BA
#Good morning, <UNK>.
You got it.
It's mix.
It's narrow body mix within the quarter.
That's really the biggest driver there, <UNK>.
Yes, a little bit less than that on the 87.
Yes.
There was not a big difference.
I would say relatively flat.
When you look at the margin for the quarter, it's what you said.
There's some mix in the quarter, a little bit on escalation, then higher R&D, as we said, as we're ramping up the 777X.
So as I look at the next three quarters ahead, we'll have more favorable mix in there and the R&D profile will be a little bit different.
So, that's how we see the path to the guidance for the balance of the year.
Correct.
you bet.
On the overall book-to-bill, once again this year we're anticipating a book-to-bill of about 1, so similar to last year.
As you know, timing of orders is a little hard to predict, but, generally, when we look at order volume and energy in the marketplace we'd say book-to-bill of about one and continuing healthy opportunities around the globe.
Most of that, again, driven by passenger growth and replacement demand from our customers, lesser of that driven by cargo; as I mentioned earlier, the cargo market remains flattish.
The prominent demand there is in the narrow-body arena, so 737 sales opportunities for the MAX remain very robust globally.
Wide-body demand, not as hot as narrow-body demand, but still strong, especially in areas where it's driven by passenger growth, Middle East and Asia Pacific, in particular.
We're seeing that in continuing solid orders volume for 787 and for the 777.
And as I said, on 777, that current generation, we're targeting 40 to 50 sales a year to fill the bridge.
We still have work to go, but we've successfully sold 11 so far this year, so roughly on track, but we still have some work to do to fill the remainder of the bridge.
We have about a dozen or so very significant campaigns underway for the 777, so while we have work to do, we also see the opportunity to complete the filling of that bridge.
On the other side of the bridge, the 777X remains in a very strong market-differentiated place.
And if we looked out to the future on wide bodies between 787 and 777X, in particular, we feel very strong about the product lineup that we have.
So overall, a healthy, steady market demand, book-to-bill of about 1 this year, heavier weighted to the narrow-body side, but seeing reasonable demand in both narrow bodies and wide bodies.
Good morning, <UNK>.
You bet.
Hey, <UNK>, good questions.
And, first of all, on your overall margin question, <UNK>, I'll look back to you on the back end to comment on that.
But you saw in the first quarter that we did take the $0.24 charge on Tanker.
We were able to offset the majority of that which is good solid performance and <UNK> can walk you through some of the offsets there, but one of the reasons that we've reaffirmed our year-end guidance is that the first-quarter performance that we've seen broadly across the enterprise, some of the work we're doing to drive productivity, that I talked about earlier, and our plans for the rest of the year give us confidence that we will overcome that $0.24 charge and that's one of the reasons we're holding our year-end guidance.
I'll let <UNK> comment more on that later.
But specifically to Tanker, you're right, a lot of focus on that, and I can tell you that we have raised the level of enterprise focus on executing and delivering on that program.
We've, as you've seen, made some personnel changes to provide some additional oversight and emphasis on the program.
Leanne, as she has stepped into her new role is playing a strong role there along with <UNK> Fancher in teaming up with Ray and the team on the commercial airplane side, so we've got the right people on the program.
A few milestones ahead of us is completing milestone C, testing, the production approval decision.
We are about 80% complete on the flight testing that's required for milestone C and we are moving towards completion of that milestone and approval around the end of the second quarter.
Again, that's subject to the normal US government process.
The next major milestone beyond that will be delivery of the first 18 tankers and we remain on schedule to do that August of 2017.
And you're right, we have invested some money to hold that schedule.
We think it's the right thing to do.
It delivers on our customer commitments; it delivers on an important program; and we're committed to hitting that schedule; and it allows us to accelerate our movement into the production program.
Ultimately we still see this, in the long run, as a franchise program, a market of around 400 aircraft and one that will produce profitable growth for decades to come, both in terms of production and support to our customers.
So without question, this is an investment worth making.
While we don't like taking a charge, we're confident that we're doing the right things here.
