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The Boeing Company (NYSE:BA)

Q3 2008 Earnings Call Transcript

October 22, 2008 10:30 am ET

Executives

Diana Sands – VP of IR

Jim McNerney – Chairman, President and CEO

James Bell – EVP, Corporate President and CFO

Tom Downey – SVP of Corporate Communications

Analysts

Joe Campbell – Barclays Capital

Robert Spingarn – Credit Suisse

Joe Nadol – JP Morgan

Heidi Wood – Morgan Stanley

Robert Stallard – Macquarie Research

Cai von Rumohr – Cowen and Company

Doug Harnett – Sanford Bernstein

Ron Epstein – Merrill Lynch

Howard Rubel – Jefferies

Troy Lahr – Stifel Nicolaus

David Strauss – UBS

Gary Liebowitz – Wachovia

Myles Walton – Oppenheimer

Ben Fidler – Deutsche Bank

JB Groh – D.A. Davidson

Peter Arment – American Technology Research

Lynn Lunsford – Wall Street Journal

Tim Klass – Associated Press

Susanna Ray – Bloomberg News

James Wallace – Seattle P-I Newspaper

Dominic Gates – The Seattle Times

Peter Pae – Los Angeles Times

Andrea Rothman – Bloomberg News

Operator

Thank you for standing by. Good day everyone and welcome to The Boeing Company's third quarter 2008 earnings conference call. Today’s call is being recorded. The management discussion and slide presentation plus the analyst and media question-and-answer session are being broadcast live over the Internet. At this time, for opening remarks and introductions, I’m turning the call over to Miss Diana Sands, Vice President of Investor Relations for The Boeing Company. Miss Sands, please go ahead.

Diana Sands

Thank you and good morning. Welcome to Boeing's third quarter earnings call. I’m Diana Sands and with me today are Jim McNerney, Boeing’s Chairman, President and Chief Executive Officer; and James Bell, Boeing’s Corporate President and Chief Financial Officer.

After brief comments by Jim and James, we will take your questions. In the interest of time and in fairness to others on the call, we ask that you 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 www.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 statement at the end of this web presentation.

Now I’ll turn the call over to Jim McNerney.

Jim McNerney

Thanks, Diana, and good morning. Let me begin with some comments about our third quarter and the environment we’re currently facing and then James will walk you through our results. After that, I’ll say a few words about what’s ahead and then we’ll take your questions.

Starting with slide two, our third quarter financial results were clearly affected by the machinist union strike as well as supplier challenges on customer-furnished galleys for certain wide body commercial aircraft. These items reduced our earnings per share for the quarter by an estimated $0.60.

Regarding the strike, I want to be very clear. We worked hard to avoid it and we want to resolve it as soon as possible. Our offer was industry leading by any measure. And when viewed in light of the recent dramatic developments in our economy, it looks even better. Our goal in reaching a settlement remains the same. We want an agreement that fairly rewards a highly valued group of employees and protects our ability to compete now and into the future.

It is both disappointing and frustrating to be in a position where we are not meeting our commitments to our customers. After a second round of federally-mediated talks, a number of issues remained unresolve, with the linchpin being management rights.

From the company’s standpoint, the turmoil in the financial markets provides a timely reminder of why it would be unwise for us to agree to terms in any contract that would restrict our ability to manage our business and respond quickly to market dynamics and global customer needs.

As I said before, and many companies have learned the hard way, jobs in today’s global economy are created and sustained only through productivity improvements and customer-focused innovation. That has been our strategy and it has benefited everyone, not the least of whom are the more than 7,000 employees represented by the IAM, and nearly 3,000 employees represented by SPIA who have been hired over the course of the last three-year contract.

Simply put, again, we want this strike to end and we’re committed to working with the union leaders and federal mediator to reach a settlement. We will be resuming discussions in the coming days and are hopeful of finding a way forward, sooner rather than later.

Let me now return to the galley issue. As many of you know, the commercial airplane industry has been dealing with delays from the supplier of customer-furnished galleys. Before the strike started, between 5 to 10 deliveries of Boeing wide body commercial aircraft were at risk of slipping out of third quarter because of this galley issue. We have been working with the supplier to help it prioritize and improve its production processes. We are making good progress and expect that once the strike is completed, our galley supplier will be able to support the revised aircraft production schedule.

Despite our challenges during the quarter, we continued to take new orders. Our backlog grew to a new record of $349 billion, up 7% year-to-date. Commercial airplanes backlog of $276 billion increased 8% year-to-date and remains diverse by region, product type, and customer. Only about 10% of commercial backlog in dollar terms is with US Airlines.

So far in 2008, we’ve only had two cancellations and about 80 deferrals that we’ve accommodated. We’ve had no issues in reassigning the deferred aircraft to other customers and we have customers who would like earlier positions if they do become available. Even so, we are very mindful of the increasing risks we’re seeing due to the financial and market turmoil. I’ll discuss that more in just a minute.

IDS orders in the third quarter included a US Army Chinook multi-year contract, Qatar’s C-17 order, and an International Space Station contract extension. IDS continues to have one of the industry’s leading backlogs with the breadth of capabilities to meet evolving customer requirements.

Now, I just want to say a brief word on US Air Force tanker program. As you know, on September 10, the Department of Defense withdrew the tanker competition. Given the timing considerations for the current administration and the substandard findings of the GAO, we feel this was a prudent action that should lead to a full, fair, and open competition. We look forward to working with the Defense Department and the Air Force on their path forward to a new request for a proposal, and we intend to compete aggressively for this important program.

Moving on to the 787 program. Despite the strike, we achieved some key milestones during the quarter including a successful hydraulic systems test and a landing gear test; both important because they require several systems within the airplane to work together. We also completed a high pressurization test of the static airframe, which was a key step in validating the structural integrity of the 787s all new composite fuselage.

The program also began testing the flight controls and began final assembly of the fourth flight test airplane. We were pleased to see American Airlines announce last week its intent to order a substantial fleet of 787s, and consider it a significant vote of confidence for this game-changing airplane.

While the strike has stopped most production work on the early 787s in our factories, we have used the intervening period to better organize our factories for the ramp-up that will continue once we return to work. Obviously, the work stoppage will have an impact on the schedule for all our commercial programs. And once it’s over, we will conduct a full assessment and update our delivery and financial outlook for you.

