Boeing (BA.US) Q3 conference call: Annual delivery target of 500 aircraft falls short, cash flow targets $10 billion in 2029

The Zhitong Finance App learned that Boeing (BA.US) announced the results for the third quarter of 2026 and held a conference call on Tuesday. According to financial reports, Boeing's Q3 sales increased 4% year over year to US$24.188 billion, better than analysts' general expectations of US$23.840 billion. GAAP net loss of US$116 million was significantly narrower than US$5.339 billion in the same period last year (US$4.9 billion in pre-tax expenses due to the 777X project in the same period last year). GAAP lost $0.26 per share; non-GAAP lost $0.34 per share, falling short of analysts' general expectations of $0.21 per share. The company's backlog of orders reached a record $745 billion, including more than 6,300 commercial aircraft.

Cash flow was the biggest highlight of the season. Operating cash flow for the quarter was US$1,496 million, up 33% year on year; free cash flow was US$464 million, higher than market expectations of approximately US$325 million. The company's net debt fell to $25.2 billion, a second straight quarter of decline.

Management said in a conference call that Boeing has completed FAA certification for the 737-7 and 737-10, and the current focus is shifting to 777-9 (still expected to be delivered for the first time in 2027); the stable period of production of 47 aircraft in July has exceeded expectations and will be extended until next year. The monthly production target of 52 aircraft will be postponed until the second half of 2027. The 787 is still stable at producing 8 aircraft per month and starting the transition to 10 before the end of the year. For the first time, the company set a multi-year free cash flow target: about 2 billion US dollars in 2026, about 3 billion US dollars in 2027, about 6 billion US dollars in 2028, and 10 billion US dollars in 2029, and said that there is still significant room for growth after 2030; at the same time, due to 737 deliveries falling short of expectations, commercial aircraft deliveries will fall below the target of 500 aircraft throughout the year, and 787 deliveries are expected to fall at the lower end of the 90 to 100 aircraft range.

Here are the details of the Boeing conference call.

I. Statement by CEO Robert Ortberg

Entering the last few months of this year, various business segments of Boeing continued to make progress, completed several key milestones in the 2026 plan, and further strengthened the rebuilding of trust with stakeholders.

In the third quarter, the company delivered 161 commercial aircraft, the highest quarterly delivery volume since 2018. In July, 737-7 was certified by the US Federal Aviation Administration (FAA); last week, 737-10 was also certified. The company reached a new four-year agreement with the union representing engineers and technicians in the Pacific Northwest to avoid work interruptions. The defense and space business portfolio has been awarded a number of major contracts, including multi-billion dollar orders for key projects such as the PAC-3 and F-15EX. Furthermore, the US Navy chose Boeing to design, build, and deliver its sixth-generation fighter, making Boeing an exclusive manufacturer of sixth-generation fighter jets for both the US Air Force and the US Navy.

These results reflect the team's continued focus on safety, quality, and performance. The company still has more work to do. Progress may not always be linear, but overall improvements are continuing.

In terms of development projects: The FAA certification of the 737-7 and 737-10 is the result of nearly 1,500 test flights and more than 4,000 hours of ground and flight tests. With the certification of these two models completed, the current focus has completely shifted to the 777-9. Flight testing of this aircraft continues to advance, but approval is still required to begin the remaining test flight programs, including ETOPS tests. The company still expects the first delivery in 2027, and the latest assumptions are all within the EAC (estimate of completion) that was reset last year.

In terms of commercial aircraft factories: On the 737 side, the company continues to stabilize its monthly production capacity at 47 aircraft. The plant's key performance indicators are good, and the rework volume in the assembly process has improved by 40% since the beginning of last year. However, the time required to reach the monthly production capacity of 47 aircraft has exceeded expectations, and it is expected that this rate will not fully stabilize until next year. Wing output is improving, but proof is needed to maintain this level and ensure that there is a high confidence plan to increase production to 52 aircraft per month when the system is ready. To reach 52 aircraft, it is necessary to complete the Northern Line certification and put into production, the rear workshop, including the wing, be stable, and the Wichita fuselage stable at high speeds. Based on this year's experience, the financial plan aims to produce 52 units per month in the second half of 2027. The company values the steady climbing process rather than the specific month to achieve a speed breakthrough.

