Good day, everyone, and welcome to The Boeing Company's Third Quarter 2018 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 am turning the call over to Ms. Maurita Sutedja, Vice President of Investor Relations for The Boeing Co. Ms. Sutedja, please go ahead.

Thank you, and good morning. Welcome to Boeing's third quarter 2018 earnings call. I'm Maurita Sutedja and with me today is Dennis Muilenburg, Boeing's Chairman, President and Chief Executive Officer; and Greg Smith, Boeing's Chief Financial Officer and Executive Vice President of Enterprise Performance & Strategy. After management comments, we will take your questions. In fairness to others on the call, we ask that you limit yourself to one question. We have provided detailed financial information in today's press release and you can follow the broadcast and presentation through our website at boeing.com. Before we begin, I need to remind you that any projections and goals in our discussion today are likely to involve risk, which is detailed in our news release, various SEC filings and the forward-looking statement disclaimer in the presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of non-GAAP measures that we use when discussing our results and outlook. Now, I will turn the call over to Dennis Muilenburg.

Thank you, Maurita, and good morning. Let me begin today with a brief overview of our third quarter operating performance, followed by an update of the business environment and our expectations going forward. After that, Greg will walk you through the details of our financial results and outlook. Now let's move to slide 2. Thanks to the dedicated efforts of our teams across the company, Boeing delivered third quarter 2018 financial results that include higher revenue, earnings per share and operating cash flow, driven by solid execution across the company. During the quarter we generated $4.6 billion of operating cash and repurchased $2.5 billion of Boeing stock. We also paid $1 billion in dividends, reflecting a 20% increase in dividends per share from last year. We continued to deliver on our commitment to returning cash to shareholders while investing in our people, innovation, and future growth. Revenue in the third quarter was $25.1 billion, reflecting higher services and defense contract volume. Core earnings per share of $3.58 was driven by strong Commercial Airplane performance and a lower tax rate, primarily related to federal income tax audit settlements, partially offset by charges related to planned investments in the newly-awarded T-X Trainer and MQ-25 unmanned aircraft and cost growth on the KC-46 Tanker. For the full year, we are raising guidance for revenue and earnings per share and reaffirming operating cash flow. We're also raising BCA segment operating margin while reducing BDS margin guidance. Greg will discuss these in more detail in his section. With that, let's take a look at Commercial Airplanes. For the quarter, Commercial Airplanes generated revenue of $15.3 billion, reflecting 190 deliveries, with operating margins of 13.2%. Continued healthy sales activities contributed to 171 net new airplane orders worth $13 billion during the quarter, adding to our robust…

Thanks, Dennis and good morning, everyone. Let's turn to slide 4 and we'll discuss our third quarter results. Revenue for the quarter increased to $25.1 billion reflecting solid BCA deliveries, and higher volume at Defense, Space & Security as well as Global Services. Core earnings per share of $3.58 reflect strong Commercial Airplane performance, higher Global Services earnings, and a $412 million tax benefit related to the settlement of federal income tax audits for the years 2013 and 2014. These were partially offset by after-tax charges of $541 million related to the planned investment on T-X and MQ-25 programs and $140 million after-tax charge on the KC-46 Tanker. Now, let's discuss Commercial Airplanes on slide 5. Our Commercial Airplane business revenue of $15.3 billion during the quarter reflected lower deliveries, largely offset by favorable mix. BCA operating margins increased to 13.2% driven by strong operating performance on production programs, higher 787 margins, and timing of period cost. This was partially offset by a $112 million pre-tax charge on the KC-46 Tanker program. BCA captured $13 billion of net orders during the quarter and backlog remains strong at $413 billion and more than 5,800 aircraft equating to approximately seven years of production. On the 787 program, we delivered 34 aircraft and booked 21 net orders in the quarter, and the overall cash profile of this program continues to improve through favorable mix, supplier step-down pricing, and our team's day-to-day focus on improving 787 unit costs and overall cash generation. Let's now turn to Defense, Space & Security results on slide 6. Third quarter revenue increased to $5.7 billion, driven by higher volume across the BDS business, including government satellites, Tanker, F/A-18 and weapons. BDS margins of negative 4.3% reflected the $691 million pre-tax charge on the planned investments related to T-X…