Right now, we expect the strike to result in at least a day-per-day impact to our commercial program schedules, including the 787, as there will be a ramp-up period from when we turn the production system back on to when we recover the momentum we were achieving prior to the walkout.

Now, let me say a few words about the current business environment. Clearly, economic conditions have become much tougher during the quarter with unprecedented advance within the financial services industry and credit markets. These conditions are putting additional pressures on the aircraft financing environment and our commercial customers. Boeing Capital is working closely with our customers as it always has to help create financing solutions. Virtually all lending sources have tightened up. Having said that, there is still aircraft financing available on a selective basis, and we have no current evidence that says our backlog won’t be financed over the next five quarters or so.

Regional banks like those in Asia and some European banks are operating, and the US EXIM Bank is another viable source for many of our international customers. I want to remind you that nearly 80% of our commercial backlog is eligible for EXIM financing.

Through Boeing Capital, we stand ready to help our customers if needed. Over the past few years, we have been preparing ourselves to step back into the financing business and will do so when appropriate. James will elaborate, but suffice it to say that BCC will work closely with BCA and will be very disciplined in its actions.

While we haven’t seen a significant impact to our business results to date, there is no doubt there will be some impact from the rising recessionary pressures. Along with the aircraft financing issue I just mentioned, softening demand for air travel is something we are monitoring for potential impact on our customers and our delivery schedules. Lower oil prices, on the other hand, are better allowing airlines to recapitalize their fleets.

On the defense side of our business, we believe, as do many others, that funding requirements to support the government’s plan to resolve the current financial turmoil will put some pressure on defense budgets in the near to mid-term. To preserve our flexibility to respond to these dynamics, we are accelerating the drive for productivity gains throughout our business and are focused on maintaining our balance sheet strength, which includes over $7 billion of cash and marketable securities and a conservative debt level.

We will be very selective in our future investments and are examining the efficiencies of our organizational structures in light of the volatile environment we’re facing. These are clearly dynamic and challenging times. I believe though that we are relatively well-positioned to weather them because of the diversity of our business, strength of our backlog including significant international orders, and the strength of our balance sheet. Longer-term commercial aviation remains a growth industry for the fundamental role in the global economy. And we believe defense markets will trend with the threat environment, which will continue to drive high levels of defense spending.

Now, let me turn it over to James for a review of the numbers. James?

James Bell

Thank you, Jim, and good morning. I’ll begin with the third quarter results on slide 3.

Our revenue of $15.3 billion was down 7% from the prior year due to the strike and the galley shortages that Jim talked about. Those issues reduced third quarter deliveries by about 35 airplanes and BCA revenue by an estimated $2.1 billion. Earnings per share declined 33% to $0.96 per share with operating margins of 7.5%.

The strike and galley shortage reduced earnings by an estimated $0.60 per share. About $0.56 impacted our Boeing commercial businesses, with the remainder affecting IDS. We also had about $60 million of unfavorable tax adjustments during the quarter which reduced EPS by $0.08.

Now, let me discuss BCA in more detail on slide four. Commercial airplane third quarter revenue of $6.9 billion was 16% lower than the same period last year, driven by 23% fewer deliveries. Within the quarter, BCA recorded close to $700 million of inter-company revenue, much of it related to P-8A. For external financial reporting, this revenue was eliminated in the accounting differences and elimination segment.

Operating earnings decreased to $394 million with an operating margin of 5.7%. Earnings were impacted primarily by the lower deliveries from the strike and galley shortages which together reduced BCA earnings by over $600 million and reduced its operating margin by an estimated 5.4%.

BCA made good progress on cost reductions versus the second quarter which helped offset the continued impact of infrastructure cost absorption from the 787 schedule update in April and now also from the strike. However, the strike impact clearly dominated third quarter results. We will update our forecast after the strike concludes and provide that outlook at a later date.

747-8 continues to make progress as the first airplane to begin production and engineering on the freighter is 95% complete. However, schedule and cost pressures are increasing on this program which resulted in higher 747-8 program costs during the quarter. In light of this, BCA has increased its focus on improving productivity and accelerating cost reductions.

BCA R&D was $70 million higher than the same period last year due to the absence of R&D supplier cost sharing payments in the third quarter of 2008. The R&D cost sharing payments that we’ve been expecting in the fourth quarter could slide into 2009.

Demand for our commercial airplanes remain high. BCA captured 149 gross orders in the third quarter and 625 during the first nine months, which increased its backlog to another record of $276 billion.

Now moving to slide five in our defense business. IDS delivered margins of 10.1% on revenue of $8.5 billion in the third quarter. Strong performance across our large diversified portfolio of defense programs was somewhat offset by the strike, which reduced earnings in some of our Boeing military aircraft program by about $40 million.

Boeing military aircraft delivered 9.9% margins during the quarter which were reduced by about 1% due to the strike. Network and space delivered a 10.1% margin driven by strong performance across its broad array of programs. Global services and support generated a 10.4% margin with solid performance offset by the disposition of some contract matters.

IDS continued to win new business and pursue growth opportunities through targeted acquisitions. During the quarter, IDS completed the Insitu transaction and announced the Tapestry deal. And just last week, we announced an agreement to acquire Federated Software Group. IDS backlog at the end of the quarter was $73 billion, and that’s up 2% year-to-date.

Now turning to slide 6. As Jim mentioned, the current economic environment is challenging for our airline customers and the recent credit crisis has put pressure on aircraft financing. Boeing capital is staying very close to both BCA and our commercial customers. Our process includes monitoring every delivery in our production skyline to assess customer health and financing status.

While there are still third-party sources of aircraft financing available, it is very likely that BCC will do some new financing in 2009. We will be disciplined in this process and work with BCA to determine the deals that make the most sense. We will also be mindful of preserving our current credit ratings.

As of the third quarter, BCC had backstop financing commitments of $9.5 billion that represents about 3% of BCAs backlog associated with delivery positions through the end of the next decade. Our financing commitments have always included certain terms and conditions to mitigate risks to Boeing. We have recently included additional terms and conditions for new commitments, which further limit Boeing’s risks in light of current market volatility.

I should point out again that we have been preparing our balance sheet and lowering BCCs risk profile over the last several years in preparation for the time when we’ll need to reassume financing new aircraft. We are in a very strong position to help support our customers and will be prudent in that process.

In our unallocated section segment, expenses were down due to stock price impacts on deferred compensation liabilities and due to lower unallocated pension expense. We are monitoring the recent market performance and its impact on our pension plans. With the change to our pension asset allocation strategy implemented last year, our asset returns have not been affected as much as the overall equity markets. We were still fully funded as of the end of the third quarter.