We've got the right people on it.
We are now in the final stages of the development program.
And to your point about putting a nail in it, we are not now discovering new technical issues.
Frankly, this is about the fact that we are concurrently finishing up development and ramping up production.
We've got the first 7 production aircraft flowing through our Everett factory now.
In our supply chain, we're already out to airplane number 15.
So you can see there's some concurrency cost.
That is an intentional investment we're making to keep the program on schedule.
We are closing in on it.
We're not done yet.
We're going to be very focused on getting to the finish line, but I'm confident we'll get there and also confident that this is going to be a great program for our customers and our Company for decades to come.
<UNK>, you want to provide any other color on ---+.
Yes.
I think you hit the high points, <UNK>.
Yes, certainly, <UNK>, for the balance of the year, it just got more challenging and we've got a path forward to meet the guide, even taking that into consideration, but we're accelerating our productivity efforts and focus in the area to ensure that we do and we're all committed to doing that.
So we'll keep marching ahead, quarter by quarter, to make sure we achieve what we put out there.
Thanks, <UNK>.
Operator, we have time for one more question.
I think on the R&D, <UNK>, that's about right.
There's obviously some moving pieces in there as 777X starts to ramp up and Dash10 profile turns down around with MAX.
Generally, quarter by quarter, you're going to look at a similar trend right now.
And, <UNK>, on your question about the 737 family, we continue to have a very good dialogue with our customers about their future needs.
As you know, the MAX-8 is now through the production system, we've got three aircraft in flight tests.
That airplane is looking very good and we're confident that's going to add a lot of value for our customers.
We're continuing to see strong sales of the MAX family overall, as we take a look at the MAX-7, sort of the lower seat end of that family of aircraft, that is an area where we're having active discussion with our customers.
You know, it's too early to give any specific details or decisions, but I think it's worth saying that that airplane is viewed very favorably by our customers; we have a very clear value proposition that will add value and operating-cost reduction for them.
And we also have the flexibility to design it to meet their needs.
So we'll continue those discussions, and as we reach decision points, we'll make sure to make everybody aware, but we remain very confident on the MAX introduction, the transition and the value it will add to our customers.
Thank you.
We will continue with the questions for <UNK> and <UNK>.
If you have any questions following this part of the session, please call our Media Relations team at 312-544-2002.
Operator, we're ready for the first question and, in the interest of time, we ask that you limit everyone to just one question, please.
Hi, <UNK>.
Yes, <UNK>, let me give you a little context around this because when we pursue productivity and cost competitiveness, we look at all categories of cost.
So certainly, direct labor costs, head count is one of those, but there are many other factors.
In fact, other factors that are larger than direct head count, indirect costs, overhead, infrastructure, facilities, supply chain.
As a reminder, a good portion of our cost is outside of Boeing, so that's where our partnering for success initiative comes in.
So we have set cost reduction and productivity targets that span all of those cost categories.
In some cases that does put pressure on head count, and you've seen that, but it's not something where we set a head count target or apply the same formula everywhere.
It's really important that we give our business leaders and functional leaders the flexibility to tailor their cost structure to be competitive.
So it's not a one-size-fits-all and the business dynamics are very different in different parts of our businesses and different sites.
So that's important from an overall context standpoint.
Now, the reductions that we're making in Puget Sound, that you've seen in the news, again, those are being done within this overall cost-reduction effort and also being done in a way that's very mindful and respectful of our employees.
We are starting first, as you noted, with voluntary layoff packages and or attrition.
I think it's a good reminder that in a Company of about 160,000 people, normal annual attrition is about 4% to 5%, just when you look at the work-force demographics.
So that alone provides us some flexibility on how we can make head-count reductions and do it in a way that's mindful and respectful of our employees.
And so that's where we start.
In some cases we have had to do involuntary layoffs, but that tends to be on the margins and done very selectively where we don't have other options.
So that's our game plan going forward.
I won't give you any specific head-count targets, because that's not the way we do our business.
