波音 (BA) 2004 Q1 法說會逐字稿

Thank you for standing by.

Good day everyone and welcome to The Boeing Company's first quarter 2004 earnings results conference call.

Today's call is being recorded.

The management discussion and slide presentation, plus the analyst and media question and answer session, are being broadcast live over the Internet.

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

Mr. Dohnalek, please go ahead, sir.

Thank you and welcome to the Boeing first quarter earnings conference call.

I'm Dave Dohnalek, Vice President of Investor Relations.

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

If for any reason you are unable to reach us through the Internet, please access our investor relations website later today when all information will be posted.

With me today are Harry Stonecipher, Boeing's Chief Executive Officer; and James Bell, our Chief Financial Officer.

After brief comments by Harry and James we will take your questions.

We ask that you limit yourself to one single part question.

As always, we have provided detailed financial information in our press release issued earlier today.

To allow more time for your questions, James will focus his comments on the highlights and drivers of financial performance rather than a detailed review of the financial statements made available this morning.

Before we start I need to remind you that any projections and goals we may include in our discussions in this morning are likely to involve risks and uncertainties.

The assumptions behind our projections and the factors that could cause actual results to vary are detailed in the news release we issued earlier this morning, and in 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.

At this point I will turn the meeting over to Harry Stonecipher.

Thank you very much Dave and good morning ladies and gentlemen.

Thank you so much for joining us today.

Today we will review with you our first quarter results.

I will begin this morning by sharing my perspective on the first quarter, and then James will summarize the financial results and provide you with our outlook and I will conclude by stating my priorities going forward.

We will then be happy to take your questions.

So let's get started on slide two.

We had a very good quarter and a strong start for the year.

We delivered solid revenue performance driven by solid growth in all of our defense businesses.

Operating earnings and margins were solid across our Defense and Commercial Airplane businesses.

Our investment in performance is paying off as we continue to focus intensely on execution.

Our businesses once again generated strong cash flows, a portion of which we invested in our pension plans.

During the quarter we also continued to position the company for future success with progress on key defense transformational programs and on our new 7E7 airplane.

Let's move on and talk about the business units, starting with Integrated Defense Systems on slide three.

IDS had an excellent quarter, delivering double-digit revenue growth and double-digit margins.

Revenue grew by 18 percent to over $7.4 billion, driven by double-digit growth in each of our four business segments.

Operating margins increased to 10 percent, reflecting excellent performance on production programs, particularly in the Aircraft and Weapons Systems and Support Systems businesses.

IDS has made great progress with a continuing focus on execution, and its results this quarter show it.

IDS also performed well on significant development programs during the quarter, including a successful integrated flight test on the ground-based mid-course defense program, completion of major systems of systems requirements and software reviews on the future combat systems program, beginning flight testing on the Australian wedge-tail aircraft and continuing successful flight test programs on the V-22 Osprey and the Joint Unmanned Air Vehicle.

IDS continued its strong track record for capturing new business with a contract for systems design and technology demonstration on the space segment of the U.S.

Air Force transformational communications system.

During the quarter IDS also booked follow-on contracts for additional JDAMs and V-22 Osprey tiltrotor aircraft.

The IDS team is intensely focused on performance and execution, and I am confident they will contribute strong revenue with earnings growth over the next several years.

Now let's turn to the first quarter highlights from Commercial Airplanes on slide four.

Commercial Airplanes turned in another good quarter.

BCA delivered 76 airplanes and solid profitability, reflecting its continued focus on reducing costs and improving asset utilization.

Although the commercial market remains challenging, it appears to have stabilized over the past few quarters as airline traffic has recovered to its pre-September 11 levels.

During the quarter BCA captured 75 percent of the orders in the large airplane market worldwide with 36 gross including key wins at Nippon Cargo Airlines, WestJet and Cathay Pacific Airways.

During the quarter commercial airlines launched the 747-400 Special Freighter with Cathay Pacific.

It also received US and European certification for the 777-300ER, which offers airlines and passengers unmatched efficiency and comfort in its class.

And earlier this week Commercial Airplanes received the largest launch order ever received for a new Boeing airplane when all Nippon Airways ordered 50 7E7 airplanes.

Global customer interest for the 7E7 is very high, and we expect additional orders in the coming weeks and months.

The 7E7 team also announced several key supplier partners, including GE and Rolls-Royce as engine suppliers.

Commercial Airplanes has the right strategy, combined with a strong record of execution.

It is well positioned for profitable growth as the market recovers.

Now let's look at our other businesses on slide five.

Boeing Capital produced improved results in the first quarter as market conditions stabilized in the aircraft financing business.

Portfolio growth slowed substantially, reflecting the change in strategy we announced late last year to concentrate on supporting Boeing businesses.

Early in the first quarter we announced additional steps consistent with our new strategy, including the evaluation of strategic alternatives relative to BCC's Commercial Equipment Finance Group.

Looking forward, we expect BCC's growth to moderate, reflecting lower demand for financing and BCC's focus on managing risk and preserving value.

Connexion by Boeing also made progress during the first quarter.

In March Connexion completed the first commercial installation on Lufthansa airplane as it moved towards a full-scale service launch in early May.

Connexion has also received orders from other key airlines, such as all Nippon Airways, Japan Airlines, FAS and Korean Air.

During the quarter we shifted the direction of our air traffic management effort, as we scaled back our investment and integrated the business into our Boeing Technology organization.

These changes should improve operating efficiencies while ATM continues to work with governments around the world to build support for modernizing the global air traffic system.

Now James will take you through the financial summary and outlook, and after that I will wrap up with some final thoughts and we will be ready to take your questions.

James?

Thanks Harry and good morning.

I will begin with the financial summary on slide seven.

Our financial results for the first quarter of 2004 reflect very good overall operating performance and the favorable impact of a tax refund.

Revenues were on track at 13 billion with strong growth in our Integrated Defense Systems business offsetting the modest decline in Commercial Airplane revenues.

Earnings per share were 77 cents for the quarter, and reflected strong performance across our Defense, Commercial Airplane and Financing businesses.

Cash flow from our businesses remains very strong, and as a result we chose to make a $1 billion discretionary contribution to our pension plans.

After making the pension contribution we still generated nearly 100 million of operating cash flow during the quarter.

I will discuss a few financial highlights for the quarter, and then take you through our updated financial outlook.

Turning to slide eight, total company revenue increased 6 percent to 13 billion.