Asset returns since then, however, have further deteriorated. As of mid-October, our pension assets were down by about 20% year-to-date. At the same time, discount rates are running substantially higher than we planned. Based on where we are today, we are estimating increase to our 2009 pension expense versus prior forecast of about $100 million.

In addition, when we re-measure our pension plan at year-end, we expect to have a reduction in our equity which could be several billion dollars. Both 2009 pension expense and the year-end equity adjustments are heavily dependent on where market returns and discount rates end up on December 31, which is our new measurement date.

Now let’s move on to slide 7 and discuss cash flow. During the third quarter, we used $442 million of operating cash flow reflecting the strike and planned working capital increases, primarily for the 787 program. The strike and galley shortage reduced operating cash flow in the quarter by an estimated $1.3 billion. Balance cash deployment remains a focus area for us. We continued to invest in growth programs, used approximately $500 million to repurchase 7.9 million shares, and paid $295 million in dividends.

Now moving to cash and debt balances on slide 8. Our balance sheet liquidity remained strong. We ended the third quarter with $7.2 billion in cash and liquid investments, and that’s after absorbing the strike impact, planned debt repayments, cash used for acquisitions, and cash returned to shareholders. Debt balance has decreased from the end of the second quarter as BCC paid down maturing debt of approximately $600 million. Since 2003, Boeing Capital has paid down $5.5 billion of maturing debts.

Now let’s turn to slide 9. Now due to the uncertain length of the labor strike, we are suspending financial guidance until the strike concludes and a complete assessment is made on further results. All of our commercial airplane programs and a few of our defense programs have been impacted by the strike. It is also important to note that when the strike concludes, there will be a ramp-up period before our programs are producing at the rate they were achieving before the work stoppage. We’ll take the time necessary to assess both production and development programs, and provide you an update on our outlook at a later date.

Now I’ll turn it back over to Jim who will give you some final thoughts. Jim?

Jim McNerney

Thanks, James. Some quick summary thoughts. Third quarter was challenging with the credit market turmoil, worsening economic situation, and our machinist union strike. Looking forward, I want to reiterate that we are focused on improving our competitiveness longer term. We will not sacrifice our ability to compete for a short-term agreement with our unions, but I’m hopeful we can find a way forward here and, as I said, sooner rather than later. This is especially important in light of the current economic situation.

While mindful of the risks at hand, we do feel we are relatively well-positioned to weather the current volatility. Our financial strength coupled with the size and strength of our backlog provides the foundation, and we have heightened our focus on improving productivity throughout all of our businesses.

In summary, I believe our long-term outlook remains strong as we continue to focus on our customers, drive growth and productivity, and aim towards being the strongest, best, and best integrated aerospace company in the world for today and tomorrow. With that said, we would now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator instructions) Joe Campbell of Barclays Capital, you may ask your question.

Joe Campbell – Barclays Capital

Good morning. Can you hear me alright?

Jim McNerney

Yes Joe, good morning.

James Bell

Good morning Joe.

Joe Campbell – Barclays Capital

Yes good morning. Okay, I’m going to stick to the rules. My one part question is for James and it’s about the Boeing commercial margins in the quarter. In the last quarter, we saw some issues related to overhead absorption related to the 787, and I suppose there is some extra block [ph] pressures from the strike that will be recorded in the margins going forward. And I wondered what was going on with the margin before R&D, at the program level not the unit level where we will see the strike, and whether these margins reflect their estimate of the impact of the strike, the ongoing strike, the recovery, the extra cost, as well as whatever is left over from that absorption issue?

James Bell

Yes, Joe, it is. We were making really good progress and we were really encouraged by what we saw in BCA relative to overcoming the infrastructure cost impact related to the 787 slide and the move to the C14 [ph] schedule we announced in April. And obviously, it has been overcome by the addition of infrastructure costs associated with the strike. But if you look at the margins, we do have the strike impact in there, as well as the improvement we saw over the second quarter and the efforts that has been performed by BCA to offset that, which was related only to the move of the 787 schedule. So we will continue to work that hard, but yes both for and also the improvement event [ph].

Joe Campbell – Barclays Capital

But in other words, we had the better – whatever we had, the better priced airplanes, because we have talked about having the program margins, which are not reflective of the current period of the strike but of your estimate of the full block for the production airplanes. So I’m struck by how much the margins went down. So apparently, I mean I know you’re not giving ’09 guidance but unless something changes, your current estimate to complete the blocks is significantly lower than it used to be.

James Bell

No, I think the available margins – the margins that are on the airplanes, particularly those that slid out both due to the strike and the galleys, these issues are pretty, and so the impact on earnings this quarter is more significant as a result of that. In terms of the difference between what we would expect versus what we recorded, because as you know on the galleys, it is mostly the white bodies that moved out, Joe.

Joe Campbell – Barclays Capital

But I’m still confused James with that, and we can do it offline if you want, but I mean if the program is coming, it would reflect the difference between unit and program, it would cause that thing to be really big and talk about the program margins [ph].

James Bell

Yes, the difference between unit and programs are large.

Joe Campbell – Barclays Capital

Yes, I know. That’s what I say, but I don’t understand why that would affect the program margins, unless you had made some big adjustments about what the future costs would be.

James Bell

Well, we did not make, we actually put the strike impact in there as well but if we excluded the strike impact and if we excluded the slide out, the program margins would have been 11%, about 11.1% in the operating. So and the pre-R&D margin would have been in the range we’ve always talked about around 30%.

Joe Campbell

Okay, great. Thank you very much.

Operator

Robert Spingarn of Credit Suisse, you may ask your question.

Robert Spingarn – Credit Suisse

Good morning.

Jim McNerney

Good morning.

Robert Spingarn – Credit Suisse

Jim, you referenced two cancellations and 80 deferrals this year and talked about offsetting demand for those slots, but a little more color please. Are these generally front-ended in the backlog and has the pace of these types of discussions changed recently, and how should we think about strike deferred airplane supporting rates next year and in 2010?

Jim McNerney

Well, first of all, the cancellations and deferrals are pretty much in line with what we’ve experienced over the last three or four years, and we still have a – I would say, a significant overhang of demand, people who’d like to move their positions forward if other want to move them out. Now, I would say the discussion slightly more, but I would not say step function more discussion along those line. So we’re monitoring it very closely. But I think it does speak to the fact that a lot of our backlog is in economically strong parts of the world. I think that speak – and that our airplanes are relatively productive compared to their fleets that things were hanging in, but we’re monitoring it very closely.

