Boeing Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2022

Key Takeaways

  • Boeing generated $2.9 billion in free cash flow in Q3, achieving its turnaround goal and putting the company on track for positive full-year cash flow.
  • The company took a $2.8 billion charge on five fixed-price defense development programs due to higher manufacturing costs, technical delays, and supply/labor constraints.
  • Ongoing supply-chain disruptions—particularly LEAP engine and casting shortages—are expected to limit 737 MAX deliveries to the low-30s per month into 2023.
  • Boeing delivered nine 787s (with 115 in inventory) after resuming production, completed the 737 MAX return to service, and booked 227 commercial jet orders in Q3.
  • Global Services achieved a 16.5% operating margin, and Boeing continues to invest in advanced facilities, additive manufacturing, and autonomy initiatives to drive future growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Boeing Q3 2022
00:00 / 00:00

There are 14 speakers on the call.

Operator

Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's Third Quarter 2022 Earnings Conference Call. Today's call is being recorded. The management discussion and slide presentation, plus the analyst question and answer session are being broadcast live over the Internet. Again, it is 1 for questions.

Operator

After pressing 10, you will hear that you've been placed in queue. At this time, for opening remarks and introductions, I turn the call over to Mr. Matt Welch, Vice President of Investor Relations for The Boeing Company. Mr. Welch, please go ahead.

Speaker 1

Thank you, John, and good morning, everyone. Welcome to Boeing's Q3 2022 earnings call. I am Matt Welch, and with me today are Dave Calhoun, Boeing's President and Chief Executive Officer and Brian West, Boeing's Executive Vice President and Chief Financial Officer. As a reminder, you can follow today's broadcast and slide presentation through our website atboeing.com. As always, we have provided detailed financial information in our press release issued earlier today.

Speaker 1

Projections, estimates and goals we include in our discussions this morning involve risks, including those described in our SEC filings and in the forward looking statement disclaimer at the end of this web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of certain non GAAP measures. Now I will turn the call over to Dave Calhoun.

Speaker 2

Matt, thanks. Welcome to everybody. Thanks for joining I will acknowledge upfront that our plans for the investor conference middle of next week. We're looking forward to them. We hope we can give some guideposts for the forward look in the Boeing Company.

Speaker 2

So many of our comments today will be a little shorter And as usual and focused strictly on the quarter, this quarter was a big one for us. We hit a marker, Mark, we've set since the beginning of our turnaround effort in the beginning of 2020, and that was to generate positive free cash flow. So we generated $2,900,000,000 in the quarter. That puts us on the path that we projected for 2022, which was positive. So again, very important accomplishment for us and I think begins the real turning point for the company.

Speaker 2

At the same time, we took a charge on our fixed price development contracts. These are contracts that we have talked about now repeatedly On these calls, we believe as we always do that the charge that we took is meant to complete these contracts, Ultimately to deliver them to satisfied customers in the Air Force, the Armed Forces. Anyway, we're not embarrassed by them. They are what they are, and we intend to deliver Against these contracts and satisfy our customers. Without a doubt, and you've heard it from all of the earnings calls over the course of the week.

Speaker 2

The supply chain, inflation, labor shortages, macroeconomic challenges are challenging for everybody. That is reflected in these Q3 calls, again, the charges in our fixed price development world, etcetera, All of that's embedded. We're not anticipating or suggesting that the supply chain world is going to get much better In the near term, we expect it will continue to be challenged over the course of 2023. One of our problems is not demand. Demand is very strong.

Speaker 2

It's strong across the portfolio of products and it's strong across the world with all of our customers. Why? Because their demand is strong, bookings in pretty much every geography is strong with the exception of China, But also their concerns about the very supply constraints that we're all referring to, Sort of force them to want to get in line and get their orders in so that they have the lift they need as the world returns to some normal state. What's our job in this supply constrained world? Well, in the factories, we don't push the system too fast.

Speaker 2

We slow down when we have to and we try not Compound problems that may arise from the supply chain or from our own shops. We've added more than 10,000 people this year and we're investing in training and development to accelerate their experience curve and improve our productivity over time. And we're driving stability in the supply chain. We've introduced all kinds of on-site Technology digital tools to watch what they're doing, but also we've added people to those organizations that are more challenged than others. And we've increased inventory safety stock wherever we can.