Integrated Defense Systems continued to show strong growth with revenues rising 18 percent.

Growth at IDS offset a modest decline in Commercial Airplane revenues, which reflected lower services and used airplane volumes.

Operating margins were 6.5 percent, up substantially from the first quarter of 2003, which included goodwill and financing charges.

Excluding the goodwill charge in 2003, 2004 operating margins still showed solid improvement as our investment in efficiency and productivity produced results.

For the quarter the company earned 77 cents per share, up from a loss of 50 cents per share in 2003.

Adjusting for goodwill charge in 2003 our EPS grew significantly this quarter as our businesses performed well.

We benefited from a 12 cent per share gain due to a federal tax refund in the first quarter of this year.

Turning to slide nine, our core business units had a strong quarter.

Revenue growth at IDS reflected double-digit growth in all four business segments, led by Network Systems, which grew 27 percent.

Operating margins were 10 percent, driven by continued strong performance on production programs and favorable cost adjustments on completed production lots.

IDS also retired some risk with the successful delivery of a commercial satellite.

Commercial Airplanes had a strong quarter, as operating margins grew to 6.6 percent on lower revenues.

Ongoing lean activities continue to generate substantial productivity gains and period cost reductions, allowing Commercial Airplanes to balance competitive pricing pressure and new product investment, while maintaining solid margins.

As expected, Commercial Airplane unit cost margins remained below its program accounting margins as low production rates drove higher infrastructure costs per airplane.

As a result, deferred production costs on the 777 program grew during the quarter.

Moving to slide 10, our balance sheet remains very strong as we ended the first quarter with a cash balance of $4 billion, down from 4.6 billion at the end of the year.

The reduction reflects the pay down of about $400 million of debt at Boeing Capital.

Boeing debt was flat at 5.2 billion.

Boeing Capital's debt decreased to 8.8 billion, causing BCC's debt to equity ratio to drop a conservative 4.4-to-1 at the end of the first quarter.

Financial strength and solid credit ratings remain a priority for Boeing.

We remain at the top of our industry peers with solid A ratings.

Moving to slide 11, Boeing cash flow in the first quarter remained strong.

As a result, in March Boeing elected to make a $1 billion discretionary contribution to further strengthen its pension plans.

This contribution will reduce Boeing's required contributions in the next few years.

Boeing also continued to invest for the future, spending almost 200 million on capital expenditures to upgrade equipment and facilities during the quarter.

Strong cash flow remains a hallmark for Boeing.

Now turning to slide 12, I will discuss our outlook.

Today we're raising our guidance for both 2004 and 2005.

We expect earnings in 2004 to increase above previous guidance, primarily as a result of strong performance at IDS, the tax refund and lower pension expense.

In 2005 we expect higher revenues and earnings as compared to previous guidance, primarily driven by increased airplane deliveries at Commercial Airplane and lower than expected pension expense.

Our cash flow guidance for both 2004 and 2005 is unchanged, despite the first quarter pension contribution which had not been previously included in our guidance.

Turning to our segment outlook, Commercial Airplane delivery forecast for 2004 remains at approximately 285 airplanes and is essentially sold out.

We're increasing our delivery guidance for 2005 to approximately 300 airplanes, as customer interest in the 737 Next-Generation family has increased.

The 2005 delivery forecast is 92 percent sold out at the new higher level.

Commercial Airplanes expects a further delivery increase in 2006, driven by generally improving marketing conditions.

Given this higher delivery outlook, Commercial Airplanes' revenue guidance for 2000 is increased to between 22 and $23 billion.

Commercial Airplane margins in 2004 on a program accounting basis remains on track and are expected to range from 4.5 to 5.5 percent.

Following normal season patterns, the third quarter results are expected to be the lowest for the year.

The outlook for program accounting margins in 2005 have been raised to between five percent and six percent.

Operating margins include significant planned expenses in R&D for the 7E7 development.

Integrated Defense Systems revenues for 2004 are expected to grow between 29.2 and 30.6 billion, and then increase by approximately 10 percent in 2005.

This guidance is driven by continued strong growth in our integrated battle space, missile defense and aerospace support markets.

We anticipate that Aircraft and Weapons Systems programs will grow modestly, while Commercial Satellite and Launch markets are expected to remain challenging during the outlook period.

Driven by strong program performance, IDS margins are now forecast to be in the 9.3 to the 9.8 percent range in 2004.

Margins are expected to improve to slightly below 10 percent in 2005.

Turning to Boeing Capital, our new strategy to lower portfolio growth is going well.

As a result, we now expect portfolio growth to be flat in 2004 and to grow by less than 500 million in 2005.

Reflecting the reduction in portfolio growth, revenue guidance for 2004 is now approximately 1.1 billion.

DCC's 2005 revenue is forecasted at approximately 1.2 billion.

This guidance assumes the gradual runoff of the commercial equipment finance portfolio and excludes the impact of any possible sale or disposition of the CFS unit.

Boeing Capital's annual return on assets is now expected to be greater than one percent in both 2004 in 2005.

Boeing Capital remains focused on creating value by supporting our other Boeing businesses.

Additional segment guidance is provided in our press release which can be filed found on Boeing's website.

Putting it all together, Boeing revenue guidance for 2004 is unchanged at plus or minus 52 billion.

Revenue guidance for 2005 is increased to between 57 and 59 billion.

Important drivers continue to be the rate of growth and performance on key defense programs and the number and mix of commercial airplanes we deliver.

We're raising our earnings per share guidance for 2004 to a range of $2.05 to $2.25 per share, including the impact of the first quarter tax refund.

In 2004 the Company expects earnings per share to be the highest in the first quarter, as Aircraft and Weapons Systems margins are expected to moderate from first quarter levels and Commercial Airplane margins will be impacted by planned increasing research and development expense.

For 2005 we're raising our guidance to between $2.20 and $2.45 per share.

Both years continue to reflect significant year-over-year increases in pension expense.

Guidance for 2004 and 2005 also include the impact of share based planned expenses, which totaled approximately 35 cents per share in 2003 and is expected to grow modestly during the guidance period.

For 2004 operating cash flow guidance remains between 3 and 3.5 billion, but now includes the $1 billion pension investment we made in March.

Following historical patterns, we expect operating cash flow to be somewhat lumpy throughout the year.

We will continue to assess the various options available for deploying our strong cash flow, including additional pension contributions of up to $1 billion in the near-term.

Capital expenditures are expected to be approximately $1 billion in 2004.