In terms of the impact on production rates, again, the – we have steadily increased production rates in a measured way over the last few years, as you know. We have tried hard to meet demand without getting beyond our headlights, so to speak and I think that's serving us well now, because I – we’ll provide guidance going forward once we understand exactly where we are post strike. But we’re feeling good about our production rates over the next couple of years. But we want to make sure we understand the impact of – any impact of the strike before we give you a definitive answer to that question.

Robert Spingarn – Credit Suisse

But, is it fair to say that this pool of aircraft, these deferred aircrafts provide some support at least against the macro pressure for next year?

Jim McNerney

Are you suggesting that the things –

Robert Spingarn – Credit Suisse

I’m saying you have 60 or 70 aircrafts so far this year that haven’t been delivered that customers want.

Jim McNerney

No, but they were quickly replaced by people who did want delivery, so there was no change in our production.

Robert Spingarn – Credit Suisse

I’m referring to what – the strike delivered airplane. In other words, if you have white tails next year, you’ve got strike planes that you could deliver instead. Whereas, three years ago, it took you a long time to deliver the strike airplanes.

Jim McNerney

The quick way into the end zone is we don’t anticipate any white tails at all next year.

Robert Spingarn – Credit Suisse

Okay. Thank you very much.

Operator

Joe Nadol of JP Morgan, you may ask your question.

Joe Nadol – JP Morgan

Yes, good morning. Thanks. My question is on the 787, and it’s either for Jim or James. I’m wondering if you could provide a little bit more color on the day-for-day impact on the program because of the strike. And why is it day-for-day? My understanding is that you’re waiting I guess for long lead parts from suppliers. And so, I wouldn’t think the impact would be the day-for-day. And then, if the strike ended tomorrow, hypothetically, could you still fly the plane in 2008?

Jim McNerney

The reason it’s day-for-day is that the gating item is production and assembly in our factories, all right? The supply chain has largely healed up in terms of having caught up with the whole schedule and was largely caught up before the impact of the strike, which doesn’t suggest we didn’t continue to have challenges, that we have to wrestle with the ground everyday. But the gating item has become now the assembly of the early airplanes in our factory, and sends us the gating item with our strike, that’s where you get to the day-per-day or slightly more because of the ramp back up when the strike ends.

Joe Nadol – JP Morgan

And as for the first flight, if the strike hypothetically ended tomorrow, could you still fly the first flight by the end of December?

Jim McNerney

We’d have to – like I say, we estimate day-for-day or a little bit more we were targeting, as you know, in the fourth quarter. And we’d have to go back and add that all up when it’s done, and we’ll let you know. But we were on that schedule pre-strike and so now, we’ve got to see where it ends, add it up, and we’ll let you know.

Joe Nadol – JP Morgan

Okay, thank you.

Jim McNerney

You’re welcome.

Operator

Heidi Wood of Morgan Stanley, you may ask your question.

Heidi Wood – Morgan Stanley

Good morning.

Jim McNerney

Good morning, Heidi.

Heidi Wood – Morgan Stanley

I want to focus on the financing status. Can you talk a little bit – give us some granularity of the financing status of both the strike-impacted planes as well as the 2009 planes? If I break that up a bit, do those strike-impacted planes need to renegotiate their financing deals since the deliveries didn’t occur? And for the 2009 planes, can you give a sense about kind of the landscape between US and European and leasing company deliveries because presumably those should be the niches that would be most affected by financing needs?

Jim McNerney

I’ll take a swing here, Heidi, and then James will clean up. As I alluded to in my remarks, we have pretty good visibility on the next five quarters through the – obviously, the impact of the strike is not fully understood yet, okay? Because we’re not exactly sure we are. But when you look at that financeable backlog that we’ve got out there, as you would imagine, about roughly 40% of it is overseas banks, Europe regional banks in other parts of the world, lessors are about 20% of it, capital markets as you’d imagined are not in business right now, XM is another 20%, and then BCC, as James said, stands ready to provide a cushion if there are any push-outs that cause renegotiation that isn’t successful. But by and large, we’ve gone through all of these positions with all the financing sources, and we’re feeling pretty good about the ability and the willingness of these financing sources to finance our airplanes against this schedule.

James Bell

Yes, hi. I would that we’re not overly dependent on any one funding source.

Jim McNerney

Yes, yes.

James Bell

And we have gone through as early as last week and talked to our customers and talked to the banks that we think are financing those customers and have been – we have pretty been assured that the commitments they have today, they would keep and would honor, and that they are going to be standing ready to fund those airplanes that are delivered in the second half of next year if commitments aren’t already in place, that they’ll be in business to do that. So now, the cost of the financing may vary a bit, but it doesn’t to be too out of line.

Heidi Wood – Morgan Stanley

And can you give us a sense, James, is that how much – kind of the bandwidth of how much XM financing you are anticipating in 2009 and the bandwidth of BCC financing? I mean, give us a sense of the ceiling as to how high you’d be willing to go?

James Bell

Well, I think that from a standpoint of XM, we’d be looking at them doing 20% maybe of the total financing. As Jim mentioned, if you look at what we’re trying to deliver over that period in the next six-month period, you can tell all the airplanes we have in the fourth quarter and what we’ve guided you to in ’09. And that’s what we’re – I’m using that as the base. We have provision for BCC to participate in that at – I don’t know, we’re probably looking at about $1 billion. And we may do more or less, depending on what the needs are and depending on the customers that would come to us.

Heidi Wood – Morgan Stanley

All right, great. Thanks very much.

Operator

As a reminder, in the interest of time, we are asking that you limit yourself to one single part question. Robert Stallard of Macquarie Research, you may ask your question.

Robert Stallard – Macquarie Research

Good morning.

James Bell

Good morning.

Jim McNerney

Good morning.

Robert Stallard – Macquarie Research

James, following up on BCC, I was wondering if you could give us an update of the assets that BCC might have in your balance sheet in terms of airline debt and in the aircraft, and whether there’s any risk of any write-downs there?