Speaker 2

Truth is, it will still take time to normalize and our objective And the investor conference that lies ahead is to give you that projection as to how and when we think that is likely to happen. Despite the challenges, I'm very pleased with the progress broadly. Our 87 deliveries have returned. It's a reflection on us focusing on the right things. Strict conformance with respect to our manufacturing processes is very important.

Speaker 2

We've gotten it right and the delivery process has started and so far so good. On the 737 MAX Return to service. Again, philosophy is 1 at a time. A 1,000,000 revenue flights, exceptional schedule reliability. That's what we've experienced and that is why the folks who have leaned into the MAX continue to lean into the MAX and continue to place orders with us.

Speaker 2

In total over the quarter, 227 orders for airplanes, WestJet, UPS, Cargo Luxe, China Airlines, just a few. Again, very strong. You probably have seen today Alaska has upped their commitment to the MAX, and We greatly appreciate it from all of them. In a strong demand and yet supply constrained world, our inventory, The finished goods inventory that we have is an asset, not a liability, and we use it to derisk that delivery outlook. And as for China, we continue to de risk.

Speaker 2

That's been our objective. We still would like to deliver airplanes China, we continue to support our customers. We continue to support the regulator. As we all know, the COVID restrictions and policies in China, Have reduced demand for airplanes in general, and we hope that is what is restricting the acceptance of our The airplanes that they have on our tarmac, but we also are clear eyed about the geopolitical risks that are out there and we are not going to impart new risks on our investors, and we believe we can derisk what we have. We're progressing on our development programs, the -seven, the -ten, the 777-nine and the -eight Freighter, all of these are progressing well.

Speaker 2

As everybody knows, we are up against a deadline here at the end of the year. We remain confident that we can get an extension of that deadline because this is the safe answer and we've heard from Airlines, we've heard from pilots, we've heard from our workers, associates, and we know that the FAA has been putting in the work to certify these airplanes. So we remain not just hopeful, but confident that we can get this across the finish line. And then those airplanes, as many of you know, Complete that narrow body portfolio in a way that allows us to compete head to head with our important competitor Airbus. BDS, Boeing Defense, yes, we have these fixed price development challenges, but we have a rich portfolio.

Speaker 2

We delivered 4 MH-139 GrayWolf test aircraft to the U. S. Air Force. We received contracts for additional KC-forty 6A tankers for both the U. S.

Speaker 2

Air Force and the Israeli Air Force. And despite the challenges on our real development programs that The tanker T7 and MQ25, we still remain confident in their long term success and contribution to our cash flow. And then Boeing Services, BGS, just another very strong quarter. They're trying to keep up with demand the best they can. They delivered their 100th contracted 730seven-eight 100 Boeing freighter conversion to AerCap.

Speaker 2

We've got key awards in both commercial and defense customers and things are going well and margins continue to expand. And then finally, we have not stopped investing in our foundational capabilities. We had some pretty good examples of that over the course of the quarter. We opened 3 advanced facilities across the country, composite fabrication, additive manufacturing and an important autonomy investment alongside MIT, just in Cambridge. Also very excited about Wisk's unveiling of the world's first Autonomous self flying 4 seat all electric vertical takeoff and landing air taxi.

Speaker 2

There's a very bright future ahead for that. And with respect to autonomy and its advancement in the world of certification, it's a very, very important part of our strategy. So we're making great progress. I feel good about our turnaround. I do think the cash flow numbers in the quarter are in fact a marker for us.

Speaker 2

We've been focused on it. We will continue to manage the company on the basis of the cash economics that we support our investors with, and that will be that. So I'm happy to turn it over to Brian now

Speaker 3

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 $3,200,000,000 and free cash flow was 2,900,000,000 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 $2,800,000,000 hit across 5 fixed price development programs, which I'll go into.

Speaker 3

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 derisk Our defense portfolio and move to more predictable performance. We still think about our performance in 3 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 7 37 MAX return to service is largely complete and we're derisking The near term delivery skyline for China.

Speaker 3

Next, we started to see improvement in our primary financial metric of free cash flow. This 3rd 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. The longer term, there is a significant opportunity for our company to return to sustainable growth.