All right. Thank you, Greg. With a strong three quarters behind us our team remains focused on further driving both growth and productivity. These results were achieved through the hard work and dedication of our employees and the great partnership we have with our customers and our suppliers. In addition to the strong Commercial Airplane market dynamics I mentioned earlier in my remarks, we have taken our own actions to reduce cyclicality in our business. This includes remaining disciplined in our production rate decisions, de-risking our pension liabilities, strategically phasing our research and development spending, creating labor stability with long-term contracts, and expanding our services business, which is also less cyclical. We have executed on our long-term strategy of robust and continuing organic growth investment and returning value to our shareholders, complemented by strategic acquisitions and partnerships that enhance and accelerate our growth plans. The planned strategic partnerships with Embraer, Safran, and the recent KLX acquisition and Adient joint venture are entirely consistent with this strategy. Our priorities going forward are to leverage our unique One Boeing advantages, continue building strength on strength to deliver and improve on our commitments and to stretch beyond those plans and sharpen and accelerate our pace of progress on key enterprise growth and productivity efforts. Achieving these objectives will require a clear and consistent focus on the profitable ramp-up in Commercial Airplane production, continuing to strengthen our Defense, Space & Security business, growing our integrated services business and leveraging the power of our three business unit strategy, delivering on our development programs, driving world-class levels of productivity and performance throughout the enterprise to fund our investments in innovation and growth, disciplined leading-edge investments, and balanced value-creating cash deployment and continuing to develop and maintain the best team and talent in the industry. All of which position Boeing for continued market leadership, sustained top and bottom line growth, and increasing value for our customers, shareholders, employees and other stakeholders. With that, we'd be happy to take your questions.

And first to the line of Doug Harned with Bernstein. Please go ahead, sir. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: Thank you, good morning.

Hey, good morning, Doug. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: This will probably – this will exceed the one part. I'd like to just discuss the approach you're taking on defense. You'll be working on fixed price development contracts for MQ-25 and T-X and there's no question those will be big programs but the history of fixed price development as you know has not been good, and Boeing has been part of that history. And you took this approach on the Tanker, it's been continually more difficult than expectations. So can you describe how long it will be before you expect these new programs to generate returns and what the cash profile should be over time? And then, how do we get comfortable that you're accurately measuring the risk on these? And I'm just curious, do you see these kinds of competitions as the future here? I mean these are aggressive bids and bring back a history to all of us.

Yeah, Doug, let me take a shot at your macro question, and then Greg, I'll ask you to add in on the cash flow profile as well. Now first of all, Doug, this is a targeted and very deliberate strategy focused on some key defense franchises that we believe have lifecycles that are measured in decades and between T-X and MQ-25, those two programs combined have roughly a $60 billion opportunity space connected with them, so one, big targeted franchises. We have taken a look at these in a very careful, diligent way, and have invested up front with a business case that is very strong and the return to our shareholders as a result is going to be very strong. So think of applying a commercial mindset to franchises that are measured in decades. These capabilities are also going to bring immediate leading edge benefit to our customers and our men and women in uniform. So there's customer benefit and shareholder benefit. So, first point is that key strategic focus. And to give you a sense of it on T-X, the initial contract here represents less than 20% of the total production run and less than 10% of the total services volume available in that contract space, so we have a tremendous investment capability here. Secondly, to your point on risk. We have purposely, with these investments, significantly de-risked these programs, and they are fundamentally different than Tanker. On T-X, for example, we have two production-ready jets flying today. We've done 71 test flights already. We are highly confident in this program. These are small development programs leading to rapid production. So as you recall when we started Tanker, we still had a Tanker design on the drawing board. In contrast, today we have two flying production units for T-X. Same thing on MQ-25. We made purposeful investments over the last few years to build a prototype aircraft that'll be going into flight test in the coming year. So again, the idea here is to accelerate capability for our customers and move swiftly to production. As a result, the risk profile of these programs are dramatically different than Tanker. So a solid business case, a significantly de-risked program, all looked at through the lens of making a good business case investment that is going to be good for our customers and our shareholders, and frankly, with the strong cash performance of our company, our strong financial performance overall, we have the fuel to do this. This is an excellent use of cash in organic investment. So I'll just provide those overarching comments, so Greg, if you want to add-on in terms of cash profiles and expectations.

