波音 (BA) 2003 Q1 法說會逐字稿

Please please stand by for realtime transcript The Boeing Company conference call will begin soon.

Thank you for standing by.

Good day, everyone, and welcome to the Boeing Company's first quarter 2003 conference call.

Today's call is being recorded.

The management discussion and slide presentation, plus the analyst and media question-and-answer segments are being broadcast live over the internet.

At this time for opening remarks and introductions, I am turning the call over to Mr. Paul KINCHER, Vice President of Investor Relations with The Boeing Company.

Please go ahead.

Thank you, Peter.

Welcome, everyone, to the Boeing first quarter 2003 earnings conference call.

We're pleased to review our quarterly earnings and outlook with you today.

You can follow our company broadcast at our website at www.Boeing.com.

If for any reason you're unable to reach us through the internet, please access our site later today and all information will be posted.

With me today are Philip Condit, Boeing chairman and chief executive officer and Mike Sears, our executive vice president and chief financial officer.

After comments by Phil and Mike, we'll open it up to your questions.

Before we start, as usual, I need to remind you any projects and goals we may include in our discussions are likely to involve risks and uncertanties.

Assumptions behind our projections and the factors that could cause actual results to vary are detailed in the news release we issued early this morning and with our various filings with the Securities and Exchange Commission and in the forward-looking statement at the end of this web presentation.

I urge you to read them thoroughly.

Additionally this quarter, we revised our press release in accordance with new regulation according to presentation of gas and nongas financial measures.

At this point, I would like to turn the meeting over to Phil.

Thank you, Paul, good morning.

I will begin with an overview of the quarter and our perspective on the business.

Mike will provide the financial details for the quarter and our updated outlook and then I'll be glad to take your questions.

Let me start with slide 2.

Results for Q1 reflect excellent performance in very different market conditions for our businesses.

They also reflect the direct aggressive approach to dealing with commercial market realities.

Our commercial markets remain highly challenging while our defense markets are strong.

We have and will continue to manage across all businesses for strong operating performance, no matter what the market conditions are.

We will remain focused on running healthy core businesses and have positioned the company to deliver shareholder value.

Now, let's turn to the financial results on slide 3.

Q1 revenues were $12.3 billion, compared to $13.8 billion for the year-ago period.

For the quarter, we reported a net loss of $479 million, or 60 cents a share.

This includes the previously amount noncash charges relating to goodwill and customer financing.

Excluding the goodwill charge, adjusted net earnings from current operations totaled $3 39 million or 42 cents a share.

This number includes stock compensation expense, which totals 5 cents per share.

In Q1, lower commercial airplane volume and the customer finance charges were offset by strong results in integrated defense systems.

We used $558 million of precash in the quarter.

Primarily reflects cash-flow timing and, as a result, we're not changing our strong cash outlook for the year.

Now, let's look at commercial airplanes on slide 4.

Commercial airplanes continues to aggressively manage for profitability and continues to invest for the future.

They are addressing market realities decisively, and the results show it.

As expected, deliveries and orders were lower in Q1 relative to a year ago.

Commercial airplanes delivered 71 airplanes compared with 110 in Q1 a years ago.

This resulted in revenues decreasing 31% to $5.7 billion, operating margins were 4%, excluding the noncash goodwill charge.

Including goodwill charges reported operating margins were negative 2%.

Commercial booked 32 gross orders, compared with 120 in the year-ago period.

During the quarter, PSA continued to invest for long-term growth.

They made solid progress on the 77 program and are expanding the outstanding capabilities of the triple 7.

Commercial airplanes is dramatically leaner.

They have the right customer focus strategy and are ready for truly outstanding performance as the market recovers.

Commercial airplanes is an outstanding core business for Boeing.

Both today and certainly for the long-term.

Now, let's go to integrated defense systems on slide number 5.

This business had a great quarter.

Revenues increased 18% over last year's Q1 to $6.3 billion, unfavorable delivery timing and program growth.

Operating margins increased to 9.6%.

Excluding noncash goodwill charges as all four segments delivered improved results.

Including charges for goodwill, reported operating margins were 1/2 of 1%.

During Q1, IDS successfully demonstrated the future combat system capabilities and preparation for a key review this May.

They signed up Japan as the second international 767 tanker customer.

They launched the first Delta 4 under the EELV contract and announced the consolidation of launch vehicle assembly activities.

Integrated defense systems also continues to work closely with the U.S.

Air force to secure department of defense approval for the 767 tanker program.

The need for this program is clear.

In just over three weeks, U.S. forces flew nearly 6,000 tanker missions to support operation Iraqi freedom.

This is stretched an already aged fleet.

Integrated defense systems is and will generate significant shareholder value.

Now, let's go to slide 6.

Our other businesses.

Boeing Capital revenues reached $283 million during the first quarter.

BCC reported a Q1 pretax loss of $113 million, which includes $93 million from the previously announced noncash charges.

These charges reflect BCCs disciplined approach to assessing the customer financing portfolio.

BCCs portfolio decreased slightly in Q1.

As expected, financing volume is slowing with commercial airplane delivers.

The quarter also reflects deal timing and a conservative approach to transactions.

Boeing Capital will remain focused on preserving value and managing risk.

They will prudently support the deliveries and carefully manage their portfolio.

Connection by Boeing continues to develop for the long-term value.

It achieved significant milestones with its successful consumer trials on Lufthansa and British Airways.

An airline industry interest continues to build.

Air traffic management continues to build support both in the U.S. and globally for a revolutionary new air traffic management system.

Let me close with my perspective in slide number 7.

Last quarter I told you that we would continue to run healthy core businesses.

In a very dynamic and challenging environment, we have done just that.

On the commercial side of our business, the unprecedented depression in the airline business continues to dampen demand for new airplanes and for related support.

The airline situation varies across regions and carriers.

Most low-cost airlines remain healthier than their full-service counterparts.

U.S. full-service carriers have been the hardest hit.

Prior to the Iraq war and the outbreak of SARS, carriers in Europe were in a little better shape, while Asian carriers were the strongest.

At this point, it's still too early to reach conclusions regarding the ultimate impact of all of these current events and the situation remains highly dynamic.

Based on what we know today, '04 deliveries still look very close to those of '03.

And then we expect to see a gradual recovery.

Commercial airplanes will continue to perform well, they will match production to demand, they will develop future new products, and they will aggressively manage the business.

They will emerge from this current situation far stronger.

From the military side of our business, integrated defense systems is performing very well in a growing defense market.

Our U.S. military customer is transforming.

IDS is well-positioned in defense and intelligence and in space markets as a leading provider of existing capabilities and emerging D.O.D. network centric systems.

We expect growth and strong operating performance at IDS, and they will provide strong earnings and cash flow during the guidance period.

Now, let me close with the words that I have said before: We will continue to drive for profitability.

By delivering strong operating performance and running healthy core businesses, by managing the company with the highest standards of corporate governance and ethics.

By executing our strategy to deliver long-term shareholder value.

