Boein (BA) Q4 2010 Earnings Call January 26, 2011 10:30 am ET Executives James Bell - Corporate President, Chief Financial Officer, Executive Vice President and Member of Executive Council Scott Fitterer - W. McNerney - Executive Chairman of the Board, Chief Executive Officer, President and Member of Special Programs Committee Tom Downey - Senior Vice President of Communications Analysts Cai Von Rumohr - Cowen and Company, LLC Douglas Harned - Bernstein Research Susanna Ray - Bloomberg Joseph Nadol - JP Morgan Chase & Co Ronald Epstein - BofA Merrill Lynch Michael Mecham Heidi Wood - Morgan Stanley Robert Spingarn - Crédit Suisse AG Joseph Campbell - Barclays Capital Dominic Gates - Seattle Times Jason Gursky - Citigroup Inc Noah Poponak - Goldman Sachs Group Inc. Samuel Pearlstein - Wells Fargo Securities, LLC Glenn Farley Christopher Drew Troy Lahr - Stifel, Nicolaus & Co., Inc. Myles Walton - Deutsche Bank AG David Strauss - UBS Investment Bank Presentation Operator
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After comments by Jim and James, we'll take your questions. In fairness to others on the call, we ask that you please limit yourself to one question. 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, in our various SEC filings and in the forward-looking disclaimers at the end of this web presentation. Now I'll turn the call over to Jim McNerney. W. McNerney Thank you very much, Scott, and good morning. I'll begin with a few brief comments on the business environment followed by some thoughts on our performance during 2010. After that, James will walk you through our results and 2011 outlook, and then we'll be glad to take your questions. Starting with the business environment on Slide 2. During 2010, we saw the global economy continuous Transition to a sustain, albeit generally slow, recovery. As part of that however, there was a significant rebound in air traffic, with 2010 passenger and cargo levels reaching peaks last seen in 2007 and 2008. This traffic growth is being experienced in all regions, with emerging markets continuing to show the strongest recovery. Looking forward, we expect growth rates to continue along their historical growth trends as air traffic has reached pre-recession levels. Demand for new airplanes remain strong, driven by the traffic rebound, high load factors and yields that continue to improve. In response to this broad-based market strength, Commercial Airplanes made a series of decisions in 2010 to increase production rates across its product line. The most recent was in December, when we announced a 777 rate increase to more than eight per month in the first quarter of 2013. Previously, we announced our plans to increase the 737 production rate from 31.5 airplanes per month to 35 in the beginning of 2012, and then to 38 per month in the second quarter of 2013.
In Commercial Aviation Services, airplane utilization rates and the size of customer fleets continue to grow, which has led to increased core spare sales. And with improved airline profitability, we're also seeing an accelerated recovery in aircraft modifications.On the Defense side, budget pressures in the U.S. and in other developed markets continue, while spending in the Middle East and Asia remains strong. As affordability becomes more critical to key customers, we are seeing a renewed demand for proven and reliable platforms and systems, a development which plays to the strength of our portfolio, including the multi-mission F/A-18 aircraft family and our rotorcraft products. In addition, spending priorities in many markets now include more non-traditional growth opportunities. In unmanned systems, C4 intelligence, surveillance and reconnaissance and cybersecurity, increasing international demand for defense and security systems continues to bode well for us as well. There is a clear window of opportunity for our Motorola aircraft and other products, as our international customers confront the need to transition to the next level of capabilities while also seeking proven reliable systems. Our core strategies for Defense, Space & Security markets are unchanged. First, extend and grow our existing programs. Second, capture an increasing share of international and services opportunities. And finally, accelerate our repositioning with investments in adjacent markets. Notwithstanding the high national security threat environment in the United States and our solid foundation of proven and affordable solutions, we do see an extended period of flat to declining U.S. Defense budgets with intensifying pressure on contractor margins. In that light, we'll continue to accelerate our own efforts to reduce infrastructure costs and maximize efficiencies. Overall, the commercial and defense and security markets we serve remain large, our current portfolio of products and services is a great strength and source of value for us, and we are making solid progress on the strategies we're pursuing.
Turning to the fourth quarter and 2010 highlights on Slide 3. Our core programs executed exceptionally well in 2010. 737 and 777 continued to realize productivity gains during the year. Services performance across both businesses was strong, and core defense programs performed well despite a challenging contracting environment.Read the rest of this transcript for free on seekingalpha.com