Yeah, I guess, I'd start kind of at the highest level, that our view of growing cash flow going forward doesn't change as a result of these wins. We've taken all that into consideration. If you kind of look at from a timeframe perspective on each of the programs, the MQ-25 through that EMD phase ends in about 2024 and then on T-X, the options start to begin in 2022. So it kind of gives you a sense of the – I'll say the breadth and timeframe along that development phase and then entering into production. So again, I think at the highest level, the cash flow profile that we are expecting for us to generate isn't going to change at all as a result of these. And I think as Dennis said, we made investments that are behind us as well that really try to de-risk both of these programs moving through the EMD phase and then ultimately moving into production. Douglas Stuart Harned - Sanford C. Bernstein & Co. LLC: Okay.

Next question is from Ron Epstein with Bank of America Merrill Lynch. Please go ahead.

Yeah. Hey, good morning, guys.

Good morning.

It seemed like the quarter went actually pretty well in terms of getting the 737 supply chain back on track. I was wondering if you could just kind of talk about that a little bit more and then, when you think about what happened with the supply chain in this quarter, how do you think about like the next rate up and then potentially getting working towards 70 and how the supply chain can handle that?

Yeah. Hey, Ron, great question and we have been and continue to be very focused on 737 production program execution and recovery. We are seeing our supply chain return to a healthy condition but we're continuing to monitor that on a daily basis. As you've seen, we've had to work through some risk issues in particular on fuselages and engines with Spirit and CFM and we now have fuselages being delivered to our purchase order plans and we're also seeing engine recovery and while we still have some work to do there, we're anticipating engine recovery towards the end of the year. You can see that reflected in deliveries, as well. The strong September deliveries give us building confidence on the recovery and as you've noticed, we have not changed our year-end guidance for deliveries, so we remain confident that we'll hit our total delivery target for the year. As a result, in the fourth quarter, as a composite, you should expect to see deliveries exceeding the 52 a month production rate. Again, those deliveries will be more back-loaded in the quarter as always but we're seeing good signs on our recovery across the board. And we're going to continue to stay very, very focused on executing that. Now, as we look to next year, as you know, we're planning to step-up to 57 a month. We are taking some lessons learned from the recent 52 a month step and applying those. That includes ramping up staffing earlier. So some of the additional staffing we brought onboard for 52 a month is staying in place to help us with the 57 a month step. Supply chain health and in-depth monitoring of that has also been turned up and I think what you'll also see is that the nature of the next step is a little different. This year was especially challenging as we stepped to 52 a month and we also had major model mix changes. Roughly half of the airplanes this year are NGs and half are MAXs. As we get to next year and towards the 57 a month rate break, we'll be almost entirely MAXs by that point. So the model mix challenge will not be as difficult as we step to 57 a month next year. So we're also factoring that into our planning. But I'll say bottom line here is we're staying very, very focused on this. It's very important that we continue to hit deliveries for our customers, and in general, we're seeing positive signs in our supply chain recovery and remain confident on the overall 737 production profile and ramp-up plans.

Great, thank you.

Our next question is from Seth Seifman with JPMorgan. Please go ahead.

Thanks very much and good morning. I wanted to follow up with another 737 question, this time on the demand side. You've talked about the upward pressure on demand and the potential to move higher than 57 a month. Is it possible to make a decision on that while there are still a lot of outstanding trade questions with regard to China or does that stuff have to kind of get settled before you can move forward with thinking about that investment?