James Bell

Clearly we do have the issue of we are heavily concentrated in 717 and we'll continue to monitor that. We’ll continue to look at what we can do to reduce that concentration, but clearly that’s where the exposure is and we have been writing down and reserving against that exposure over a number of years. And so, we think where we are today, we’re pretty well-balanced between our reserves and what we think that exposure on those aircraft are. By the way, those aircraft are still very, very good aircraft for their missions and although – and we’re constantly monitoring the people that hold those airplanes to make sure that we can support them in their business operations.

Robert Stallard – Macquarie Research

What is the unreserved amount as of the end of the third quarter?

James Bell

The unreserved amount, I think the exposure is about a little over $1 billion.

Robert Stallard – Macquarie Research

Okay. Thank you very much.

Operator

Cai von Rumohr of Cowen and Company, you may ask your question.

Cai von Rumohr – Cowen and Company

Yes, thank you very much. You haven’t kind of commented on deliveries for next year and obviously it’s probably too early to kind of reset things, but I mean given that it looks like airline traffic may grow 1% or so next year, obviously, you have to be thinking about potential changes to your output turnout. As you look at your business, which of the programs where there might be more likely downward pressure on rates? And how do you plan to kind of implement that if you have to and which of the programs where demand in financing looks more solid so we should feel better that the risks of kind of having to pull those rates down are lower?

James Bell

Yes. Let me start with the finance question. The finance is solid across the product lines. I mean the 777 they are financeable, the 37s are financeable and the 87s are financeable, so we don’t think our product line is pretty equally across the board there. And in terms of what we look like in deliveries, right now as we have just said, we talked to the customers, we talked to the financing sources, and the commitments we have in our backlog, we really feel good for the next five quarters relative to what we’re going to deliver on. And then obviously, that is going to be somewhat impacted by the strike because as you know, we were at peak rates before, so to be able to make up that in any short timeframe is nearly impossible. We are pretty solid, but we are monitoring it everyday, Cai.

Cai von Rumohr – Cowen and Company

Thank you.

Operator

Doug Harnett of Sanford Bernstein, you may ask your question.

Doug Harnett – Sanford Bernstein

Good morning.

James Bell

Good morning Doug.

Doug Harnett – Sanford Bernstein

On the strike, could you talk about how you’re working with suppliers to ensure they stay healthy through this period? In particular, are you – in what cases are you actually taking delivery or taking title of components? How are you making those decisions?

Jim McNerney

Well, this is Jim. We are working flexibly with them as we already had been in the case of the 87 with the reschedule. But, as you’ve noticed, many of the suppliers have trimmed their production schedule, trimmed their manning levels, and are absorbing a lot of it and why are they doing that, they are doing that because they are participating on winning programs. And so, we’re having to do relatively less there than we were on the reschedule. So, I think everybody is trimming their sales and everybody is getting through it.

Doug Harnett – Sanford Bernstein

Does this change at all if the strike goes, say, longer than 60 days? Do you get to a point where you look at this differently?

Jim McNerney

Well, there will be some point obviously where different questions have to be asked. I mean in every – every supplier has a different financial situation, although part of our selection criteria for suppliers is their financial strength and wherewithal. Obviously, the longer the strike goes, the more risk you've got. But as I said before, we’re hopeful of resolving this issue sooner rather than later.

Doug Harnett – Sanford Bernstein

Okay, thank you.

Jim McNerney

You’re welcome.

Operator

Ron Epstein of Merrill Lynch, you may ask your question.

Ron Epstein – Merrill Lynch

Yes. Good morning guys.

James Bell

Good morning.

Jim McNerney

Good morning Ron.

Ron Epstein – Merrill Lynch

Jim, I was wondering if you could follow up on your comment about how you think potentially the government intervention in the financial market could impact defense spending? Lately we’ve seen things like the TSAP Program get pushed to the right, ARH was cancelled, things that you wouldn’t expect to see this late in the administration. Is that any indicator of what could be potentially going on in defense spending?

Jim McNerney

Well, I think the – there’s two countervailing forces here, obviously. One is the short and medium term crowding out phenomenon. It’s hard for us to assess exactly what pressure would be put on near term spending. Having said that, there are reports – TSAP, CSAR, no official notifications but there are reports. Our base production programs, of which we have many, are not impacted but that does have to be monitored. I mean, because the countervailing force is the threat environment. The threat environment is not going away, and I think our nation is committed to responding to it. So I think how that sorts out is something that is not as easy as to say one side of that argument will win and the other side won’t, but it has to be sorted out.

Ron Epstein – Merrill Lynch

Great, thanks.

Jim McNerney

Okay.

Operator

Howard Rubel of Jefferies, you may ask your question.

Howard Rubel – Jefferies

Thank you very much. Good morning, Jim and James.

Jim McNerney

Good morning, Howard.

James Bell

Good morning, Howard.

Howard Rubel – Jefferies

Thank you. I want to go back to an operational question and sort of use the 747-8 as the paradigm. I mean, you have again that looks like a charge or additional costs associated with that program. And if we kind of look, there’s been – whether it’s been the AWACS or the airborne early warning control or even the 787, you had just a series of what I call development misses relative to what normally Boeing is able to do. So, what are you doing to go back and look at program management or operational management to not have these misses?

Jim McNerney

Well, I think on the defense side, fixed price development contracts are a contract form that James and I are looking very, very carefully at before we commit to any new fixed price development contracts, and we inherited a number of them, as you know, and we’re working through them.

On the BCA side, I think the 87, we’re trying to learn from that. I think, in retrospect, we bit off more than we could chew. New composites, new design tools, new production process, global responsibility for design as well as production. I think there is a lot to learn from how we did that. There’s a lot of good and there’s some bad, obviously, that we are committed to learn from and hopefully, you’ll see that reflected in some of our newer programs.

On the -8, we’re not particularly proud of how that is sorting out but we’ll get that program done. And it’s one that – it’s suffered from a few mis-assumptions that we’ve caught up on now, and we’re going to get fixed.

Howard Rubel – Jefferies

And so when we look at some of this, there’s – I mean, I don’t think it’s systemic. I mean, it just – I mean, what you’ve done to solve the problem, I mean, it’s just not costing. I mean, it’s process as well and I mean, could you just elaborate for one more moment on what sort of process changes you’ve done to help me feel more comfortable looking forward?