Speaker 3

As we liquidate the 37 and the 87 inventory, we improve execution on a derisked BBS portfolio and achieved certification on the MAX-seven, the -ten 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.

Speaker 3

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 time frame. And although the economic indicators point to challenges ahead, this demand has proven resilient. In August, domestic traffic was at 85% of 2019 levels, led by the U. S, Europe and Latin America. Going forward, the recovery will be driven by China domestic and international traffic, which remain below 2019 levels at 62% 67%, respectively.

Speaker 3

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 2 recovers to its historic levels. In defense and space, we see solid long term Markets both domestically and internationally. In the U. S, there's 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.

Speaker 3

In services, our business is well positioned with a broad set of offerings and will 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, namely engine deliveries, which is the primary constraint to 7 37 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.

Speaker 3

And as Dave described, we've increased our on-site presence at 1st 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. 3rd quarter revenue of $16,000,000,000 increased 4%.

Speaker 3

Core operating earnings were negative $3,100,000,000 resulting in a loss per share of $6.18 largely driven by $2,800,000,000 of defense charges. We generated $3,200,000,000 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 $1,500,000,000 in the quarter. Let's move to Commercial Airplanes on Slide 5. 3rd quarter revenue was $6,300,000,000 up 40%, primarily driven by the resumption of the 787 and higher 737 deliveries.

Speaker 3

Operating losses of $600,000,000 and the resulting negative margin rate reflect abnormal costs and period expenses. On the 87 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 2 years. We continue to produce at low rate and will gradually return to 5 airplanes Near term, the supply chain remains a key watch item for 87 production and deliveries.

Speaker 3

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 87. We recorded $303,000,000 of 87 abnormal costs in the quarter, in line with expectations, and we still anticipate a total of about $2,000,000,000 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 37 program.

Speaker 3

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 delivery 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.

Speaker 3

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 derisk our near term delivery plan. Based on our latest assessment of China and the -seven-ten certification timelines, we now expect most of the inventory airplanes to deliver in 2023 2024 with some moving into 2025. Moving on to the 7 seventy seven-nine program, development efforts are ongoing and the program timeline is unchanged from what we shared last quarter.

Speaker 3

We still anticipate delivery of the first 7 seventy seven-nine airplane in 2025 and continue to coordinate with the FAA to prioritize resources We booked $111,000,000 of 777X abnormal costs in the 3rd quarter, in line with our expectations and we still expect to record about $1,500,000,000 of these costs through 2023 While 7 seventy seven-nine production remains paused. During the quarter, we booked 2 27 Commercial Airplane Orders, Dave mentioned, the customers who we're proud to serve. In September alone, We received orders for each of our programs, including the 737 MAX, the 767, 787-777X. And at the end of the Q3, we had over 4,300 airplanes in backlog Valued at $307,000,000,000 Let's now move to Defense, Space and Security on Slide 6. 3rd quarter revenue was $5,300,000,000 down 20% and operating margin was negative 52.7%.

Speaker 3

Results were driven by approximately $2,800,000,000 of losses on certain fixed price development programs. KC-forty 6A and VC-twenty 5B made up the bulk of these charges at 1,200,000,000 and $766,000,000 respectively. We also recorded losses on T7A, nq25 and commercial accrued programs and saw pressures across other programs. These losses reflect a comprehensive review of program While some changes resulted from new information or developments during the quarter, others were the result of our most recent assessment of estimated future 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 20222023.

Speaker 3

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 $5,000,000,000 in orders during the quarter, including tanker awards from both the U. S. And Israel, resulting in BDS backlog of $55,000,000,000 Additionally, the Apache helicopter has been selected by the Polish military.

Speaker 3

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. 3rd quarter revenue was $4,400,000,000 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 $5,000,000,000 in orders during the quarter, including a tanker support contract for the Italy Airports And an FA-eighteen depot expansion contract. The BGS backlog is $19,000,000,000 With highly valued commercial capabilities and support for our defense portfolio, our service business is positioned to see continued growth.

Speaker 3

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 3rd quarter with strong liquidity With $14,300,000,000 of cash and marketable securities on the balance sheet, an improvement of $2,900,000,000 since the end of the Q2 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 $14,700,000,000 to $12,000,000,000 which remains undrawn. Year to date operating cash flow was a generation of $55,000,000 and free cash flow usage year to date Was $841,000,000 We expect our primary financial metric free cash flow to be positive for the Q4 and the full year driven by commercial deliveries.