Now, Mike will give you the financial results.

Mike.

Thanks, Phil.

Good morning, everyone.

I will start today with general comments on slide 9 and then move into the numbers.

As Phil noted, our financial results for the quarter reflect strong operating performance in very different market conditions of our businesses.

Revenues decreased with commercial airplane deliveries but came in better-than-expected to the strong revenue performance at IDS.

We reported a loss for the quarter in accordance with the noncash charges we announced two weeks ago.

However, the underlying operating performance remains strong at both integrated defense systems and commercial airplanes.

We use cash in the quarter.

This reflects working capital growth at IDS and commercial airplanes.

The cash flow typically increases through the year, and we expect 2003 will be no different.

I'll discuss this later in more detail.

And finally as promised, this quarter marks the beginning of our new segment reporting for IDS commercial airplanes and going capital.

I'll briefly summarize these changes later in the presentation.

Now to the first quarter financial results on slide 10.

Revenues for the period were $12.3 billion down 11% from the first quarter of last year, as lower commercial airplane volume was partially offset by IDS growth.

Recorded operating losses totaled $373 million and included $1.2 billion of pretax, noncash charges announced earlier this month.

On an after-tax basis, the company reported a net loss of $478 million or 60 cents per share.

The comparable gap EPS in the first quarter, 2002, with a net loss of $1.54 per share.

It reflects the after tax of goodwill impairment charges under FAS 142.

These totaled $818 million in the first quarter 2003, and $1.8 billion in the prior year period.

Excluding the goodwill charge, adjusted operating earnings were $540 million, and adjusted net earnings totaled $340 million.

These results reflect the impact of lower commercial volume, customer finance charges, and lower pension income and are partially offset by strong results at IDS and by commercial airplanes operating efficiencies.

Adjusted earnings per share from current operations total 42 cent the first quarter of 2003, compared with 72 cents in the first three months of 2002.

Moving to the discussion of cash on slide 11, the company used $558 million of free cash during the quarter, including $428 million of operating cash and $130 million of capital expendetures.

Cash results for the quarter reflect working capital growth at both IDS and commercial airplanes.

At IDS, cash requirements were driven primarily by the timing of aircraft program receipts, payments to suppliers and the ramp up of Delta 4 production.

At commercial airplanes, customer advance payments to client as a result of lower period orders.

We continue to expect strong cash flow for the year with the fourth being the strongest quarter.

Boeing Capital's portfolio didn't grow during the quarter.

As a result, BCC didn't issue any additional debt and used internally-generated cash to fund new business.

Also during the quarter, the Boeing issued $1 million of long-term bonds.

Proceeds from a well received offering were used to retrieve Boeing debt and further stringen our liquidity.

Going forward, we continue to deploy our cash carefully to meet our obligations and provide current returns to shareholders.

So it shows a balance sheet and strong credit ratings.

We ended the quarter with the cash balance of $2 billion, compared with $2.3 billion at the end of 2002.

Consolidated debt at quarter end totaled $15 billion, up from $14.4 billion at previous year-end.

The Boeing Company ended the quarter of $5.1 billion of debt outstanding, reflecting the company's $1 billion long-term bond issuance and debt-repayment activity in the quarter.

Boeing Capital debt dropped slightly in the quarter to $9.3 billion, reflecting the slight decrease in customer financing portfolio balances.

Equity in the quarter, as a result of the net loss we reported for the period.

Financial strength and solid credit ratings continue to be a priority for Boeing.

Slide 13 summarizes the changes begins in this quarter to our segment reporting at integrated defense systems, commercial airplanes and Boeing capital corporation.

As promised, we're enhancing transparency by reporting integrated defense systems in four segments and as we have previously disclosed, we're reporting commercial airplanes, earnings from operations on a program accounting basis and Boeing capital corporation operating earnings now including interest expense.

All of these changes will enhance the visibility of segment contributions to consolidated earnings results.

Details of these changes effected this quarter and recast the statements for 2002 are provided as an attachment to the press release we issued earlier today.

Now, let's turn to our core businesses, starting with commercial airplanes on slide 14.

Revenues for the quarter were $5.7 billion, down 31% from last quarter due to 39 fewer planned deliveries and lower spares volume.

Excluding the goodwill charges Phil discussed, adjusted operating earning for the quarter were $229 million with margins of 4%.

Period results reflect lower revenues and higher-cash, pension expense offset by continued improvements in operating efficiency.

Results also reflect the impact of a difficult commercial market environment on our intermediate term delivery outlook, which has fallen over the past year.

Commercial airplanes continues to manage aggressively for profitability in the very challenging commercial marketplace.

As you can see on slide 15, Integrated Defense Systems turned in strong first-quarter revenues and operating earnings.

Revenues rose 18% to $6.3 billion, fueled by strong performance and aircraft and weapons systems, network systems and support systems.

The increase reflected IDS's strong defense markets and broad program base, as well as accelerated delivery of various production aircraft.

Excluding the goodwill charge, adjusted operating earnings grew 49% to $603 million.

Adjusted margins increased to 9.6%, up from 7.6% in the first quarter of last year.

This reflects strong performance and volume on defense and intelligence programs and reduced losses at launch and orbital systems.

Results for each of intgreated defense systems full-reporting units are provided in our first quarter earnings release.

Now, let's turn to our financial outlook for 2003 and 2004 on slide 16.

Today, we're updating our guidance for 2003 earnings per share to reflect the noncash charges recognized in the first quarter.

The company outlook for 2003 and 2004 remains on track.

We expect continuing strength in our defense and government space businesses to partially offset the downturn in the commercial aviation and commercial space markets and the impact of decreasing pension income.

The commercial airplanes delivery forecast for 2003 remains at approximately 280 airplanes and is virtually sold out.

Deliveries in the second and fourth quarters of 2003 will be higher than those in the first and third.

We continue to expect 2004 deliveries to be between 275 and 300 airplanes.

Approximately 85% is sold at the lower end of the range, and during the guidance period, approximately 3/4 of the deliveries are for international customers.

For 2003, commercial airplanes revenue forecast remains approximately $22 billion.

Revenues for 204 are expected to be similar, although they will depend on the actual quantity and model types delivered.

Excluding goodwill charges, commercial airplanes margins in 2003 are expected to be between 4 1/2 and 5 1/2%.

Margins in 2004 are expected to be at least as good.

And including goodwill charges, reported commercial airplanes, 2003 margins, are expected to be between 3 and 4%.

At Boeing Capital, the outlook for portfolio growth remains unchanged at plus or minus $2 billion for each year, although this may moderate.

We currently include BCC to other than -- on assets to roughly break even in 2003 at around 1% in 2004, subject to market conditions.

BCC will continue to manage and assess its portfolio conservativly.

Integrated defense systems outlook is unchanged from the prior quarter.

Revenues for 203 are expected to range from 26 to $27 billion and then increase by about 10% or more in 2004.

Excluding goodwill impairment impacts ,intgreated defense systems margins in 2003 are expected to be in the 8 to 9% range.