Yeah, Seth, when we take a look at the trade environment, we maintain a long-term view on that. Certainly, something that's very important to us, we're very engaged in the dialogue and conversations with the U.S. government and with other governments around the world. In particular on the U.S. China relationship, we're very engaged with our Chinese airline customers and leadership in China, along with the U.S. government and both countries are interested a healthy aerospace industry. In China, from a macro standpoint one of the fastest growing commercial aviation markets in the world. Over the next 20 years we said a world that needs 43,000 new airplanes; about 7,700 of those are in China. Traffic growth patterns are very strong in China and the rising middle-class population is a tremendous driver there, well beyond normal, I'll say GDP metrics, so about 150 million new passengers every year in Asia are fueling that growth. So China is very interested in a healthy growing aerospace industry. Same thing in the U.S.; when you take a look at trade and trade surplus, the greatest trade surplus generator in the U.S. is aerospace, and within that sector, Boeing and our supply chain are by far the biggest component and that all leads to American manufacturing jobs. So there's strong reasons in both U.S. and China to have a healthy, prosperous aerospace industry. You combine that with backlogs and as we said earlier, with more than 5,700 aircraft, 5,800 aircraft in backlog today, and in particular, for narrow-bodies, 737s, strong backlog, we're filling skyline in the 2023 timeframe, right? So this is a long-term view. So while we pay attention to trade, and we're very engaged in it, it's very important to us, it's not something that changes our near-term modeling and analysis. Our decisions around stepping up to 57 a month are strongly supported by the backlog that we have in position and the commitments we have with customers and really our decision drivers around stepping to 57 a month will be health of the production system, the supply chain, our ability to execute that in a way that's smooth for our customers and profitable for our company. And so it's very much focused on that internal operational productivity and a healthy production line. And we're going to step to 57 a month when we're ready to step, and we remain confident that that step we'll take next year and we're going to continue to do our diligent work to make sure that's done in a smooth manner.

Great. Thank you.

Next we go to Peter Arment with Baird. Please go ahead. Peter J. Arment - Robert W. Baird & Co., Inc.: Yes, good morning, Dennis, Greg.

Morning, Peter. Peter J. Arment - Robert W. Baird & Co., Inc.: A question on BDS, just looking at the growth profile and going forward you've had a tremendous amount of wins with T-X, MQ-25, you've got the Tanker with the KC-46, obviously the helicopter franchises, P-8. How do we think about the growth just in the budget backdrop when we think over the next couple years? Thanks.

Yeah, Peter I think there are a couple of factors there. One, as you said, the macro environment, the budget is healthy and strong. We've seen good, positive signs on strengthening U.S. defense budget, not without risk, as we look to future defense budgets and Budget Control Act profiles and it's a year-to-year battle as you know. But we've seen more and more signs of sustained, long-term stable defense budget in the U.S. International defense budgets continue to strengthen as well. As Greg said earlier, about a third of our backlog is in international defense, so the macro budget environment for defense is strong right now. Within that, funding for our programs has been very good and as you noted with our recent T-X and MQ-25 wins, our MH-139 win, all of those will fuel growth. As we step the Tanker program into production, that will fuel growth as well. And if you look at that in a composite, we still see our defense business as a modest growth business. It's healthy and the recent wins are going to make it even more healthy.

Our next question is from Carter Copeland with Melius Research. Please go ahead.

Hey, good morning, gentlemen.

Morning, Carter.

I just want to go back to the BDS charges and the investments as you've characterized them, just two elements. As you think about bidding this way, what do you target? Are you thinking about risk-adjusted ROIs? How do you square that with your current incentives on near-term earnings per share? And then secondly, was there something different about your offerings in each case? I mean, a competitor – you took a $700 million charge, you had a competitor say they would have lost $5 billion on it. Do you think there are differences in cost or product capabilities versus the KPPs or assessments of the overall risk? If you could help me with those two things I'd appreciate it.

Carter, I'll take the first cut and then, Greg, feel free to add in here. First of all, again, our mindset around this is to focus on those key defense franchises that create long-term value, sustained decades of opportunity, so these are a few very select very targeted areas, and as we've mentioned over several years now, T-X and MQ-25 are in that category. We've made purposeful investments to de-risk the programs to build flying hardware, to provide capability for our customers and our men and women in uniform to accelerate capabilities for them and to invest in a smart way that creates value for our customers in the long-term. To your point on incentive targets for our team, our incentive targets are a balanced set of targets, both annual and long-term, and what you see here is an exact reflection of that philosophy. It's making the right short-term investments to produce long-term value, and the fact that we were able to make these investments and in a single quarter in essence, pay for those investments, because of the great performance of the company, shows our ability to fuel smart investments through the future. That is the balance and I think unique capability that this company brings to our customers. That's really our mindset around these kind of investments and we remain very confident that the investments we make here have great business cases, will create great value for our shareholders as well as value for our servicemen and women. So that's an important parameter for us. Now, in terms of your comment about the competitive environment, I can't really comment on our competitors' bid positions but what I can comment on is the fact that we're able to bring very affordable solutions to our customers because of the investments we've been making in productivity. I think as you're well aware as we've had – as we've shown many of our investor partners, the fact that we're investing in things like our second-century design and manufacturing capabilities, advanced digital designs, all of these Next Generation design production and support capabilities are being reflected in these new products that we're bringing to our defense customers. So they are affordable, they are extremely capable, they provide great capability for our customers, and they create value for our shareholders. Greg? Anything you want to add on that?

