Boeing Company (BA.US) Q3 Earnings Call: Full-Year Target of 500 Deliveries Missed, Cash Flow Aimed at US$10 Billion in 2029

Boeing Company (BA.US) reported third-quarter 2026 results and held a conference call on Tuesday. The results showed Boeing Company Q3 sales rose 4% year-over-year to US$24.188 billion, beating the analyst consensus of US$23.840 billion. GAAP net loss was US$116 million, sharply narrower than US$5.339 billion in the year-ago period (which included a US$4.9 billion pre-tax charge on the 777X program). GAAP loss per share was US$0.26; Non-GAAP loss per share was US$0.34, missing the analyst consensus of a US$0.21 loss per share. The company's backlog reached a record US$745 billion, including more than 6,300 commercial aircraft. Cash flow was the biggest highlight of the quarter. Operating cash flow was US$1.496 billion, up 33% year-over-year; free cash flow was US$464 million, above market expectations of about US$325 million. Net debt fell to US$25.2 billion, declining for a second consecutive quarter. Management said on the call that Boeing Company has completed FAA certification of the 737-7 and 737-10, and focus is now shifting to the 777-9 (first delivery still expected in 2027); the stabilization time to 47 737s per month exceeded expectations and will extend into next year, with the target of 52 per month pushed to the second half of 2027, while the 787 remains stable at 8 per month and will begin transitioning to 10 by year-end. The company for the first time gave multi-year free cash flow targets: about US$2 billion in 2026, about US$3 billion in 2027, about US$6 billion in 2028, and US$10 billion in 2029, and said there is still significant growth potential beyond 2030; meanwhile, due to 737 deliveries falling short of expectations, full-year commercial aircraft deliveries will be below the 500 target, with 787 deliveries expected at the low end of the 90 to 100 range. The following are the details of Boeing Company's conference call. I. Remarks by CEO Robert Ortberg Entering the final months of the year, Boeing Company continues to make progress across its business segments, having completed several key milestones in its 2026 plan and further strengthened the trust rebuilt with stakeholders. In the third quarter, the company delivered 161 commercial aircraft, the highest quarterly delivery volume since 2018. In July, the 737-7 received Federal Aviation Administration (FAA) certification; last week, the 737-10 was also certified. The company reached a new four-year agreement with the union representing engineering and technical workers in the Pacific Northwest, avoiding a work stoppage. The defense and space portfolio won several major contracts, including multi-billion-dollar orders for key programs such as PAC-3 and F-15EX. In addition, the U.S. Navy selected Boeing Company to design, build and deliver its sixth-generation fighter, making Boeing Company the company exclusively building both the U.S. Air Force and U.S. Navy sixth-generation fighters. These results reflect the team's continued focus on safety, quality and performance. The company still has more work to do, and progress may not always be linear, but overall it continues to improve. On development programs: FAA certification of the 737-7 and 737-10 was the result of nearly 1,500 test flights and more than 4,000 hours of ground and flight testing. With certification of these two models complete, focus is now entirely on the 777-9. Flight testing of that model continues, but approval is still needed to launch the remaining flight test program, including ETOPS testing. The company still expects first delivery in 2027, with the latest assumptions within the EAC (estimate at completion) reset last year. On commercial aircraft factories: For the 737, the company continues to drive stable production at 47 per month. Factory key performance indicators are performing well, with rework in final assembly improved 40% since early last year. However, the time needed to reach 47 per month exceeded expectations, and full stabilization at that rate is expected only next year. Wing output is improving, but the company needs to prove it can sustain that level and ensure a high-confidence plan to raise to 52 per month when the system is ready. Reaching 52 requires completing north line certification and production, stabilizing and readying the rear shops including wings, and stabilizing Wichita fuselages at the higher rate. Based on this year's experience, the financial plan targets 52 per month in the second half of 2027. The company values the robustness of the ramp more than the specific month in which the rate is achieved. For the 787, production is stable at 8 per month and the factory is performing well. Due to the previously discussed seat certification challenges, delivery cadence is uneven month to month. Supply chain stability has improved somewhat, and engine deliveries remain the key constraint on reaching 10 per month. The company still expects to begin the transition to 10 per month this