For 2005 our operating cash flow is unchanged at greater than 4.5 billion, with capital expenditures expected to be in the $1.5 billion range.

The growth in 2005 capital expenditures primarily reflects investments to support Connexion by Boeing and the 7E7 program.

With that I will give it back to Harry for some concluding remarks.

Thank you James.

Now just a few brief remarks to wrap up.

As we have begun the year with a very strong first quarter and we're well positioned in our major markets with the right strategy, great products and a great team.

We are all committed to restoring our reputation for excellence and integrity with our customers, our partners and our employees, and we are relentlessly focused on execution, meeting our commitments and driving our performance to new levels.

At this point we would be happy to take your questions.

(OPERATOR INSTRUCTIONS) Howard Rubel, Schwab Soundview Technologies.

Harry, how frustrated are you with respect to all ethics issues that you have sort of come across?

And how much do you feel that is sort of distracting you from some of the other things you need to do?

Well, I don't think it's distracting me totally, but it's certainly frustrating.

Of course the reason I was chosen to come back I think is because I've been through this before, unfortunately.

And so I kind of knew what to expect and I'm dealing with the problems one at a time.

But thank goodness there is some wonderful things going on because I'm really having a chance to enjoy Alan's teams outstanding performance on getting a new airplane going and Jim Albaugh, who has of course suffered some of the slings and arrows last year of all the bad things that happened.

Seeing Jim up on the nap of that neck of the horse and ridding hard is quite satisfying.

So I have to tell you that waiting this long to release earnings was the biggest stress I have had lately.

Joseph Campbell, Lehman Brothers.

I wanted to ask a question about the cash flow guidance, and I wondered if you could tell us how much of the cash flow guidance in '04 and '05 will come from the Capital Corp., and did you increase the guidance from the old Capital Corp. guidance to the new.

Was that part of the change?

I think that most of the -- what you see coming from BCC will be in about the $750 million range for this year and about the same in next year.

What was the second part of your question again?

I think the second part was has it changed; is that what is causing the increase in the outlook.

And the answer to that --

The answer is no.

No, it's pretty stable year-over-year.

Peter Jacobs, Wells Fargo.

Harry, could you talk a little bit about R&D ramp up that we might see that could be attributed to the 7E7 program over the next couple of years?

We don't separate that.

As you can notice, the increase that has been aimed at roughly 3 to 3.5 percent, and it looks like it will be up to 3.5 to 4 next year.

So that's primarily driven by the extra money that we're spending on the E7.

So you can almost look at it and say we're taking a step increase almost from about three percent to four percent over the two years.

And I think we even calculated that number for you on the bottom assumption (inaudible).

Jim Higgins, Credit Suisse First Boston.

A question about the change in the commercial guidance.

It looks like you are raising the revenue guidance relative to the last time you updated us by around 10 percent for 2005, and yet delivery is up more like 5 percent and you're citing the 737 as the source of incremental strength.

Can you --?

The 7E7 wouldn't be a stream in revenues, because it will be in the --

No, I'm saying 737.

37 yes -- 737 --

So if 737 is the source of the incremental strength why are revenues going up more than units?

Because of spare parts.

I think we noted in our release or the 10-Q that spares revenues are beginning to pick up across, and I think probably from all of our suppliers you're seeing that same picture, that suddenly in the commercial market we're seeing some increase in spares sale -- spares and services.

Very good.

Sam Pearlstein, Jefferies & Co.

You had mentioned a couple of things in the release in terms of positive adjustments in Aircraft and Weapons Systems -- the favorable contract closeouts in Support Systems; and then some of the gains on asset sales in BCC.

Can you quantify either those individually or as a total in terms of what they did to the quarter?

I don't think we can quantify them separately, but if you go back historically we have a pretty strong quarter in that business as we close out the production lots on C-17, F-18 deliveries, and we had that again this year.

George Shapiro, Smith Barney.

James, I wanted to pursue -- you reference it, but I assume the production pool for the 777 wasn't changed.

And assuming it wasn't changed, you had a nearly $80 million increase in the deferred production costs on this 777, which normally should have declined around 5 million a plane.

So at what point do you have to lower the margin on the 777 to kind and get where you should be at this point in the block, which is reducing that pool?

We go and review that every quarter, and as you can see the margins are holding firm because we are seeing that there is some increase in the deferred production for costs on 777, which is again driven by the low production rate.

And there also was a cost increase that gets a more predominant impact on unit margins because of the retroactive adjustment for that lot that is moderated in program accounting.

But overall the margins are holding pretty well because they are offset in other areas by the continued benefit of the productivity we are seeing across BCA.

Nick Fothergill, Banc of America Securities.

Two quick ones.

The first is on the tanker program, if you could give us a bit of an update on where we are with that and how much of that is in your plan in terms of a delay.

And secondly, in BCAG there is an AD&E (ph) contribution of 237 million, which is really unprecedentedly high, probably due to program account uplift credit.

Is that sort of run rate expected through the rest of the year?

The first part of the question on tankers is of course you have probably seen some of the reports in the IG report.

In fact, I think a lot of that data is publicly available.

The IG came out with a report; the Air Force responded to it vigorously.

So our customer is still interested in having the airplane.

We are still working on the airplane at a slower rate than we were before, as was announced back in January, I think, or early February.

So we still think there will be a tanker program for the United States Air Force, and the timing of when that thing comes about is anybody's estimate right now.

There are a couple of other studies that the Secretary of Defense has asked for, which we believe will be finished in May.

And after those are finished, then the Secretary of Defense will make his decision on where he wants the program to go.

So we're continuing to be responsive to our customer, and we will do so as requested.

The second part of the question --

I didn't catch it.

Will you repeat it?

(OPERATOR INSTRUCTIONS)

In BCAG there was a contribution of 237 million from the AD&E (ph) line, which looked as though it was unprecedentedly high, which is probably a program accounting uplift credit.

Is that sort of thing likely to continue as we go through the year?

The only thing that I could see that you would be talking about in terms of the elimination line would either be the offset to the pension expense, converting it to FASB, or it could be the elimination of leases and inter-company deliveries.

You can call Dave Dohnalek and you can get more in-depth in detail on that.

Thank you.

Heidi Wood, Morgan Stanley.

Harry, you give guidance for 2005 EPS that is effectively given your range of seven to nine percent EPS growth.

And you mention that your guidance contemplates the 767 tanker.

Is there enough cushion in your guidance that you can do this if tanker doesn't materialize?