On the 787 side, the monthly production capacity was stable at 8 units, and the factory performed well. Due to the seat certification challenges discussed previously, the pace of delivery was uneven from month to month. Supply chain stability has improved, and engine delivery performance is still a key factor limiting the monthly production of 10 units. The company still expects to begin the transition to a monthly production of 10 aircraft within this year. The Charleston expansion is progressing well and will support higher production capacity.

Long-term layout: Last month, the US Navy chose Boeing to win the F/A-XX bid. This is another transformative victory. Furthermore, demand for the defense and space business portfolio is strong: obtaining a 7-year PAC-3 Seeker contract will eventually triple production; a contract to manufacture 22 F-15EXs for the US Air Force was obtained this quarter, bringing the total number of this model to about 120, and there is still room for growth in the future. In terms of the Starliner project, the company cooperated with NASA to develop a path to support future flights and reduced project risks, including receiving an additional $359 million from NASA.

Free cash flow goals: Over the past two years, the company has made significant progress in rebuilding trust, mitigating risk, transforming culture, and consolidating the foundation of safety and quality. Currently, the range of uncertainty for the various outcomes is narrowing. Looking ahead, the company has a record order reserve of 745 billion US dollars, an improved pricing environment, a more stable production system, more careful underwriting of development projects, and a plan to continue advancing aircraft certification. Based on these factors, the company is confident to announce multi-year free cash flow targets:

2026: Expected to be around $2 billion

2027: Expected to be approximately $3 billion (including additional capital expenses to support F/A-XX development)

2028: Expected to be around $6 billion, when some negative factors will begin to subside and growth will accelerate

2029: Expected to reach the $10 billion target

The company continues to believe that there is still significant growth potential above $10 billion in 2030 and beyond.

II. Statement by Chief Financial Officer Jesus Malave

Consolidated results for the third quarter: Revenue of US$24.2 billion, up 4% year over year, mainly driven by growth in defense and service business volume, partly offset by an unfavorable commercial aircraft delivery structure. The operating margin increased to 1.5%, and the core loss per share narrowed to $0.34, reflecting improved earnings in various segments and lower corporate expenses.

Free cash flow was $464 million, a year-on-year improvement, mainly driven by improvements in working capital, partially offset by US Department of Justice settlements of about $700 million and capital expenses to expand production in Charleston and St. Louis.

Commercial Aircraft (BCA): 161 aircraft were delivered in the third quarter, with revenue of US$10.7 billion, a year-on-year decrease of 3%, mainly due to unfavorable delivery structures. The operating margin was negative 6.5%, a significant improvement over the same period last year (affected by 777X fees), but was partially offset by lower reservation rates and higher supply chain costs associated with capacity adjustments. BCA's order reserve increased to a record $612 billion, including more than 6300 aircraft, and received orders from Turkish Airlines, Ethiopian Airlines, and Lufthansa this quarter.

737:124 aircraft were delivered in the third quarter. Due to stability delays in monthly production of 47 aircraft, the annual delivery volume is expected to fall short of the target of 500 aircraft. Delivery of the -7 and -10 aircraft previously built before certification will begin early next year. The interval between rate increases in the future will be longer, which is more in line with the company's historical performance.

787: Delivery of 22 aircraft in the third quarter. Delivery of 90 to 100 aircraft is expected throughout the year, but given the delay in the transition to 10 aircraft per month, it is expected to be closer to the lower end of the range. Most of Charleston's expanded capacity will be launched in the second half of next year, and a third production line will be added to the second assembly building.

777 freighter and 767 tanker: Wing parts suppliers suspended 777 freighter and 767 tanker production lines this quarter. The supplier has resumed shipments, but the production line will gradually absorb the gap over the next few quarters. The costs associated with the third quarter are not significant, but will be included in current expenses as abnormal costs in the next few quarters.

777X: First deliveries are still expected in 2027. Currently, about 1 aircraft are produced per month, and it is expected to maintain this level for most of 2027. In terms of project cash flow, it will still consume large amounts of cash in 2027, improve in 2028, and rectify in 2029.

Defense, Space and Security (BDS): Delivery of 30 aircraft and 3 satellites in the third quarter. Revenue increased 15% year over year to 7.9 billion US dollars, mainly driven by growth in classified projects and missile weapons business. Spirit contributed about 160 million US dollars in sales, an increase of about 2 percentage points. The operating margin was 6.2%, including $252 million in proceeds from the sale of HRL Laboratories. The company remains confident that it will raise its operating margin to a high single-digit (high single digit) by 2030. BDS received $23 billion in orders this quarter, with a record order reserve of 101 billion US dollars. F/A-XX orders are not included in the third quarter order reserve because the source selection and evaluation process has not yet been completed.

