Diana Sans - Vice President of Investor Relations Jim McNerney - Chairman, President, Chief Executive Officer James A. Bell - Chief Financial Officer Tom Downey - Senior Vice President of Communications

Steve Binder - Bear Stearns Troy Lahr - Stifel Nicolaus Cai von Rumohr - Cowen And Company Joe Campbell - Lehman Brothers George Shapiro - Citigroup Doug Harned - Sanford Bernstein David Strauss - UBS Ivy Wood - Morgan Stanley Joseph Nadol - J.P. Morgan Howard Rubel - Jefferies Ron Epstein - Merrill Lynch Robert Spingarn - Credit Suisse. Lynn Lunsford - Wall Street Journal Hal Weitzman - Financial Times Dominic Gates - Seattle Times [Mike Mecham - 8th Week] [Suzanne O'Halloran] - Bloomberg

Good day everyone and welcome to The Boeing Company’s First 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 sessions are being broadcasted live over the internet. At this time, for opening remarks and introductions, I am turning the call over to Mr. Diana Sans, Vice President of Investor Relations for the Boeing Company. Ms. Sans, please go ahead. Diana Sans - Vice President of Investor Relations: Thank you. Good morning and welcome to Boeing’s first quarter earnings call. I am Diana Sans and with me today are Jim McNerney, Boeing’s Chairman, President and Chief Executive Officer and James Bell, Boeing’s Chief Financial Officer. After the brief comments by Jim and James, we will take your questions. In the interest of time, we ask that you limit yourself to one question. As always, we've provide a detailed financial information in our press release issued earlier today. And as a reminder, you can follow today’s broadcast and slide presentation through our website at boeing.com. Before we begin, I need to remind you that any projections and goals we may include in our discussions, this morning are likely to involve risks, which are detailed in our news release and in our various SEC filings and the forward-looking statement at the end of the web presentation. Now, I will turn the meeting over to Jim McNerney. Jim McNerney - Chairman, President, Chief Executive Officer: Thanks Diana and good morning everyone. Let me being with some comments about our first quarter and then James will walk you through the results specifically. After that I will say a few words about what's ahead and then take your questions. Starting with slide 2 please; our first quarter financial performance has us off to a very good start for the year. Our two big core businesses continue to demonstrate strong performance and remained well positioned in their markets. Virtually all of our programs are meeting or exceeding targets by driving growth and productivity initiatives. This performance is providing us the resources we need to manage through our product development challenges while still meeting our financial commitments. Our financial highlights for the quarter included solid revenue growth, strong cash flows, and operating margins over 11%. Earnings per share and net income both grew about 40%. Our backlog continued to grow and reached another record level of $346 billion, which equals over five times our current annual revenues. Integrated Defense Systems generated another strong quarter of double-digit margins by executing well on its large and balanced portfolio programs. IDS increased its backlog to $75 billion driven by a new multi-year contract for the V-22 Osprey. With one of the industries' leading backlogs IDS continues to demonstrate a breadth of capabilities to meet evolving customer requirements. As you know, during the quarter, the US Air Force awarded the KCX tanker program to Northrop Grumman and Airbus parent EADS. On March 11th, we filed a former protest of that award. This was a decision we took very seriously. Boeing had not protested an award with GAO in over a decade. We felt this protest was necessary because of what we believe were serious flaws in the selection process. We believe we offered the most capable tanker for the Warfighter, at the lowest cost to the tax payer as measured against the government's request for proposal. We expect the GAO to rule on the protest by early summer. It is important to note that while the tanker program was won, we wanted to win and in fact are still fighting for. Its loss should not have an adverse impact on our overall outlook. Our growth prospects for the company and for IDS remained solid regardless of the tanker outcome. Strong financial performance, a balance portfolio, and opportunities to grow, IDS is healthy and continues to build on its momentum from a series of contract wins last year. As I mentioned, we finalized the V-22 multi-year contract in the first quarter and we will see our customers making decisions this year on various opportunities including TSAT and a number of international programs. In addition, we expect a decision on the CSAR-X competition near the end of the year. During the quarter, we also saw outstanding financial performance at Boeing Commercial Airplanes. BCA revenues rose 8% and it delivered 12% operating margins. The team successfully increased its 737 production rates in the quarter and continues to drive productivity throughout the business. BCA also continues to push ahead on its development programs. The 777 Freighter and the 747-8 programs remain on track. As you heard from Scott Carson and Pat Shanahan, earlier this month, we have revised our schedule for the 787s first flight and first delivery and we are planning a more gradual ramp up to full-rate production. While we are deeply disappointment in our performance to date and the impact our delays will have on our customers, the new plan reduces our schedule risk significantly. It is based on the lessons we've learned on the program thus far, discussions with our major supplier partners and a rigorous analysis of the capabilities of our overall supply chain. We are having discussion with our customers on how the new 787 schedule well affect them and we will work together to minimize its impact. I have personally been in close contact with Scott, Pat and the team throughout this process and I believed the plan outlined early this month is one that we can achieve. Then my most recent visit to Edward last week, I saw good progress towards to completion of airplane one and meeting our commitments for power-on and first-flight. Static and fatigue airplanes are also moving along. And the condition of assembly from our structural partners were noticeably improved on airplane #2 and similarly on components we have already started to received on airplane #3. We will get through to startup of this innovative some would say leading edge program and when we do, we will be delivering a breakthrough new product, years ahead of its competition, and one that will offer substantial efficiencies and value for a customers. 