Speaker 3

Our debt balance is consistent with the end of the last quarter at $57,200,000,000 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 3 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 and key capabilities that will lay the foundation for the future. And through it all, our team is demonstrating exceptional resilience and dedication.

Speaker 3

More work ahead, but we're confident that we're on the right path. With that, over to Dave for closing comments.

Speaker 2

Yes, I'll keep it short and sweet. We're on a turnaround. We've been on a turnaround. We've made very important progress with our regulators. We've made very important progress with our customers and even more importantly the flying public.

Speaker 2

And now we're wrestling through supply chain And when we get through it all, we'll get back to normal and ultimately deliver what our shareholders are expecting. So I'll leave it at that and open up to questions.

Operator

Please use your handset to ask a question. As a reminder, in the interest of time, we are asking that you limit yourself to one single part question. Our first question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.

Speaker 4

Hey, good morning, Dave and Brian.

Speaker 2

Hi, Sheila.

Speaker 4

Hi. You started the call with comments around the supply chain challenges that you're seeing and you talked about it last And it doesn't seem inventory is the issue and it's mostly engines. So what sort of steps is the team taking to work with suppliers to resolve these risks? And how do you expect it to impact the output and ultimately deliveries? I think you mentioned low 30s through next year on the MAX.

Speaker 4

Historically, you said 8 to 10 out of inventory. So how do we think about the production pipeline there?

Speaker 2

Well, that let me start with Steps, I'll let Brian maybe quantify best he can. But I the steps are they're as clear as they can be. We've been talking about this for quite a while. We get on regular calls with our counterparts at the engine suppliers. And as you know, in our case, it's predominantly CFM and then GE broadly across the wide body fleet, So we literally go down through all of those schedules.

Speaker 2

It inevitably comes down to castings and the Support that they get from the 2 big casting suppliers. So, the best thing I can say now is that, We are clearly on the same page, ourselves and our suppliers. We are taking steps to increase in a very gradual and I hope in a disciplined way, the increase in rate with respect to castings and then ultimately from engines to us. I don't want to predict outcomes on that front. I think the most important thing is we're not being surprised as frequently as we used to be.

Speaker 2

And I do think that the engine suppliers are getting their heads their arms around things in a much better way than they had previously. So, that's really the situation as it is. I am confident that the industry will step up, but it will take more time than I Probably had hoped when we started these conversations and I suspect it won't be till that we get to the sort of end of next year before we can really make Sizable rate increases with respect to that constraint. Brian? And what

Speaker 3

I would say is that, my comment on being in the low 30s, year to date, we've been in the low 30s. And as we turn the quarter into next year, that all of a sudden is going to snap up to a 40 type number. So it's going into the year. We're going to be constrained, as Dave mentioned, largely by the engines and it will be that low 30s. But as we get through next year, That rate will go up, and we'll talk a lot more about that next week.

Speaker 4

Great. Thank you.

Operator

Next, we'll go to Myles Walton with Wolfe Research. Please go ahead.

Speaker 5

Thanks. Good morning. I'm wondering on the defense charge, obviously, we've gone through a number of these, but they sort of keep growing in magnitude. And Was there anything different, tripwire wise that triggered the size and expansiveness of this charge? And I know you gave more color on the slip out of the tanker, which seems to continue to happen.

Speaker 5

But maybe was there a triplier number 1? Number 2, this forward losses that have accumulated on the balance sheet, The size of the headwind in 2023 versus what you experienced in 20 22 would be helpful. Thanks.

Speaker 3

Yes. Thanks, Miles. Let me get to the last Park, it's going to be about the same in terms of the headwind, to answer your last comment. Our BDS portfolio, the 85% of the business is doing pretty well. It's these fixed price development programs that Unfortunately, we're working our way through.

Speaker 3

We had to account for recent performance, including a reassessment of our forecast Cost complete, there's no doubt about it. The biggest impact was the tanker, as you mentioned, at $1,200,000,000 It was driven by 2 things. The supply chain constraints and specifically parts shortages, have been persisting and they likely will persist longer than we had contemplated. And then 2, this labor instability. As you know, all airplane programs contemplate a learning curve improvement over time.