We expect margins to continue to improve in 2004 but remain in the high single-digit range.

Including goodwill charges, reported IDS, 2003 margins are expected to be between 6 and 7%.

Putting everything together, Boeing's revenue guidance for 2003 and 2004 is unchanged.

Revenues in 2003 are expected to be plus or minus $49 billion. 2004 revenue guidance remains between 52 and $54 billion.

Growth on key defense programs and the number and type of commercial airplane deliveries continue to be important drivers.

We are revising our 2003 earnings per share guidance to reflect the goodwill and financial charges we announced two weeks ago.

On a GAAP basis, we expect 2003 earnings per share to be between 68 and 88 cents.

On an adjusted basis, excluding the first quarter goodwill charges, earnings per share are expected to range between $1.70 and $1.90.

This is 20 cents lower than our previous guidance and reflects the $251 billion noncash charge related to commercial airplane financing.

This outlook also includes a positive EPS impact from pension income of approximately 5 cents per share, which is significantly reduced from 42 cents per share in 2002. 2004 earnings per share guidance remains unchanged at $2.10 to $2.30.

This increase over 2003 EPS includes a 15 to 25 cent earnings per share decrease resulting from pension expense.

Cash flow guidance for 2003 and 2004 is also unchanged.

We expect 2003 operating cash flow to be between 3 and $3 1/2 million.

After deducting capital expenditures from operating cash flow, free cash flow guidance remains between 2 and $2 1/2 billion.

Following historical patterns, we expect operating and free cash flow to be stronger in the second half of 2003.

In 2004, operating cash flows should be greater than $3 1/2 billion with our free cash flow guidance holding at greater-than-$2 1/2 billion.

Our pension funding assumptions remain the same as in the fourth quarter.

In 2003, required pension funding is modest.

But the company will consider making discretionary contributions.

Early in April, we did so contributing $479 million to our pension plans.

We continued to evaluate additional discretionary contributions in 2003, and are currently required to fund about $1 billion pretax in 2004.

With that, Phil, it's back to you and we're ready for our questions.

Okay, we're ready to take questions.

Thank you, today's question-and-answer session will be conducted electronically.

If you would like to ask a question, please press the star key followed by the digit 1 on your touch-tone telephone.

Once again, it's star one for questions.

And we will pause a moment to assemble our roster.

We'll take our first question from Joseph Campbell with Lehman Brothers.

Good morning.

Morning, Joe.

I guess I have a zillion questions but I will try to element it.

I am sure they'll all come up.

May be you could comment a bit on, um, um, how the cash flow in the quarter was spread between the defense activities using money and the commercial activities using money.

Um, and the BCC and just a bit of color on what is going on in each.

Well, let's see, without going too deep here, Joe, we have got about -- you can think about comparable values at both of the major business units, um, we're seeing some inventory build over in the space side, which is a driver for IDS, um, and we're seeing a, um -- a flattening of the delivery rate over at commercial which actually began last year, and then it's flattened out this year, so with the decrease in order base coming, we have cash flow variation there.

The other point they would make, um, I don't have the number in front of me, if you recall, we had very strong cash flow at the end of 2002, and you're seeing some timing differences there in terms of pressure on cash flow from IDS, particularly in the first quarter of 2003.

may be you can just -- I mean looking at the cash-flow statement, is it -- is it -- I mean some of this is in the credit corp., is that the way you're sewing it?

Some of this is just a question of display.

No, I apologize for any confusion.

This is all operating cash flow we're talking about.

So when we talk about the negative numbers, what you're suggesting is the working capital charges of a billion and a half I can roughly divide equally between the two main business units.

No, I don't think it's appropriate to just divide it up.

So I -- wait, you're just not going to answer the question?

I'm trying to push, whatever it is you're willing to tell us here.

I think -- I think we have done about all we're going to dispiece on breaking the cash flow apart for you.

And then on the customer financing, where we're showing minus 376, the portfolio went down, the debt went down, it was -- what is the meaning of the minus 376 in the cash flow statement?

In the presentation, Joe?

Yes.

What that moneys is that they used existing -- what that means is that they used existing internally-Jen rated cash they had already to fund deals during the quarter.

What is it they funded if the portfolio went down?

Well, they had a bunch of new volume in the quarter, Joe, probably to the tune of $2 1/2 billion, and they had some runoff, and then some of the cash that came out was red lighted to depreciation.

That's what happened and with regard to cash flows, should --

and with regard to cash flows, should we think of in the guidance, I mean, what are the threats posed by AMR, they have to go back and vote again.

Looks look they kind of lost control.

Hopefully they'll get it together but -- can you comment on, I mean as Hawaiian and United went to chapter, um, we saw, you know, results reflected through in BCC.

What do we need to be, um, sort of braced for with regard to either the threats to the asset values or the threat to the need to finance.

How should we think about what happened to AMR again with regard to cash?

Well, we're throwing our hands up in terms of thinking of all the different scenarios that could occur, um, so we know that is a very difficult marketplace.

It's, as we have seen in the last week, it's hard to project what may or may not occur.

The one thing we know is that we have solid asset base, there has been a significant, um, devaluation of that base over time.

We have taken that into account for the current conditions.

Everybody's crystal ball is gray in terms of where this might go in the future, so, those are all areas that we're watching carefully.

We're catching them carefully in terms of, um --

but no, Mike, no answer to what would -- I presume AMR would have a significant, if they filed, you would feel obligated to use the more stringent accounting rules so that you would mark down whatever the AMR assets are and you revealed that in the notes but no further commentary?

I think the answer to your question is, yes, no further commentary other than we have a very disciplined set of processes that we use and aligned with the blue book valuation processes that occur.

Okay, great.

Thanks for your help.

Okay, Joe.

We'll take our next question from Byron CALLEN with Merrill Lynch.

Good morning, gentlemen.

A couple of quick questions, like Joe, I suppose I could ask a lot, to.

First, the comment about Boeing Capital.

I heard more of a range of how assets might grow, and I just want to kind part that out a bit.

You're just being more restrictive in what you're willing to extend customers or your start to see a sign that customers are finding alternative financing services.

How can you bracket that for me?

Well, I think a good way for all of us that tothink about this is that in the current market condition, we are all intend to be a bit more conservative in terms of how we look at risk and how we look at the long-term opportunities, so I don't think we intended to communicate a shifting.

I heard you ask Brian about a shifting of asset allocations.

I don't particularly see a shifting in there other than a good thorough review, a good risk-management process, which we have continued to improve upon inside the company, and a conservative approach as to how we decide to finance our planes.

Okay.

And just shifting to the military side of the business, I wonder -- you mentioned, Mike, that I guess some aircraft deliveries had been accelerated, um, I kind of on the other hand, A, what kind of impact there their may have been if any, um, from accelerated shipments of whatever you had in anticipation to the Iraq war, and then I assume your guidance doesn't assume any impact from the supplemental spending package because I'm sure you will see some business following this whole thing that, um, probably should flow at a guidance at some point.