We set cost reduction productivity targets; we look at all elements for our cost structure, and if it comes down to direct head count, we deal with that in a way that's very respectful of our employees and trying to do our best to help them transition when that does become a necessity.
Hey, John.
Well, <UNK>, I would say our accounting is compliant with GAAP.
That's first and foremost and that's what it is and, obviously, Airbus is under a different accounting standard and they're adhering to that one.
So that's our focus; that's our priority; and that's how we account for everything we do within the business.
As far as focus on cash, I think just like any business, it's about the bottom line at the end of the day, no matter what accounting standard you're under.
It's about how efficient you are with your cash and how effective you are with managing that and deploying it.
So I wouldn't view our focus on cash, frankly, any different than any other business that, at the end of the day, it's all about what's left over and what your costs were and what you sold your product for and then what do you do with it.
An we're trying to keep it simple, in that regard, because, ultimately, we want to reinvest in the future and we want to return cash to those that are putting their trust in us through the shareholder base and invest in our people, and that's the priorities.
Good morning, <UNK>.
<UNK>, let me field both of those.
So, first of all, on head count, as I said earlier, we have set some aggressive cost and cost reduction and productivity targets for the year that are aligned with our overall business strategy; and we are looking at all categories of cost, and that includes beyond head count, both in our internal, indirect costs, as well as in our supply chain and I think it's important that we continue to keep that in mind.
Our direct head count is one important category, but not the only one, and our business leaders are looking across all of those cost categories.
I will say the overall macro trend that we have for this year is that we expect employment will be net down, moderately.
I can't give you a specific number there, but we are on a moderate downward trend enterprise-wide this year as we drive productivity.
As I said earlier, we're also doing that trying to be very mindful of our employees.
And as you know, I have a great deal of respect for our people.
They are world class, they're the best in the world at what they do, and, where we can leverage attrition and the voluntary layoff programs that we've put in place, we will; and so far that approach has been very effective for us.
And I think that's good for the business and good for our people, ultimately good for our customers.
So that's our headset on that approach.
On your second question about services, you're right.
It's something that we have talked about for some time.
I can tell you that we are very serious about growing our services business.
So as we've laid in our strategy for the next planning cycle and, more broadly, for the next decade, that is one of our focused growth areas.
The market is large, as I said, about $4 trillion over the next 20 years.
We have market share room to grow, but, again, I want to emphasize that we are growing services in a growing marketplace.
This is not about taking share from others or dividing up a fixed pie.
This is clearly a growing marketplace, and, with the right kind of business model, this can be good for industry and our customers.
We are taking very specific actions on that.
Our services business leaders Stan Diehl and Ed Dolanski are teamed up.
I think our one Boeing approach, where we work across commercial and defense globally is a differentiator for us.
In some cases we are looking at specific parts inside of our aircraft, as you've seen in the news, where our unique OEM knowledge, we think, will provide value for our customers.
In some cases we're pursuing modification and upgrade businesses, the 737 freighter conversion program, I think, is a good specific example there.
And then some of the work we're doing in information-based services, like gold care and performance-based logistics; those are specific things that we're doing.
So it is a focused, high-priority strategy and we have actions underway to support that strategy.
Operator, we have time for one last media question.
Certainly it's a factor, as we think about competing, and it goes really to the broader objective that <UNK> outlined on competing in the marketplace to win.
No matter whether it's exchange rates or whether the competition being more efficient or inefficient, it's all about competing in the marketplace and, as we discussed, being able to invest going forward, and then rewarding all the stakeholders that have put their trust in us.
That's fundamentally what's behind this.
But, exchange rates are going to move around over time.
We don't rely on exchange rates, but the fact is there's some times where there's an advantage, there's some times with a disadvantage and we have to have the flexibility in our own enterprise to be able to compete no matter what that exchange rate is.
And that's the headset that we have across the team and that's the focus that's going to continue to take place going forward.
That concludes our earnings call.
Again, for members of the media, if you have further questions, please call our Media Relations team at 312-544-2002.
Thank you.