Speaker 3

And we adjusted our assumptions because labor stability is an issue that is likely to continue into the future. We can hire, it's getting the workforce trained and up to Speed that we had account for in this particular period. We applied the similar framework to the VC-twenty 5B Where the labor stability issues are magnified because of the requirement to get security clearances. And that's also contributed to schedule shifts. So those are the 2 big ones.

Speaker 3

And it's just at this moment, the provision reflects what we think is likely to happen in front of us. The other bucket Really relates to what I would call true development, which is NT-twenty 5 T7 and commercial crew. We did adjust for similar macro constraints where needed, But there's also a recognition there's technical challenges that we're working through and sometimes it impacts schedule. But overall, we feel very confident about those programs long term and the benefits that will accrue once we get them out in the market. So there's no doubt that we derisk these programs.

Speaker 3

The 2 big ones For the next 2 years, and I'm not suggesting perfection, but we've definitely lowered the risk profile. And for the smaller programs, in some cases, we derisked even longer. I think that the thing we got to keep in mind is that our mandate is to stabilize and now deliver very important products to our customers Who need them? Anyway.

Speaker 6

Okay. And then just

Speaker 5

a quick clarification on the tax refund, you've had one last year this year. Do you anticipate another one next year or no?

Operator

No. Okay. Thank you. Our next question is from David Strauss with Barclays. Please go ahead.

Speaker 7

Thanks. Good morning. Brian, you made the comment that I believe the recovery is not accelerating as fast as you expected. I'm sure you'll give us a lot more on this next week, but maybe some broad strokes as to what that means in terms of the trajectory of free cash flow generation from here and your ability to delever as you have a fair amount of maturities coming due in the first half of next year.

Speaker 3

So I'd answer that question. We're confident that we will be able to the maturities in front of us. We'll talk a lot more about that. But given the fact that where we ended the quarter with our cash balance $14 plus 1,000,000,000 plus being able to be cash flow positive in the 4th quarter, that's not a concern. In terms of the rate of change, we have a supply chain, as Dave mentioned that we've been dealing with And it's been reflected in our commercial deliveries through the course of the year.

Speaker 3

And we're working our best to stabilize and get more predictable. But, while it may not be quite the rate of acceleration going forward, momentum is going to improve. It just could take a little bit longer and we're going to share a lot more about that with you But in terms of our liquidity position, what's in front of us, high degree of confidence.

Speaker 7

Okay. Quick follow-up. The airplanes that you have in inventory for China, how many of you how many of those have you remarketed at this point?

Speaker 3

Well, there's active discussions with customers about that topic. More to come in terms of things getting finalized, but it's an active discussion so that we No longer defer that decision and actually start to think about how we liquidate that in terms of Working capital improvement and cash flow. More to come, and we'll keep you updated.

Speaker 7

Thanks very much.

Operator

Next, we'll go to Peter Arment with Baird. Please go ahead.

Speaker 8

Yes. Good morning, Dave and Brian. Dave, maybe I could just circle back on the China question that David was just talking about. Have you seen any kind of positive movement from customers over there regarding wanting Max, and right now you're up to 51% of the storage fleet is tied to China with 138 aircraft. And just How you're thinking about that?

Speaker 8

Because that obviously that percentage is going to continue to grow. Thanks.

Speaker 2

Yes. So I'll start with my hope. My hope is That these 2 big geopolitical forces get together and endorse free trade again and that COVID policy ultimately, lightens sometime in the future in China so that they can take more deliveries of airplanes. So we're going to keep supporting our customers, keep supporting their regulator every step of the way, but we are also going to take steps to derisk. I have not gotten a single signal And I'm surprised by it.

Speaker 2

They're going to take deliveries in the near term. So we are going to continue. We're going to we have begun and we're going to continue to remarket These airplanes as we move forward and we're confident that there's a market for it, not a little market, but a big market. In some ways, there are So a lot of ways we could take advantage of it. I would prefer not to take advantage of it.

Speaker 2

I prefer to just reinstate deliveries with our China customers. But anyway, that's the course we're on. It hasn't really changed much, but it is really hard for me to find signals That things are going to change in China and move in our direction. So hopefully that will give you everything you need here in terms of the way we're likely to move.