Jim McNerney

Sure, but on the defense side, okay, you will not see big fixed price development programs, okay? So that’s one thing that if you add up the challenges we’ve had over the last three or four years, that would explain more than half of them, okay? So that’s one process fixed. I think the other one is learning how to manage this global supply chain that is at the center of the 87, and it has to do with IT. It has to do with design responsibility. It has to do with visibility on supply and production through these IT environments, as well as visibility in design which we did do well. And so, it is like many in other industries before us, we did not have the kind of controls that we now know we have to have both management and IT to manage globally remote activity and it’s – we are fixing it.

Howard Rubel – Jefferies

Thank you very much.

Jim McNerney

You’re welcome.

Operator

Troy Lahr of Stifel Nicolaus, you may ask your question.

Troy Lahr – Stifel Nicolaus

Thanks. I’m just wondering if you guys can talk about the pullback in oil and how that has impacted your business. Have you guys seen a greater interest from airlines looking to place future orders now that they can afford it or is there a bit of a tradeoff here in that fuel burn is a little more manageable for some of these 15-year-old aircraft? How is this impacting your outlook?

Jim McNerney

I think the exhaling that otherwise it would sound like a hurricane is to collective exhaling of airline executives globally, particularly the US, as the oil prices have trued back up to more reasonable levels. So, I mean the guys who run airlines, our good customers, have had one hell of a time. They have all put together business plans that, in my judgment as I just talked to them, would succeed at higher prices than they’re experiencing today but you need to have that business plan because of the volatility.

Volatility is the issue not the absolute level today, but there is no doubt that their financial strength is enhanced by the current oil prices, and back to James' discussion a few minutes ago, they are more willing to finance and purchase and implement the backlog, more attractive to financing sources, and so that is all I think good. Having said that, the price is still high enough that you need new technology.

Troy Lahr – Stifel Nicolaus

Okay. Do you think you had some customers staying around at, with oil at 140 to 150, that weren’t placing orders and now you think order activity is going to pick up a little bit down at this level?

Jim McNerney

There’s a few. I mean there’s a few in the United States in particular where – but it was this crosscurrent you always have which is the higher the price, the more you need the new technology. I mean the amount of money that can be saved by replacing a big fleet of 25-year-old airplanes with new technology whether they’re 737s or 777s or 87s with the gas price over $100, the payback is incredibly quick. So the desire is there. So it’s a matter of getting the financing done. As we've said, while monitoring it everyday and with only the paranoid survive kinds of headset, we feel pretty good about the next few quarters, the next five quarters in particular of financeability.

Troy Lahr – Stifel Nicolaus

Great. Thanks guys.

Jim McNerney

You’re welcome.

Operator

David Strauss of UBS, you may ask your question.

David Strauss – UBS

Good morning.

James Bell

Good morning.

Jim McNerney

Good morning.

David Strauss – UBS

Could you just give us an update on negotiations with your 787 customers? It looks like you’ve now settled up with some of your early Japanese customers. And in light of what you’re seeing there along with what looks like an additional delay on the 787, are you still comfortable with the zero margin assumption, program margin assumption for 787?

James Bell

Well, let me talk about how they’re going with the customer settlements on the initial delays. We’re off to a good start. We have settled some and we did better than what we anticipated in those settlements, and so not to say that we have a trend yet. We still have an awful lot of other ones to get through yet, but we do think we have a very disciplined robust process that appears to be working that’s both satisfying our customer needs and also protecting our corporation. And so, we’re really pleased with the start we’re off to. The second part of your question again was – what was it?

David Strauss – UBS

Based on what you’re seeing there with your customer negotiations along with what looks like an additional delay on the 87, does the zero program margin still hold?

James Bell

So again, the zero margin was solving – we were solving for whether or not today we felt we had a forward reach and the leading to the zero margin is just that’s where we are in terms of firming up the costs that are incurred that we are looking at relative to our cost accounting base and for the program margin assumptions. That will mature over time and by the time we deliver the first airplane, we’ll have a lot more definition around those cost categories, and we’ll be much better able to tell you what the right margin will be on the delivery of this airplane.

David Strauss – UBS

Yes, I guess what I was getting at was are you approaching a position where you think you might have to take a forward loss?

James Bell

No, that’s why we’re saying that there is none.

David Strauss – UBS

Okay, thanks.

Operator

Gary Liebowitz of Wachovia, you may ask your question.

Gary Liebowitz – Wachovia

Good morning.

Jim McNerney

Good morning.

Gary Liebowitz – Wachovia

Given that some of the American Airlines 787 deliveries are as early as 2012, are you looking to increase production rates there, so that it won’t take as long to catch up on those late deliveries to (inaudible) decade?

Jim McNerney

No, the discussion with our good customer, American Airlines, had been ongoing for an extended period of time. And as a result, we had informally slotted those positions for American, so this does not represent incremental short-term demand rather anticipated short-term demand.

Gary Liebowitz – Wachovia

Okay. And then just a quick one for James, the sequential decline in the backlog at network and space systems, was there a significant debooking of something in the backlog there?

James Bell

We did have a contract adjustment for that where it was an Australian contract that we terminated, and I don’t think it was significant, however. So I just think that’s the runoff.

Gary Liebowitz – Wachovia

Okay.

Operator

Myles Walton of Oppenheimer, you may ask your question.

Myles Walton – Oppenheimer

Thanks, good morning.

Jim McNerney

Good morning.

Myles Walton – Oppenheimer

Question for you on – James, I think you mentioned the R&D versus sharing that was remaining for the rest of the year in your guidance, about $80 million potentially slipping into ’09.

James Bell

Yes.

Myles Walton – Oppenheimer

And I guess just a follow on to Doug Harnett’s question, but is that a sign of easing up or giving some considerations to suppliers on liquidity? And also if that’s the case, are you having conversations with suppliers beyond things like this?

James Bell

No, it’s not that at all. I think its more schedule. I mean, we have the strike and then we had the schedule delay on 87 itself, and it’s more – that’s the discussion we’re having around that. It’s just timing, it’s not a liquidity issue.

Myles Walton – Oppenheimer

Then on the topic of liquidity, have you had the discussion with suppliers in terms of any consideration that’s being sought?

James Bell

We absolutely have, and we have in the case where we thought it was appropriately, particularly for those suppliers that were producing and doing a good job to the original schedule, and we’ve already talked about that. We have provided some liquidity to them. And then those that are in trouble, obviously, different discussions around how we do that and how we go through that process to make that determination, but those are ongoing. There’s no increase to that as of the strike impact yet.

Myles Walton – Oppenheimer

Okay, thanks. That was the – I was looking for the delta for the strike. Thank you.