Yes, so you know as well as I that our, um, our expendibles in this situation are not, um, particularly great with one exception, that being Jdam.

So we have -- in conversation with the customer about planned incerases in the JDAM rates going forward, a great program for all of us, as we know.

Outside of that, the larger platforms, you can go down the list, C-17s, hornets, eagles -- all of those airplanes -- are in the planning process, and there are is some conversation about a very small replacement that may take place as a result of the war, but there is not a big huge number that we would expect to see in terms of increasing revenues as a result of Iraqi war replacements

Okay, last thing, in aircraft and weapons, the margin was kind of stunning in the quarter, over 14%.

Was there anything unusual or, um, this was just kind of timing and absorption issue that you mentioned and can you help us with a margin on a go-forward basis.

I assume it's not going to be sustained at that rate.

There is nothing unusual other than really terrific performance.

And the acceleration of some of those airplanes brings, um, revenue and earnings into a fixed period expense base.

Okay.

Great.

Thanks.

You bet.

We'll take your next question from George Shapiro with Solomon Smith Barney.

Yes.

Good Morning.

A quick follow-up on Byron's question.

The margin was 9.6 in the quarter, Mike, and you gave guidance that it would be 8 to 9% for the year, so were there any abnormal benefits in this quarter, or what happens in subsequent quarters that we wind up only averaging 8 to 9 for the year?

George, I think it's exactly what I just tried to communicate, maybe not very well.

With the acceleration of some of the airplane deliveries from Q2 into Q1, we see additional revenue and earnings on top of, excuse me, on top of a fixed expense base, which tends to drive that a little bit.

Plus, there has been a few cleanup on contracts and in general, good performance.

So, we will see that shift for the to quarter throughout the year, and we expect to still be in the 8-9% for the entirety of IDS for the totality for the year.

Can you just go through what you project for the major deliveries for, you know, the major aircraft programs so we get a feel for how much might have been overdelivered this quarter?

Um. [ Indiscernible ] The major delivers that were accelerated, there was one C-17 that came into the quarter and one or two hornets came into the quarter.

I think, George, those would be the biggest financial impact for the quarter.

Okay, and then -- -- commercial aircraft, Boeing Capital, if you try to take out the interest expense and the charge and kind of just get the number the way thank you been reporting it, you would have had a margin of like 67, 68%, which is still in line with what you have historically reported.

I just was expecting that to come down at some point clearly reflecting some renegotiations at lower rates.

Is it just a timing issue yet or how is it staying as high as it seems to be this quarter?

If I understand your question right, since it's extended over the life of the lease, any lease rate reductions that you would see would be modest in terms of current period performance and accumulated that those changes are over the period.

Okay, so you basically don't get it -- a huge impact quarter-to-quarter.

Right.

Okay, and then probably just one for, um, Phil.

If you look at the comments that you have in the 10-K, you were expecting traffic to rebound this year to maybe 5% or so, which would lead to orders improving next year and deliveries in '05.

Given that the first quarter was a negative number and the start to the second is not great, at what point here do you wind up having to back down on the '04 forecast, as well as extend out to time of recovery?

I think -- the real key is what does aircraft -- what did does travel do in response to the -- do in response to the sensation of the conflict in Iraq.

That clearly was a direct impact, impacted the U.S. and impacted Europe.

And what is a timing of a better understanding around SARS, because it had a negative impact on Asia and travel to and from Asia.

I expect the -- the Iraq war piece to come back relatively quickly.

Now, that's clear, um, I do not have an answer today on SARS.

We're just going to have to watch that and we're doing that on an almost week-by-week basis as we get data.

Um, we're trying to give you, in our projections, the best numbers that we can based on everything we know right now.

Okay, and then maybe one last one, Mike, you mentioned 3/4 of the planned deliveries in '04 were international.

Could you roughly break that between our and Asia?

I can't do that off the top of my head, George.

Maybe Paul can give it to you on the phone later on.

Okay, thanks very much.

Thanks, George.

We'll take your next question from Nick. [ Indiscernible ] From Banc of America Securities.

Hello, question on Beoing Capitol, any material changes in the portfolio shape they have over the quarter, higher number forming assets, possible delinquencies 90 days, whether any residual values and where they are to book at the moment.

Nick, that's a broad set of questions.

Um, I think in general all of those are wrapped up in the charges that we reported a couple of weeks ago.

So, we have seen, um, a decline in valuations.

We certainly have seen a decline in credit ratings, um, and those are the two primary factors that have driven through our analysis, and have taken this to the point where we have written down the $251 billion.

Okay, Mike, is there any color that you can -- with conversations you have had with leasing companies.

They're obviously going to be suffering quite a high level of lease expires this year and next year.

I'm sorry, and your question is?

Yeah, it's a question of whether you have had dialogue with leasing companies.

Is there any concern you may have with them if they have a high level of lease expiring over this year and next year, therefore, do they have a higher level of flexibility on deferral or cancellation in your backlog?

No.

No.

Not -- not to that extent, and I think -- I think the real issue here that we're all seeing as Phil just mentioned, um, the real trick is how many seats are needed versus how many are out there, and how that's going to get reconsiled throughout the recovery from the economy, from 9/11 and SARS will drive how the thing shapes out.

So, Mike, you see the possibility to readdress kind of delivery guidance next quarter because this quarter is still unclear.

Let me respond.

I think the answer always will be: We will reassess over we do every week, every month, if we see changes, we'll let I know.

At this point, based on our best estimate of the impact of all of those factors, we're feeling pretty good about where we have set guidance.

Okay, Phil, thank you for that.

Then on the tanker program, could you give us a little update on where you are with that?

Is there any extra color that you can give or is it too sensitive.

Is it back to DOD again.

it's very colorful.

We continue to work that very aggressively.

We believe very strongly that there is a demonstratable need that the process we put together, the lease makes a lot of sense.

I think the biggest problem is we're doing something that has not been done before, and that always causes a lot of effort to get through it.

But we still see that very positively, we think the need remains and we think in the end, we'll get there.

Any sense on timing at all, Phil?

Well, other than the fact that every we start the week by saying by the end of this week, um -- [ Laughter ] -- no.

I mean I think we'll have to let that run,by obviously, hopefully sooner than later.

Fair enough.

Thanks, Phil.

A last quick one to Mike.

Is the tax credit sustainable, um, following the loss of the appeal at the WTO, and is that something that concerns you or doesn't it in

The answer is it does concern us, and I think as we all , there is action taking place in the U.S.

Congress to address the findings of the WTO and the way forward.

I believe now there are at least a couple of Bills being put forward, so I would expect over the next 3 to four months, um, that we would see some beginnings of a resolution on that issue.

And any idea at all at this stage what the scale of the impact could be?

Um um, there is no real resolution until they get some conversation and dialogue taking place on the hill.

Okay, fair enough.

Thank you very much, indeed.

Thanks, Nick.

We'll take our next question from Peter Jacobs with Reagan McKenzie.

Good morning, gentlemen.