year, and the Charleston expansion is progressing well and will support higher capacity. On long-term positioning: Last month, the U.S. Navy selected Boeing Company to win the F/A-XX competition, another transformative win. In addition, the defense and space portfolio has strong demand: a seven-year PAC-3 Seeker contract was won that will ultimately triple production; in the quarter, a contract was won to build 22 F-15EX aircraft for the U.S. Air Force, bringing the program total to about 120 aircraft with room for further growth. On the Starliner program, the company worked with NASA to define a path supporting future flights and reduced program risk, including securing an additional US$359 million in NASA funding. Free cash flow targets: Over the past two years, the company has made significant progress in rebuilding trust, resolving risk, transforming its culture and strengthening the safety and quality foundation. The range of uncertainty around outcomes is now narrowing. Looking ahead, the company has a record US$745 billion backlog, an improved pricing environment, a more stable production system, more prudent underwriting of development programs, and a continued plan to advance aircraft certification. Based on these factors, the company is confident in announcing multi-year free cash flow targets: 2026: expected about US$2 billion 2027: expected about US$3 billion (including additional capital spending to support F/A-XX development) 2028: expected about US$6 billion, when some headwinds begin to fade and growth accelerates 2029: expected to reach the US$10 billion target The company continues to believe there is significant growth potential above US$10 billion in 2030 and beyond. II. Remarks by CFO Jesus Malave Third-quarter consolidated results: Revenue was US$24.2 billion, up 4% year-over-year, driven mainly by higher defense and services volumes, partly offset by an unfavorable commercial aircraft delivery mix. Operating margin improved to 1.5%, and core loss per share narrowed to US$0.34, reflecting improved profitability across segments and lower corporate expenses. Free cash flow was positive US$464 million, an improvement year-over-year, driven mainly by working capital improvement, partly offset by about US$700 million in U.S. Department of Justice settlement payments and capital spending for capacity expansion in Charleston and St. Louis. Commercial Airplanes (BCA): 161 aircraft delivered in the third quarter, revenue of US$10.7 billion, down 3% year-over-year, mainly due to an unfavorable delivery mix. Operating margin was negative 6.5%, a significant improvement from the year-ago period (affected by the 777X charge), but partly offset by lower booking rates related to capacity adjustments and higher supply chain costs. BCA backlog rose to a record US$612 billion, including more than 6,300 aircraft, with orders in the quarter from Turkish Airlines, Ethiopian Airlines and Lufthansa. 737: 124 delivered in the third quarter. Due to the delay in stabilizing at 47 per month, full-year deliveries are expected to be below the 500 target. The -7 and -10 aircraft previously built before certification will begin delivering early next year. Future rate increases will be spaced further apart, more in line with the company's historical performance. 787: 22 delivered in the third quarter. Full-year deliveries are expected at 90 to 100, but given the delay in transitioning to 10 per month, likely closer to the low end of the range. Most of the Charleston expansion capacity will come online in the second half of next year, with a second final assembly building adding a third production line. 777 Freighter and 767 Tanker: In the quarter, a wing component supplier disrupted the 777 Freighter and 767 Tanker production lines. The supplier has resumed shipments, but the production lines will gradually work through the gap over the coming quarters. Third-quarter related costs were not material but will be expensed as abnormal costs in the coming quarters. 777X: First delivery still expected in 2027. Currently producing about 1 per month, expected to remain at that level for most of 2027. On program cash flow, 2027 will still consume significant cash, improve in 2028, and turn positive in 2029. Defense, Space & Security (BDS): 30 aircraft and 3 satellites delivered in the third quarter. Revenue rose 15% year-over-year to US$7.9 billion, driven mainly by higher volumes in classified programs and missile weapons, with Spirit contributing about US$160 million in sales and about 2 percentage points of growth. Operating margin was 6.2%, including a US$252 million gain on the sale of HRL Laboratories. The company remains confident in raising operating margin to high single-digit by 2030. BDS booked US$23 billion in orders in the quarter, with backlog reaching a record US$101 billion. The F/A-XX order was not included in third-quarter backlog because the source selection and evaluation process is not yet complete. Global Services (BGS): Revenue rose 4% year-over-year to US$5.6 billion; excluding