787 continue to see strong demand from the road or alliance with 75 aircraft orders during the quarter and 892 firm orders since launch. Turning for a minute to the overall market environment. During the first quarter we have seen the US economic situation become more tenuous as capital markets has soften and several small and weaker airlines have filed for bankruptcy. We are closely monitoring this situation. Right now these developments are not having a significant impact on us. Our total backlog grew 19 billion in the quarter and remains diverse by region, product type, and customer. Only 11% of BCAs, $271 billion backlog is from airplanes based in the US. A strong portion is with customers in Asia and the Middle East where economic conditions are more favorable. In general our commercial airplane backlog is comprised of the established, quality customers whose financial strength exceeds the market average. In addition, nearly half of the company's total revenue is generated from our defense business, which is fairly well insulated against the recent economic volatility. Commercial airplane demand globally remained strong and is being aided by high fuel prices and environmental concerns. In addition, there is still a significant need for airplane replacement within the US carriers. So while the market environment has become more viable it is not currently impacting our growth forecasts. If there is a more significant economic downturn, I believed Boeing is in the good position to weather it. Our backlog has never been more diverse. Our production programs and services businesses are performing well and we have the right products for the markets. And we have a relentless drive to continuingly improve productivity. All of this is serving us well today and will do so through the economic cycles. Let me ramp up my opening comments by reiterating my confidence now positioned and prospects going forward. The breath and depth of capabilities across our commercial and defense business is allowing us to pursue a wide range of opportunities. Capturing those opportunities and continuing our enterprise focus on productivity is what we'll secure and even stronger future. Potential for this company can be seen in our financial outlook, which reflects significant earnings growth in 2009, as we continue to drive growth and productivity while making progress on our development programs. With all that said, let me turn it over to James for a review of the numbers. James A. Bell - Chief Financial Officer: Thank you, Jim and good morning. I will begin with first quarter results on slide 3. Our revenue increased 4% in the quarter driven by higher commercial airplane deliveries and services growth. Our EPS grew 43% to $1.62 per share while our net income expanded 38% to $1.2 billion. Operating margins increased to 11.3%. Our earnings were driven by solid business performance, from both BCA and IDS, as well as lower allocated pension and deferred compensation cost. Now let's start our business unit review with commercial airplanes on slide 4. BCA continues to profitably manage its production ramp up while growing its record backlog and investing in its growth. BCA delivered 115 airplanes in the quarter, which along with the higher service volumes drove an 8% increase in total revenue to $8.2 billion. Higher deliveries and services volumes would somewhat offset by lower aircraft trading sales. Operating earnings grew to $983 million producing an operating margin of 12%. BCAs margin reflected volume and performance improvements across its products and lower R&D expense. This quarter included $50 million of supplier development cost sharing payments while they were non-due in the same period last year. BCA expects cost sharing payments for all of 2008 to be roughly equal to those received in 2007. As discussed earlier this month, we expect 2008 R&D spending to be higher than previously thought. This is due to extending the 787 testing period prior to first-flight as well as additional cost on the 747-8. The revised R&D guidance result in total spending that is relatively flat for the reminder of the year with R&D cost decreasing in 2009. Commercial program margins exceeded unit margins this quarter due to product mix and pricing that reflects airplanes sold several years ago in a tougher prices environment. We captured 289 gross orders in the first quarter, which lifted BCA backlog to another record of $271 billion. This represents greater than seven times current BCA revenues and we continue to expect our book-to-bill ratio to exceed one this year. Now Jim has already talked about the new 787 schedule that was announced earlier this month. But let me discuss the financial implications of the new plan. As Jim noted, we are engaging with our customers on the impact of the 787 delays and appropriate mitigation plans. This will take time and could ultimately take various forms including the interim lift capability and revised terms on orders. Now in our 2009 financial guidance we have assumed that the 787s delivered during that year will have a zero percent program accounting margin. We believe this allows for sufficient reserved to deal with customers issues and other cost associated with the delay. The accounting quantity for 787 will not be determined until the middle of the next year in advance of our first delivery in Q3 2009. I should point out that it is difficult for new commercial programs to start with very low margins that increase over time as we go down the learning curve and achieve productivity benefits. We expect the 787 to do the same. With 892 orders since launch we firmly believe that the 787 will deliver significant value over its life to both customers and shareholders. I want to reiterate that BCA continues to perform very well on its production and service programs, which are generating good top line and bottom line growth during this quarter. Now moving to slide 5 and our Defense business. IDS delivered strong margins of 11.4% on revenues of $7.6 billion in the quarter. Precision Engagement and Mobility and Support System continue to generate strong double-digit margin of 11.9% and 12.5% respectively, reflecting outstanding performance on production and support programs. Network and Space System nearly doubled