If tanker doesn't materialize then there will be a onetime charge take place.

And I think we've disclosed that in the 10-K.

It is in the 10-Q this time.

So if the tanker doesn't go forward there will be a onetime -- and I think it's all non-cash -- charge that will take place.

And there might be some supplier charges to go with it, but I think most of it is non-cash.

So guidance will be off if the tanker program fails to materialize.

We would have the onetime charge, plus we would have to look at the impact of the margins on the 767 product line and determine what that would be as well.

So we are assuming in guidance that the 767 program will go, the tanker program will be ultimately awarded.

Can you give us color on what's going on at BSS?

It looks like there was greater cost growth there.

What steps are you taking to remediate it?

We are working our way through some of the risks.

We did experience some cost growth this quarter as we encountered some additional issues that we're working our way through.

So the one thing I can tell you, we are spending the money to correct the problems we're finding.

We still are on track of getting these satellites delivered by mid-'05, so we're getting closer to getting out of the situation we had on the additional program.

We also took the extra step of providing for some additional risks in inventory and some risks that we had relative to insurance.

So Heidi, that's what you're seeing on that line.

Byron Callan, Merrill Lynch.

Nice quarter gentleman.

Harry, there's been a lot of speculation in the press about potential asset sales, notably Wichita.

I know this is maybe more hypothetical, but assuming a transaction can be completed, what would you do with the cash from that?

Would it be redeployed back in other investment opportunities in the Company?

Is there some possibility that maybe this makes its way back to shareholders?

There's always some possibility of that.

We always look at all of the alternatives.

And the cash generation of the company is strong enough that we have to look at it even without asset sales.

But it goes down to dividends, internal investment, maybe some small -- and I say small -- M&A activity because we still have little niche areas that we're able to pick up that enhance our network-centric capability.

So we watch out for those.

We've been fortunate enough to get a few of those.

And stock buy back is certainly always on our list of things to do.

And we, in fact, still have an authorization from the Board to do just that any day we decide to do that.

So you and I have been around each other long enough to know what the list is, Byron.

I don't have any big expenditure plans anywhere.

One of the ones near-term, though, and we will continue to look at it -- and I think James may have commented -- we think some additional investment in our pension plans might be appropriate.

That seems to be a good use of that cash right no.

In fact, it would not be unusual for us to make another sizable contribution this year.

We look we will probably recommend such a matter to the Board at the next Board meeting and see what their thoughts are.

Cai Von Rumohr, SG Cowen.

To follow up a little bit on George's question, your unit cost margin was a little bit above two percent -- well below the program margin -- on what looked to be a relatively good mix and relatively high volume compared to what you're looking for going forward.

Can you give us some more color on why it was so low?

And should we expect it to be at this level or lower going forward given the mix?

I don't think you should expected it to be lower.

The impact that you're looking at, it is the two things I mentioned earlier.

We're at the low production rate.

That impacted it, but it is also impacted by an increase in costs in our fabs operation separation.

And it's reflected there and it has a more significant impact because as you know we have to retroactive adjust for everything in that lot, and the impact of program accounting since it's prospectively it is moderated.

But it's really a onetime event that we believe will occur.

It's very similar to what you have seen in the past where we have lot closeouts and you see a very significant impact increase in earnings on unit costs where is more moderated in the program margins.

You might want to expand on that.

There's pretty good discussion of it in the 10-Q, I think, concerning the manufacturing fabrication extra cost that was discovered as we were putting a couple of systems and units together.

So you might want to look at that.

It is in the Q and it will come out.

But essentially what we had were two types coming together, and when looked at the combined estimate for that effort it wasn't at the same levels that it had been when they were separated and so we determined we had to make an adjustment to have the cost for that combined estimate to be appropriately reflected in our cost models.

And it did result in an increase, and it resulted in a retroactive adjustment to unit accounting.

And that impact is reflected in the margins in first quarter.

Steve Binder, Bear Stearns.

James, was the increase in the revenue estimates for 2005 -- Harry touched on spares and touched on deliveries -- was there any change in your assumptions on escalators?

No.

Actually -- excuse me -- with respect to program margins were there any changes with respect to escalators?

No.

And since it's coming out in the Q, what kind of unfavorable cumulative adjustment did that amount to in Q1 in the unit cost margin?

Are you talking the dollar value --?

Yes, dollar amount.

We don't give exact dollar amounts, but order of magnitude it was less than one percent of the total cost in the cost basis.

So it's pretty insignificant.

You did see the cumulative impact of it hit margins in first quarter.

The reason I ask is if you look at it from the fourth to first quarter -- fourth quarter of '03 to first quarter of '04 -- you had about $0.5 billion decline in sales and you have before R&D slightly less than a $200 million drop in profits on a unit cost basis.

It was a pretty big decremental margin.

So should we see a chunk of that being an unfavorable cumulative adjustment?

I don't think you'll see another cumulative adjustment unfavorable adjustment, but I think what will begin -- in the full quarter we actually had better performance that was cumulative adjusted as we saw better operating efficiencies in BCA.

And again, when you have those you see more of an impact on unit than you do in program margins because you have to do the cumulative adjustment, as you know, and in program accounting it goes prospectively.

Joe Nadol, J.P. Morgan.

Harry, you launched the 7E7 this quarter and I'm wondering -- we all know your longer term projections for demand, but I'm wondering if you could elaborate a little bit on what you think you might get over the remainder of the year.

We heard Mike Bair the other day as to what he thoughts.

What are your thoughts?

What do you expect to get --?

I think exactly what Mike things because he's closer to it.

Obviously when we review it with the Board we went through a number of customers that are active, and we had that Board meeting last Friday, which is when the launch was approved based on A&A order -- expected order.

And I think you'll see some more orders show up, and I believe that the fellows in Commercial like to say in the next few weeks and few months.

So stay tuned.

We're very excited about it and the industry is excited about it.

But if you have numbers from Mike Bair you would have them from the best guy I can think of to get them from.

Jon Rogers, DA Davidson.

Just Following up on that, Harry, you mentioned more orders for the 7E7, but I assume in your guidance -- I know you've got the substantial backlog, but with the increase in deliveries that you're talking about, given that orders have run below that for the last couple of years, are you seeing a lot of pickup in interest for orders that we should see later this year?

Absolutely.

I think everyone's seeing those same things.

I think all the leasing companies are seeing pressure, and I think that probably Airbus and ourselves both are seeing interest.

