Good day, everyone, and welcome to The Boeing Company's Fourth Quarter 2018 Earnings Conference Call. Today's call is being recorded. The management discussion and slide presentation, plus the analysts and media question-and-answer sessions are being broadcasted live over the Internet. At this time, for opening remarks and introductions, I am going to turning the call over to Ms. Maurita Sutedja, Vice President of Investor Relations for The Boeing Company. Ms. Sutedja, please go ahead.

Thank you, and good morning. Welcome to Boeing's fourth 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 comment, we will 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 include in our discussion this morning are likely to involve risks, which is detailed in our news release in our various SEC filings and in the forward-looking statement disclaimer at the end of this rough presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliations 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 2018 operating performance, followed by an update on the business environment and our expectations going forward. After that, Greg will walk you through the details of our financial results and outlook. With that, let's move to Slide 2. Thanks to the dedicated efforts of our teams across the company. Boeing delivered strong 2018 financial results that included record revenue, earnings per share and operating cash flow, driven by record commercial air craft deliveries, higher defense space and securities and services volume and strong performance. And all of our three businesses increased their backlog in 2018. We sharpened our focus on profitable, sustained long-term growth strategies, disciplined execution of our production and development programs, delivering greater life cycle value, including growing our services business and driving further quality, safety and productivity gains across the enterprise. For the full year, we generated record operating cash flow of $15.3 billion. We repurchased 26.1 million shares for $9 billion and made dividend payments totaling $3.9 billion in 2018.We continue to deliver on our commitment to returning cash to shareholders while investing in our people, innovation and future growth. In December, our Board of Directors authorized a new $20 billion share repurchase program and a 20% increase in our quarterly dividend. The increase is a part of our balanced cash deployment strategy and reflected the confidence we have in our strong lineup of products and services in our long-term outlook for the business. Turning to our core operating performance for the year, Boeing Commercial Airplanes generated revenue of $60.7 billion reflecting a record 806 deliveries, including the delivery of the first 787–10 Dreamliner and the first 737 Max 9. During the year, we delivered 256 Max airplanes nearly half…

Great. Thanks, Dennis. Good morning, everybody. Let's turn to Slide 4, and we'll discuss our full year results. We booked record revenue of $101 billion in 2018, exceeding $100 billion for the first time in the company's history. This is driven by record commercial aircraft deliveries, higher Defense, Space & Security volume and continued growth in services. Core earnings-per-share totaled $16.01 for the full year, and other record reflecting higher volume, improved mix and solid execution across the company. Operating cash for the year was also a record at $15.3 billion. The robust cash generation was largely driven by higher volume and strong operating performance across the businesses. Let’s move now to our quarterly results on Slide 5. Fourth quarter revenue increased to $28.3 billion driven by growth in all three businesses while core earnings per share grew to $5.48, driven by higher volume and strong operating performance across the portfolio, which outweighed the favorable tax reform impact in the fourth quarter of last year. Now let's discuss Commercial Airplanes on Slide 6. Our Commercial Airplane business revenue of $17.3 billion during the quarter reflected higher deliveries and favorable mix. BCA operating margins increased to 15.6%, driven by higher 737 volume and strong operating performance on production programs, including higher 787 margins. BCA captured $16 billion of net orders during the fourth quarter and the backlog remains strong at $412 billion with nearly 5,900 aircraft, representing approximately seven years of production. We delivered 238 aircraft in the quarter, including 173 737s. And as we discussed, the 737 deliveries for the year were back loaded due to production and supply chain recovery efforts. Let's now turn to Defense, Space & Security results on Slide 7. Fourth quarter revenue increased to $6.1 billion driven by higher volume across the BDS portfolio, including…

All right. Thanks Greg. 2018 was the year of strong performance and record results on many different fronts operationally and financially. A demonstration of how 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 partnerships that we have with our customers and 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, derisking 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've executed on our long-term strategy of robust and continuing organic growth investment and returning value to shareholders, complemented by strategic acquisitions and partnerships that enhance and accelerate our growth plans. The planned strategic partnerships with Embraer, the recent KLX acquisition, and the seats and APU joint ventures are entirely consistent with the strategy. Our priorities going forward are to leverage our unique One Boeing advantages, continued 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. As always, we'll continue to keep a close eye on the geopolitical and macroeconomic forces and prudently manage the risks. 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 a balanced value-creating cash deployment strategy 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 and employees and other stakeholders. With that, we will be happy to take your questions.