its margins to 9.9% driven by performance across its products and a favorable settlement on a satellite program. IDS captured new and follow-on business including the V-22 multi-year contract as Jim discuss and a F-22 multi-year sustainment contract as well as the intent from the Missile Defense Agency to sole source the GMD follow-on development contract. Also during the quarter IDS delivered the first two KC-767 tankers to Japan and the P-8A program begin final assembly on its first aircraft. Our Defense business remains well positioned for growth and profitability with this broad portfolio of development, production and support program and with good sales opportunities both domestically and internationally. The IDS team is performing very well across its businesses and is on track to achieve its growth and double-digit margin goals. Now let's turn to slide 6. Boeing Capital delivered another solid quarter with pre-tax earnings of $61 million on revenue of a $185 million. BCC continues to reduce its portfolio, which totaled $6.3 billion as of March 31st. First quarter other and unallocated costs have decreased approximately $150 million due to lower deferred compensation and unallocated pension expenses. We expect total other and unallocated expenses to be about $1.1 billion in 2008 and about $750 million in 2009, due to lower estimated pension costs. Total pension expense is forecasted to be around 800 million in 2008 and 500 million in 2009. Now the 2009 expense could vary depending on interest rates and market performance as of our measurement day which will be December 31, 2008. Now let's move to our cash flow on slide 7. We generated $1.9 billion of operating cash flow in the quarter. Strong net income and non-cash items were somewhat offset by a planned $500 million contribution to our pension plan. The quarter also included certain advance payments that we anticipated receiving later in the year. We continued our balanced cash deployment strategy as we invested in organic growth programs, used $1.2 billion to repurchase 15.6 million shares contributed to our pension plans and paid a 14% higher dividend to our shareholders. Share repurchase will moderate the remainder of the year, as we expect to use about the same amount of cash in 2008 as we did in 2007 to buy back shares. Now moving to cash and debt balances on slide 8. Our balance sheet liquidity remains strong. We ended the first quarter with $12.1 billion in cash and in liquid investments. This was flat versus year-end as strong operating cash flow was used for capital investments share repurchase and dividends paid to shareholders. Our debt balance is also flat versus the end of 2007. We do expect BCC to pay down debt later in the year which will reduce our consolidated debt balance by year end. Now turning to our financial guidance on slide 9. We are reaffirming our earnings guidance for 2008 and forecasting significantly additional EPS growth for 2009. Our outlook reflects strong performance from our core businesses increasing commercial airplane deliveries, decreasing R&D and pension costs and company-wide productivity improvements. Boeing's revenue guidance for 2008 is unchanged that between 67 and $68 billion. Revenue for 2009 is expected to grow to between 72 and $73 billion. Earnings per share guidance, for 2008 remains unchanged at $5.70 to $5.85. We expect earnings in the second half to be slightly higher than in the first half reflecting delivery mix and timing of period expenses. For 2009, we expect EPS to grow approximately 20% to between $6.80 and $7 per share driven by higher airplane deliveries and progress on growth and productivity initiatives as well as lower R&D and pension expenses. We are forecasting operating cash flow to exceed $2.5 billion in 2008 and exceed $6 billion in 2009. Our guidance includes potential supplier advances and customer impacts due to the revised 787 schedule. Now turning to the segments; BCA deliveries and revenue forecast for 2008 remains unchanged at 475 to 480 airplanes and 34.5 to $35 billion respectively. 2009 deliveries will grow to between 500 and 505 airplanes including approximately 25, 787 Dreamliners. We expect further growth in deliveries in 2010. 2009 BCA revenue is expected to be between 37 and $38 billion. Airplane margins are forecasted to be about 11.5% in both 2008 and 2009. This reflects low R&D cost and continued strong performance on production and service program offset by margin dilution from the 787 deliveries in 2009. Our 2008 IDS financial guidance remains unchanged with revenue of 32 to $33 billion and operating margins of approximately 10.5%. For 2009 we expect revenues of 33.5 to $34.5 billion with growth across all segments. 2009 margins are expected to expand to greater than 10.5%. We expect total R&D expense to be between 3.6 and $3.8 billion in 2008 reflecting the new 787 plan as well as higher 747-8 costs. 2009 R&D will decline over 13% to a range of 3.1 to $3.3 billion. Additional guidance information is provided in our earnings release. Now I'll turn it back to Jim, who will give you some final thoughts. Jim. Jim McNerney - Chairman, President, Chief Executive Officer: Thank you, James. As our numbers for the quarter attest we are off to a strong start and what believe will be another year of improving financial performance for this company. We are methodically working through our challenges including the startup of the 787. And our people remained focused on satisfying our customers and leveraging growth and productivity into better bottom line and top line performance. With many of the early challenges on the 787 behind us, we can see our way to getting electrical power on the airplane by the end of June then flying lower this year and beginning deliveries of this game-changing new airplane next year. Our production and services programs continue to perform well and we are driving productivity throughout this company to fuel future growth, deal with our challenges and deliver on our financial commitments. You can see it from our outlook that our goals for the remainder of this year and next are ambitious. We expect outstanding earnings growth and continued financial. In summary then, our businesses are executing well and we understand and are working on the challenges before us aggressively. Our outlook remains bright and we continue to drive towards being the strongest, best, and best integrated aerospace company in the world for today and tomorrow. Now with all of that said, we would be happy to take your question.