Global Services (BGS): Revenue increased 4% year over year to US$5.6 billion; after excluding the impact of the divestment of digital aviation solutions, it increased 11% year over year, mainly driven by government and commercial modification business volume. The operating profit margin was 18.3%, a year-on-year increase, driven by favorable business volume and structure, partially offset by last year's divestment. Both commercial and government businesses achieved double-digit profit margins this quarter. BGS received $5 billion in orders and had an end-of-quarter order reserve of $33 billion.

Cash and debt: Cash and marketable securities were US$20.7 billion, mainly reflecting the cash flow generated during the quarter. The debt balance was the same as the previous quarter, at $45.9 billion. The company still has a revolving credit line of $10 billion that has not been withdrawn, and continues to work to strengthen its balance sheet and maintain its investment-grade rating.

Free cash flow outlook: Approximately $2 billion is expected in 2026, including the assumption that orders for the 13th batch of KC-46A tankers will be confirmed in advance and other seasonal operating capital gains. It is expected to be around $3 billion in 2027. Growth drivers include increased commercial aircraft deliveries, slight improvements in 737 and 787 cash margins, continued improvement in BDS, and steady growth in BGS; partially offset by unfavorable working capital (including a year-on-year decline in BCA order deposits) and an increase in capital expenditure of around $1 billion. Free cash flow in 2027 will still be significantly impacted by historical cash left over. These drags will continue to subside in 2028 and 2029, and the path to the $10 billion target is supported by higher 737 and 787 deliveries and improved cash margins, 777X positive cash contributions, BDS and BGS earnings growth, and capital expenditure which is still high but gradually declining. The financial plan assumes 777X will be certified by mid-2027.

III. Q&A session

Wolfe Research — Myles Walton: Free cash flow in 2027 only grew by hundreds of millions of dollars after excluding payments from the Department of Justice. Can the impact of abnormal costs in 2027 be quantified? How much did 777X contribute to the $3 billion increase in 2028?

Jesus Malave: Justice Department payments will no longer occur in 2027, which will have a positive impact of $700 million; increased BCA deliveries and a slight improvement in cash profit margins will also contribute. The 2026 BCA profit margin is about break-even, and 2027 is mainly due to an improvement in cash profit margins. Continued growth in BDS and BGS also provided a positive contribution. However, 2026 was a record year with very strong order deposits. Order cash will still be strong in 2027, but it will not reach 2026 levels, affecting about billions of dollars. Capital expenditure will increase to around $5 billion, which is about $1 billion higher than in 2026. The logic of 2028 and 2029 is similar: the drag left over from history continues to subside, and the increase in delivery volume combined with positive cash profit margins forms a double benefit. Delivery volume will be higher in 2029. The 737 is close to the medium to high level of more than 50 aircraft, the 787 is close to the monthly production of 12 aircraft, and the 777X is expected to generate positive free cash flow. There is still room for growth in 2030 and beyond.

JPMorgan — Seth Seifman: In terms of aircraft unit return, cost growth comes from supply chain and rate increases. Can you elaborate? What is the impact on forward profitability per unit of cash? In terms of pricing, does a more gradual rate climb affect the time to get rid of historical drag?

Jesus Malave: BCA profit margins in the third quarter were affected by rate adjustments and rising supply chain costs, which rolled into the EAC and affected reservation rates. The 777 cash freighter and 767 project are expected to incur abnormal costs from the fourth quarter to the first half of next year, putting pressure on operating rates and profit margins in the third quarter, but they will subside in the second half of the year. Considering the expansion of cost bonuses from high-priced order reserves and performance improvements in higher business volumes, the second half of the year will improve significantly, and break-even will be reached in early 2028. The above effects have all been included in cash flow forecasts and have little impact on cash flow. Based on the pricing already in the order reserve, there is a high level of confidence in 737 and 787 profit margin improvements.

Jefferies — Sheila Kahyaoglu: How are continuing high oil prices impacting the aviation industry? What about customer channel feedback? How have orders, service operations, and rental rates changed? What kind of oil prices does the free cash flow guide assume?