Actually, you know, air traffic is up and it finally has climbed its way back above the pre-9/11/2000 period, back into the 2000 period -- pre-9/11/2001.

So traffic is up.

The economy as strong.

As you folks that do analysis, I think everyone had the market that says maybe the S&P and the market has about 17 percent improvement in earnings for the first quarter baked in.

And all the data I'm seeing says that the earnings for the S&P is up maybe over 20 percent.

So I think the economy is moving.

All of my colleagues that I meet and talk with think the economy is moving.

So that always reflects itself sooner or later in better traffic.

And I think fuel prices are another thing that is hurting the airlines, but it also tends to make them want to buy more efficient equipment, and a lot of the things that are more expensive to operate from a fuel basis are likely to stay parked for awhile or get converted to other uses.

Robert Toomey, RBC Dain Rauscher.

I just wondered if I could follow up on the questioned regarding ethics.

Harry, can you just give us a little more sense of how much more what you have to do in this area and how much progress you could make by the end of this year on clearing up some of those issues?

We certainly believe that we can get it cleared up by the end of this year as I must say that we get some surprises as we go.

And the last few days there's been a lot of comments in the press concerning a former employee, one who resigned on April 1st, that had been interviewed by everybody associated with the program.

We believed what he told us.

I think everybody had no choice when you have people under oath, as certainly the courts did.

And suddenly that picture changed.

So our posture is one of saying that we are correcting problems when we find them as fast as we can.

And that has been the drive of our Board, it's the drive of our management team and it's what all of our employees want to have happen.

So we're doing that.

So when we find the problem, we're fixing it.

We also are going through all of our processes and procedures and continue to.

Bonnie Soodik and her team are very much engaged in being sure that we're in a position to audit, review and measure the effectiveness of all of our procedures and processes.

And we continued to submit all of these practices and changes that we're putting in place to the suspension and debarment officials.

And so we're trying to get everything out in the front, be very open about what's going on and deal with every problem as it raises its ugly head.

Every time I think that I have reasons to smile when I wake up in the morning, I get up and read all the press clips and every once in a while I say, "ugh!"

So I keep trying to be the cheerleader on this too.

Maybe that's kind of a flip term, but I really do want people to keep their integrity intact and at the same time don't become too glum about it; be excited about fixing the problem.

So that's the atmosphere we're trying to get going here as we're all out here to slay dragons, and hopefully we won't slay anybody's sacred cow as we go.

Robert Spingam, Wachovia Securities.

I think you have delivered just under 27 percent of your commercial guidance for aircraft in the first quarter, implying about a 6 unit drop per quarter for the rest of the year.

Is all that going to fall in the summer quarter due to the seasonality of the summer holiday season?

Or is there another reason for that?

And could you update us on the C-17 delivery manifest for '04 and '05?

C-17 -- and I believe this to be the case -- C-17 is contracted at 13 aircraft per year, and so the guys are running a little ahead in the first quarter, and that's a good.

In fact, if you look at the C-17 program over the past six or seven years, we're always ahead of contract things.

So you're right; we are out ahead of contract there, but we're planning on -- I still believe the number is 13 per year.

In terms of commercial --

We think it's going to moderate going forward over the next quarter.

Third quarter will be the lowest, but overall you'll see that play itself out over the course of the year and I think it will hit right where we are at the guidance level.

Glenn Engel, Goldman Sachs.

Two questions please; one on pension.

Can you go over just how your pension assumptions have changed?

And two, if you're in the penalty box it's hard for me to see it in your numbers.

When does this start impacting your revenues and your profits?

Let me address the pension first.

I think we told you last quarter that our pension expense for the year is going to be around 350 to 400.

We now think that's going to be more in the 300 range for this year.

And principally we're getting the advantage of -- all our assumptions remain the same, but what we are seeing is benefit from having the $1 billion discretionary pension contribution this year.

And that benefit will roll into '05 where we thought that the pension expense would be about 600 -- about 600.

It will be a little less than that, maybe in the $500 million range.

So that's where we are on pension.

I think in terms of the penalty box, if you're talking about the legal difficulties and so forth we're dealing with right now it impacts earnings as we go because we certainly have lots of legal expense going on on a daily basis.

I meant more on revenues.

Your revenues are terrific, so if you are in the penalty box I don't see it.

The revenues will be -- the thing that will happen, they will positively impacted as we go forward with the tanker program because it's built in the plan.

But if it doesn't -- if the tanker doesn't go, then you'll see some change downward in revenues because the 767 line depends on tanker volume going through there.

Another area I'd like to point out, remember we did get $51 billion in new orders in IDS, so some of that penalty box situation has been somewhat moderated.

The other area, though, I think you'll see an impact to revenue is when we come off suspension and we're able to compete for launch vehicles, and the BI-3 (ph) is competed we'll get our fair share of those launches as well.

Howard Rubel, Schwab Soundview Technologies.

I wanted to go back to commercial satellites for one second.

It continues to be plagued by lack of orders and costs.

Is that business competitive and how are you really going to go about making it competitive?

You're talking commercial satellites, Howard?

Yes Harry.

Thank you.

We thin that -- and I've done a lot of reviewing of BSS -- when I first started the review I expected to start looking for a way to shut this thing down or just meet our commitments and evacuate.

But after reviewing the plan, they have a great plan.

They have a great five-year plan.

What they have is they have a couple of programs that are pretty darn painful day-to-day-to-day-to-day, and so the message I gave them was you have a great plan; what I want you to do, I want you to spend the money this year to fix the problems and the processes, and quite frankly I don't hear what it costs right now because we ultimately have a good business.

That business happens to be two-thirds military and one-third commercial when you get out in '08.

And so I've looked at the plan year by year, step-by-step, all the way to '08.

And if the folks will perform as they are this year, then next year starts to look like they make some money.

This year they are going to lose some money; next year they will make tens of millions of dollars in profits, and by the time you get to '08 the execution of the plans they have there, it ends up being in the top quartile of all the businesses we have.

So I'm quite happy with what the team is doing there.

And you know, quite frankly they were so beaten down that I think they weren't looking forward to the review with me at all probably.

When we got through with that review and I spoke really with every employee out there in person in a big group and also kind of broadcast to the other buildings, they have really pulled themselves up by the bootstraps and they're moving.

So this year I don't care if they lose 40 million, 50 million, 60 million or 100 million; if they get the stinking problems fixed then we will be on our way.

We do have a couple of programs in there that's very painful.