[Operator Instructions] Our first question comes from Rajeev Lalwani with Morgan Stanley. Please go ahead.

On the 737 at what point you expect to be caught up on deliveries? And what are the pressure points identically? Also how does that inform the latest thinking and timeline on decision beyond 57 a month?

Certainly 737 production system health remains a key focus for us. As you can see by the fourth quarter deliveries with 173 in the quarter and 69 in December, good signs of recovering to our production plan. You can also see the increased rates reflected in our full-year guidance for deliveries for 2019, as we continue to ramp up. I would say we still have work to do on the recovery efforts. We have seen some good solid progress. We still have work to do inside our own factories and in our supply chain. And that is the daily and weekly focus for us, very intense effort. I'll say within the supply chain, we have seen some solid recovery in several areas. We still have some areas that need work including engines. And we are doing some additional work with CFM, including deploying some additional Boeing personnel to their factories and to their sub tier suppliers. So that’s one area that will have some additional focus for us in the first quarter. And as Greg mentioned, just in terms of production profile for the year, we expect the first quarter to be the lightest quarter of the year, and we expect January to be the lightest month within that quarter. So we are going to continue to work hard on production system holds and recovery. And then as you alluded to, at same time, we are moving forward on our plans to ramp up to 57 a month during the year. Some elements of the supply chain have already moved to that position. We still have some work to do before we move the entire line to 57 a month. And we are going to be very, very disciplined in that process. Again we are making good progress. We know exactly what needs to be done, but we are going to just look at this through very clear eyes and step through it day-by-day, week-by-week, and make sure that we in a very disciplined and smooth way move to 57 a month. I think we learned some lessons from the 52 a month step that we did last year. And those lessons are certainly being applied this year on the 57 a month are rate changes. But you see all of that again reflected in our plans and our guidance for 2019.

Our next question is from Myles Walton with UBS. Please go ahead.

Could you catch us up on your latest thinking on the NMA? And maybe tie that to your view on moderating demand, I guess, if -- demand would obviously fluctuate a bit if you chose to launch the aircraft with the pile of launch customers, I would imagine. So maybe just juxtapose those two different points.

Myles, I would say -- first off, to take a look at NMA, we are still working through that same disciplined decision process that we talked about previously. We’re making progress on that. We had very productive conversations with customers. We understand the markets. It's clear that there is a market need, but we’re working through the details of the business case. And as we said, we are going to be very disciplined on how we do that. And while we’re making progress, we're not up to our decision point yet. And just to provide clarity on that, as we mentioned before, we do see a decision point this year and that is a decision of whether we would offer the airplane in the market. And we need to complete the business case analysis before we arrive at that decision, but that is one that’s for this year. And then assuming a positive market response or depending on the market response, we will make the final launch decision next year. So it's a two-step decision process as we've always done with Commercial Airplanes and a very disciplined process. All of that, we're continuing to work our development program work and maturing the technologies, reducing risk in parallel to protect a 2025 EIS or Entry Into Service. We think that remains important to our customers. So we’re working all of that in parallel. And again will March in a disciplined way through our decision process. Our assessment of the market and the size of that market hasn’t changed. Now, to our broader question on orders and how the markets looking, again, we continue to see strong demand signal. So I think you see that reflected in orders volume for this past year with 806 deliveries and 893 orders. And, while as I said, we expect some moderation or timing on orders going forward, we have a very robust backlog position with about seven years of backlog -- equipment backlog in position now. If you look at the stats on traffic growth, Cargo, global expansion of route structures all the fundamentals remained very strong, and we’re encouraged by that. So we expect to see continuing steady orders volume. I wouldn't expect that to change significantly depending on the NMA decision. So we’re going to be in the marketplace continuing to compete and win. I guess one other reminder on NMA, if we do decide to proceed with the authority to offer -- don't expect a big change in the R&D profile. This is all part of our planned R&D profile. As Greg said earlier, we expect R&D to continue to be roughly the same in terms of percentage of revenue going forward. So as revenue grows, you will see some R&D growth. That will be at the same percent. And if we launch NMA, it will better end on the backside of 777X. So from a profile standpoint it fits very nicely. Greg anything, do you want to add on that?