Robert Ortberg: The company communicates closely with customers. The impact varies from airline to airline. Most of the order reserves are used to replace old aircraft. New aircraft are more fuel-efficient. Higher fuel prices instead encourage customers to receive aircraft faster. What may be weakening is the airline's overall growth portion. Currently, no customer wants to replan order growth. If this happens, the company has the ability to adjust the delivery order due to excess order reserves. Most airlines currently pass on high fuel prices to ticket prices, and we need to watch for the next few quarters. At the macro level, even as demand in the growth market slows, a large number of customers still want to get replacement aircraft faster.

Wells Fargo — David Strauss: What are the 2027 MAX and 787 delivery assumptions? How much did the -7 and -10 inventory aircraft absorb? If 777X is postponed from 2027 to 2028, how risky is the $3 billion cash flow guideline?

Jesus Malave: Delivery of around 30 pre-built -7 and -10 aircraft is expected next year. On the 777X side, if certification is delayed until mid-year, the impact will be several months, one or two months. Delivery volume is expected to be 10 to 15 aircraft next year, and some of the delays can be absorbed within the $3 billion guideline. Total BCA deliveries are expected to increase by more than 10%, and more details on specific models will be provided in January.

Melius Research — Scott Mikus: The 2029 target assumes that 737 will produce more than 50 medium to high level aircraft and 787 will produce 12 in July, but the 737 will only reach 52 in the second half of next year, and the 787 will only reach 10 at the end of this year. Why will it take about 2 years to increase to a higher rate? Is the supply chain outlook deteriorating?

Jesus Malave: Delivery often lags behind production. This is exactly the upward opportunity for 2029: if it can be delivered at a higher production rate, it will create upward space for the $10 billion target.

Scott Mikus: What are the 2029 cash tax and cash interest assumptions?

Jesus Malave: Basically continuing the status quo. Taxes will not be revealed until the early 2030s, and interest cash declined as maturing, but not significantly.

Bernstein — Douglas Harned: On the 737 side, the monthly production of 47 aircraft seemed stable in August, and the wing drilling challenge was mentioned in September. Has the wing problem been solved now? How is Wichita progressing? How can we ensure that we reach 52 next year?

Robert Ortberg: The engine isn't the problem. The company has implemented a series of process improvement measures to support the increase from 42 to 47. Some measures have not had the expected results. The company has adjusted and increased some production capacity. Early signs are encouraging, but the production wing has not stabilized to support the monthly production of 47 aircraft. The company will stay at this level for a while to ensure stability. Climbing 42 to 47 is not as smooth as 38 to 42, so all speed support functions will be fully tested before the next upgrade to 52. The Everett production line is progressing well. The first -10 went offline yesterday. Wing stability is a challenge, and the company will learn lessons to ensure that improvements are fully verified before the next speed increase.

Douglas Harned: Other than the wings, what are your concerns? Are there significant risks to the Wichita airframe or other supply chain?

Robert Ortberg: Currently, the wing is the cause of instability. The fuselage has an inventory buffer, but once the wing is resolved, the fuselage will become an important area of focus. The company intends to produce airframes at a lower rate than final assembly to consume inventory. The rest of this year and the beginning of next year will need to simultaneously increase the airframe rate to 52. There are currently no systemic challenges in the supply chain, and occasional issues such as GKN windows are being solved.

Baird — Peter Arment: How is Spirit (Wichita) integration progressing? BCA's profit margin is break-even in 2027. Can the 2029 outlook return to historical levels?

Robert Ortberg: The integration is progressing as planned. While Wichita maintained a low rate, the focus was on implementing the safety and quality plans successfully implemented in Renton, which slowed progress to a certain extent, and airframe inventory consumption may be slightly faster than the baseline plan. The company already has a climbing plan, which is one of the reasons 47 stayed longer and then climbed to 52.

Jesus Malave: 737 profit margins will increase, but neither percentage nor absolute value will reach 2018 levels; 787 will surpass 2018 levels by 2029. Overall, 2029 will bring net revenue.

Goldman Sachs — Noah Poponak: The difference between free cash flow trajectory and market expectations is partly due to capital expenditure. The capital expenditure for 2027 has been given. What are the capital plans for 2028 and 2029? What is the share of revenue after normalization? If 777X is postponed, why can it be digested? Does that mean that the guidelines are conservative and leave room for exceeding expectations?

Robert Ortberg: Management reserves were set aside during the last major reset of the 777 project to cope with schedule pressure. It's not implied that 777 has been postponed until mid-next year, and the team is still pushing for certification. The company is financially prepared and can still be completed within the EAC if certification is delayed until mid-year. An earlier date is currently being promoted. Once 737-7 and -10 certifications are complete, the FAA and testing team can invest more resources in 777 testing. The aircraft is in flight, tests are underway, and additional test flight authorization has been obtained from the FAA (TIA 4B extension). In the new regulatory environment, the company has understood the requirements to complete the certification and has included it in the plan.

