The Boeing Company (BA)
Q2 2010 Earnings Call Transcript
July 28, 2010 10:30 a.m. ET

Executives

James Bell - Corporate President, Chief Financial Officer, Executive Vice President and Member of Executive Council
Thomas Downey - Senior Vice President of Communications
Scott Fitterer - Vice President of Investor Relations
W. McNerney - Executive Chairman of the Board, Chief Executive Officer, President and Member of Special Programs Committee

Analysts

Doug Cameron - Financial Times
Kenneth Herbert - Wedbush Securities Inc.
Cai Von Rumohr - Cowen and Company, LLC
Douglas Harned - Bernstein Research
Susanna Ray - Bloomberg
Sam Pearlstein - Wachovia Securities
Howard Rubel - Jefferies & Company, Inc.
Hal Weitzman - Financial Times
Joseph Nadol - JP Morgan Chase & Co
Ronald Epstein - Bank of America/Merrill Lynch
Paul Merrion
Heidi Wood - Morgan Stanley
Robert Spingarn - Credit Suisse AG
Joseph Campbell - Barclays Capital
Jason Gursky - Citigroup Inc
Noah Poponak - Goldman Sachs Group Inc.
Aubrey Cohen
Myles Walton - Deutsche Bank AG
Troy Lahr - Stifel, Nicolaus & Co., Inc.
Harry Nourse - HSBC Holdings plc
Peter Arment - Gleacher & Company, Inc.
David Strauss - UBS Investment Bank

Presentation

Operator

Thank you for standing by, Good day, everyone, and welcome to the Boeing Company’s Second Quarter 2010 Earnings Conference Call. Today’s call is being recorded. The management discussion in slide presentation plus the Analyst media Question-and-Answer Sessions are being broadcast live over the internet. At this time, for opening remarks and introductions, I am turning the call over to Mr. Scott Fitterer, Vice President of Investor Relations for the Boeing Company. Mr. Fitterer, please go ahead.

Scott Fitterer

Thank you, and good morning. Welcome to Boeing’s Second Quarter earnings call. I am Scott Fitterer, and with me today are Jim McNerney, Boeing’s Chairman, President, and Chief Executive Officer; and James Bell, Boeing’s Corporate President and Chief Financial Officer. After comments by Jim and James, we will take your questions. In fairness to others on the call, we ask that you please limit yourself to one question. As always, we have provided detailed financial information in our press release issued earlier today. And as a reminder, you can follow today’s broadcast and slide presentations through our website at boeing.com.

Before we do begin I need to remind you that any projections and goals we may include in our discussions this morning are likely to involve risks, which are detailed in our news release and our various SEC filings and in the forward-looking disclosures at the end of this web presentation. Now I will turn the call over to Jim McNerney.

W. McNerney

Thanks, Scott, and good morning, everyone. Let me start by addressing the current business environment, followed by some comments on the second quarter. James will walk you through our results, and then we will take your questions.

Starting with the business environment on Slide 2. As the global economy continues to recover, albeit at a moderated pace, airline traffic indices are showing some strong signs of recovery. Passenger freight traffic have rebounded sharply with capacity levels still constrained. Both of these market segments are now forecasted to return to their peak 2007 and 2008 levels earlier than originally anticipated, and we are seeing improving fundamentals for the airlines.

As we have experienced in past cycles, the single-aisle market is leading the passenger recovery. This segment is showing the strongest growth, led by emerging markets and low-cost carriers. This growth, combined with our disciplined production and sales strategies, prompted our recently announced 737 production rate increase to 35 airplanes per month beginning in early 2012.

As the airline industry recovery advances, we will continue to assess the demand requirements in this growing market segment along with importantly, the ability of our supply chain to move to higher rates if warranted.

The air cargo market is also staging a strong turnaround, supporting demand for new and more efficient freighter capacity. With 747-8 coming online and the new, 777 Freighter unlocking additional opportunities, we see our market-leading position in this segment growing even stronger in the months and years to come.

We are also seeing continued improvement within aircraft financing markets. The level of uncertainty has moderated, and new financing sources are positioning for the improving, Commercial Airplane market. On the Defense side, while we are seeing some additional clarity around national security priorities, both inside and outside the United States, several of our government customers are facing continued budget pressures as they try to meet increasing requirements. Our focus in Defense, Space & Security is fourfold.

First, extend our existing programs by bringing capability and very importantly, affordability to our customers. Second, capture a growing share of international and services opportunities. Third, accelerate our repositioning with investments in adjacent markets such as cyber security, Intelligence, Surveillance and unmanned systems. And fourth, size our overhead and indirect cost very conservatively in the face of our U.S. customers, contracting and cost pressures. We had successes in many of these areas during the quarter.

In May, the U.S. Department of Defense notified Congress, that it is taking initial steps to pursue a new F/A-18 and EA-18G multi-year contract spanning fiscal years 2010, 2013. That will include 124 Super Hornets and Growlers. In June, we were awarded a research and development support contract from U.S. Federal Aviation Administration for the next-gen air transportation system. We also won an award from the U.S. Air Force to upgrade the services 59-jet KC-10 tanker fleet, with a new communication, navigation, surveillance and air traffic management system.