Yeah, I guess just your question specifically on the business case. NPV, return on invested capital, I'd say very traditional way to look at a business case, but as Dennis said, not just looking at the contract quantity, but looking at the broader market opportunities and what it would take to win, and obviously, stressing that, and looking at that through various lenses to ensure that we have what we would – what we expect from a net present value perspective and a return on invested capital. So I'd say kind of multi-dimensional about how we're looking at it and then how we look at the risks associated with it but look, as far as the two platforms go, it's obvious that we have been spending a lot of time and energy and expertise from across the company to have something such as T-X that's flying that made its first flight in 2016 and as Dennis said, 71 flights under its belt, and then MQ-25 at the same time, things like doing an engine run in 2017. So we've really tried to work hard to leverage the enterprise, the model-based engineering that Dennis talked about and the productivity and try to de-risk these the best we can and bring purpose-built and purpose-designed platforms to the war fighter that I think are clearly game-changing and are going to add value to our customer and to our war fighter and to our shareholders.

Further to Greg's point, you see our unique ability across our commercial and defense businesses to share and replicate and build these technologies, so these advanced design and manufacturing capabilities that we're maturing on programs like the 777X, are able to apply to new defense programs, those lessons learned applied back to our commercial business so there's tremendous synergy there that I think is unique to our company.

Thanks for the color, guys.

You're welcome.

Next question we'll go to Rob Spingarn with Credit Suisse. Please go ahead. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Hey, good morning.

Hey, Rob. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: At the risk of staying on the topic, I want to just ask for clarification. So Dennis, you said you've already made these investments in the quarter and you have the two prototype T-X aircraft but I took from Greg's comments that most of these investments are planned and I'm taking that as from a cash perspective and so I wanted to ask you if they are truly ring-fenced or is there potential for investment creep, kind of like with Tanker? And then the last part of this question is since you clearly saw these opportunities differently than your competitor, can you elaborate more specifically a bit about the commercial market or foreign military market opportunity? Who's going to take up the other 80% of the targeted production for example and 90% of the sustainment?

I'll answer the second part of that, Rob, but Greg, why don't you take a cut at the first part and in particular how we've ring-fenced this and how the investments play out.

Yeah, absolutely. Yeah. And you had it right, Rob, obviously from an accounting perspective we've recognized the costs associated with this effort, but from a cash flow perspective as I was talking a little earlier, you'll see a profile that'll go out over that between the two of them, the kind of 2022 to 2024 timeframe so all of that kind of modeled through that period and obviously, I'll let Dennis talk a little more on the de-risking but we've really tried to get out in front of that and that's the investments we have made to get these products to the state that they're in today. And there's a big differentiator there obviously when you got two airplanes flying that have been flying since 2016 and have 71 test flights, it's not coming off a piece of paper to move into development and into production so it certainly minimizes the risk profile going forward. And MQ, again, we've done a lot of – between engine runs and ground taxi tests and deck handling trials, things like that, and invested in some labs and tried again to de-risk it. So it's a different risk profile than you've seen in some of the other development programs and I try not to repeat too much of what Dennis said, but we're leveraging the best of Boeing and bring it in a selective way to these campaigns, so this is the approach we took on these, because we saw the long-term value proposition here and it strategically fit into what we had laid out as far as where we want to play today and going forward, and we selectively lean forward into these two and we think they're going to be very valuable franchises for all our stakeholders.

And then, Rob, further to that value point so that the broader marketplace here certainly initially with the U.S. Air Force and training capabilities and take a look at today's T-38 Talon fleet that will be replaced by this airplane. So the opportunity for growth in the U.S. training fleet is substantial and as you know, our Air Force's training needs are significant and so T-X Trainer is well placed to meet that capability. We've also purpose-built, purpose-designed the airplane so that it can also be applied to other international customers who also have training needs and as you well know, the U.S. Air Force tends to lead the globe in terms of training capabilities and so international customers and allies will very typically align to the same product lines, and we've already had a number of inquiries from other customers around the globe on the back side of the T-X award. Further to that, we purpose-designed this airplane to also be able to be modified to be a light attack fighter aircraft, again to support global markets and if you look at the cumulative market space in the U.S. and around the globe, we see T-X as a market for about 2,600 aircraft, in addition to ground-based trainers and other support services. And if you look at all of that as a composite across T-X and MQ-25, very realistically, this is a $60 billion-sized marketplace so that gives you a sense of why this is a good investment. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Yeah. That's very helpful market size, thank you.