Morning.

First of all, could you give us an update on the A, A-12 program and where you sit there and the dispute with the government.

see, um, I have lost the date, but I think it was about a month or six weeks ago we had a ruing -- ruling out of the appeals court that swing the pendulum back in the direction of the contractors.

So, um, court activity continues to proceed.

Okay, but no -- no time frame for any further court date dates or anything like that, or are you in negotiations for a settlement now that the pendulum has come back into your court?

I was going to say on the other side of the coin, we continue to have conversations with the government about a business solution that would be in all of our best interest, including our shareholders and the U.S. government, so that's kind of a peril effort taking place.

They're both, um, continuing to go down the tracks at this time.

Okay, and secondly, um, in the lines of the 767 tanker program, Phil, will you talk about the implications for the production line, the 767 product line if this -- this does fall through, number 1, and number 2, how much, if any, up front investment have you been making either keeping some supply chains in tact or anything like that for the -- for the tanker program and at what point might you have to, um, write -- write those off if -- if there has been some up-front money spent in -- leading up to that this in.

Yeah, they, um, first off, the 670 is running at a very low production rate right now.

Obviously a -- a stronger economy would be an important part of where that program goes.

The tanker program just makes everything a lot easier.

We are spending some of our own funds in the front part of the development.

Remember, we do have contracts for Japan and for Italy, so we -- we think there is a tanker program, well, we know there is a tanker program.

The question then is a U.S. tanker program, um, and in some ways, it's a funny debate because part of the debate is: Should they be purchased or should they be leased, um, and which is the most attractive alternative, and we think in the end when what we're going to come around to is that given the current financial situation and need, that the lease alternative returns the best value to the U.S. taxpayer, and gets the -- the product in early.

Clearly it also has advantages from our production line standpoint.

Um, trying to speculate beyond that is to whether or not you would come to a program stop if did you not have the U.S. tanker program.

I think is a -- there are still enough market issues there that we're not at that point.

Okay, thanks, and that's all I have.

We'll take our next question from Steve Binder with Bear Stearns.

Yeah, good morning.

Mike, I just wanted to kind of look at the fourth quarter of '02 to the first quarter of '03 up to DCAG where you had a $650 million decline in sales and looks like pre-R&D declines, incremental decline of 50% margins.

There is pretty good scepticism on a unit-to-cost basis from Q4, '02, to '03.

Looks like a drop off in sales is largle due to 737 deliveries from the fourth to the first.

I was wondering, granted volumes down sequentially, but maybe you can discuss what happened on a unit-cost basis prior to the charge you took in the quarter in.

Well, I think, um, think what we're seeing here, Steve, is that we have been expecting the crossover between the unit cost of the airplane versus the program accounting cost.

And so the dramatic shift in revenues and, therefore, deliveries, um, and trying to deal with that in terms of the fixed cost, the period cost in there, caused that swing as we just discussed.

I -- I know that, but in one quarter time frame, it's bigger than I would have thought drop-off.

Is there anything in particular beyond just the crossovers, is there a customer issue, model-mix issue in the first quarter?

I don't think so.

I think the other thing to remember is that the fourth quarter was significantly high of the run rate in terms of deliveries and so you get the advantage of moving airplanes into the quarter, and first quarter, as is typical, was low, so you have got the -- the high-low that is just a when did they get delivered and when did they get billed that is also in that mix.

The other questions, with respect to program margins on a go-forward basis, I don't think you really change guidance.

Just wondering, the issue on some of the models like the 57 and the 67 and the 47, you're anticipating additional orders and then you have the issue with respect to time frame and delivering out the block.

I gather, do you still have confidence in those program margins, given the issues we have talked about, especially in '04, in light of the fack that there is going to be a timing issue on whether when all the planes get delivered, and secondly, you're anticipating orders on the 57 and the 47 to finish up the block sizes.

Again, you had a lot of questions in there.

I'll tell you, the one thing that gives all of us a lot of confidence in the margin is the great work the BCA folks are doing on site, in terms of quality, soakel time, quick print, SF terms, all of that kind of stuff, which, obviously, helps mitigate the lower delivery rates we have been experiencing over the past year or so.

To your point on program accounting, obviously as Phil mentioned, um, we have been hoping that the market returns and we have been looking for it.

And, again, the crystal ball is not clear, but we do anticipate a modest increase in '05 as we have discussed and so that kind of thinking is reflective, as you know in, the program accounting margins.

And last for '04 deliveries, I think that you said, you know, 85% has firmed up of the low-end of the skyline is 80% at the end of the year, so a the more firming up in the second quarter.

When you use the delivery schedule for 2004, I'm guessing more than 3/4 of the delivers in '04 on the 747 is Asia and more than half of the delivers on the triple 7 is Asia.

Have you gotten any sense of the whole sars incident, slumping traffic through both the factors of war and sars, are you factoring in that guidance, you know, the 85% firm, any new rescheduling requests that you have gotten for some of the Asian customers or from some of the European customers.

Everything that we know is in there, guess the obvious is what we don't know is not in there, um, and I think that the big question on SARS is: Can we get to a point where confidence returns and allows people to travel, um and when does does that point occur?

If it comes fairly quickly here, I think we're going to be pretty accurate.

If this gets worse and extends, obviously that's another factor in the total marketplace.

But -- but everything we know is in there right now.

Okay.

Thank you very much.

Thanks, Steve.

We'll go next to Heidi Wood with Morgan Stanley.

Good morning.

A couple of questions on the defense side.

The lower losses in launch and orbital systems, when do you predict this decision with break even?

We have got a -- we have an outlook for the year that is a break-even kind of outlook, Heidi, so the slope is in the right direction, um, the team has done a great job of dealing, um, a difficult marketplace, not unlike commercial airplanes and at the same time, getting the new processors put in place and the good focus on profitability.

Can you -- I meant to be more precise, Mike, I'm sorry.

Can you give us color in terms of when you think that crossover occurs in the quarters?

No.

Okay, um, -- on the aircraft and weapon's systems margins, the 14.2% you reported, that included spending on 767 tanker.

You can give us a little color on what I spent on tanker this quarter.

We're not going to break it out by quarter, but I think you know that that's a several hundred-million dollar development activity that we have for that program.

But are you -- you're not at that fully, um, R&D rate yet, though, are you?

Well, that's the number for the whole activities, so in terms of flat line for the year, you know, we're not too far off running flat line for the year on that.

Okay, and then when I, you know, harkening back to what you would talk to with George about the, um, -- some aircraft being pulled forward, one C-17 and two F-18s, so it looks like if you take those out, you still did 14.1% margins.

Would you agree with that?

I haven't run those numbers.

Okay, and again, I just want to run this question again because -- so the 8 to 9% includes break-even on launch and orbital assistance, and sustainable kind of 14% plus on the aircraft and weapon's systems?

Um, we have talked about sustaining margins and that kind of business on a portfolio basis of a 10 to 12% kind of number.

So, I don't think it's realistic for us to run 14.6 flat line for the year, Heidi.