James and his team and the BSS team look very carefully every quarter about what are our assumptions about estimates to complete.

And so they're keeping themselves well reserved and executing on program.

That's quite an ad for them I think, but I've got to tell you they deserved because they're working hard.

As you noticed, we have changed our guidance from the launch in orbital units down from breakeven to slightly below.

So we believe what it's going to take to fix it is already incorporated on the guidance we have provided you today.

So they're doing a good job in terms of working through their processes and their quality is improving.

We're making progress.

We're buying schedule by fixing these issues and then trying to get them out of the shop.

So it is like Harry mentioned, we have a bad meal we have to digest, but we think we have that -- what it is going to cost us -- provided for adequately in the guidance that we gave you today.

Joseph Campbell, Lehman Brothers.

I have a question about the changes that we made to the aircraft in 2005 and the increases that James referenced in '06.

And I wondered if you could tell us how much difference the guidance went up as a result.

And how much of the '04 changes related to -- the program margin changes was related to raising the production of beyond the '04 and '05 guidance that you have delineated for us?

The guidance for '05 was about the same as '04 from a delivery standpoint at the 285 level and was on the 300.

So you can do the math; it's about 15.

What we would expect is a gradual increase going into '06 where we have assumed that the market will recover from delivery standpoint, and that's where we still believe that is going to happen.

George Shapiro, Smith Barney.

Just to follow-up on Joe's question, James, have you increased your expectation for '06 deliveries which would get incorporated in the '05 guidance from what you gave us before?

No, we have not.

So the increase is roughly the 15 planes in '05 only and whatever you have projected for increases in '06 before is unchanged?

That's correct.

Byron Callan, Merrill Lynch.

James, much pressure from raw materials pricing here or is that pretty well contained for the balance of the year?

Particularly seems pretty dramatic increases in steel prices, for example.

Yes, it's incorporated in the AC estimates and the program account assumptions, and we think it's party well contained.

The other, just quickly.

The increase in deliveries, is that basically a pull forward on existing customers?

Can you give us any tone?

Is it one customer, is it geographically based?

Generally we're just seeing it come back -- we've talked to you about seeing a lot of upward pressure on the 737 family.

And it's just in general it's going up.

I think is telling when you look at the numbers that says we're 92 percent sold out; considering the new increase that gives you a message that the guys that sold everything didn't have anything else to sell, so we had to increase the production rate.

And it's coming from everywhere.

Joe Nadol, J.P. Morgan.

On Connexion it looks like Connexion between your expensing and the capital you're going be putting in is starting to run in the hundreds of millions annually in terms of investment.

At what point do you expect to get a return?

It's kind of an '07-'08 time period.

There's another program that we've been through in great detail, and Scott Carson and his team keep me fully appraised of everything that happens on the program.

I think they are doing a great job.

Because of the situation with a number of large airlines, particularly in this country, they had a little setback in the acceleration of installations.

But now they are off and going again.

And of course Korean announced on Monday, I think it was, and it is included in the data here.

There's another major airline that they have wrapped up that has not announced yet, and of course we let the airlines announce.

So I'm happy with the direction of it.

I'm happy with where it comes out.

In fact, when we decided that air traffic management was not going to move ahead to our satisfaction in the next five years -- not because the people were not great and doing great work, but it's simply that the people in the governments haven't decided that this needs to be solved to the extent they're willing to put up money for it.

So when we made that decision I think everybody got really nervous about Connexion, but it was a different kind of a review.

It's a review that says you have a great business, we've got the money and the patience to invest in it, so get going.

So that's what we're doing.

But it's kind of an '07-'08 time period.

So be patient with us.

It's the type of thing we ought to be investing in that has a big, long future to it.

It's a long cycle business.

I would just like to add that our investment in Connexion will probably peak next year.

And as you know, we track that on the other line, along with ATM and BT -- Boeing Technology -- investments.

And if you look at that line, we would say to you that that line is going to stay relatively flat going forward.

So you can get a sense that we're managing those costs reasonably well.

Nick Fothergill, Banc of America Securities.

Just a couple of quick follow-ups.

Harry, as you look across the international market for the commercial airline product, are you seeing a potential for an increase in orders beyond the 7E7 in the second half of this year?

Do you think Asia might come good this year or is it more of a next year phenomenon?

That's the first one.

And then secondly on spare parts, on the 737, which I believe contributed quite a bit to the difference between revenue guidance going up 10 percent and delivery guidance up 5, do you think that is due to the end really of desert (ph) cannibalization of spare parts?

Or what is that has really brought about this sudden increase?

I don't think it's cannibalization;

I think it's a matter of people wearing their inventories down, and traffic is picking up, and the flying has been going on.

So you can only live off of seed corn so long.

So it kind of has to go.

And by the way, I think some of the first people to see it are probably the component suppliers and engine suppliers because those things tend to eat up spare parts a lot faster than airplanes too.

So today we're seeing it and reporting on it, and I think if you look at some of their financial they're reporting this quarter and last, they're showing pretty substantial increases in spare parts there.

So I think it is the industry kind of ran out of inventory, it's been a long dry spell and now things are picking up and it's time to buy.

Operator, we have time for one more question please.

David Joss (ph), UBS.

Could you talk about your cash flow guidance for '04 and '05?

For '04 it appears you have brought it up by 1 billion excluding the pension contribution, yet the earnings guidance only implies about a $300 million increase.

And then for '05 your earnings guidance implies about a 300 million increase and you didn't change the guidance.

We missed the last part of that question; you were breaking up.

On '05 your higher earnings guidance implies about a $300 million increase, which I would have thought you have would brought up.

Your cash flow guidance for '05, you didn't change that.

I think on the '05 question, we kept it at greater than 4.5 billion.

We still expect that that will be greater than 4.5 billion.

And I think that is all we have to say about the guidance.

We are just confirming that it will be, we expect, greater than 4.5 billion in '05.

Can you say anything on '04?

In '04 we certainly got the benefit of some good performance that Harry and James have talked about.

We have got great performance on working capital across the business as well.

And we had some tax benefits.

So all of that is contributing to a higher-than-expected 2004 cash flow.

That completes the analyst question and answer session.

For members of the media I will now return you to The Boeing Company for introductory remarks by Tod Hullin, Senior Vice President of Communications.

Mr. Hullin, please go ahead.

Thank you.

We will continue with the media questions for Harry and James.

If you have any questions after the session ends, please call our media relations team at 312-544-2002.