You bet.

Our next question is from David Strauss with Barclays. Please go ahead.

Thanks, good morning.

Good morning.

Hey, good morning.

Wanted to follow-up on the 737, looking for some additional color there. Dennis, can you give any sort of quantification on the number of unfinished jobs today versus a month or so ago, or the progress you're making there and are the airplanes rolling off the line today, do they have any unfinished jobs or are they rolling off the line clean at this point?

Yeah, we're continuing to ramp-up on our recovery plan. If I look at every element of the recovery factors, flow-through the factories, jobs that are completed in position, if I take a look at jobs that travel between stations, jobs behind schedule, airplanes on the ramp, supply chain health, we're watching things like part shortages in the factory. Across that entire set of metrics they're all trending in right direction and while we're not complete with the recovery yet, we have made substantial progress over the last couple of months and the best indicator of that frankly is airplane deliveries, and you saw the 61 aircraft delivered in September and as I said, we expect for the fourth quarter deliveries, in total will be above the 52 a month production rate that we're at, so we're continuing to work off the inventory of aircraft that have been on the ramp outside of the factory. More and more, we're seeing airplanes being completed in place in the factory and while we're not done, all of the trends are headed in the right direction, just to give you a sense of how it's going. And we're going to stay very, very focused on it and get that wrapped up, get the production line back to full health and as I said, we're committed to meeting our year-end overall delivery guidance.

Next question is from Cai von Rumohr with Cowen & Co. Please go ahead. Cai von Rumohr - Cowen & Co. LLC: Yes, thank you very much. So you took your R&D guide down by $200 million and yet R&D was a lot lower than I think most of us expected in the third quarter and to get to even your lower number, R&D has to ramp-up sequentially by close to $300 million. First, is that a conservative estimate so that that has some more opportunity and what does that imply for the R&D run rate corporate-wide next year given you're considering the NMA?

Yeah, the run rate expectations going into next year, Cai, haven't changed, but there's certainly some timing from quarter-to-quarter just between the transition of 777X and some of the MAX spending and then just some of the other projects we have in place, so I wouldn't read too much more into that other than some timing. As far as kind of broader, I'll say, kind of at a high-level R&D spend to revenue, still kind of that 3.8%, 3.9% is still what we see going forward, taking all of what we talked about into consideration. So think of quarter-over-quarter here just more timing between programs. Cai von Rumohr - Cowen & Co. LLC: Thank you.

You're welcome.

Thanks, Cai.

Next question is from Myles Walton with UBS. Please go ahead.

Thanks, good morning.

Morning, Myles.

I was wondering if we can we talk about the BCA margins and the kind of underlying margins you've seen over the last couple quarters, what you're looking for in the fourth quarter and Dennis, it looks that mid-teens margin target is going to arrive a year early in 2019. Greg, is there any pushback you're going to give me as a conservative CFO to tell me that's not going to happen?

Hey, Myles, first of all, thank you for the feedback there. You do see the progress in our margin performance and as we said, we're very intent and focused on that, and strong performance by our Commercial Airplane team in the quarter. There are a number of items behind that, but it reflects the overall drive on productivity and performance across our product lines and the investments we're making there are showing results, and we laid in a long-term plan to make this a mid-teens margin business. We are making great progress on that journey and we remain very committed to that. As we said before, not only getting there by the end of the decade but then beyond that, continuing to grow our margins and as Greg mentioned in his comments, we see this as a long-term year-over-year cash growth and margin growth business. Greg, do you want to add some color to Myles' point there?

Yeah,

Talk me off the ledge here?

I'm sorry?

You want to talk me down?