Operator

Ben Fidler of Deutsche Bank, you may ask your question.

Ben Fidler – Deutsche Bank

Yes, thank you. A further follow-on on the aircraft financing really, you gave the scale of the 2009 potential level of financing that you see BCC is doing. I wondered if you could share with us where you see that may be looking for 2010? Or put it another way, what is the maximum annual level of financing that you think you’d be willing to put in to vendor financing and how could that potentially impact any ongoing share buyback plans?

James Bell

I think it’s too early to tell but I can just say this to you that in 2003, the portfolio in BCC was $12 billion; today, it’s down to under $6 billion, so we have capacity. I’m not saying to you that I’m willing to take it back up to $12 billion, but I am saying we have capacity and we’ll have to look and see what happens. But I think the liquidity issue that we’re seeing today and the financial crisis we’re seeing today, a lot will clear up by 2010. And for when you start looking at funding sources for those airplanes that will be delivered in that time frame, I think we’ll be looking at a much different picture.

Ben Fidler – Deutsche Bank

Okay, thank you.

Operator

JB Groh of D.A. Davidson, you may ask your question.

JB Groh – D.A. Davidson

Yes, thanks for taking my call. James, I think you mentioned that obviously when you restart production of BCA, it’s not like a light switch; we’re not going to get back up to thirty 37s a month. But how long does that take? And it sounds like you were maxed out before, so I guess those deferred aircraft are going to fill the slots that were vacated. But how long does it take to get back up to that high run rate?

James Bell

Well, it depends on how long the strike goes and the actions we have to take relative to that in order to be responsible in managing cost. I mean if we have to – if the strike continues, then we have to send people home and we have to start shutting down suppliers. Obviously, it will take longer. If it stops now, it will be less. But we don’t know that until the strike is over and then we go through and do the assessment and the orderly ramp back up to what were peak production rates.

JB Groh – D.A. Davidson

But, well let’s say theoretically if it ended after 60 days, can you get up to that rate in two months’ time or –?

James Bell

I don’t know. I really don’t know and I don’t want to speculate but I think that two months is a long period of time, so I would suspect that we could get close to it, if not there, in the two-months period. Hopefully, we can do it in a lot less time.

JB Groh – D.A. Davidson

But it all swings on how long they stay out?

James Bell

How long they stay out and the actions that we take as a result of that. As Jim said, we’ll be answering different questions and taking different actions the longer the strike goes and that will impact our ability to ramp back up depending on what those actions are.

JB Groh – D.A. Davidson

Okay, thanks for your time.

Diana Sands

Operator, we have time for one more analyst question please.

Operator

Thank you. Peter Arment of American Technology Research, you may ask your question.

Peter Arment – American Technology Research

J.B. just asked my question, so I’m all set, thank you.

James Bell

Okay.

Jim McNerney

There might be one more or –

Diana Sands

We’ll move to media now.

Operator

That completes the analyst’s question-and-answer session.

(Operator instructions) I will now return you to the Boeing Company for introductory remarks by Mr. Tom Downey, Senior Vice President of Corporate Communications. Mr. Downey, please go ahead.

Tom Downey

Thank you. We will continue with the questions for Jim and James. If you have any questions after the session ends, please call our media relations team at 312-544-2002. Operator, we’re ready for the first question and in the interest of time, we ask that you limit everyone to just one question please.

Operator

Lynn Lunsford of Wall Street Journal, you may ask your question.

Lynn Lunsford – Wall Street Journal

Thanks. I wanted to ask a question regarding the strike and the situation where both sides of this dispute seemed to be pretty well dug in on the issue of – well for the union, it’s job security and I think you and Jim had said it was management rights. But, I guess the thing that I’m trying to get a sense of this do you think there is a compromise in that area that would be possible without one side or the other completely capitulating?

Jim McNerney

Yes. I think there’s a way forward, Lynn, to be honest with you. I think the management rights issue is one that leaves us with the ability to manage our business. I think having said that, I think there’s a way to work with the union to meet some of their goals and in fact I think discussions that are starting up again tomorrow – the federal mediated discussions that are starting up again tomorrow, although it is impossible to predict success or lack of success, I think both sides are approaching it with a constructive headset. So maybe we can find a way forward here.

Lynn Lunsford – Wall Street Journal

Do you plan to get involved in these at some point?

Jim McNerney

I’m involved in the strike on a day-to-day basis and so I think Scott will be the lead – Scott and Doug Kite will be the lead negotiator as they always have been but I’ll be involved 24/7.

Lynn Lunsford – Wall Street Journal

Thanks.

Jim McNerney

You’re welcome.

Operator

Tim Klass of Associated Press, you may ask your question.

Tim Klass – Associated Press

The last three Boeing strikes, both of the machinists and with the engineers' union have been settled only with the Boeing CEO and the President of each parent union getting together to reach a final agreement. Do you plan to be at the table or are you ready to be at the table directly in these talks that are resuming tomorrow?

Jim McNerney

Well, like I say, your first statement wasn’t true. I mean we’ve resolved strikes with a variety of people at the table, usually led by the commercial airplanes business leader who runs a $37 billion business for whom the striking employees work. So like I say, I’m involved deeply. I’ve had a number of conversations with the union leadership, and I am open to be a constructive force in this thing any way I can be, while also leading the company in a way that I think is best.

Tim Klass – Associated Press

Can you elaborate on the conversations you’ve had with the union leadership?

Jim McNerney

Not particular. I mean, I think the nature of these things are private constructive discussions and I think both of us would just assume they stay that way.

Tim Klass – Associated Press

Thank you.

Jim McNerney

You’re welcome.

Operator

Susanna Ray of Bloomberg News, you may ask your question.

Susanna Ray – Bloomberg News

Good morning.

Jim McNerney

Good morning.

Susanna Ray – Bloomberg News

You mentioned the possibility of having to send some workers home. Was that the engineers or who were you talking about?

Jim McNerney

You didn’t come through clearly there. Could you repeat it one more time?

Susanna Ray – Bloomberg News

I’m sorry. You mentioned the possibility of having to send some workers home, and I’m wondering if you’re referring to the engineers or to whom?

Jim McNerney

Go ahead.

James Bell

Listen, what I was talking about that as the strike goes on, if it goes longer, we would have to looking at more significant action to manage the ongoing costs that would, if in fact it went longer enough, could include sending people home. Right now, there are no plans to do that.