Right, um, and the network systems, Mike , what should be the sort of normalized margins in that area?

Um, that's one that is going to evolve, um, some of the major programs.

The programs that are in there today, it's reasonable to be in the category we're talking about, um, for the those kind of margins, but, you know, we have got new programs coming in there, and um, and are going to drive some of those that we'll have to see where we can take those downstream.

Okay, great.

Thanks.

Question for you, Phil, with respect to cash redeployment, you're throwing off in 2 to $2 1/2 billion in cash flow, can you talk to us a little bit about what your thoughts are with respect on how you intend to deploy that capital?

The list actually sounds much like we talked about before.

We're going look very carefully at where we put it.

The first choice, obviously is if there are acquisitions that we can make that we think are accretive and add significant shareholder value, we'll do that first.

We have made a number of small acquisitions, um, at this point, that's likely to be the direction, um, the next ones we will look at are share buyback.

Obviously dividend would come in there.

It will be affected by does anything happen on dividend taxation as you would expect, but it's those three items.

And then you can talk to us also, Phil, about your thoughts on 77, um, given the lack of clarity, um, in the Asian markets and sort of the still persistent weakness in the U.S. markets, could you see a timing on that slipping out into 2004?

It could.

But, um, you know, I think one of the interesting challenges that we have, everything we're seeing in the marketplace is positive relative to that airplane.

So, the question is, um, what launch criteria do we use, and how do we make the decision to go forward.

Do we have enough confidence in the market to begin.

That will be a decision the board looks at seriously as we get toward the end of the year, um, I'm still relatively optimistic that by the end of the year, early '04, we would be in a position to launch.

Excuse me, give authority to offer with launch probably following that by, I'm going to guess maybe three to six months.

Okay.

Great.

I'll I'll let someone else ask questions.

Thanks a lot.

Okay.

We'll take our next question from Joe NADAL with J.P. Morgan.

Good morning. first question is on cash flow, um, as we look ahead to Q2, you put the $500 million into the pension fund in, I guess this month, do you expect deposit of free cash flow this quarter?

Yeah, we still expect our cash flows to get in that range for the year, so we're going to be moving forward in Q2 and Q3 and then continue on, um, um, large numbers for the last quarters, 3 and 4.

Better than break-even then this quarter is the expectations.

Yes, sir.

Secondly on the $500 million or so of credit from Boeing Capital in terms of growing the portfolio, could you give us the major recipients of that in the quarter?

do you have it with you?

Joe, I think we'll put that out on the BCC first quarter Q, going to come out in the first week of May or so

Okay.

Wait for the Q then?

Yeah.

On commercial R&D, the number actually stayed flat this quarter sequentially.

It had been dedlip -- declining every quarter the past before that.

Is this, given what you see in terms of 77 and some of the derivatives, do you expect it to remain at this level or start to grow in the upcoming quarters?

I think it will be relatively flat, um, maybe some slight growth.

In Q2, Q3, and as we get to the end of the year, is it going to be back over 200 a quarter?

Um, Phil hit it right on target.

It's relative with modest growth throughout the here.

Year.

Throughout the year.

Okay, and then finally, having a little trouble working through some of the other allocated expense and some of the pension issues, I was wondering if you could talk briefly, you know, had you had a $30 million income from unallocated expense, which was higher than it's been for, I mean, for several years, um, I noticed you said something about deferred stock compensation, but it was $100 million swing relative to my motto, a dime at runnings.

Can you talk about how that's going to look the rest of the year?

You're talking about the other segment?

The unallocated expense.

Okay.

A $31 million positive.

Right.

And I had a $71 million negative, close to what you did in Q4.

Right, as you know, we had a big pop in corp.

G&A.

On the pretax basis, was $49 million.

Versus the first quarter of last year, obviously, which was a negative $62 million on the pretax basis.

Okay.

The other thing that happened during the quarter is we had some timing of just, you know, corp.

G&A flowing through the system.

And it's just G&A timing, Joe.

Okay, as I look ahead to the run rate for the rest of the year, assuming the stock does, for the purpose of the exercise, stays in the area it's in, do you expect that to pop back into negative range or stay relatively break-even?

You know, I would say it's going to be slightly up, positive going forward, Joe, assuming the stock just hangs in there.

A positive, a positive number.

Okay.

Yeah.

Um, okay, and then just finally on the pension side, um, what was the direct impact of -- is the -- in the accounting differences light, is that going to be where it was in Q1?

Because that was very different from my number as well, I was $55 million off.

Is that a good run rate or swinging back and forth in the remaining quarters.

You're looking at the 98, Joe?

Um -- the BABD entry for 98 in the supplemental disclosure?

Yes.

That's the descent run rate.

It is.

The FAS adjustment.

Yes, it.

Is the run rate for the physical cash adjustment.

That's a good run rate, too, for the health care?

Yeah.

Okay.

Thank you very much.

see you, Joe.

We're going to take a couple more questions here.

okay, we'll go next to Chris McRay with Deutsche Bank.

Thank you.

I would like to return to the BCA margin for just a second.

When you looked back to the third quarter last year, you had a 3 or $400 million difference in volume, a very similar mix of aircrafts deliveries and yet margins were on 8% of the unit basis.

Back to what Steve is saying.

I understand a sequential drop from the fourth quarter, but the margin rates quite a bit deteriorated from the back half of '02.

I feel like there is still an unanswered issue there.

Um, Chris, the only thing I can tell you is that it's been a pretty consistent performance, performance has been solid, so when we're seeing is differences in quantity of airplanes and types of airplanes and timing differences in R&D and expense, um, and a positive push up on the efficiency side.

I mean R&D is lower, and um, and the mix is very similar to that quarter.

So --

yeah, we had fewer triple 7s, obviously.

Uh-huh.

Versus the third quarter of '02.

Um, we had -- clearly there is a mix issue playing in there.

We also Hum, last quarter in the third quarter, if you're looking at that, and we'll take this offline.

Now we're recognizing higher cash pension expense in the period that did not exist in the third quarter of last year, Joe, that didn't pop out until the fourth quarter.

So those are kind of the drivers you're seeing in some of the margins.

I don't emargin pension was a $300 million swing from 3 Q to 1 Q.

Fewer triple 7s, cash expense, -- expense -- expenz, those are the primary drivers.

If we look forward then, if you're at a 4%-type of number on a GAAP basis now, and the guidance is 4 1/2 to 5 1/2, um, and the 71 is actually on a run rate exactly to do the full-year number you're guiding, um, what changes to pop the margin upwards?

We're going to continue to see, um, positive efficiency performance and improvements and we're going to see differences in R&D, on a going-forward basis and, any other major items, folks? you have mix that is going to flow in there that will have quarter-to-quarter changes.

The R&D hurts you, though, if I'm not mistaken.

Let's come back to the big picture.

The big picture is efficiencies are getting better, mix is always going to play a difference and R&D is always going to play a difference.

Then you have a pension accounting going in, that is not allocated where presently it's not.