the impact of the digital aviation solutions divestiture, revenue rose 11% year-over-year, driven mainly by higher government and commercial modification volumes. Operating margin was 18.3%, up year-over-year, driven by favorable volume and mix, partly offset by last year's divestiture. Both commercial and government businesses achieved double-digit margins in the quarter. BGS booked US$5 billion in orders, with backlog of US$3.3 billion at quarter-end. Cash and debt: Cash and marketable securities were US$20.7 billion, mainly reflecting cash generated in the quarter. Debt balance was flat versus the prior quarter at US$45.9 billion. The company still has an undrawn US$10 billion revolving credit facility and remains committed to strengthening its balance sheet and maintaining an investment-grade rating. Free cash flow outlook: 2026 is expected at about US$2 billion, including the assumption of early recognition of the KC-46A tanker Lot 13 order and other seasonal working capital benefits. 2027 is expected at about US$3 billion, with growth drivers including higher commercial aircraft deliveries, slight improvement in 737 and 787 cash margins, continued improvement at BDS and steady growth at BGS; partly offset by unfavorable working capital (including lower BCA order deposits year-over-year) and about US$1 billion in higher capital spending. 2027 free cash flow will still be significantly weighed down by legacy cash drags. In 2028 and 2029, these drags will continue to fade, and the path to the US$10 billion target is supported by higher 737 and 787 deliveries and improved cash margins, positive cash contribution from the 777X, earnings growth at BDS and BGS, and capital spending that remains elevated but gradually declines. The financial plan assumes 777X certification is completed in mid-2027. III. Q&A Session Wolfe Research Myles Walton: 2027 free cash flow grows only a few hundred million dollars excluding the DOJ payment; can you quantify the impact of abnormal costs in 2027? Of the US$3 billion increase in 2028, how much comes from the 777X? Jesus Malave: The DOJ payment will not recur in 2027, providing a US$700 million positive impact; higher BCA deliveries and slight cash margin improvement will also contribute; 2026 BCA margin was roughly break-even, and 2027 will mainly come from cash margin improvement. Continued growth at BDS and BGS also provides a positive contribution. However, 2026 was a record year with very strong order deposits; order cash in 2027 will still be strong but will not reach 2026 levels, an impact of about a couple billion dollars. Capital spending will rise to about US$5 billion, about US$1 billion higher than 2026. The logic for 2028 and 2029 is similar: legacy drags continue to fade, and higher deliveries combined with positive cash margins create a double benefit. Deliveries will be higher in 2029, with the 737 near the mid-to-high 50s per month, the 787 near 12 per month, and the 777X expected to generate positive free cash flow. There is still growth room in 2030 and beyond. JPMorgan Seth Seifman: On unit returns for aircraft, cost growth comes from the supply chain and rate increases; can you elaborate? What is the impact on forward unit cash profitability? On pricing, does a more gradual rate ramp affect the timing of escaping legacy drags? Jesus Malave: Third-quarter BCA margin was affected by rate adjustments and higher supply chain costs, which have rolled into the EAC and affected booking rates. The 777 freighter and 767 programs are expected to incur abnormal costs from the fourth quarter through the first half of next year, pressuring the third-quarter run-rate margin, but these will fade in the second half. Considering the cost-plus expansion of the high-pricing backlog and performance improvement from higher volumes, the second half will improve significantly and reach break-even in early 2028. All of the above impacts are included in the cash flow forecast and have little effect on cash flow. Based on the pricing already in the backlog, the company is highly confident in 737 and 787 margin improvement. Jefferies Sheila Kahyaoglu: What is the impact of sustained high oil prices on the aviation industry? What feedback is coming from customer channels? How are orders, the services business and lease rates changing? What oil price is assumed in the free cash flow guidance? Robert Ortberg: The company maintains close communication with customers. The impact varies by airline. A large portion of the backlog is for replacing older aircraft, and new aircraft are more fuel-efficient, so high oil prices actually prompt customers to want aircraft sooner. What could weaken is the overall growth portion of airlines. At present, no customer wants to re-plan order growth. If that happens, given the excess backlog, the company is able to adjust delivery sequencing. Airlines are currently mostly passing high oil prices through to fares, and the next few quarters will need to be watched. At the macro level, even if growth market demand slows, there