Speaker 8

And just as a follow-up, Brian, just the 8 to 10 out of storage, is that still a good number on a monthly basis? Thanks.

Speaker 3

Yes.

Speaker 9

Thank you.

Operator

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

Speaker 9

Yes. Hey, good morning, guys. Thanks for the time. You mentioned on the call that your primary focus metric is going to be free cash flow. In the past, focusing on free cash flow got the company to where it is today that didn't end very pretty.

Speaker 9

How are you viewing that differently than how it was viewed in the past? I mean, Dave, you were on the Board when a lot of your decisions were made in the past. So, I mean, what's How are you going to view this cash focus different than you did, call it, Yes, Ron,

Speaker 2

I'm not going to comment on the past. I'm not sure that's helpful to anybody. Our need to focus on Free cash flow, as a result of having taken a significant amount of debt on in light of the crisis that we had, Some self inflicted, some definitely COVID related as it relates to the marketplace and all the things that we've had to contend with. We took on a lot of debt. Shareholders told us it would be great if you got rid of that debt sooner rather than later.

Speaker 2

And so we've been focused on free cash flow. It is a great metric, period, in terms of how we measure all of our people and the work that we're doing. It does not suggest That we have stopped investing in new capabilities that will ultimately differentiate this company and bring it right back to the leadership role it's always enjoyed. So I'm probably not going to take the bait. I do have confidence that we are doing exactly what we need to be doing and the free cash flow metric It's a very clear indicator of performance, not just in the near term, but also the medium and long term.

Speaker 2

So sorry, but that's the answer.

Speaker 9

No, that's fine. And if I may, just a quick follow on. Of the 787s you have in inventory, can you give us a sense on how many are like ready to be delivered? How many have to be Pickled, how complicated a process that is?

Speaker 3

Well, thanks, Rod. They all have to go through a prescribed set of rework. We've been very clear on that and we've contemplated, what that is going to take. And now it's up to, our great team, in And it's going well. It's early innings, but it's going well and we have high confidence that they will get done what they need to do to get those inventory inventory airplanes in the customers' hands over the next 2 years.

Speaker 9

Great. Thank you.

Operator

Next, we'll go to Seth Seifman with JPMorgan. Please go ahead.

Speaker 10

Thanks very much and good morning. I just wanted to dig in a little bit more on this issue of engines And Castings, LEAP deliveries were up significantly in the Q3 and it sounds like they see things getting better. Haven't gotten the impression from Airbus that they're expecting quite the pressures next year that you are. It seems like they expect that things are getting better. Is that because most of the leaps are going there and you guys have to wait longer?

Speaker 10

Or is there More to it or are these increasing CFM deliveries? Is that not really enough to help you guys?

Speaker 2

Yes. So just in context, things are getting better. They are getting their hands around things and they're beginning to project forward. The real issue for us is simply when I refer to constraints, it's because we have such huge demand for the airplanes That we wish we could do double the rates. That is why we will refer to this as a constraint and a difficulty.

Speaker 2

The measurement of where engines are going with respect to Airbus versus us is the easiest thing in the world to measure. And so we're well aware of it and we don't see any indication that One is being favored over another. And then with respect to maybe suggestions that they're not having any trouble, that's Not what the industry tells us and frankly that's up for them to explain and to all of you and I'm sure they will. So I'm not worried about this as the industry favoring one over the other. It's too easy for both sides to measure and to hold people accountable.

Speaker 2

And yes, it's improving, but it's nowhere near where we all want it to be because the demands or demand on our airplanes is just so strong.

Speaker 10

Okay. Just to be clear then, it is the engines though that is preventing Boeing from delivering 737s off the line between, let's say, the expected pace of 20 a month to be at a total delivery pace of low 30s versus the nominal production rate of 31 a month. So they're only able to get you engines to deliver at roughly 20 planes per month or so?

Speaker 2

Yes. We're short of engines. We have a clear picture of what it's going to take to make it up and we'll get back on rate. But yes, the answer is yes.

Speaker 10

Okay. Thanks very much. Yes.

Operator

And next we'll go to Noah Poponak with Goldman Sachs. Please go ahead.

Speaker 11

Hi, good morning everyone.

Speaker 3

Hi Noah.