(Operator Instructions). Your first question is from Steve Binder of Bear Stearns.

Yeah, good morning. Good quarter.

Good morning.

May be just about your '09 guidance, I think James you touched on, you are assuming the zero margin with 787 program, just assuming. Since you had not fully scrubbed I guess supplier payments, renegotiation with suppliers, as well as your kind of your new schedule as far as your ramp cost with respect to a new production schedule. I am just wondering do you feel confident would you characterize your cost estimates to be on the initial block size to be conservative, such that you want to meet figure with forward charge?

Yes I would. I would say that its our best ability to estimate, but a couple of things that we've high confidence in. One we've confidence that we have almost 900 orders today which would help us relative to set what the pricing is, relative to that. We've negotiated quite a bit of the subcontractor cost and we have pretty good idea of how we are going to finish in negotiating as it relates to some of the impacts or some of the changes we've experienced. The area obviously that is less certainty is how do we settle all of the issues we have with our customers. Although, we think we are being relatively conservative by starting out with the zero margin.

And also related to '09 I think have you assumed, if the R&D decreases mainly coming out of BCA and you take out the 787 sales and zero profit contribution, it looks to me like you are still assuming some decline in your matured business and services business and margin in '09 versus '08. Is that just conservatism is that giving you cushion, in case is there any R&D spike, and may be just characterize that?

No. Steve it's what we have talked to you about before. Prior to putting these airplanes to 787 into service we have some expense associated with that that would come out and what we would call out fleets support area out of our cap area. In terms of trainee menus and things of that nature that support the entry into the service and new airplanes. So that’s some of the impact that you see.

Alright. And one other thing, 747 are you assuming 747-8 deliveries in 2009?

Yes.

And, how many?

Very few.

Okay. Thanks very much.

The next question comes from Troy Lahr of Stifel Nicolaus.

Thanks. You touched on a little bit, but I am wondering, if you can give us a little more insight into discussions with international costumers specifically the guys that have taken deliveries over the next 2 to 3 years. Are more and more customers talking about differing some of these deliveries now that were in though environment with higher fuel or are these guys really just seeing new Jets away to kind of ease the pressure from higher oil. And then secondly, what are you hearing from the domestic carriers regarding recapitalization efforts now that oils at 117, are we still on track to start seeing more domestic orders in '08 and '09?

This is Jim. Internationally we have had very little indication that the customers want to reschedule. So that’s then a relatively stable situation, I think the financial turmoil as we have seen it has mostly been US centered. So answer to your first question is, hardly any. The US carriers, I think that the new oil reality is a tough one for them to be deal with. It's impossible from me to know exactly what oil price they were assuming in their models as we begun discussions with them. But we are in active discussions with most of them, and I think that should unfold over the next 12 to 18 months. And if there is an impact, we haven't seen it yet. But the new reality has hit us pretty quickly here. So I think we are all in an ongoing situation that it will unfold, but no direct indication there either.

Do you think the domestic are still recapitalized within a year, year and a half that’s probably hasn't delayed it at all?

Yeah. I mean, I think if anything the oil price situation could accelerate some moves that would in the minds of the airline management strengthen their businesses. I mean, I think you look at the Delta, the proposed Delta, Northwest merger I think, which has yet to play out fully obviously, but I think that is a move to strengthen, introduce more scale and insulate competitively from all kinds of price in marketplace pressure. So to the extent to which this accelerates that that could get you there faster actually.

Great. Thanks guys.

As a reminder, please limit yourself to one single part question. Thank you. The next question does come from Cai von Rumohr of Cowen And Company.

Yes thank you and great quarter guys. You have pretty ambitious cash flow next year given the 787 delay. Could you quantify for us what was the cash flow impact on '08 and '09 from this latest delay of the 787?

Cai this is James. Its reflected in the guidance, #1, but I think what you are seeing in terms of the lower cash flow in '08 is the production build-up not only of the 787, but of the production aircraft that also or we produce the higher rate and pull that with the flight out based on the prior schedule shift of about 75 787s out of '08 into the '09 or into -- out into outyears now as we now understand the schedule better. So that's how we got to 2.5 this year. In the next year, obviously we are upping our deliveries, which will again help the cash flow to get to the 6 billion we are guiding you to as well as we will start relieving the inventory on 787s as we deliver the 25 we are expecting to deliver next year, Cai.

So what sort of impact does this assume, you are paying Spirit per their 8-K, it looks like 350 million plus that was not on the plan. You presumably have some payment to airline at some point. What do though the suppliers and airline compensation requirements due to this cash flow?

So, we are not going to get into the specifics of what we have assumed, Cai, but believe that the impact of what we believe based on what we know today cash that would be extended out because of the payment flow coming from customers as well as what we would have to pay for pay to suppliers to be there and because of contract terms are included in the guidance for both '08 and for '09.

Terrific. Thank you.