No. Thanks. We got it.

Next question is from Robert Spingarn with Credit Suisse. Please go ahead.

So your margins of BCA are now in your target area of the mid-teens, with the 2019 guidance where it is. And you're still not fully ramped with production rates as more upside there, and you built the higher R&D into the 19 forecast. So I wanted to ask how much of this 2019 improvement in margins is volume versus mix versus productivity? And with the supply chain initiative still ongoing, what is your longer term margin potential now? How much further can you go. I was going to ask you how much it differs with and without a new airplane. But I think you just answered that part. So the components of the improvement in 2019 and then what the potential is long-term not that you've gotten this far.

Yes. No, no. It’s a great question, Rob. I would say it's all the above. I mean certainly, the increased volume is a big driver to that, but the mix of that volume is important. And we have talked about and particularly 787 executing on bringing in the -9 or -10 flawlessly into the market and meeting the commitments to our customers there and ensuring that happens smoothly while going up in rate. You saw that in '18, and you are going to see that in '19 as we look to go to 14 a month there, but the productivity engine. So -- I'll say the targets that we've set for ourselves is the same play book that we put in place for last number of years of really just looking where we have opportunity, where we can leverage best practices. We have talked a lot about this for One Boeing effort. But there is a lot of -- there is a lot behind that. and leveraging things that are going on F/A-18 on 87, and leveraging things on 87 over onto Chinook and vice a versa. That's now part of our operating rhythm. And certainly it's how we are all rewarded and ultimately how the company is rewarded. So this complete alignment to leverage these practices same in the supply chain. So the whole partnering for success effort is -- some of that is also where we have had productivity gains, how do we take those back in the supply chain frankly make the supply chain even better. But to come up with ways where we can both take that to the bottom line and reinvest in growth for the future. So I would say, it plays into all three, but I, Rob, I would think about the playbook, the same playbook you saw for the last couple of years that’s the playbook. And I would add to that benchmarking ourselves outside. The full global industrial champion effort that you could imagine that target keeps moving. So when we look at the cost of the function what's the cost us to run a function or how efficient are we with our capital and with our R&D and what are some best practices within industrials, outside the industrial, how we bring them back in the Boeing, make it part of our operating rhythm and hold ourselves to a standard that it's not necessarily industry, it could be -- its best-in-class. And then again, holding ourselves accountable and targeting ourselves to go achieve all that. So I would say same playbook so we don't really have a cap. I think I would say it's really just continuing to look for opportunities and compete to win, use some of that.

It is your pace of improvement because you hit your target or at least you will in '19 based on the guidance. And again, you are not done improving the organization. So is there a new target?

Rob, we are not slowing down. So as we said we set a target. We've been aggressively pursuing that. We've made some great progress and part of the team's efforts there. But the competition is only getting tougher, and we are not going to slowdown. So the pace of progress you have seen is the pace of progress we aim to sustain. And what we are looking for is continued year-over-year margin and cash flow growth. That's part of our planning. That's the framework that we set up for the team. And we are going to push with that pace.

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

Greg, I wonder if I just get a couple of clarifications on the quarter and then a question about the guidance. With respect to what you printed, just wanted to check on the unit earnings that the --, it looks like the 737 is still unit below your program margin, but not by much. And then with respect to the 87 deferred, it looks like you had a margin expansion there that kept the deferred down. I just wondered if that was correct. And then just building on Rob's question, what’s built into your 19 plan? Do you have any material differences and period expense outside of R&D that you envision for next year that we should be considering. And so, can you help us quantify how we think about that?