Speaker 11

A lot to work through, but it seems like What underpins some large portion of your challenges is labor availability, both for yourself, for the supply chain, seems like it's behind A decent amount of the defense charges. Can you put some numbers on it? How many people do you need to hire? How far into that have you broken? When you say it takes time to get somebody trained and seasoned, how long does that take?

Speaker 11

And do you have those numbers in the castings part of the supply chain? I mean, how many people do they need to hire and how far along are they? And where are all these people going to come from given the macro level openings versus workers gap?

Speaker 2

Well, that's a big complex and macro question. I'll start with us. We have brought on 10,000 people. We are at at a headcount level that we think can handle rate increases and all the things that we need inside our own shop. We have significant training and development programs and investments that are being made as we speak, so that we are productive With the introduction of all of these new people, I don't have a number with respect to All of the supply chain constraints and labor shortages that they might have, but a lot of our constraints And with those suppliers that represent constraints are labor related.

Speaker 2

Some, Like in the casting world, are little more labor and experience related because you may know in the casting world that is not a simple process. It's Not just bring in people and start them up. There's a real learning curve and cycle that is needed to sort of ramp up capacity. So I don't have a sort of big number for you. I wish I did.

Speaker 2

I know this, all of us in this industry are wrestling through these We try to compare notes. We're trying to help our suppliers on the commodity side with our own contracts and the application of those contracts to their needs. And then on the labor side, anything that we can do to help them find people, that's what we do. And we often second or send our own people out there to help them. So it's this is just what we're in.

Speaker 2

I think it's going to take probably all of next year before things really do begin to stabilize because we begin to see layoffs in other industries. We definitely feel that in the software world. We're not having any kind of trouble bringing in the engineering resources that we need, particularly as it relates to software development because The rest of the industry that competes with us is beginning to soften considerably. So, I wish I had a big specific number and an easy resolution. I don't.

Operator

Our next question is from Rob Spingarn with Melius Research. Please go ahead.

Speaker 5

Hi, good morning.

Speaker 12

Dave, a couple for you. You've said numerous times today that demand is not the issue. So I was going to ask if you could talk about the developing wide body cycle And the environment for that and could it mitigate some of the narrow body issues in China, in other words selling wide bodies into China? And how might that influence your rate plan For 87 and 777 freighter?

Speaker 2

It's a great question. Number 1, I The wide body world is heating up. There are some significant orders out there that we're all competing for. So that's just a reflection of the markets that are returning, largely international based, but a lot of domestic Carriers as well. So anyway, big robust.

Speaker 2

The answer on China is just as You're suggesting and the premise that underlies it, which is that is the airplane, they're going to likely need from us more than any other. They don't have a domestic alternative. And I don't believe that a single provider from France can Meet those requirements. So and we do get orders, but they are, I put them in the incremental category, for Airplanes, large wide bodies, freighters in particular from China, does that ramp up? It's not something we're counting on, But it could.

Speaker 2

And if it does, that will compete for a very crowded skyline. So, again, If China really does rebound and we can get the geopolitical tensions to calm down somewhat, that's going to present another challenge for us on the demand and the Supply front, but one we would welcome and probably be upside to whatever guidance we provide next week.

Speaker 12

Okay. And just to clarify, slightly different topic. How does this BDS review differ from prior reviews? How confident are you You've captured everything here.

Speaker 2

Yes. Well, Ken, I'll start and then I'll let Brian and Diane to talk. So the best, I mean, fact set that we can give is number 1, we're getting closer to the end of these programs. So we're getting work done. We know more.

Speaker 2

We see more. We're also running out of time with respect to learning curves. There's no time to Develop learning curves, they take a couple of years. We don't have a couple of years. So we don't have any baked in learning curves anymore.

Speaker 2

We are simply saying These supply constraints that we're facing today will not end until we finish. So we're trying to assess these programs with real Clarity and realism with respect to what we're experiencing now and not projecting significant improvements in the future. So It's for me, that's sort of the set around it. It's definitely the way we went into it. And of course, Brian has been through every little detail.

Speaker 2

So Brian, I'll let you add.

Speaker 3

I don't much to add other than, we sit in this environment and you can't ignore these macro constraints and how they impact these programs. And That just is what happened this quarter. But the thing that we've done our best to do is de risk and de risk, as Dave mentioned, Some of these assumptions and future cost forecasts. So, we'd like where we closed the quarter of our position. We do it every quarter and we feel confident.