The next question comes from Joe Campbell of Lehman Brothers.

Good morning.

Good morning, Joe.

I have a question about the performance of the commercial company in the first quarter. The difference between the program accounting and the unit accounting was some $330 million, which is the largest number we have ever seen I think in a single quarter and 71 million of it, which is pretty much consistent with what we have been seeing is related to the 777-300ER. I wondered if you could sort of tell us what was going on because the actual is so different from the assumed program performance?

Yeah, some of it was -- again we are still experiencing the impact of the more aggressively priced airplanes several years ago that we are delivering, which has a more profound impact on unit margins than program. Then coupling that with the mix that was delivered in the quarter had the increase the gap a bit based on what's in the accounting quantity relative to that mix and the pricing associated with it, Joe.

James, what was the mix difference. I didn’t notice anything especially different?

Well, there were more 777 in it today in the…

777 wasn't the issue, it was only 71 million of the 330? So the big number…

You are only talking about the difference in pricing on 777, there is a mix difference also that would be associated with better priced airplanes out in the outyears, Joe.

But, I mean, you are showing us the difference between actual and program assumptions on the 777 to be only $71 million. So is it not correct to assume that 330 minus 71 is related to some airplanes other than the 777?

Well, there is. Yes, there is.

So, I am asking what that 200 million is, which is…

It's mostly the 777, but there would be some mix relative to the 777s as well that's in the cost base that's beyond which you are seeing in deferred production and it would be quite frankly the mix between freighter and passenger.

Great. Thank you very much.

Your next question comes from George Shapiro of Citigroup.

Yes, good morning.

Good morning, George.

Good morning.

You have the portfolio size at Boeing Capital going down this year and next year, does that mean that you won't finance any of the American planes that they are going to get next year?

George, that doesn’t mean that. What it does mean is we are preparing ourselves in the event it's necessary to use BCA, BCC and our balance sheet in order to finance airplanes. Right now, given what we know, we are not anticipating we will need to.

Then what's the thinking, James, intuitively with the tighter credit out there, now I would think that Boeing Capital Corp would be in the mode of being called on more to increase the financing. So are you taking a different view on that as to what Boeing Capital Corp will do and saying that the portfolio size is going to be lower in '08 and '09?

In our current backlog, we see that the Ex-Im bank is going to finance about 80% of it. And what I jut said to you is that we have over the last several years been preparing BCC and The Boeing balance sheet that if called upon we can answer the call. Right now, we don’t have any information that suggest we will be, but if we are we will deal with it then, and BCC and The Boeing backlog will be more than able to do that.

So your projection of lower is just to assuming that the economic environment doesn’t get any worst than what it is today.

Well George this is Jim. I mean there is two things, one we see what we see on economic environment. And secondly, in contrast with coming out of 9/11 we are much less than half of our planes were financed Ex-Im internationally. We now have 80% of them financed Ex-Im internationally, which puts us in a stronger position to absorb any financing requirements we have and that’s changed this point. We have run the portfolio down, so we have plenty of capacity to deal with it if we need to. And what we have to deal with will be significantly less than the last recession we have.

Okay, that is very good. Thanks.

The next question comes from Doug Harned of Sanford Bernstein.

Good morning.

Good morning.

On BCA margins and your guidance for '08, you added $400 million more to R&D where you kept the margins at the same level. Could you talk about what the sources of improvement are in and I would say is the way to divide that into the 777 and overhead reduction was allowed due to essentially bring the ex R&D margins up?

All of it. I mean if our absolute focus on productivity its the benefit we are getting from the moving line in 777, as we continue to experience good progress on that implementation if the productivity we are getting on 777, as we continue to harvest that mature program and the mature concept that’s deployed there on the moving line. And it is our efforts on really looking at every cost that does end up in our products to see how we can be more productive in doing those activities that create those costs and driving those cost down while we increase the quality of that effort with all of it.

So, it is not one that you would point two that’s more than the others here?

No, and there is not one that we would be emphasizing more than the other. We are emphasizing all of them and we are seeing good benefit out of all those initiatives.

Presumably you expect that to continue into 2009, when you should also be getting some placing benefits I would expect?

Correct. We would hope to see particularly on the 777s to start harvesting more benefit out of the moving line in 2009 than we are in 2008.

Okay, great. Thank you.

And your next question comes from David Strauss of UBS.

Good morning, thank you. James Bell Good morning.

Could you talk a little bit about the IDS growth maybe from a program basis what's is driving that in '09, the mid point is around 5%, which is little bit stronger than it was thought. And then secondly Jim, can you maybe just talk about how you feel the competitive position of IDS moving forward, I mean even beyond tanker the win rate on some of the big programs hasn’t been that great recently? Thank you.