Susanna Ray – Bloomberg News

Okay, and then just one more question. You have a figure of $0.60 for the impact of the strike and the galley problem. Can you give any breakdown between the two?

James Bell

Yes, I would tell you that the strike is about $0.35 and the galley issue is about $0.25.

Susanna Ray – Bloomberg News

Great, thank you.

Operator

James Wallace of the Seattle P-I Newspaper, you may ask your question.

James Wallace – Seattle P-I Newspaper

Yes, Jim, in a couple of your messages to your employees since the strike began, you’ve commented about how disruptive this continual labor problems are. When it comes time to find a site for your next all-new airplane after the 787, how much consideration or how much of a factor will these strikes and labor unrest be in deciding where to build that new airplane?

Jim McNerney

Well, it’s far too early to figure out where we’re going to build a plane that we haven’t designed yet. But listen, the workers, not withstanding the strike and not withstanding the frustration on behalf of our customers that I have about interrupting their lives on a pretty regular basis, I think we’re – I’m a human being, I think we’re all human beings who are frustrated by that. Not withstanding all that, the workers on Puget Sound, represented by the IAM, are very fine workers. And they do a good job and I’m anxious to get them back to doing a good job, and they can compete for any work that we’ve got.

James Wallace – Seattle P-I Newspaper

If I could follow up, Jim, when Alan Mulally and Mike Bear came to Chicago to make the presentation for the 787 to be built in Everett, you were on the board. Were you considering at that time that a possible labor strike like this one was going to disrupt production of the 787 just as you got started?

Jim McNerney

I don’t think that that was a front and center consideration, to be honest with you, back then. I mean, I think we were trying to find the best production structure. Alan, at that time, was trying to find the best production structure and the best place to build the airplane. And I think that issue gets front and center during a time like this when you’re making an investment decision. It probably wasn’t a huge factor.

James Wallace – Seattle P-I Newspaper

Okay, thank you.

Jim McNerney

You’re welcome.

Operator

Dominic Gates of The Seattle Times, you may ask your question.

Dominic Gates – The Seattle Times

Hello, Jim. Following up of Lynn Lunsford’s question and your answer to it, I seem to detect a level of optimism there that you can solve this quickly. I’m wondering, has there been any movement? You talked about talking to strike leaders. Have you talked to Tom Buffenbarger? Have you detected any movement since the talks broke down just over a week ago between then and now deciding to go back to the table, is there some reason for that optimism beyond the mediators saying, “Let’s get back together”?

Jim McNerney

Listen, I’m an optimistic person by nature. Number one, I do want to resolve this. There have been some informal discussions that have, I think, indicated a constructive headset on both sides which is why I think we both readily agreed to get back together.

Dominic Gates – The Seattle Times

Could I just follow up with a different union question? You are looking ahead now to the negotiations with SPIA and the SPIA leadership has been talking tough. Any thoughts on how that’s going to go?

Jim McNerney

Well, we look forward to a successful discussion and negotiation. I mean I think the – I think in recent discussions, I mean I think we head to the table here and not to far into the future, and I think some recent discussions suggest that again there is a constructive headset, so I anticipate getting through that one and coming to terms with the very important element that will work for us.

Dominic Gates – The Seattle Times

Thank you.

Jim McNerney

You’re welcome.

Operator

Peter Pae of the Los Angeles Times, you may ask your question.

Peter Pae – Los Angeles Times

Thanks. Good morning, Jim.

Jim McNerney

Good morning.

Peter Pae – Los Angeles Times

I’d like to switch tracks a little bit from the strike and ask you about the satellite business. There were couple of set backs recently, jury verdict [ph] yesterday and TSAT getting side tracked, commercial orders are down. I’m wondering what do you see as sort of its prospects in light of all these things happening?

Jim McNerney

Well I think our customer representing TSAT in particular is trying to sort through the best way forward as they think about all the things they need to think about and there are many considerations as you know and so I think there is a – we’re going through a time now of sorting out by our customer and we’re ready to respond whether it be some form of TSAT or some form of extending what we’re doing currently. I think either way it’s a good way forward for us. The business has been – from the times of four to five years ago, when the business was upside down financially, as the leadership of that business has done a tremendous job not only satisfying customer requirements but getting their financial ship in order. So, I’m feeling that we have a good base to follow where our customer wants us to go.

Peter Pae – Los Angeles Times

So you think it’s still a viable business for you guys.

Jim McNerney

Yes, yes, I do.

Tom Downey

Operator, we have time for one last question please.

Operator

Lastly, the question comes from Andrea Rothman of Bloomberg News, you may ask your question.

Andrea Rothman – Bloomberg News

Yes, hello. A question for Mr. McNerney. Can you tell me, do you have a threshold for order members on the 747 AC before actually committing to build that plane? I know you have (inaudible). I’m not even sure if Eric has actually signed firm for the four that they announced in (inaudible).

Jim McNerney

Now, we have committed to build the plane.

Andrea Rothman – Bloomberg News

Okay. So even if you only had 30 or so orders, you will still move forward with it?

Jim McNerney

Yes. I mean we have – I think the combined orders are somewhere in the neighborhood of about 100 and 110 or so which is, I would say, about average in terms of this stage in a program development. So we – while we’re frustrated by the incremental cost we’re seeing, that doesn’t change our mind about getting this done for our customers. There is good demand for this plane.

Andrea Rothman – Bloomberg News

Okay, can I just follow up to get a clarification from Mr. Bell? There’s a question about who you would send home if you – if you had to send workers home, you said we might have to send people home. Who would those people be? I mean is it engineers or …?

James Bell

We don’t know. We'd have to get to there and see.

Andrea Rothman – Bloomberg News

So you don’t…? Okay.

James Bell

No, we’re not planning on sending anyone and we have no plan yet. I’m just saying it was a hypothetical discussion around if the strike continued longer, would you have to make different decisions and the answer to that is, yes, including what we would do to manage and conserve our resources both here and with our supply team and collectively we will figure out what’s the right thing to do. In order to that including –

Jim McNerney

Cost reduction.

James Bell

– and that would drive cost down until we got them back to work.

Andrea Rothman – Bloomberg News

Okay. Thank you.

Tom Downey

Operator and everyone, that concludes earnings call. Again, for members of the media, if you have further questions, please call the media relations team at 312-544-2002. Thank you very much.

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Source: The Boeing Company Q3 2008 Earnings Call Transcript
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