, one thing that remains strong is demand for airplanes, as the commercial market recovery is playing out better than expected. We still see overall passenger traffic returning to 2019 levels in the 2023 to 2024 timeframe. And although the economic indicators point to challenges ahead, this demand has proven resilient.
In August, domestic traffic was 85% of 2019 levels, led by the US, Europe and Latin America. Going forward, the recovery will be driven by China domestic and international traffic, which remain below 2019 levels at 62% and 67%, respectively. In aggregate, commercial passenger traffic was at 74% of 2019 levels. So even with economic headwinds, we see the strength of demand continuing as air traffic recovers to its historic levels.
In defense and space, we see solid long-term markets, both domestically and internationally. In the US, there is broad support for increased defense spending in Congress to meet current challenges. And internationally, ongoing global tensions are driving our partners and our allies to announce plans for increased spending and additional capabilities for national defense. And we're working hard to support their needs.
In services, our business is well-positioned with a broad set of offerings, and we'll continue to benefit from the growing commercial fleet, our robust cargo market, and increasing defense budgets.
Turning to the supply chain, constraints continue to impact production in both our commercial and defense businesses. On the commercial side, we're focused on a few key areas, mainly engine deliveries, which is the primary constraint to 737 production rate stabilization and subsequent increases. Customers are counting on us to resolve the situation with our supply-chain partners, and we will.
We're taking actions to mitigate these impacts and support the supply chain, and, as Dave described, we've increased our on-site presence at first-tier and sub-tier suppliers to support work movement and address industry-wide shortages. And we're utilizing our own internal fabrication for surge capacity and managing safety stock inventory levels and increasing where necessary to protect risk. With overall healthy demand, finished goods inventory and a diverse backlog, we feel well positioned to navigate the current environment and are confident that our product lineup is well-suited to meet our customer needs.
With that backdrop, let's turn to the financials on Slide 4. Third quarter revenue of $16 billion increased 4%. Core operating earnings were negative $3.1 billion, resulting in a loss per share of $6.18, largely driven by $2.8 billion of defense charges. We generated $3.2 billion of operating cash flow, a significant improvement from the same period last year, primarily due to higher commercial airplane deliveries and favorable receipt timing. Also, similar to the same period last year, we benefited from a tax refund of $1.5 billion in the quarter.
Let's move to commercial airplanes on Slide 5. Third quarter revenue was $6.3 billion, up 40%, primarily driven by the resumption of the 787 and higher 737 deliveries. Operating losses of $0.6 billion and the resulting negative margin rate reflect abnormal costs and period expenses.
On the 787 program, we delivered 9 airplanes in the quarter and have 115 airplanes in inventory. The pace of deliveries from inventory going forward will be based on finishing rework as well as customer fleet planning requirements. We expect most of these airplanes to be delivered over the next two years. We continue to produce at low rate and will gradually return to five airplanes per month over time. Near term, the supply chain remains a key watch item for 787 production and deliveries. Longer term, with more than 400 airplanes in backlog, we anticipate higher production rates due to the expected wide-body market recovery. As customers return to medium-term fleet planning, we continue to have positive discussions with our customers on the 787.
We recorded $330 million of 787 abnormal costs in the quarter in line with expectations, and we still anticipate a total of about $2 billion, the most being incurred by the end of 2023. These costs are driven by rework and production rates below 5 per month.
Moving on to the 737 program, we delivered 88 airplanes in the quarter below our previous expectations, primarily due to supply-chain disruptions which impacted factory flow time. We continue to work towards stabilizing deliveries. However, given our deliveries to date, we now estimate about 375 737 airplanes this year. The monthly delivery trend is expected to remain in the low 30s into next year.
We ended the quarter with 270 MAX airplanes in inventory, down 20 versus last quarter. There were 35 deliveries out of storage, largely in line with our plan, but we also began positioning for MAX-7 deliveries and built 13 airplanes in the quarter. Of the inventoried airplanes, 138 are for customers in China. We continue to explore options to remarket some of these airplanes as we de-risk our near-term delivery plan. Based on our latest assessment of China and the dash-7, dash-10 certification timelines, we now expect most of the inventoried airplanes to deliver in 2023 and 2024 with some moving into 2025.