We're ready for the first question, and in the interest of time I'd like to limit you to one question and then if we have time for a second round, we will do that.

First question please.

(OPERATOR INSTRUCTIONS) Kevin Dunn, Financial Times.

Given that the bottom didn't seem to fall pout of the Airbus worlds when they, A, said how much the development costs would be for the A-383 and, B, what their breakeven level would be, do you think you could break the habit of a lifetime and help us with your development costs and breakeven level?

I'm sure the bottom wouldn't fall out of the Boeing world either.

I've been in this business a long time, and it's too late to change.

Thank you very much.

Kathy Seliger (ph), Reuters.

As you know, the US Attorney documents that were disclosed last week did mention that other people at Boeing had received the e-mails from Mr. Sears.

Could you comment on who might have received those and if that implies that that whole investigation is going to become broader?

No, I don't think I would comment on it other than to say that you're right; the courts released some papers last week and if they wanted to release those names, they would because they know who they are obviously.

So I think I would just leave it with them.

Do you anticipate that the investigation is going to become broader?

I don't think it will be.

I think it's still going down the lines that was before, and I don't see any evidence that it's changing.

You know, we've kind of been waiting on a lot of this stuff to come out for several months now, and it's starting to happen.

So we're kind of reading the same documents you are.

I just wanted to ask a follow up on the 7E7.

Would you anticipate additional orders coming from Asia like A&A?

Yes, we think Asia is a very strong market.

But we expect orders to come from Europe and the US as well.

But Asia certainly is the strongest market right now.

As launch customers?

As launch customers.

Darrell Hassler (ph), Bloomberg News.

Just a quick question on the -- I think there was an increase in the forecast on the military aircraft and weapons systems.

Why was that for this year -- on the margin I believe?

On the margin it's just performance in the factories.

Absolute performance.

Lower-cost essentially?

Lower-cost, right.

There was a comment made today by Emirates that they were interested in the 7E7.

However, apparently they felt that even the stretch version was too small.

Have you heard anything about concerns about it possibly not being big enough?

No, haven't heard that at all.

I have heard that they're quite interested.

Thank you.

James Wallace, Seattle Times Newspaper.

Actually it is The Seattle PI, but that's okay.

Good morning.

I had a question about 767 production.

At this point are you prepared to wait until you get a definite yes or no on the tanker deal before you publicly announce a timeframe for possibly ending production of the 767 commercial passenger planes?

Sure.

As long as people are buying the airplane it will keep going.

You have heard me say that about all the airplane lines.

And it will keep going as long as people buy the airplane.

And certainly the 767 line, both the cost and the production volume, therefore, depend on the tanker program as well.

So we're counting on the tanker program for the sustainment of the 767 line.

I know some of the analysts have suggested you would have to make a public announcement probably this year.

What you're saying is you could wait until next you're even if you don't have the tanker deal before making that call?

We could, but that is the type of thing that we will make the judgment about as we go along.

We made a judgment earlier this year about cutting back our spending rate on the tanker.

You want to remember, we do have tankers sold to the Japanese and the Italians which are being built on that line, so those will go on.

Thank you Harry.

Philip Dine, St. Louis Post Dispatch.

Could you say a little bit more about the role of IDS's performance in Boeing's overall performance, especially because the operator for the conference call kept me on hold for the first few minutes and I might have missed something?

Was there anything there in what IDS did that surprised you?

There was a pleasant surprise.

I can tell you that.

The performance, particularly out of the aircraft and weapons area, was outstanding.

And I can tell you across IDS on all four of the reporting segments they produced very strong results in the first quarter.

And it was heartwarming to have that happen because some of the groups in IDS really suffered through some slings and arrows, as I said earlier, last year as they went through some of the special charges and the integrity issues that arose in their divisions.

So it's quite pleasing for all of us in the company to see them recover from all that bad news they suffered through and are still trying to correct in some cases.

But very strong operating performance.

Again, what role did they play in larger Boeing's performance overall?

In what?

What role did they -- what contribution did IDS make overall to Boeing's performance?

Their revenue for the period were greater than the contribution from our Commercial Aircraft business, and in fact where they made up some slight reduction in revenue quarter-over-quarter that we otherwise would have experienced.

And we're expecting that to continue for the full year.

So it really does reinforce that the strategy we have in place of having a balanced portfolio is really working well.

We're really starting to see the benefits of that.

So during the down-cycle in the commercial marketplaces we're really seeing the IDS business step up and deliver both the revenue and the earnings we need to have a more stable performance picture.

So a real strong contribution.

Thank you both very much.

Brian Corlis (ph), The Everitt Herald.

Two-part question related to headcount here in Everitt and Daley-Renton (ph).

When will I start to see the R&D ramp up show up in terms of increased hiring up here?

And do you anticipate that you need to hire anymore to produce the extra airplanes in '05?

The best people to answer that are right out there where you are, as I get the reports but I don't get consulted about the hiring or the layoffs that happen one way or the other.

So I think the guys right there will be happy to answer that for you, and I'm sure that the communications people can get you a good answer on that.

I'll tell them you said that.

Please do.

They are fully in control of what they're doing out there, and they're doing a great job.

Molly McMillin, Wichita Eagle.

My question involves the Wichita operations.

I wanted to find out how much interest that you have had out there for the operations and do you have an offer yet, which was the rumor last week out here?

My personal interest in Wichita is very high, and that's why we keep putting work there and they're performing very well.

If you're wandering around on the subject that everybody keeps wanting to talk to me about, I'm not talking to them about other than to say that we continue to look at all kinds of alternatives for all of our assets in the company, and that process goes on.

When we know something we will communicate with our employees, and with the communities and all our constituents on the subject.

But it's an ongoing process, and I wouldn't spend a heck of a lot of time worrying about it, quite frankly.

I have one follow-up question.

Have executives or directors been asked to make a decision what they want to do in case -- in the event of a sale, whether they would want to stay or go?

No.

Not to my knowledge.

By the way, it's kind of like the answer I gave the folks from the Northwest.

Jeff Turner and his team out there are perfectly capable of answering all of these questions themselves, and I would suggest that you sit down and chat with them.

I'm sure you do, but Jeff and his team are very good at this.

Peter Pay (ph), Los Angeles Times.

You talked earlier about how as long as people are buying these planes that you will keep making them.

The 717 hasn't been selling any.

What are you going to do about that business?

Well, as long as people are buying it we're going to keep building it.

But nobody has lately.

