BA
#We broke even late last year.
Yes, so obviously as we move forward with the supplier step down ---+ contractual step down pricing ---+ we improved productivity.
But even more, as I mentioned at the investor conference, around the mix is a big play in here going forward.
So getting these Dash 9s into the production that we have ---+ and you heard me talk about the unit cost recently and where they are getting that Dash 10 in, they're obviously big drivers of cash flow going forward.
The program margin did go up slightly in the quarter overall.
It's still very low single-digits.
I'm not really completely following your math there, <UNK>, but I would just tell you we took $1 billion out, obviously, and put it into R&D, so obviously research and development went up and the overall program margin went up slightly as a result of that move.
But again, these are obviously two aircraft that we've been heavily utilized in flight test and we made the right decision because it was the time to start spending Company funds to modify those airplanes.
And a limited marketplace for them.
So we made that decision and re-classed them.
It was absolutely the right thing to do.
Yes.
Later this year.
There's actually was still escalation pressure in the quarter across all of the programs.
Not as much as prior quarters, but there was; and then the balance of that was offset by improved productivity and mix.
Those are really the big drivers in there.
I'm hoping very soon.
But, again, we saw it minimize this quarter, and we will have to wait until the publications come out for third quarter.
But you're right ---+ the fundamentals are heading in the right direction.
So we should start to see this as a bit more of a tailwind versus a headwind.
You bet.
<UNK>, I will take the first part and then ask <UNK> to take the second part.
On the MAX, as you've noted, we have the opportunity to accelerate EIS, and we originally planned third quarter of 2017.
We now have publicly talked about that as first half of 2017.
I won't be specific to individual customers as we have a number of discussions ongoing.
But we have opportunities to accelerate into the first half of the year.
What you should read through that is that the MAX development program is going very well.
And running on cost and ahead of schedule.
We've got all four test aircraft in the air, more than 300 hours on the airplanes, and the performance is looking solid and the development program is clean.
And more broadly, to get to your underlying question, I think this is a good example of how we can and should perform coming out of our development program excellence initiative.
This is about understanding statement of work clearly upfront, managing that statement of work, keeping it balanced, doing the right systems engineering work, working with our supply chain.
This is about disciplined innovation.
We are going to bring a product to the marketplace that has a great value add for our customers and do it in a way that is disciplined and on cost and schedule.
That formula that we've put in place now with our development program excellence initiative ---+ we know it works.
And we've taken the lessons learned from MAX and we are cross-deploying those now into programs like the 787-10, the 777X, and into our future defense development programs.
Our objective here is very clear, and that is to have disciplined effective development programs that perform on cost and schedule that allows us to do reliable R&D planning and allows us to make best use of our innovation investments.
So it's a good signpost for us, <UNK>.
I think clearly a step in the right direction and we're going to leverage lessons learned from MAX across the whole enterprise.
<UNK>, you want to hit the second.
<UNK>, with regards to the non-production, it's the same approach.
We're really trying to look at just even functional costs across the enterprise, and looking at what is market-based affordability.
What's best-in-class look like for an industrial Company.
And challenging ourselves and where we are, versus where they are, and trying to learn from some best practices and then trying to implement them.
Now some of this is still in the planning stage.
Certainly not all of it is implemented, so I would not run with any of it.
But that's the framework, and that's the operating around it, but it's all about how do we compete in the marketplace no matter what marketplace we are in, across the portfolio.
How do we generate cash in order to invest in our future as we have.
And then deliver value to the shareholders.
Those are the, I'll say the framework, that's around the approach, but it goes back to my comment about no rock left unturned.
So whether it's a functional cost that are supporting a program or program-specific, everybody has an affordability target.
Again, different levels of maturity; some are making more progress than others.
But the focus and the operating rhythm is all around that.
I think the R&D profile will be similar to what we outlined.
I don't see that changing.
On the G&A ---+ quarter over quarter, as you know you're going to see it move around a little bit.
Some of that certainly is sustainable and some of that is just timing.
You're welcome.
Operator, we have time for one more analyst question.