Speaker 3

This particular quarter, it really was through recognition of the very rapidly changing environment That, it's persistent and, can't assume it's going to get better anytime soon.

Speaker 12

Thank you, both.

Operator

Our next question is from Cai von Rumohr with Cowen. Please go ahead.

Speaker 13

Yes. Thank you for taking the question. So I guess I kind of get the $2,800,000,000 on the development program, although that seems large. What confuses me is that Excluding the $2,800,000,000 all those mature programs, F-eighteen, F-fifteen, Apache, etcetera, Looks like they're at breakeven. They're making no money when Lockheed and GD have their issues.

Speaker 13

But basically, the mature stuff

Speaker 2

Brian, you probably ought to grab that one.

Speaker 3

We saw across some of these other programs similar disruptions in terms of both factory stability, part shortages, labor. So those weren't immune at all. It's just that they're not magnified in the sense that there are these big fixed price development programs that have these reach forward losses embedded in

Speaker 2

Got it. And then I have You know in making comparisons across our companies, our BDS is Programs only. It's not including the government services part of our business, which continues to run at reasonably healthy margins and does its thing. So I know you know that, but I just want to point it

Speaker 13

And then so I mean we've seen sort of a whole set here. We thought Q1 $900,000,000 got it done. Now we have $2,800,000,000 What should we be looking for to see to feel confident

Speaker 2

It's better everything. So I don't want to tell you anything other than that. Our objective is to make sure these tankers Doing the job for our military customer. That is it. That's all we're focused on and they are doing that and they are now permitted to do all the missions that are required.

Speaker 2

So, we are knocking down risk and we are implementing these programs. And So I am confident we're going to get where we need to get and you'll be confident when you see the numbers play out the way I expect them to play out. Yes.

Speaker 3

As you know better than anyone, these are complicated programs, lots of assumptions, lots of moving parts, Backdrop of a volatile environment, we did our very best to derisk.

Speaker 13

Great. Thank you.

Speaker 1

Operator, we have time for one last question.

Operator

And that will come from Doug Harned with Bernstein. Please go ahead.

Speaker 2

Good morning. Thank you. Hi, Doug.

Speaker 6

Hi. I wanted to go back to the MAX Great and engines, because on the earlier I think Seth's question earlier talked about The LEAP's out there and we're looking at GE just reported 347 LEAP deliveries for the quarter. We are seeing Airbus finally and they've struggled, but finally that the lead powered A320 seem to be coming through. When I look at if we look at the numbers and you at sort of the target Production rate of 31 a month and look at what Airbus is doing, it seems like CFM is finally getting there. And then on top of it, We know that well over 100 LEAPS were delivered ahead of production before.

Speaker 6

So I'm just trying to understand how the engines can be the main constraint here. Is there another issue that's also slowing down the delivery rate or the I'm sorry, the production rate?

Speaker 2

Doug, no. I can try to reconcile numbers. All I can tell you is I Personally witnessed alongside my counterpart a GE reconciliation of the engines we need to deliver the airplanes and the engines they're producing on weekly rates. And so we just have we have a gap. We got room to make up and we're going to get there, but it's going to be at a constrained rate and we know that and That's what we're trying to factor into our forward looks and that is what you will see when we get together next week.

Speaker 2

So there is no other constraint, Doug, with respect to our rate projections and others. There are lots of weekly Constraints that just simply impact the stability of the line, but they are not going to be rate limiters, either short term or long It will boil down to engines and the competition for castings between Pratt and CFM.

Speaker 6

And then if I can just follow-up with one more thing, which when you guided early in the year to positive free cash flow for the year, Was that including the assumption of this tax benefit that we saw this quarter? Because just wondering if you're Thinking about positive free cash flow still in the absence of that sort of $1,600,000,000 additional benefit here?

Speaker 3

It was contemplated, Doug.

Speaker 6

Okay. So that's part of the outlook you had. Okay.

Speaker 3

Sure. Okay, great.

Speaker 2

All right. Thank you. Thanks, Tony.

Speaker 1

All right. That completes The Boeing Company's Q3 2022 earnings conference call. Thank you all for joining.

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