Okay, also on BCC, um, you were seeing about break-even.

That's a full-year guidance for the year including the charges in the first quarter, I guess, so we ought to just think about a mild profit throughout the rest of the year relatively evenly?

That's a good way to think about it.

Okay.

And, um, in terms of the cash flow, um, can you get the full-year guidance if you have flat deliveries and flat orders from where we kind of were in the first quarter?

Does it have to see, you know, a good pop in orders as we get through the year and meet the fourth quarter kind of expectation for a big pop in cash.

As Phil said, we told you all we know when we know it, and um, that's fully consistent set of guidance that we provided.

And we're not expecting a big pop in orders.

Okay.

Great.

Thanks a lot.

Okay, Chris. last question.

okay, we'll take our last question from jay KATANAE with SG Cowen & Company.

It's actually kyle -- [ Indiscernible ] To Steve Binder's question about the, you know, the margin of falloff at BCAG, you know, with the crossover, you know, going forward should we expect, you know, unit pricing to be a bigger issue, um, because that's a pretty sharp falloff, and what should we look for for the accounting differences between GAAP and unit costs to be for the year?

Let's see, I don't have the number for the year, KAI, certainly -- certainly pricing in the future will be an issue on margins.

Most of our stuff is, um, is pretty well priced.

We have planned for the year 2003 so, we're in pretty good shape in terms of the guidance we provided on that subject.

Okay, as we move forward, you know, given that the pricing has deteriorated and presumably, you know, what you're selling in '03 was already booked, um, you know, I assume the difficult pricing, you know, starts to manifest itself in the '04 deliveries and, deliver, in the unit-cost margin.

What should we think about the unit cost margin in '04 while the GAAP margin gets a little bit better, does the unit cost margin get better or does it remain under pressure in.

It certainly remains under pressure.

As the deliveries stable out and the efficiencies continue to turn in, we would expect to see those push back upward.

Okay.

And with the, you know, the erosion and backlog in the 57 and the 67, um, you know, is there a risk that, you know, might have to kind of, you know, not be able to sustain those lines or shut them down for some period of time and kind of relatedly, and I guess this is more related to the 67, um, you know, what are your customers out of Asia saying regarding SARS?

Are they kind of asking saying, gee, you know, we may want to cut this back some more, and how do you deal with that whole issue of responding to SARS and what your customers need.

You deal with it almost exactly the same way we dealt with 9/11.

I continuously work with your customers.

You adjust where you need to adjust, um, go back to the words I was using, we have tried to manage aggressively to match demand and not -- not shove airplanes into airlines that can't use them.

So, if -- if we get to that point, we will deal with it.

Okay, um, lastly, kind of a big question, you know, the "Wall Street journal" had an article about the 77 alleging discussion going on, the company, regarding what the launch costs might be, I mean as I remember for 10 to 15 years, you guys have been saying the middle of the market is where you need the plane, not the great big one that airbus is building.

It would seem to me if you really believe that, you would go hell bent for leather while Airbus has kind of focused otherwise to get this thing to market, um, and if so, the R&D presumably will build, you know, kind of delaying any earnings recovery, even if you get a modest uptick in volume.

How are you running the company?

Are you running it for longer-term value or are you going to really run it for an intermediate term returns?

Let me take it from a different direction and see if I can answer your question.

We believe the technology exists today, and we believe we have done it and, therefore, we have a scale-up, but we think the technology is there to dramatically reduce the nonrecurring cost of a new aircraft and dramatically reduce the recurring cost of a new aircraft.

We think we would be foolish not to incorporate that technology.

Therefore, we are driving very hard, BCA is driving very hard to get nonrecurring and recurring costs of new product down.

We think that gives us the best margins long-term, and, therefore, back to your question, we think it gives both the best intermediate term and the best long-term return.

And we think we would be missing a major opportunity if we did not take it and capture that capability.

Okay, the last one, your, um, you mentioned, you know, you expect the market to come back in '05 and, obviously, whatever assumption you have regarding how the market comes back in '05 is kind of factored into your program accounting margins.

Obviously we're not privy to that, but can you give us some kind of a hint?

I mean, you know, what sort of a number, you know, if we think '05 is going to be 200 deliveries or, you know.

What sort of a number are you using for '05 just to give us a sense if it looks like that's not the number you're going to have an adjustment one way or another, on the program accounting margins?

Well, one, we adjust on program accounting on a every-quarter basis and make those changes that we think represent that correct answer to that question.

Um, we are not counting on a big increase in '05.

We think it's going to be very modest, and that's the way we built our planes.

And -- and did that assumption that you used looking at the end of this quarter, um, incorporate any changes for SARS?

Um, to the degree that we understood it.

Yes.

Thank you very much.

You bet.

Thanks, guys.

Okay, thank you very much, um, obviously if you have more questions, you can get with Paul and his team, um, and at this point, we'll end the analyst call and we will go to the media call.

That completes the an it -- analysts question-and-answer session is.

For members of the media, I will return you to the Boeing company for introductionry remarks by Mr. Larry Mccracken, vice president of media relations.

Mr. Mccracken, please go ahead.

Thank you, we will continue the media questions for Phil and Mike.

If you have questions after, call 312-544-2022.

Now, Peter, we're ready for the first question and in the interest of time, we ask that everyone limit to one question.

Thank you very much.

We'll take our first question from dominic gates with "Seattle times."

Hello, a question for Philip Condit.

Following up on your response to KAI von rumor's question.

It's an encouraging answer about this the 77 and your commitment to it.

I'm wondering then in the light of that answer, wondering what circumstances would the board say no to the 77.

They would say no if they thought there was not a business case that would close, you know, you have got -- how big is the market, what price can you get for it, what does it cost to develop, and what does it cost to build.

Um, if that number comes out negative, don't do it.

If it comes out positive, you do do it.

We think we can get a positive number.

But can you -- the planes not going fly until 2008.

You can really -- you can really -- don't you have to take a jump, um, you can't really predict what the markets going to be then.

You have hopes for it, but you have to -- surely you have to take some leap there to go forward.

Well, you know, that's the exciting part of your business, um, we build products that last 30 years or more that a program will run 20 to 30 years or more, and in order to do this job, you have to estimate what you believe the market to be on the basis, the best data you have, um, and I'll give the example.

Triple 7, um, we believe that that market was correct.

What is coming out of the results is it's been in the market that we predicted it would be, and we were correct.

Um, but that's the challenge.

You have to -- you have to make those estimates at some point you have to bet on it, absolutely.

But don't bet on it wildly.

You bet on it based on good data and the best testaments you can make.

Okay, thank you.

We'll take our next question from eLisa Allison with "the Chicago Tribune."

Hi, can I be obnoxious and ask, too? -- [ Indiscernible ] Stupid.

You're cutting in and out.

Oh, really?

Can you hear me now?

much better.

Okay, can I ask two questions, please.

Thank you.

Yes.

One is silly.

The three planes delivered in the first quarter instead of the second, was that because of what was happening in Iraq or why?