Yes. I mean, I would say outside of R&D, we definitely got some investments around productivity and systems that were making again, thinking about kind of long-term competitiveness. So we've got some money put aside in there and budgeted for the year.

Does that help year-on-year.

Yes. So obviously, we will manage that extremely tight as we always do, but we got budgets in place there and clear initiatives in business cases to go drive that. They're at a little over and above what we we're spending in 2018.

All included in that.

All included. Absolutely, yes.

And your Unit 2 program, you got it, you right on it. I mean 737, but increase in 787, we had a block extension in the quarter that was a big driver of that units, sorry, that program margin increase.

And next we go to Douglas Harned with Bernstein. Please go ahead.

I wanted to continue on the 787. And just to understand a little bit better, how you’re looking at this longer-term and in terms of cash margin improvement? I mean, at a point now where you don't have that many shades in the mix anymore, and then you're going to have more [indiscernible]. And then, if I look at pricing, I wouldn't expect you to get a lot more from there. So can you talk about, as you look at the next few years, how you see that cash margin trajectory evolving and what's likely to drive it?

Yes. Well, it's going to continue to grow, Doug. And as Dennis said, I mean the team's done a great job executing to our commitments, our rate breaks. But I know I keep going on about this, but we’re not bringing two derivatives in while going up and rise. There is no small path and they done it extremely well, and then at the same time, leveraging the best practices. So that's all going to continue to play out. As you go forward here, you're right bringing in more --10s because the mix of the higher 9s and 10s, right now, it's predominantly 9, and --10 is good. You’re going to see the benefit of that over that longer-term period from the cash perspective and then going up in rates. So you'll see the cash associated with those advances as well as with that higher rate. But again, at the same time bringing down the expenditures, and do not forget we've got step down pricing as well on the supply chain that will play into that along with our own productivity. So it's probably fits into about six categories of things that need to happen or things that are just going to happen through time as we execute through each of these blocks and having a more favorable mix combined with continuing to have a step down from the supply chain. So, again, we see growing cash flow on the 787. They have done a great job in delivering on their commitments to shareholders, but also the customers and now we’re moving into the next phase, moving up into 14 and continuing to capture productivity gains.

And then just on the -10, when you delivered, I think, nine of them in Q4. So would it be fair to say that your -10 margins were probably a little less mature in the quarter we just saw and you should get some improvement out of that as well. Is that clear?

To your point still relatively early in the production system and in the supply chain. So as that becomes more mature just like we would normally will come down that learning curve as the supply chain will and we will capture the benefits of that.

To that, Doug, there is also big benefit from the high level of manufacturing commonality between the -10 and 9, which accelerates and reinforces what Greg said. And then the value proposition for that airplane in the market with our customers is very clear that it's generating value and its winning in the marketplace on the pricing side. It's holding up well there as well just because of the value its creating for our customers.

Next question from Seth Seifman with JPMorgan. Please go ahead.

So you mentioned the idea of, I think, trying to bolster the backlog for 777 and 777x. And you talked a lot in the past about call wide-body replacement orders coming in the early part of the next decade. Does that mean in the near-term, are there 777x order opportunities or fewer opportunities in the near-term kind of focus on more of the classic and freighters and we are we kind wait until we get into the early part of the next decade to see the orders for the 777X comes through.

Seth, we’re working both in parallel. Certainly during the last year we've seen some great progress on the 777 with the 51 net orders in the year. And that's really strengthens that the bridge that we’re building 777 to 777X. We still have some work to do to fill out the remainder of the bridge, but our confidence continues to grow in our ability to do that. And as we've made that progress, we are now shifting our teams more and more to 777X opportunities. As you said we do see a high wave of replacement demand early in the next decade. But that means those sales campaigns are underway now. So those are very active, we’re engaged with a number of customers around the world. The 777x clearly is bringing a value proposition as the market gets attractive. And you'll see us focusing more and more on those 777x campaigns here during this coming year. So that's a very near-term effort as well. And all of that is consistent with the investment profile and the production system ramp and transition that we talked about earlier.