Sure. I mean I think the current growth is across the board. I mean, its all the production programs are running well, FCS, GMD very high road fees, recent reaffirmation of our status as the assistance integrator. Those are big, big programs as you know. C-17 sustainment the multi-year on Apache and F-18 were at the mid point there some international orders that we are now delivering on to Korea, Singapore, and other places. So it is SPI net, so it is really on across the board slowly and also as you know the rest of the couple of businesses over the couple of years and which sort of muddied the growth look at IDS and we are now beginning to out run some of that. And so having said all that currently the order rate -- the facts are we won nine big competitions last year. So I think we pointed out 9/11 of the major competitions we were in. That is one hell of a record. Quite frankly and admitively we have washed $0.01 or $0.02, but okay, so now it's 9 out of 13. So our hit rate recently has been very, very high. And when you look at this year and see a number of international orders that promise to come through and the number major orders in the United -- set the right orders in the United States and a couple of other ones. I think even if we return to our normal hit rate, the two year period would have been outstanding by any measure in terms of new business.

And then on C-17, what have you assumed in 2009 and when do we get to the point that you do have to make a decision in terms of shelling down the line?

I think the assumption this year is that we will obviously, we'll continue and we will also be continuing production next year. That is the assumption. And as you know, that the international order base continues to strengthen, the smoke signals out of Washington are strong right now in terms of an '08 supplemental and potential order in the '09 base budget next year. So we feel -- we are always a little bit on tender hooks here. But we feel relatively strong about the prospects short and medium-term of C-17.

Thanks a lot.

You are welcome.

As a reminder, please limit yourself to one single part question. And the next question does come from Ivy Wood of Morgan Stanley.

Good morning.

Good morning Ivy.

Good morning Ivy.

Jim when you, James I guess, when you go through and analyze the range of possible additional costs on these customer penalties and supplier support. In totality what's the highest negative cost outcome that’s realistic. I mean does that number ever exceed 4 billion. We are really struggling on the outside to conceptualize this. I mean if we can't think of it is 2 to 4 billion is that a reasonable bandwidth?

Well Ivy, you know, the fact of the matter is we go through and struggle with that same thing ourselves and with the information we have to date, its hard to set a number. And that’s why we obviously have taken the position that we are going to start off booking the program at a zero margin to make sure we have adequate reserve in order to deal with that. I can't predict what the number will be. I just know that our past history would suggest that we do a pretty good job of mitigating that and not having and roll through to be a significant impact to your financial performance.

Alright. You gave us color on when you are going to make the decision on the program block, but maybe can you give us more transparency on the process of how will you make the determination for the accounting block size for earnings recognition. And when you look at all of this backlog that you have, obviously the implications of these higher non-recurring is very different if you use a 400 block or an 800 block. Can you walk us through the process of that?

I can Ivy. Let me start with history. Typically when we got to a point of delivering the first airplane we sell it about a 100, this in raw numbers on our new airplane models. And as you mentioned typically the block turned out to be -- the initial block turns out to be and about 400 airplane range. So what that is beyond the long orders you look at what the market potential is for the airplane you look at a time period over which you can estimate your cost and estimate you revenue. And so you take those things in consideration and then you settle on what the accounting quantity is and then what's your booking margin ought to be on these airplane as you deliver them. Well in the case of the 787 we are going to have probably a 1000, so by the time we deliver it. So we are going to be more constrained by which obviously, gives us great opportunity over a time period to product good earnings and value for both us and our customers and it also gives you great capacity to deal with unknowns that you don’t understand you will experience as you look back to today. But we will be more constrained about is what we'll be able to estimate over a time period and what we'll be able to produce in that time period. So you can get the significant opportunity we are going to have on the initial opening quantity here. But what we see today and what we understand based on what our contracts have in them, based on N-SAR, our very very preliminary discussion with our customers, it is hard to estimate what the customer settlements will be but we do believe that whatever the opening quantity will be based on the price theory I just described, there will be significant profitability in the program today to cover.

Well that's interesting so basically in the scenarios on this initial program block, you're saying that in every scenario the costs are still less than the revenues?

That's correct.

Okay, thank you. And then one last one, if you don't mind, again a bit of a doubles [divagate] question for you. You had one 747 order in Q1 and a great booking quarter of 289 planes. You had 25 747s in '07, yet you are raising the R&D and raising the non-recurring on the 747. You've gone from some 280 changes on the wings that started of mildly to what looks like to a whole new wing design which is kind of $3 billion to $4 billion. Help us understand why is that the right answer? I mean, we knew there is backing out the door to buy 787s and your costs are rising on the plane, we can understand it but in this situation your costs are rising and we're not getting confirmation for higher customer demand. Can you walk us through your rationale there?

Well hi this is Jim. I think we've about 110 orders for both the freighter and the passenger. And I think James just talked historically about models we've introduced at about that rate and so we're already aware and we're still over a year late from introduction. Now having said that, I will be rest in Canada, if I didn’t tell you I wish we had more intercontinental orders which is I think what you were talking about, the passenger version.

Yeah.

Well we've 26 orders….

And only one major customer….

Yeah and one major customer, although the minor customer would not appreciate your characterization there by the way, but we're in discussions with about 8 to 10, serious discussions with 8 to 10 major carriers. It is impossible for me to predict how many of those will order but typically when we're at this stage, a large number of them would. So, I think we are still basing our spending on what we perceive to be the market and by the way we are up to a pretty good start with a 110 orders worth over a year to go before we have to set accounting quantities and the like. But I also wish we had another couple major intercontinental orders right now and the guys are really working hard at it and I think there is a good chance we'll have some soon.