No, it was not Iraq-related.

It was our ability, um, for good performance to get into our customer sooner.

Okay, the second one is about connection, um, I read about high well your pilots have gone.

When do you see permanent orders coming through in what is happening there?

We have permanent orders.

There are announced orders for connection.

Um, the service -- the service start is early next year on a permanent customers.

Right, and how many do you expect to that at that time?

You have to begin to install the equipment in the airplanes and, therefore, that phases in over time.

Um, does anybody remember the number announced?

I do not have it.

Of announced customers.

I can find that.

we gave you that number.

Okay, what I'm asking is what do you expect going forward from what you have now?

I expect that connection is going to be a significant -- that connexion is going to be an increasing business.

The trials were very good.

The focus has been very high, and in the interest of being connect side going up and all of that bodes well for connection.

Thank you.

Our next question is from Lori.

Actually, my question has been is answered.

Thanks.

Thank you.

. [ Indiscernible ]

Good morning.

My question has to deal with the 77 and specifically to Wichita, I'm wondering, the senate panel cleared the way to approve $500 million in state-backed bonds on the fourth or fifth of this month, or in April, I'm sorry, and looks like the that is a go ahead there, but I'm wondering what kind of position do you think Wichita is in if you do decide to go ahead with the 77 to get some portion or a significant portion of that work.

Well, let me start with FAS performance.

Wichita has done a great job on parting of every single -- parts of every single commercial airplane.

I think the attitude is right, which is cost is really important and we have got to figure out the most efficiency -- efficient way to build this airplane.

The team at BCA is going to make those final decisions over the next nine months, um, and that's about as far as I can go at this point.

Okay.

So, just -- positioned well but not really --

Obviously, the goal here is to build the best airplane at the best price that we possibly do, and that means everybody in the game's got to play hard.

Okay.

Thank you.

We'll take our next question from Paula -- [ Indiscernible ] With Dow joins news service.

Yes, good morning.

This is an unrelated question, a question starting to attract attention on Wall Street.

We have seen in the last week, some focus on the issue of specialist trading, um, in corporate stocks and, of course, Boeing is a member of the Dow Jones industrial average.

I was wondering if you ever had a cause for concern, or have had any particular difficulties or concerns around affecting trades in Boeing stock.

No.

Okay, great.

Thanks.

We'll take our next question from Steve -- [ Indiscernible ] With "Puget Sound Journal."

I had a question about this responsibility of -- possibility of overseas production of the 77.

You can discuss any upsides and downsides and what the political risks might be in terms of DOD business.

I think that obviously what we're looking for is what I said.

We're looking for, how do we make the best market for an airplane that we think has tremendously high demand?

Um, and the team is doing what they should do, which is to start with no assumptions.

What is the best they can do and then they'll work themselves to old conclusions.

They have composed it well, and they're going to do a great job.

Just a follow-up, in terms of the just the political aspects if you, assembled such an aircraft overseas, that might have repercussions or questions raised, can you address that any way?

I don't know how to say anything more.

Um, we are a big military defense producer.

We produce a lot of equipment.

We will obviously continue to do that and we intend to be the great military provider.

So, you know, we're going to do the best job we know how to do and serve our defense and our commercial customers as well as we can.

Thank you.

We'll take our next question from David -- [ Indiscernible ] With "Seattle Times."

On the delivery outlook, I know you said you were estimating the 75% for '04 to Europe and Asia, um, can you say anything about the 280 for this year, how many of those planes are expected to go to Asia?

We can probably get you that number.

It's not sitting here at our fingertips.

We'll get it to you.

Okay, um, and on an order side of the book, so far this year of the orders you have gotten, it's been, from last I saw on the website, 36 net, 36 gross with 35 of those being three 7s, and I'm wondering what the -- three 7s, and I'm wonder coming the outlooks are for that adjusting as the year goes on.

The mix very clearly is in favor of smaller aircraft, um, that is where the strength remains in the marketplace.

Probably the biggest reason being that that's the airplane that the low-cost carriers tend to operate, um, I think it just gives emphasis to what we have been saying, which is we think that point-to-point smaller aircraft are going to be the answer instead of great big aircraft.

Okay, um, finally, on the issue of one planes -- when planes are produced versus delivered, just anecdotally, it appears there is a -- an unfair amount aircraft sitting at Boeing field.

I'm curious -- curious if any -- what your inventory of planes that has been produced but not delivered yet.

Um, there is two answers to that question.

One of them, remember that the vast majority of those airplanes get pointed -- painted at Boeing field.

They are unpainted, so there will always be unpainted airplanes on the field, um, the second is we do have some inventory aircraft, primarily Boeing business trips that were caught in that downturn.

Those are being sold and delivered.

Okay.

Do you know how many?

Small members -- numbers.

Less than 10.

Yes, a single-digit number.

Okay.

Thanks.

we'll go next to Jennifer Waters with CBS Market Watch.

Hi, sorry, my question was answered.

I wanted to ask you one tiny thing, too, if I could.

You mentioned, Phil, you thought travel would pick up right away after the Iraqi conflict and stuff except for the sars, how quickly request you quantify that at all?

What you're hearing from your customers as well?

Well, they -- they're -- there are two different effects going on separate from SARS.

There is the substantial downturn that is the economy slash 9/11.

Right.

That was a very deep and then a long recovery.

Then, there was another, what I believe to be a shorter-term, down-term that is driven by actual conflict in Iraq.

So, what you see is a downturn from the trim line caused by the conflict.

I think that will recover relatively quickly, but we will still be below the year 2000 numbers in total travel because we have not completely recovered from the 9/11 economic downturn, which is the more significant.

Okay.

So you're not necessarily see anything recovery from that at all, from the 9/11, which actually that was, um, that was the downturn that happened long before 9/11.

You're not seeing recovery from that.

You're point to this immediate Iraq situation.

Correct.

Now, there is a recovery on the longer one going on.

But it's a relatively long-slow recovery.

Okay.

What -- what are your customers telling you in terms of -- going out beyond to '04, and even to '05?

Um, their crystal ball is probably worse than ours. [ Laughter ]

And mine.

So we're not getting a lot of input at this point, and we're looking at -- at lots of travel statistics and trying to make that interpretation.

You're still looking to keeping to a medium-sized jet, right?

Yes.

Okay.

Thanks so much.

You bet.

Okay, we'll take one more question.

We'll take our final question from Peter Pay with "The Los Angeles Times."

Good morning Pete.

What has been the financial impact of the shuttle grounded, what do you see the outlook, particularly if it's grounded for a long time.

Is there financial impact?

There is very little financial impact at this point from the fleet being grounded.

Uh-huh.

Um, and right now, we -- and I think Nasa are both looking at a return to flight that probably will occur late this early year, in which case, the financial impact overall will be relatively minor.

Right, thank you.

You bet.

Thank you all very much, we appreciate your time and attention, and we'll see you next quarter.

This does conclude today's conference call.

Thank you for your participation, you may now