Next, we will go to David Strauss with Barclays. Please go ahead.

In the free cash flow walk that you provided, you highlighted the headwinds from 777x in 2019. Could you maybe talk about, is 2019 going to be the peak year for 777x investment, I’m thinking mainly working capital. And how many airplanes do you plan on kind of having in flow before you actually start making deliveries?

Yes. The profile, David, certainly for the reasons you described building the inventory and the test aircraft and so on. So this year there is more headwind. And then as we move into 2020, that headwind will moderate. And so we will start to have some more positive cash flow with the combination of 777X moving into production and then into delivery. So this is kind of a peak year for us on, I will say, cash usage on 777 combined with 777x. So as Dennis said, transitioning the airplane today in the factory and moving through building up that move from development to production will be key, and obviously, a big driver on the cash flow and things are going well out there today. So we got very good early signs that the aircraft is moving into production system smoothly and any challenges we're having we’re working through we know what they are, but so far so good. So that'll be a big driver of cash flow going forward.

And did I hear you say that 777 deliveries in 2020 would actually step up a bit is that just the legacy kind of 777 rate holding and 777X starting to deliver?

Well, it's really the combined of the two. So it’s the X and the 777. Now having said that, it's indicated we’re still seeing lot of demand for the 777, in particular, in the area freight. So we’re feathering all this together and making sure that we're in the marketplace and we are meeting the demands of the customers in the near-term, but at the same time feathering in the 777X. So that’s kind of a key in 2020. But we're not seeing good demand there on the 777. So we will -- that will be a combined production rate on those two programs.

Yes. Just for clarity, 2020, production system will be operating in five months, when we look at that delivery rate, slightly increasing over the current 3.5 months delivery rate, that's the combination of 777 and 777X as Greg mentioned.

Next we will go to Sheila Kahyaoglu with Jefferies. Please go ahead.

Going back to commercial profitability just because this is such a standout, how sustainable is the 100 bps of margin improvement? Are there any mix impact we should be thinking about with the 777 coming in with this changing customers dynamics for any pricing dynamics that would alter that trajectory?

You're thinking kind of beyond '19?

Yes.

Well, I mean, there is a lot of moving pieces. Obviously, when you get into '19, we're more stable at 14 a month and we're more stable at the 57. So again, we should be able to capture productivity and we're expecting to capture productivity in that. And there are some mix movements certainly between the 777 ramping down and the X moving in. So there's a lot of moving pieces, but I think, Sheila, and I will let Dennis comment here. But the objective we have in place is the same one as I address in the prior question. We’re looking for opportunities where we can derisk production system and bringing in automation where we can bring in automation and bring in best practices with an overall objective to grow margins and fund our future and return cash to shareholders. So that's playbook. You should just think of that is the same no matter what the mix. So we don’t let mix be the deciding factor. Mix is mix. It's our job to try to offset that or use that to our advantage the best way possible.

Yes, and just to reinforce that Sheila, as Greg said, a lot of moving parts here, but the sustained margin growth trends is one that's long-term. So we expect to continue to see year-over-year margin growth in 2019 and further growth in 2020 and beyond. So this is all about long-term sustained top and bottom-line growth. And the gain book that we're operating here will drive that year-over-year.

Next question is from Hunter Keay with Wolfe Research. Please go ahead.

Let's think about the NMA for a second. I don’t want to mid pick little bit, but again, as you just mentioned that NMA was going to be a two-step decision process with the final decision coming in '20. Are you saying that you would make the announcement for the public so to speak in '20 after talking your customers in '19? So if you could just clarify that announcement. And then the second part of the NMA question is how are these conversations going with your customers around this plane being used as a replacement aircraft versus opening up new market maybe relative to new designs in the past? Thanks.