are still many customers who want replacement aircraft sooner. Wells Fargo David Strauss: What are the 2027 MAX and 787 delivery assumptions? How much of the -7 and -10 inventory aircraft will be worked down? If the 777X slips from 2027 to 2028, how much risk is there to the US$3 billion cash flow guidance? Jesus Malave: Next year, about 30 pre-built -7 and -10 aircraft are expected to be delivered. On the 777X, if certification slips to mid-year, the impact is a few months, one or two months; deliveries next year are expected at 10 to 15, and part of the delay can be absorbed within the US$3 billion guidance. Total BCA deliveries are expected to grow more than 10%, with more detail by model in January. Melius Research Scott Mikus: The 2029 target assumes the 737 at a mid-to-high 50s per month and the 787 at 12 per month, but the 737 only reaches 52 in the second half of next year and the 787 only reaches 10 by year-end this year; why does it take about two years to raise to higher rates? Has the supply chain outlook deteriorated? Jesus Malave: Deliveries typically lag production. This is precisely the upside opportunity in 2029: if the company can deliver at higher production rates, it would provide upside to the US$10 billion target. Scott Mikus: What are the cash tax and cash interest assumptions for 2029? Jesus Malave: Basically a continuation of the current situation. Taxes will only begin to appear in the early 2030s, and cash interest declines somewhat as debt matures, but not significantly. Bernstein Douglas Harned: On the 737, in August 47 per month looked stable, and in September wing drilling challenges were mentioned. Is the wing issue resolved now? How is Wichita progressing? How will the company ensure it reaches 52 next year? Robert Ortberg: Engines are not the issue. The company implemented a series of process improvements to support the increase from 42 to 47, some of which did not produce the expected results; the company has adjusted and added some capacity, and early signs are encouraging, but it has not yet stabilized wing production to support 47 per month. The company will stay at that level for a period to ensure stability. The ramp from 42 to 47 was less smooth than from 38 to 42, so before the next increase to 52, all rate-supporting functions will be fully tested. The Everett line is progressing well, and the first -10 rolled out yesterday. Wing stabilization is the challenge, and the company will learn from this to ensure improvements are fully validated before the next rate increase. Douglas Harned: Besides wings, what else is being watched? Are there major risks in Wichita fuselages or elsewhere in the supply chain? Robert Ortberg: At present, wings are what is causing the instability. There is inventory buffer on fuselages, but once wings are resolved, fuselages will become an important area of focus. The company intentionally produces fuselages at a lower rate than final assembly to draw down inventory, and over the rest of this year and early next year will need to raise fuselage rates in sync to 52. There are currently no systemic supply chain challenges, and occasional issues such as GKN windows are being resolved. Baird Peter Arment: How is the Spirit (Wichita) integration progressing? With BCA margin at break-even in 2027, can it return to historical levels under the 2029 outlook? Robert Ortberg: The integration is proceeding as planned. While Wichita is held at a lower rate, the focus is on implementing the safety and quality programs already successfully deployed in Renton, which has slowed progress somewhat, and fuselage inventory drawdown may be slightly faster than the baseline plan. The company has a ramp plan, which is one reason it will stay at 47 longer before moving to 52. Jesus Malave: 737 margins will improve, but neither in percentage nor absolute terms will they reach 2018 levels; the 787 will exceed 2018 levels by 2029. Overall, 2029 will deliver a net benefit. Goldman Sachs Noah Poponak: Part of the difference between the free cash flow trajectory and market expectations comes from capital spending. 2027 capital spending has been given; what is the capital plan for 2028 and 2029? What percentage of revenue is that after normalization? If the 777X slips again, why can it be absorbed? Does that mean the guidance is conservative and leaves room for upside? Robert Ortberg: Management reserve was set aside in the last major 777 program reset to address schedule pressure. This does not imply the 777 has slipped to mid-year next year; the team is still pushing for certification. The company is financially prepared and can complete within the EAC if certification slips to mid-year. It is currently pushing for an earlier date. With 737-7 and 737-10 certification complete, the FAA and test teams can devote more resources to 777 testing. The aircraft is flying, testing is progressing, and additional FAA flight test authorization (TIA 4B extension) has been obtained. Under the new regulatory environment, the company understands what is needed