Moving on to the 777-9 program, development efforts are ongoing, and the program timeline is unchanged from what we shared last quarter. We still anticipate delivery of the first 777-9 airplane in 2025 and continue to coordinate with the FAA to prioritize resources across our development programs. We booked $111 million of 777X abnormal costs in the third quarter in line with our expectations, and we still expect to record about $1.5 billion of these costs through 2023, while 777-9 production remains paused.
During the quarter, we booked 227 commercial airplane orders that Dave mentioned the customers we're proud to serve. In September alone, we received orders for each of our programs, including the 737 MAX, the 767, 787, 777, 777X. And at the end of the third quarter, we had over 4,300 airplanes in backlog valued at $307 billion.
Let's now move to Defense, Space & Security on Slide 6. Third quarter revenue was $5.3 billion, down 20% and operating margin was negative 52.7%. Results were driven by approximately $2.8 billion of losses on certain fixed-price development programs. KC-46A and VC-25B made up the bulk of these charges at $1.2 billion and $766 million, respectively. We also recorded losses on the T-7A, MQ-25 and Commercial Crew Programs and saw pressures across other programs.
These losses reflect a comprehensive review of program financial estimates. While some changes resulted from new information or developments during the quarter, others were the result of our most recent assessment of estimated future performance. Adjustments were primarily due to higher estimated manufacturing and supply chain costs as well as technical challenges, which are expected to continue longer than anticipated. The cash impact of the losses we recorded year-to-date are now heavily weighted in the near-term, resulting in a cash flow usage at BDS for both 2022 and 2023. While current performance doesn't reflect where we'd like to be, for sure, we're focused on driving execution stability. These programs have an outsized impact on BDS margins and will be key to margin recovery in future periods.
On the demand side, we received $5 billion in orders during the quarter including tanker awards from both the US and Israel, resulting in a BDS backlog of $55 billion. Additionally, the Apache helicopter has been selected by the Polish military.
Now, let's turn to Global Services results on Slide 7. The Global Services business had another strong quarter, primarily driven by our parts and distribution business. Third quarter revenue was $4.4 billion, up 5% and operating margin was 16.5%. Results were driven by higher commercial volume and favorable mix, partially offset by lower government volume. We received $5 billion in orders during the quarter, including a tanker support contract for the Italian Air Force and an F/A-18 depot expansion contract. The BGS backlog is $19 billion.
With highly valued commercial capabilities and support for our defense portfolio, our service business is positioned to see continued growth. Based on what we've seen so-far this year, we anticipate healthy total services top line growth for 2022 and similar growth in 2023.
Now, let's turn to Slide 8 and cover cash and debt. We ended the third quarter with strong liquidity with $14.3 billion of cash and marketable securities on the balance sheet, an improvement of $2.9 billion since the end of the second-quarter driven by free cash flow generation. During the quarter, due to our improving cash flow and business outlook, we chose to reduce the size of our revolving credit facility capacity from $14.7 billion to $12 billion, which remains undrawn. Year to date, operating cash flow was a generation of $55 million and free cash flow usage year to date was $841 million. We expect our primary financial metric free cash flow to be positive for the fourth quarter and the full year driven by commercial deliveries.
Our debt balance is consistent with the end of the last quarter at $57.2 billion. Our investment-grade credit rating is a priority, and we remain committed to reducing debt levels through strong cash flow generation over time.
In conclusion, while we have more work to do, we're executing on our turnaround, and we've come quite a long way over the last three years. We remain focused on our own performance and taking the right actions to drive stability and growth for the future. We also continue to invest in key capabilities that will lay the foundation for the future. And through it all, our team is demonstrating exceptional resilience and dedication. More work ahead, but we're confident that we're on the right path.
With that, over to Dave for closing comments.