Yes, Hunter, let me take on the first one there. The process we are talking about here, the decision process, is identical to what we do so in all of our previous programs. So this year's decision is what we call authority to offer, that’s based on a business case and our ability to go and have detailed discussions with customers that will be something that will be publicly announced once we make our decision around that. So that will be information that you will see and that will initiate deep and meaningful customer conversations. And then depending on market response and our ability to build the right kind of group of launch customers then we get to official launch -- authority to launch decision next year. So both of those steps are typically public steps, and ones that you would see. Again, I want to reemphasize the discipline that we are putting into this figure not only decisions related to the airplane in that market, they are also decisions related to the enterprise transformation objectives that we have in terms of production system for the future. So we are looking at this as a total enterprise effort and really being very disciplined in our business case analysis. And then your second question Hunter?

Yes, it was sort of just how the conversation is going through your customers preliminarily at least around this plane being used as sort of an enabler of opening up new point-to-point markets versus replacement relative to say really I was thinking about 787 specifically, but just broader in general. Thanks.

Yes, we have talked extensively with customers here, more than 60 customers and very consistent feedback. And we do see several different market segments and potential applications for this airplane. We do see a market need here that's in between today's narrow-body and wide-body families. It’s a market area that really cannot be addressed by modifying those existing platforms and aircraft. Some of that is medium haul -- medium-range segments that today are being served by -- I'll say inefficient use of wide-body. And we see that as an opportunity for airline customers to gain efficiency. But a good portion of this is also creation of new medium-range route structures. And just as we saw with introduction to 787 where we saw roughly already 200 new city pairs emerged because of the capability of the airplane in the medium-range marketplace, are again 4,000 to 5,000 mile kind of range. We see an opportunity for significant regional city pair growth from this airplane. And that's another area where we are gaining customer feedback. So there are multiple segments of applicability, significant customer interest. The key here is for us to build a business case that’s going to create value for our customers as well as value for our company and our shareholders. And that's the work we still need to finish.

Next we go to Ron Epstein with Bank of America Merrill Lynch. Please go ahead.

Just a question, and maybe a follow-up. How do we think about the 900 airplanes like where do you have to transition 73 and 78 to get to 900. That’s a lot of airplanes. Total make 75 a month right on average?

Yes, Ron, you've made the right calculation here. So as I mentioned, we’re well into the 14 a month rate step on 787, and we expect to complete that transition in the second quarter. So that's a moving forward very briskly and on track. On the 737, we've already moved parts of the supply chain to 57 a month. But we still have some work to do on some elements of the supply chain in particular with engines and CFM. And we’re not going to make that full transition of 57 a month. And so we’re very confident that were ready. And it's important that we do that in a very disciplined way. So you can back into the number mathematically with about 900 deliveries for the year note that 900 roughly deliveries for the year also includes the military derivative. So P8 tankers are all included in that number, just for clarity.

And the maybe one follow-on on the NMA question. In the business case you may think about NMA, how do you think about it and the potential relationship it could have with the future family of narrow-bodies?

It's one of the parameters that we think through anytime we're thinking about investments for the future make us we realize earlier. We fundamentally have changed our R&D investment strategy for the companies that it's feathered over the long term where we can sequence development programs so that we gain the benefits of continuous development and lessons learned program-to-program rather than stacking multiple development programs on top of each other. And that’s the way we’re thinking through NMA as well. So not only the development programs or that particular airplane in the market it will serve, but also how do we sequence it, how do we leverage learning’s from 777X, how do we leverage what we're learning from things like T-X and roll that into NMA, and then how could we use an NMA investment to think about leverage and creating the production system for even more distinct future whether that be some future narrow-body airplane or other alternatives that we might invest in. But think of this is a continuum of R&D effort. This again is all key to creating a sustained growth business where top and bottom line of both long-term sustained growth levels. That is our approach here. And so we’re thinking about NMA in that multi-program context.

Got you. Can I ask one more at the tail end here?

I think, we're …

Can I ask just sort of quick one? Just for Greg. Greg, when we think about the 727 engine versus the MAX, just for modeling purposes it's going to review 90% MAXs this year. How do we think about the margin profile of one variant versus the other?