Great, thank very much gentleman.

And the next question comes from Joseph Nadol of J.P. Morgan.

Yes good morning.

Good morning Joe.

My question is on your production rate on non-787 models. Your 2009 guidance shows flat production on non-787. You've said that you are studying the 37 a few months ago. I'm wondering if you've come to any conclusion there and I'm wondering on the 67 if there is any thought as to when we might see a potential uptick there for interim lift for 87 customers.

Well I think your observation is correct on the 987 production rate as in '08, as you know we're pausing after a series of increases across our model line and we're taking a hard look at the 37. Joe, I mean I think it is fair to say if the economic situation does not deteriorate into something that we don't currently anticipate, if that doesn't happen that the bias would be to the upside there, longer term after '08. But we have time to make that call. And so we will take that time to make that call as we're moving forward but on the 67, the death of that program has been predicted for many years and the demand over the last couple of years has been strong even without the tanker situation. So, I think we are also like 11 or 12 on that program right now and so that's another decision we now have to face into and believe it or not we're having honest regard discussions with people right now about that airplane. So, it could expand beyond that.

Are there any non-Japanese customers that will be interested?

Yeah. There is a couple people in discussions, yeah.

And the 37 or 8, is there is a timeframe or its something that you're just sort of keeping your eye on and there is no specific timeframe for making…?

I think that over the next 12 months we would make a decision on that rate, it could be a longer than that, but it's, I think we will be asking the question seriously over that timeframe

Okay. Thank you.

You're welcome.

(Operator Instructions). And the next question does come from Howard Rubel of Jefferies.

Thank you very much. I want to go back to the R&D. You kind of I mean we all live in glass houses in form or another and you've sort of had to go through this a couple time and raise that. Is there any change in process that Jim that you need to look at in terms of helping you think about estimates for programs?

Well, we can be better. I think if you're looking for a root cause, it would probably center on the 87 development. As we've struggled with getting the supply chain in place and the costs associated with recovering from that. We've been forced to keep an experienced set of engineers on that program that had been planned to go on off to other programs. The 47-8 that increased costs as we scrambled to find the engineering capacity we need the trading, we need outside help supplementation from time to time, little more costly, so. I think part of what you are seeing is the scramble but having said that I'm not happy and Scott Carson is not happy with our inability to get our arms around predicting the development cost. The business case for both airplanes remains good but we need to do a better job there and we are working hard to do that. And we do not a have shortage of business reviews around the subject.

Your major competitor talked about price increases the other day. Have you seen that realized in the market in any fashion?

No.

Thank you.

And the next question comes from Ron Epstein of Merrill Lynch.

Yeah, good morning guys.

Good morning.

A boarder strategic question for you Jim. If the tanker stays with EADS and Airbus ends up setting up a wide-body production in North America. I mean how will that change the strategic outlook for the industry. I mean how do you have to consider them now if you get your competitor here in a dollar cost structure putting together wide-bodies?

Yeah, I mean I think it wouldn't change the nature of their business and it wouldn't introduce another competitor. But would change where they produce or have the capacity to produce some things. So it ultimately gets down to a dollar based production site. If they end up wining this thing believe me that site will be pre-occupied with modifying freighters made in France for a long time. So I'm not sure they'd immediately convert hat into something else. So it's more of a geographic deployment. They've announced similar things in China, US. They've got lots of dispersed production in Europe. It will not be an in complicated supply chain for them to manage by the way as you look at from managing manufacturing operations it will tough.

Okay and then just one follow on if I may, I think everybody else did. When you look at your suppliers everything from raw material down to your Tier-I's, Tier-II's, on the legacy programs. I mean how's the supply chain doing?

On through legacy programs, its doing fine. Not that it doesn't labor from time to time. I think the team quite frankly is doing an excellent job on the legacy programs. We've go through periods where certain raw materials are scarce, other periods where quality funds are found. But I would categorize them as being well managed and less difficult than you probably imagine. Most of our supply chain issues have been centered over and found the 787 development and those are well chronicled. So I am trying to paint a picture, when I managing at everyday we are but we have had no major disruptions in our production and with our fingers crossed we think we can keep that record going.

Great. Thank you.

Yeah.

The next question comes from Robert Spingarn of Credit Suisse.

Good morning.

Good morning.

Jim you've already noted earlier in the call the prevailing weakness in broad economy and Boeing's very impressive backlog here, and you said many times and you alluded to this earlier that you resist the temptation to over ramp at BCA. So with that said, what kind of backlog erosion could Boeing tolerate before 2009 and lets say 2010 production plans would be impacted?