But there are some opportunities out there.

And you know the moment that we get inside leadtime and there are no orders, we will stop.

But you're not reviewing the business currently?

No.

Actually, it's going (indiscernible).

I believe that is still the production rate.

And it will continue, as actually I happened to read in the press clippings this morning about someone that was interested in putting 717s in operations.

And I knew some activities have been going on, so I will be very happy if that happens.

Thank you.

Dominic Gates, Seattle Times.

I have got a labor relations question.

You have got contract talks going on in Long Beach, and St. Louis and in Wichita.

Next year it will be Puget Sound.

The white-collar union in Wichita seems concerned about poisoning of relations there.

They have accused the company of giving a lower offer to the people who voted to stay in the union in that desert vote in February.

Could you comment on that situation in particular and on Boeing's ongoing labor relations across the company?

Number one, that is not true, as the labor relations across the company and in terms of negotiations that go on, we have contracts that come up every year.

What you're seeing right now certainly are some of the larger locations.

St. Louis, Wichita and Long Beach are all three very major locations.

It's so happens that three different major unions are involved in those.

And so, I've reviewed the labor strategy for the Corporation when I first came back.

I'm satisfied with that strategy.

And as we're trying to have an open, straightforward labor relations and negotiations practice.

That's what we do.

In terms of the one you mentioned, I think that both sides decided they wanted to take it to arbitration, and that's what's going on.

When you say that it wasn't true, you specifically meant that the company did not lower its offer?

Absolutely.

Thank you.

That makes great rhetoric, but unfortunately it's not true.

Allison Lynn (ph), The Associated Press.

I just have one question.

I want to follow-up on something you said listening to the analysts about the cost of the legal issues.

Can you give us any more detail on how much that's impacting earnings?

No we can't.

So you're not taking any specialty charges on it; you are just sort of counting it as a cost of doing business?

It's kind of like any other period costs.

As the bills come, we pay them and it goes to the bottom line.

The impact of that is already reflected in our earnings guidance that we provided --

The law department gives us estimates on what that will be on an ongoing basis.

Elizabeth Dotter (ph), Dow Jones.

I was hoping you could comment on the 747 line.

There's some speculation that it may be closed down as well at some point.

That's a bad speculation.

In fact, we're seeing increased interest in the 747, particularly in the cargo area. 747 is a great cargo airplane.

In fact, we're seeing great interest right now in the 747.

We had reduced the production rate of it back a year ago, I guess, or something like that, but as the markets and the economy is coming back we're seeing increased emphasis in the 747.

So I think 747 is going to be around for a while.

So Airbus -- John Lee (ph) has predicted that by I think 2006 the 747 would be closed down.

Do you think he's wrong?

I think they predicted it would be gone in the year 2000 not long ago.

I'm kidding.

Unfortunately, we don't let Airbus run our business; we run it ourselves.

Thanks very much.

Ladies and gentlemen, let's take two more questions.

Lynn Lesford (ph), Wall Street Journal.

I wanted to just touch base with you on looking at the election coming ahead, and the ongoing costs with the war in Iraq.

Is there any concern that after the election that some of this robust defense spending is going to taper off?

And if so, how do you think that's going to affect Boeing's programs?

We kind of like the programs that we have, but I think, as you say, if you get a change with the election, then who ever the President is coming into the new term will have some priorities and those may impact defense budgets one way or the other.

And so anything that happens in the defense budget will have an impact on us.

And we all -- when I say all, I'm talking about all the defense contractors -- we like to think that our programs are the ones that are must-haves.

And in fact, the thing the generally happens is some of them get clipped a little here and there, and then occasionally there's a major cancellation, which was in the case of Comanche.

And the industry absorbed the Comanche and life goes on.

The modernization of the forces is we think we're in good position there.

But I could rattle on forever and ever through every program and why I think it's important, but fundamentally our customers will be the ones that decide where they're going to spend their money, and we will do our very best to be sure they get good value for the dollar from the Boeing Company.

Chris Deckowitz (ph), Reuters.

On the increase in the EPS forecast for 2004, is that just a reflection of this quarter's improvement or is there more to that?

No, it's performance out in operations.

All of the improvements that you see in headquarters do flow out into the operations as an allocation for the most part.

But it's really -- we have an environment that is building up here that says it's important how much you save, not how much you spend.

And so it's kind of look at the discretionary costs, be sure that every dollar that you're spending has meaning and it has meaning to the performance of the company.

So we're trying to set a whole new environment, and we've raised the tempo around here a bit too.

Suddenly it says let's make decisions; stopped waiting for all the lights to turn green; get on with it.

The world -- we have 157,000 people waiting on us to make up our mind what we're going to do and where we're going.

So I'm thrilled with what I am seeing, and never has there been a better example than the launch of the 7E7.

As I came back in in December, one of the first things I did was review the 7E7, liked to the program.

They had milestones laid out when all these things were going to happen, and they have been tracking them beautifully.

So it culminated on Sunday night late for me and Monday morning for the rest of you that we've got a launch.

So I think it's a whole environment of performance that we're seeing, and these are great people and they're performing.

If I might follow-up on Lynn Lysford's (ph) question, the Iraq war, can you say what it has contributed to earnings, either in this quarter or in general and going forward with the outlook?

No.

Number one, I really don't know.

And it would probably take a while to do that analysis.

We happened to build lots of products that get used in such an event.

And the best people to ask that question of probably are the Pentagon.

One last question please.

Francine Knowles, Chicago Sun Times.

You touched on this earlier, but I didn't catch it all.

I'm just wondering if you could talk again about impact of rising fuel costs on the airline industry and also on Boeing.

Is that a concern?

Number one, it's a concern for our customers, and anytime that our customers are impacted we get concerned.

But it has a positive impact in some cases because when fuel prices go up people start looking for more efficient airplanes, and more efficient airplanes generally -- not generally, almost always -- means new airplanes.

So it will drive replacement of old, inefficient airplanes faster.

Now you have to have the money in order to be able to take advantage of that.

So it's kind of a chicken and egg thing -- as high fuel costs are destroying my revenue, how am I going to get revenue so I can buy new airplanes, so I can get the fuel efficiency?

It's troubling.

It's troubling to all of us.

It would also be troubling if it got high enough that it impacted the economy dramatically.

So having the economy recover is good for The Boeing Company.

Ladies and gentlemen, thanks very much.

This does conclude today's teleconference.

We would like to thank you for your participation.

You may now disconnect.