Well, it's still kind of early introduction, right. So you take that into account, but net-net, you’re in a similar margin profile as you're on NG. It's really just more around on timing from a unit perspective. It's how they are feathered in. So I wouldn't think of it any different. It's really just again more timing.

Okay. So operator, we have time for just one more analyst question.

That will be from Peter Arment with Baird. Please go ahead.

Hey, Dennis, just maybe an easier one on book to bill expectations in 2019, I guess, specifically around 737 MAX orders, you mentioned you had 13 new customers in 2018 and you had, really I think 5,000 aircraft since the launch. So that’s close to 68%, I think, of the covers of NGs. Just how you are thinking about the order momentum with that program? Thanks.

Peter, we continue to see strong order momentum there I think just another sign of it this week earlier you saw ANA's announcement about their intent to buy the MAX. And that’s another addition to fleet there. So we see continued momentum on the MAX sales front. That airplane is creating value in the market for our customers. And we are oversold against our production profile. We talked earlier about ramping up to 57 a month. We are oversold against that profile. We're filling skyline slots way out in 2023. We continue to see upward market pressure overall on the production rate as result. And we think the demand for that airplane continues to be sustained. So while we have great orders volume and momentum this year. And I mentioned we might see some moderation in that demand this coming year. We still expect book to bill to be in that one-to-one range and there is always timing variability. But in terms of the MAX, the demand signals in the marketplace continue to be very strong.

Ladies and gentlemen, that completes the analyst question-and-answer session. [Operator Instructions] I will now return you to The Boeing Company for introductory remarks by Ms. Anne Toulouse, Interim Vice President of Communication. Ms. Toulouse. Please go ahead.

Thank you. We will continue the call with media questions for Dennis and Greg. And if you have additional queries following this session, please call our Media Relations team at (312) 544-2002. Operator, we are ready for that first question. And in interest of time, we ask that you limit everyone to one question please.

And first to the line of Andrew Tangel with Wall Street Journal. Please go ahead.

Some other manufacturers have reported seen economic weakness in China, the major headwinds. What are you all seeing? And are the orders from China setting lines picking up and overall. Where do you expect to see that moderating order intake coming from around the world? And where is either demand slowing a bit or gross slowing a bit from what you all see?

Yes, Andrew, let me touch on the China question first. We continue to see strong demand in China overall in terms of market dynamics. As I said earlier, over the years, we see a world that needs about 43,000 new Commercial Airplanes. We remain very confident in that outlook and about 7,700 of those 43,000 are in China. And that remains solid traffic patterns in China continue to progress. We're seeing passenger growth there that exceeds the overall market growth around the world and we also see passenger traffic growth there continuing to exceed GDP growth. So those market fundamentals remain strongly in place. In terms of our orders volume in China that's typically pace by timing of their five-year planning. So it tends to come in waves. So that’s why we, again, as we look to the future we expect to see some timing adjustments on orders, but overall volume over the long-term remains very strong. And that really applies to my broader comment to about moderation of orders in 2019. As we look to the long-term the market fundamentals are very strong. And we see long-term volume of orders continuing to grow and adding backlog. It just gets into a question of local timing quarter-to-quarter and year-to-year as our customers meet their fleet needs. So nothing here that I would say is a macro trend or substantial change. We just see fundamental aerospace growth and air traffic growth as a long-term sustainable trend. And with the backlog of about 5,900 aircraft to roughly seven years of production, that gives us the ability to whether any local variations and maintain a long-term view in terms of sustain growth.

Our next question is from Julie Johnsson with Bloomberg. Please go ahead.

If I just wanted to make sure that I understood what your -- that point you're making on China, Dennis, do you potentially see a low in orders this year because the next five year plan is looming in the headlights. And then totally unrelated question and apologies for that, but where does CFM stand on its catch-up plan for the LEAP? How unusual is it for Boeing to embed your people in their supply chain?