Certainly, something, <UNK>, we're watching.
Obviously with the transition that we made from the defined benefit, defined contribution, that certainly helps us going forward when it comes to pension contributions.
But we are certainly monitoring the interest rate environment.
This year is obviously minimal.
As I see it today there will be contributions required next year.
They'll be again in the hundreds of millions ---+ not more than that.
And see that in the year following; but, again, we will have to see where interest rates fall and we will make the required contribution.
But we'd run that at various levels.
Again, because of the pension turnover, I don't see it obviously at that headwind that I would have normally seen as far as required contribution if we were stuck with a DB plan for the next five years.
Thank you.
We will continue with the questions for <UNK> and <UNK> now.
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.
<UNK>, as we announced the decision we made here, it takes into consideration a sluggish cargo market and our projections for our future production rates.
And the decision, in essence, that we made was to maintain our current production rate of half an airplane per month that we're implementing this year.
And to extend that out into the future, rather than assuming we would ramp back up to one a month in 2019.
That's the fundamental assumption change here and it reflects what we see in the cargo market.
Now we still see a cargo or freighter aircraft replacement cycle out in that 2019, 2020 timeframe.
We have a number of ongoing customer discussions in the cargo marketplace in addition to the two Air Force One airplanes that you referenced.
So a number of very viable campaigns underway to fill to that half a month production rate.
That said, we still have our work cut out for us.
Cargo is a tough market right now.
I will say that the decisions we made on 747 put that program on a much more solid footing for the future; it's aligned with the marketplace.
As noted, we also wrote off any remaining deferred production inventory, so we've significantly de-risked that program from a financial standpoint for the future and we're going to continue to work to fill out the skyline.
Good morning.
<UNK>, I guess I would start with, obviously we are in a competitive environment.
It all starts with market-based affordability and how does that then impact your business.
As I indicated, when it comes to working capital, we are looking at where we are on different measures around working capital and where everybody else is in this industry.
And certainly the two suppliers you called out are great suppliers to us and we have been working with them over the last year on transitioning to a more, I will say, industry standard around payments.
And we were paying daily.
Millions of transactions, and we were paying daily ---+ that's not an industry-standard.
We're going to twice a month.
And then, we're looking at terms ---+ again, to be competitive, manage our working capital efficiently, and allowing us to invest in our future that ultimately everybody will benefit from, from our customers down to our suppliers.
These are important partners but we've got to face into the environment that we're in and be efficient across the board.
And as you know, under partnering for success, this is also us reaching back in the supply chain, taking best practices that we have encountered in other parts of our business or supply chain, and sharing those with the supply chain to ultimately make them better.
So I would say it's across the board, and again it's all about being a market-based and facing into those realities ---+ and frankly, in this case, just getting the industry standards.
Hey <UNK> ---+ first of all, more broadly we're still targeting a book to bill of one-to-one for the year.
And again, we don't get too encumbered with the exact timing of those orders.
It's very clear that this year's order cycle is more favorable on the narrow bodies.
And so if you're looking at numbers of aircraft, we expect the predominance of that orders flow this year to be in the narrow-bodies arena.
That all said, we are going to continue to work hard to fill out the wide-body skylines as well.
We don't need to make drastic changes to pricing in order to capture market share.
We're not going to be driven to just get market share for market share's sake.
I will say in the wide-body marketplace, even though we are seeing some hesitation in buying, there's a value proposition of our airplanes is holding up well.
This is all about a look ahead to efficiently managing our production skyline and keeping supply and demand in balance.
And clearly we've got more work to do on the wide-body front while narrow-body orders are trending to be very healthy and continuing to be healthy this year.
So that's our headset.
As normal we do a lot of scenario planning around this.
And different assumptions around wide-body orders and what that future skyline will look like.
As you heard earlier, our commitment is to make the decisions that allow us to make the transition on the 777 efficient and productive.
And we will do that.
Operator we have time for one last question if there is anyone remaining in the queue.
They are all sold.
So they will deliver here over the next couple of years.
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.