Well, I'm going to give you the facts. Look, there's been a lot of effort been going on program-to-program. In particular on the 787 of improving the margin profile and we talked a lot about it. The mix, supplier step-down and then just our own productivity and sharing those best practices across the company, and everybody's on one score in the company and that's one of the big enablers. So, it's first and foremost on everybody's mind of how do you leverage these best practices and bring them to the program. So you're seeing some of that. You're seeing a lot of discipline on the spending across-the-board, that is obviously very cash focused, just like the program margins are, but you are seeing some ebbs and flows quarter-to-quarter. So you're going to see a little more period expense in the fourth quarter. So we had some favorable timing in third quarter and you'll see some of that come back in the fourth quarter and obviously we're keeping a mindful eye on some of the things that Dennis talked about and I did as far as what we're watching between now and the end of the year. In particular, 737 delivery profile, so that recovery plan is something that we're focused on daily, and in particular, around our engine recovery and so we're taking that into consideration as well. So lots of moving pieces, but net-net, the objective hasn't changed. You're seeing progress towards that objective and you're going to see that continue.

Thanks.

Next we'll go to Sheila Kahyaoglu with Jefferies. Please go ahead.

Hey, good morning and thank you for the time.

Hi, Sheila.

Hi. Just on services, the margins compressed a little bit. Can we talk about the implied recovery in Q4 and maybe what the some of the period costs were associated with that and how we think about the profitability profile of that business as KLX plays into it?

Yeah, Sheila, first of all, overall services business, we're very focused on growing profitably, so growing both top and bottom line. You'll see that year-to-date, as we said, about 12% growth in our services top line, so our growth strategy is working. You do see some variability on bottom line performance in margin quarter-to-quarter. We did make some targeted investments in the third quarter that you see in the local margins there, but you can see we haven't changed our year-end guidance for BGS margin. So we still expect this to be a robust-growing business both top and bottom line. And Greg...?

Yeah, a lot of initiatives in place here as well. Obviously bringing the two together and really looking for efficiencies across the board. A lot of effort going on there and obviously, the go-to-market, but there's thousands and thousands of contracts, obviously in this business, so as I think I mentioned on prior calls, you're going to see some ebb and flow from quarter-over-quarter just by mix alone but the overall objective long-term, get outside of quarters here and look kind of year-over-year, is to continue to grow the margins and deliver something to our customers that's really differentiating and that's why we brought these businesses together and I think you're seeing some of that starting in our order book and in our backlog, and it's bringing the best of Boeing to the services elements just like we do on the platform. But again, that objective of being the most efficient – delivering those services in the most efficient way delivers value back to us to reinvest and to our shareholder and back to our customer, so that objective has not changed at all.

Thanks.

Ladies and gentlemen, that will conclude the analyst question-and-answer session. I will now return you to the Boeing Company for introductory remarks by Ms. Anne Toulouse, Interim Vice President of Communications. Ms. Toulouse, please go ahead.

Thank you and good morning. We will continue the call with media questions for Dennis and Greg. If you have any questions following this part of the session, please call our Media Relations team at (312) 544-2002. Operator, we are now ready for that first question. In the interest of time we ask that you limit everyone to just one question please.

Thank you and we'll go to Julie Johnsson with Bloomberg. Please go ahead.

Hi, good morning, everyone.

Morning, Julie.

Greg, you'd mentioned that Boeing now selectively is taking sort of longer-term market opportunity into account when it looks at a business case for products like T-X and MQ-25. Does that mindset and that sort of strategic outlook carry over to the NMA? And just sort of curious also if it does, how you go about ring fencing risk and costs.

Yeah, I'd actually say the MQ and T-X are really more looking at it like we typically do and you would on a commercial-type opportunity, so it's really the reverse of that. Having said that, there's a lot of things that we're doing on these programs that Dennis indicated that we're looking at about how does that make us more efficient and more productive on the NMA, and how does it de-risk the NMA business case. So this is where it really is bringing the best of Boeing together in really not reliving lessons, leveraging our investments and our lessons learned across the portfolio. So as we've had NMA teams, we've had 787 teams over on T-X. We've had T-X teams over on NMA and on 787, and we've had people like Mark Jenks, who was obviously a key element on the 787, reviewing T-X. So it's really more again, looking through that commercial, I'd say pretty – I'd say kind of standard business case over that total market opportunity and what's it take to win in that market and how do you competitively differentiate yourself and bring value back to all the stakeholders and really look for any opportunities to de-risk and leverage again, some of the lessons learned from across the company.