Jesus Malave: Capital expenditure of about $5 billion in 2027, and about $4 billion each in 2028 and 2029. The impact of 777X is several months, one or two months, and has been quantified within the guidelines.

Noah Poponak: $4 billion still accounts for about 3% of revenue, and the company has been at or below 2% for a long time. Has capital expenditure increased structurally? Or will it recede over time?

Jesus Malave: Expected to be above 2%, declining over time, but 3% to 4% is a reasonable level after normalization.

Citi — John Godyn: The overall free cash flow figures seem to be moving in parallel. Will the “Polaris” target change after 2029? How should the 2030 and 2031 models be adjusted?

Jesus Malave: Nothing changed. There will still be significant growth after 2029, and improved profit margins and increased business volume will continue to drive up cash flow. Delivery in 2029 is assumed to be 63 aircraft produced in 737 months and 14 aircraft produced in July 787, which will generate compound income after 2029.

John Godyn: Can you understand the free cash flow curve getting steeper, but the end point is the same?

Robert Ortberg: From the perspective of expectations, it's more like moving to the right overall for a year, with no change in expectations for slope or absolute end point.

BofA — Ronald Epstein: Boeing won the F-47 and F/A-XX, and the future of US military tactical aviation seems to be in Boeing's hands. What are the prospects for BDS growth and profit margins?

Robert Ortberg: Defense business growth will be higher than expected a year ago. Previously, low-single-digit revenue growth was expected, but now it is clearly moving towards the middle single digits or higher. It is important that these projects are all covered by the right type of contract, which not only increases orders, but also does not cause previous challenges. In addition to orders, the MQ-25 and T-7 have both entered Milestone C, the F-15EX received large new orders and continued to grow, and PAC-3 Seeker production increased. The company has signed memorandums of understanding with all customers for large-scale fixed-price development contracts, and Starliner was also brought under control last quarter. There is more confidence in the prospects for growth and profit margins. Not all of the development projects have been completed yet, but the team did a good job of finding a win-win solution. Strong demand for defense portfolios and further growth in budget support can be said to be an underrated sector.

Ronald Epstein: Are F/A-XX or F-47 fixed-price development contracts?

Robert Ortberg: The F-47 is a cost addition contract; F/A-XX can't disclose, but the type of contract is appropriate.

UBS — Gavin Parsons: Thoughts on the new single-aisle aircraft? Does the 2029 free cash flow guidance include related R&D and capital expenditure increases?

Robert Ortberg: The outlook for the new aircraft remains unchanged. The product development team is defining options and market timing. Relevant investments have been included in the cash flow outlook.

Jesus Malave: Currently, there is no large-scale investment; it is more investment in R&D and technology development.

Robert Ortberg: As projects 737 and 777 are completed, resources will shift from existing development projects to new projects.

TD Cowen — Gautam Khanna: How is the balance of deferred production costs trending for the three projects? How much will the total increase next year be? When and how much will it decline in 2028 and 2029?

Jesus Malave: No specific changes were disclosed. The deferred production costs of 737 and 787 will basically flatten next year, and the use of cash will decrease; 2028 and 2029 will become a source of cash, and the scale is significant, driving the overall working capital to continue to be a source of cash. The 777X will grow in the next few years due to early delivery. Cash was mainly driven by 737 and 787 profitability improvements and lower deferred production costs.

Vertical Research Partners — Robert Stallard: What makes the company confident to give free cash flow guidance today? How has the outlook changed?

Robert Ortberg: Over the past two years, the company has faced challenges and solved them one by one, and the portfolio risk has been significantly reduced. Two years ago, all fixed-price development projects faced challenges and are now under control; at the time, it was uncertain whether the next generation of fighter jets could be won, but now both projects have been won; defense business underwriting methods have improved markedly. The company just experienced a strike two years ago, and the commercial factory output was zero. Now it has successfully climbed to 38. Although it took more time to reach 47, the company will continue to maintain discipline. The company has a better grasp of risk and can provide an achievable outlook. Expectations are rising, the company's own standards are rising, and the team is ready to implement it. There are still some issues to be addressed, but the uncertainty is far less than before, and now is the right time to give guidance.