The Boeing (BA)
Q2 2012 Earnings Call
July 25, 2012 10:30 am ET
Stephanie Pope - Vice President of Investor Relations
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W. James McNerney - Executive Chairman, Chief Executive Officer, President, Chairman of Corporate Contributions Committee, Chairman of Special Programs Committee and Member of Stock Plan Committee
Gregory D. Smith - Chief Financial Officer and Executive Vice President
Thomas J. Downey - Senior Vice President of Communications
Robert Spingarn - Crédit Suisse AG, Research Division
Joseph Nadol - JP Morgan Chase & Co, Research Division
Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division
Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division
Carter Copeland - Barclays Capital, Research Division
Cai Von Rumohr - Cowen and Company, LLC, Research Division
Howard A. Rubel - Jefferies & Company, Inc., Research Division
Noah Poponak - Goldman Sachs Group Inc., Research Division
Heidi Rolande Wood - Morgan Stanley, Research Division
Jason M. Gursky - Citigroup Inc, Research Division
Robert Stallard - RBC Capital Markets, LLC, Research Division
Myles A. Walton - Deutsche Bank AG, Research Division
Ronald J. Epstein - BofA Merrill Lynch, Research Division
David E. Strauss - UBS Investment Bank, Research Division
Peter J. Arment - Sterne Agee & Leach Inc., Research Division
Thank you for standing by. Good day, everyone, and welcome to the The Boeing Company's Second Quarter 2012 Earnings Conference Call. Today's call is being recorded. The management discussion and slide presentation, plus the analyst and media question-and-answer sessions are being broadcast live over the Internet.
At this time, for opening remarks and introductions, I'm turning the call over to Ms. Stephanie Pope, Vice President of Investor Relations for The Boeing Company. Ms. Pope, please go ahead.
Thank you, and good morning. Welcome to Boeing's Second Quarter 2012 Earnings Call. I am Stephanie Pope, and with me today are Jim McNerney, Boeing's Chairman, President and Chief Executive Officer; and Greg Smith, Boeing's Chief Financial Officer.
After comments by Jim and Greg, we will take your questions. [Operator Instructions] As always, we have provided detailed financial information in our press release issued earlier today. And as a reminder, you can follow today's broadcast and slide presentation through our website at boeing.com.
Before we begin, I need to remind you that any projections and goals we may include in our discussions this morning are likely to involve risks, which are detailed in our news release and our various SEC filings and in the forward-looking disclaimers at the end of this Web presentation.
Now I will turn the call over to Jim McNerney.
W. James McNerney
Thank you, Stephanie, and good morning, everybody. Let me start today by addressing the evolving business environment, followed by some thoughts on our performance during the quarter. After that, Greg will walk through our financial results and outlook, and we'll take your questions.
Starting with the business environment on Slide 2. Despite slower global economic growth and a range of uncertainties, including the European sovereign debt crisis, we continue to see positive worldwide expansion in air traffic. Passenger traffic, in particular, remains resilient, led by trends in emerging markets. Cargo traffic, on the other hand, is stabilizing, with growth expected early next year. This is an area we will continue to monitor closely in the months ahead.
Customer demand for our Commercial Airplanes is being driven roughly equally by a strong replacement cycle and worldwide fleet growth. Deferrals and cancellations remain at or below our historical averages, and we continue to foresee aircraft financing as broadly adequate and available through 2012.
With 694 new orders thus far in 2012, we expect order traffic to remain strong through year end, with a book-to-bill ratio finishing well above 1, primarily driven by demand for the 737 MAX.
Customer response to the 737 MAX remains brisk. We are receiving new orders and converting previous commitments at a steady pace. With 649 firm orders among more than 1,200 total orders and commitments. The recent order from United Airlines for 150 737s pushed the 737 program above 10,000 orders for all 737 models, marking the first commercial airplane program in history to surpass the 10,000 order mark.
With approximately 4,000 total airplanes on order, our backlog is one of the most balanced and diverse by geographic region and product type that we have ever experienced, with about 2/3 of it committed from airlines based outside of the U.S. and Europe.
We continue to focus on steadily increasing production rates to deliver that backlog faster and create new capacity for customers wanting to get more efficient airplanes into their fleet sooner.
Overall, we are positioned exceptionally well in the growing commercial airplane market, with a superior lineup of innovative new products and services that deliver unmatched fuel efficiency and operational performance.
Turning to Defense, Space & Security now. While the threat of budget sequestration and further U.S. defense cuts continues to create uncertainty. International markets continue to offer a broad range of new sales opportunities. As you know, an extended downturn in U.S. defense spending has been our planning assumption for several years. And our teams have taken substantial steps to maximize operating efficiencies and reduce our infrastructure costs.
We remain committed to continued action in this regard to ensure our near-term performance and competitiveness, while delivering greater value to budget-constrained customers and continuing to fund investment in future capabilities.
Leveraging the strength of our expanded international presence and partnerships, we expect the substantial share gains made in recent years will continue, generating up to 30% of our Defense revenues in the near future. With our portfolio of proven, affordable and reliable systems and services, combined with a track record of strong execution and innovation, we believe we are well-positioned for continued success in this constrained and challenging environment.