to complete certification and has incorporated it into planning. Jesus Malave: 2027 capital spending is about US$5 billion, and about US$4 billion each in 2028 and 2029. The 777X impact is a few months, one or two months, and has been quantified within the guidance. Noah Poponak: US$4 billion is still about 3% of revenue, versus the company's long-term level of 2% or below. Is capital spending structurally higher? Or will it decline over time? Jesus Malave: It is expected to be above 2% and decline over time, but 3% to 4% after normalization is a reasonable level. Citi John Godyn: The free cash flow numbers appear to have shifted down in parallel overall. Has the "Polaris Inc." target beyond 2029 changed? How should the 2030 and 2031 models be adjusted? Jesus Malave: No change. There is still significant growth after 2029, and margin improvement and volume growth will continue to drive cash flow higher. The 2029 delivery assumption is 63 737s per month and 14 787s per month, which will compound beyond 2029. John Godyn: Is it fair to understand that the free cash flow curve is steeper but the endpoint is the same? Robert Ortberg: From an expectations standpoint, it is more like a one-year shift to the right overall, with no change to expectations for the slope or the absolute endpoint. BofA Ronald Epstein: Boeing Company won the F-47 and F/A-XX; the future of U.S. military tactical aviation seems to be in Boeing Company's hands. What is the outlook for BDS incremental margins? Robert Ortberg: Defense business growth will be higher than expected a year ago; previously low single-digit revenue growth was expected, and now it is clearly moving toward mid single-digit or higher. Importantly, these programs are underwritten with appropriate contract types, so not only are orders increasing, but they will not cause the challenges seen previously. Beyond orders, both the MQ-25 and T-7 have passed Milestone C, the F-15EX has won a large new order with further growth ahead, and PAC-3 Seeker production is rising. The company has signed memoranda of understanding with all customers on large fixed-price development contracts, and Starliner was also brought under control last quarter. There is greater confidence in the incremental margin outlook. Development programs are not all complete, but the team has done a good job finding win-win solutions. Defense portfolio demand is strong, budgets support further growth, and it can be described as an underappreciated segment. Ronald Epstein: Are F/A-XX or F-47 fixed-price development contracts? Robert Ortberg: The F-47 is a cost-plus contract; nothing can be disclosed on F/A-XX, but the contract type is appropriate. UBS Gavin Parsons: What is the view on a new single-aisle aircraft? Does the 2029 free cash flow guidance include related increases in R&D and capital spending? Robert Ortberg: The outlook for a new aircraft is unchanged. The product development team is defining options and market timing. Related investment is included in the cash flow outlook. Jesus Malave: There is currently no large-scale investment, more R&D and technology development spending. Robert Ortberg: As the 737 and 777 programs complete, resources will shift from existing development programs to new programs. TD Cowen Gautam Khanna: How are the deferred production cost balances trending for the three programs? How much will they grow in total next year? When and by how much will they decline in 2028 and 2029? Jesus Malave: Specific changes are not disclosed. Deferred production costs for the 737 and 787 will be roughly flat next year, with reduced cash use; in 2028 and 2029 they will become a source of cash, and significantly so, helping working capital remain a source of cash overall. The 777X will grow over the next few years given deliveries are still early. The main cash drivers are improved 737 and 787 profitability and declining deferred production costs. Vertical Research Partners Robert Stallard: What gives the company confidence to provide free cash flow guidance now? What has changed in the outlook? Robert Ortberg: Over the past two years the company has confronted its challenges and resolved them one by one, significantly reducing portfolio risk. Two years ago, all fixed-price development programs were challenged; today they are under control. At that time it was uncertain whether the company could win the next-generation fighter; today both programs have been won. The way the defense business is underwritten has clearly improved. Two years ago the company had just been through a strike and commercial factory output was zero; today it has successfully ramped to 38, and although reaching 47 took longer than everyone expected, the company will maintain discipline. The company has a better handle on risk and can provide an achievable outlook. Expectations are rising, and the company's own standards are rising too; the team is ready to execute. There are still some issues to address, but uncertainty is far lower than before, and now is the right time to provide guidance.