Julie, on your first question regarding China that was exactly my point earlier, given the five-year planning cycle there, we are having ongoing discussions with our customers in China, the Chinese government, the U.S. government. This also factors into the trade dialogue between the U.S. and China. But these are all factors that we’re very much engaged in. Again, we expect China as a long-term growth market for us. But exactly how those efforts play out over the next quarter or two is still an open question as we proceed with trade discussions. I can tell you having been intimately involved in the discussions and engagement with the governments both U.S. and China, we see our progress on that front and we see convergence. And we also see that there is clearly a mutual benefit of having a healthy aerospace industry for both the U.S. and China. China needs the airplanes for growth to fuel their economy and to meet their passenger growth and cargo growth needs. And here in the U.S. our aerospace business is a tremendous U.S. jobs generator, manufacturing jobs. We hired 34,000 people last year. And we, as an aerospace industry here in the U.S., create about $80 billion a year trade surplus for the country. So there is mutual interest, and I hope the aerospace business. We expect that to lead the reproductive pre-discussions between the U.S. and China or at least be part of that. And then that will factor into the ultimate orders volume and timing with China. That's just a little additional context there. Regarding your CFM question, it's not unusual for us to have Boeing personnel at our suppliers sites and down into their supply chain. That's a very typical process that we would have. But I will say again as it goes 737, one of the supply chain health issues that we're spending a lot of time on right now is engines and our work with CFL. And so we’re deploying additional resources with them into their factories and supply chain. Now we do expect to recover. We’re seeing signs of recovery. But we still have work to go. And being deeply engaged in our supply chain as part of how we do business.

Our next question is from Sylvia Pfeifer with Financial Times. Please go ahead.

I had the China question which was one of my main ones. Can I just ask you about Brexit then? I know you’re in a very different position to Airbus here in the UK. But I just wondered whether you see any risk to your operations in the UK in the event of hard Brexit just a few weeks ago before the 29th of March.

Silvia, we're continuing to seek a very close eye on that as you might guess. And again, we’re very involved in the discussion. That's -- we’re committed to our operations in the UK. We've ramped up significantly over the last many years roughly doubling the size of our operations, roughly tripling the size of our supply chain in the UK and those are long-term sustained investments. And we don't expect that to change based on the outcome of Brexit. That's said we are keeping a very close eye on it and making sure it doesn't impact our operations. I think just as further sign of our commitment in the UK. You will note that during the last year, we opened our new operation in Sheffield where we’re doing some advanced manufacturing work. It's also helping us to build out our actuation vertical capably, so just another example of our long-term commitment to the UK and the investments that we will continue to make.

Okay. Operator, we have time for one last question from the media.

And that will be from Dominic Gates with the Seattle Times. Please go ahead.

As I’m going back to the 737 MAX situation and CFM, in December with the delivery of 69 airplanes, it did seem like you have almost fully recovered. Has there been some further setback? And is the need to send people to CFM, is that because there's a problem with the ramp-up of the engine production? Or is there some configuration change that’s become necessary? Can you just tell us a bit more? Also what's the timeline you expect to be back to normal, let's say?

Yes, Dominic, first of all, as you saw in our December deliveries, as you alluded to, we did see some recovery across our supply chain, including engine supply and that enabled us to drive those December deliveries of 69 aircraft. But we were not yet fully recovered at that point, so we've continued to work supply chain recovery and there still work to go there. There is nothing here that I would say is an issue associated with having to change configuration or make that kind of alteration to the engine. This is really about just ramping up production and doing it efficiently and being able to get a liner profile engine deliveries that matches up with our factory production rate for the airplane and synchronizing those production systems. That's really what we're focused on. We still have work to go to get CFM to be supporting our 52 a month production rate and having those systems synchronized and then even more work to go yet to get them ramped up to 57 a month. And that's really what we're focused on. This is about production system ramp-up and synchronization. And by us getting deeper into the factories, it's going to give us better insight on long lead items. And, frankly though, I think help us do best practice sharing between Boeing and CFM, which is part of how we operate, right. That will make us better and it will make CFM better. And that work that we plan to be very focused on in the first quarter and timing of that is reflected in our overall delivery guidance for the year. So you can see that factored in. But we're going to be very, very disciplined about insuring supply chain health before we fully move to the 57 a month production rate.

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