Our next question is from Andrew Tangel with The Wall Street Journal. Please go ahead.

Hi there, good morning.

Morning, Andrew.

Morning.

You all talk about the strong state of the airline business and industry overall, strong profits in passenger and cargo growth. Recently, some low-cost airlines have ceased operations and there are some predictions that some other carriers may not make it through the winter as they face higher fuel bills and labor cost. How concerning is that to Boeing, given how much new demand for commercial planes you've all been seeing from low-cost carriers around the world and how much exposure do you have to the order book and how much exposure do you see to demand for commercial aircrafts at least in the short-term?

Andrew, to your point, while we do see some variability amongst the broad range of airline customers that we have, I would say as a composite, we're continuing to see airline profitability trending in a good direction. The airline industry is very healthy overall, across all of the different types of business models including low-cost carriers. And so while there have been some selective challenges within the industry, as a composite it's a strong and healthy airline industry. It's being well-managed. And part of it is the fact we're able to provide our airline customers with advanced capability technologies that are helping them drive profitability and further growth. So we keep an eye on that, but we feel very confident in the overall health of the airline industry, but more broadly, the health of the macro passenger traffic market. Again, year-to-date, 6.8% growth in passenger traffic. It continues to significantly outpace global GDP. That is a fundamental difference from almost any other big industrial sector, and the growing middle-class population around the world is really the driving factor behind that. As I said, 150 million new passengers every year in Asia; people that fly for the first time. Less than 20% of the world's population has yet taken a single flight. So when you think about the macro population trends around the world, that's fueling growth and that's going to be good for the airlines, it's going to be good for us as airplane producers, and if you look at the overall strength of our current market outlook, that 43,000 new airplanes over the next 20 years, we remain very confident in that. In fact we continue to see upward pressure on our market assessment.

Next question is from Eric Johnson with Reuters News. Please go ahead.

Thank you, guys. Appreciate the opportunity. Dennis, I wanted to ask about the charge on T-X and if it is in some way an effort to sort of front load the pain and anticipate a situation similar to what is happening with KC-46. In other words is it inevitable that it may go off course?

No, Eric, it's dramatically different than that. These, as Greg said, these are planned, purposeful investments up front with a commercial business case wrapped around them. And in particular, on T-X, we have one, de-risked the program with investments that are behind us, having built those two production-ready flying aircraft. That reduces risk in the development program which makes it significantly different than Tanker. But if you look at the forward investments, where we're taking the charges in this quarter, those apply to the future production program and the business case around those, because we see a production opportunity that is well beyond the current contract, the initial contract. So think of these as investments that enable a production run that begins in the early 2020s and will extend literally for decades. So it's fundamentally a different approach. It's making a commercial-like investment in a defense program where we have confidence that it will run for decades both in terms of production line and support and services. Investments behind us are the ones that have de-risked the program and also make it dramatically different than Tanker.

Operator, we have time for one last question.

That will be from Marcus Weisgerber with Defense One. Please go ahead.

Hi, good morning and thanks for taking my question. Earlier this month the White House released an assessment of the defense-industrial base which warns of excessive Chinese-made content in American weapons. And in light of that the Pentagon is planning a legislative package and they are saying they plan to invest in U.S. areas of the supply chain to reduce that Chinese dependence. So my question is does the report make you look differently or reassess any of your suppliers and do you have any indication if Boeing supply chain will be getting any of those pentagon investments?

Yeah, we are very much connected into the defense-industrial base policies and plans, working hand-in-hand with the Pentagon and our U.S. customers. We, as a matter of normal business, have great visibility into our Supply Chain and all of the export/import rules and regulations that get applied to that are built in and are something that's built into how we do business every day. So as we look at deep supply chain capabilities and supply sources, this is not new to us. In fact these are things that we completely understand and govern our business today, and we'll be continuing to work jointly with the Defense Department as we define sources for the future and ensuring that we have, I'll say the diversity of supplier sources that we need here in the U.S. to satisfy our defense customer needs. I don't see this as anything that's going to substantially change our business model or our Supply Chain going forward. It will just add additional discipline to ensure the security of that Supply Chain.

Okay, that concludes our earnings call. Again, for members of the media, if you have further questions, please call our Media Relations team at (312) 544-2002. Thank you.