Cai von Rumohr: You have ambitious cash flow next year given the 787 delay. Could you quantify what was the cash flow impact on 2008 and 2009 from this latest delay of the 787?
James Bell: It is reflected in the guidance, #1, but what you are seeing in terms of the lower cash flow in 2008 is the production build-up not only of the 787, but of the production aircraft that also or we produce the higher rate and pull that with the flight out based on the prior schedule shift of about 75 787s out of 2008 into the 2009 into outyears now as we now understand the schedule better. That is how we got to 2.5 this year. In the next year, we are upping our deliveries, which will help the cash flow to get to the 6 billion we are guiding you to as well as we will start relieving the inventory on 787s as we deliver the 25 we are expecting to deliver next year.
Cai von Rumohr: What impact does this assume, you are paying Spirit per their 8-K, it looks like 350 million plus that was not on the plan?
James Bell: We are not going to get into the specifics of what we have assumed but believe that the impact of what we believe based on what we know today cash that would be extended out because of the payment flow coming from customers as well as what we would have to pay for pay to suppliers to be there and because of contract terms are included in the guidance for both 2008 and for 2009.
Joe Campbell: The difference between the program accounting and the unit accounting was $330 million, which is the largest number ever seen in a single quarter and 71 million of it is related to the 777-300ER. What was going on?
James Bell: We are still experiencing the impact of the more aggressively priced airplanes several years ago that we are delivering, which has a more profound impact on unit margins than program. Then coupling that with the mix that was delivered in the quarter had the increase the gap a bit based on what is in the accounting quantity relative to that mix and the pricing associated with it.
Joe Campbell: What was the mix difference?
James Bell: It is mostly the 777, but there would be some mix relative to the 777s as well that is in the cost base that is beyond which you are seeing in deferred production and it would be the mix between freighter and passenger.
George Shapiro: You have the portfolio size at Boeing Capital going down this year and next year, does that mean that you will not finance any of the American planes that they are going to get next year?
Jim McNerney: That does not mean that. What it does mean is we are preparing ourselves in the event it is necessary to use BCA, BCC and our balance sheet in order to finance airplanes. Right now, given what we know, we are not anticipating we will need to.
George Shapiro: Are you taking a different view on increasing financing as to what Boeing Capital Corp will do and saying that the portfolio size is going to be lower in 2008 and 2009?
James Bell: In our current backlog, we see that the Ex-Im bank is going to finance about 80% of it. We have over the last several years been preparing BCC and The Boeing balance sheet that if called upon we can answer the call. Right now, we do not have any information that suggest we will be, but if we are we will deal with it then, and BCC and The Boeing backlog will be more than able to do that.
George Shapiro: Your projection of lower is just to assuming that the economic environment does not get any worst than what it is today. Is that correct?
Jim McNerney: There are two things, one we see what we see on economic environment. And secondly, in contrast with coming out of 9/11 we are much less than half of our planes were financed Ex-Im internationally. We now have 80% of them financed Ex-Im internationally, which puts us in a stronger position to absorb any financing requirements we have and that has changed this point. We have run the portfolio down, so we have plenty of capacity to deal with it if we need to. And what we have to deal with will be significantly less than the last recession we have.
Doug Harned: On BCA margins and your guidance for 2008, you added $400 million more to R&D where you kept the margins at the same level. What the sources of improvement are?
James Bell: If our absolute focus on productivity is the benefit we are getting from the moving line in 777, as we continue to experience good progress on that implementation if the productivity we are getting on 777, as we continue to harvest that mature program and the mature concept that is deployed there on the moving line. It is our efforts on looking at every cost that does end up in our products to see how we can be more productive in doing those activities that create those costs and driving those cost down while we increase the quality of that effort with all of it.
David Strauss: Could you talk about the IDS growth from a program basis?
Jim McNerney: The current growth is across the board. All the production programs are running well, FCS, GMD high road fees, recent reaffirmation of our status as the assistance integrator. Those are big programs. C-17 sustainment the multi-year on Apache and F-18 were at the mid point there some international orders that we are now delivering on to Korea, Singapore, and other places. So it is SPI net, so it is on across the board slowly and also the rest of the couple of businesses over the couple of years and which sort of muddied the growth look at IDS and we are now beginning to out run some of that.
David Strauss: How you feel the competitive position of IDS moving forward, even beyond tanker the win rate on some of the big programs has not been that great recently?
Jim McNerney: We won nine big competitions last year. We pointed out 9/11 of the major competitions we were in. We have washed 2 cents, but now it is 9 out of 13. Our hit rate recently has been high. When you look at this year and see a number of international orders that promise to come through and the number major orders in the United and a couple of other ones. Even if we return to our normal hit rate, the two year period would have been outstanding by any measure in terms of new business.
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