Let me answer your question by a array of siding another stressful time and that would be the recession 2000 and then closely followed by 9/11. I think when you looked what happened there roughly 6 or 7% of our orders ended up being cancelled and that was a very tough situation. There where a number of reschedules, a push outs, and number that the majority didn’t change. But we managed to work through with our customers we are facing difficult headwinds to say the least of that time. And a lot of those orders were US based carriers then. And as you heard me earlier describe that’s in contrast where we are today, we are the vast majority of orders 80% plus are with international carriers backed by Ex-Im financing. So we are in a stronger backlog position, today all you can use is data here, because you can't predict future. So if you had exactly the same situation happened to you as happened to you in 2001 same kind of pressures although differently constructed you can end up with something like that. And I think that given that we have constraints on most of our product lines right now, we can get people airplanes right now. And as you say we are sort of a biased to be cautious on the rate increases even though we are increasing, but you add that all up, the strong ability to managing the past when we got lacked. We are in pretty conservative position to go again and return we have more order than we have production. And so could there be some impact? Yes. Would it be a major thing? Probable not.

Let me also understand because I think you just said that if you had a 6 to 7% cancellation to fuel environment which is the similar trend that we saw following 9/11 is that what you said?

No I am just saying no. Because there were other factors that impacted our financial performance. I was only dealing with the question of volume and I was simply pointing out that at that time we had more than 6% deferrals okay 6% cancellations is what I said.

Okay.

We tend to assume that kind of cancellation rate as we put together our business plans and our financial promises.

Okay. Because people are going to look to the ramp down from the '01 production rate of over 500 to 240 or so two years later and I want to clarify that’s that not what you are talking about?

No, you are right. I mean that’s not what I am trying to portray and I can see, why I confused you. What I am trying to say is that 6% orders loss were in much more -- and a lot of that ramp down was a result to push outs. But we are in a much stronger position today in that or insulated from economic conditions with most of our orders outside the United States Ex-Im Bank financing. So you would see a lot less deferrals in my opinion this time around.

And also do you think given the diversification of the backlog and strength of it, 6 plus years of production. That if there were cancellations or deferrals other customers would be more welling to slip forward?

In the couple of incidences that we've had during this year that’s exactly what happening.

Okay. Thank you very much

Yeah.

Operator, we are going to now move on to the media questions please.

That completes the analyst question and answer session. For members of the media; (Operator Instructions). I will now return you to The Boeing Company for introductory remarks by Mr. Tom Downey, Senior Vice President of Communications. Mr. Downey, please go ahead. Tom Downey - Senior Vice President of Communications: Thank you. We'll 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 to limit everyone to just one question please.

Lynn Lunsford with the Wall Street Journal.

Good morning.

Good morning Lynn.

Good morning Lynn.

This has to do a little bit more with the deliveries on 787 kind of in the out years; some of your customers that have airplanes that are way at the end of the delivery line here, are kind of expressing a little bit of concern that the delays will cascade down through the chain. Do you have any sense of how far down the airplanes maybe delayed by the slower ramp up? Is there a scenario that all 900 of them could be delivered later than people had thought?

Lynn, this is Jim. We don’t believe that the slide will impact all 900. Having said that we're still working through exactly what the impact will be. As you know, I think we've told you what's going to happen in '09 that the ramp-up will be slower after that and full rate production in 2012. We're seeing if that could be pulled in. We don’t know and we're seeing what we can do to ramp-up beyond that, after that, that both of those could significantly improve the situation and when we've thought through that, we'll be able to be more precise with everybody. But we don't see a scenario where all 900 would be delivered late.

Do you have any kind of sense of how long it would take to sort of reach a point where you can say okay here is what it looks like?

I think it will take at least the balance of this year to get to that level of precision, particularly answering the question beyond 2012. It is going to take some time Lynn; I don't want to tell you that we're going to know anytime soon.

Okay thank you.

Yes.

And you next question comes from Hal Weitzman of Financial Times.

Hello good morning.

Good morning.

You said earlier Jim that EADS, if they were to end up wining the tanker contract would face a complicated supply chain and I just wanted, given your own experiences with the 787, what have you learned in terms of supply-chain issues?

Well, we have learned a lot and have the scars to prove it; I guess would be my summary on the 87. I think having real time visibility of your partner's inventory as well as their rep as they as they are assembling things so a global understanding of how things are coming together all the way down to Tier 3 and 4 would have helped us a lot. So, IT visibility, like we had on the engineering side and so there is some learning there for us. We are already doing it differently. And whether Airbus chooses to learn from that or not is something that, then at last they will be confronted with similar challenges and I think they know it will not be easy.

The next time around, you're going to do things differently?

No, our strategy will be the same. We believe that global leverage is important both from a cost and risk mitigation standpoint. We might draw some lines at different places, now that we understand our own capabilities; better understand the capabilities of our partners. I think we all learned and I think it will be more of an adjustment to the strategy than a change in strategy.

Okay. Thank you.

Yeah.

And the next question comes from Dominic Gates of Seattle Times.

Hello Jim and James.

Hi Dominic.

I just wanted to clarify if something Heidi Wood has asked about. She characterized a change to the 747-8 program. The wing -- the change to the wing was effectively a new wing and put a price tag on it, total price tag I think of 747-8 development of somewhere between 3 and $4 billion. So, is the characterization of more or less the whole new wing accurate and what about that price tag?

Dominic, I couldn’t hear you clearly. I think you are asking about the wing and its impact on development cost.

Yeah.

The wing was an issue we had to wrestle through. There was some redesign that had to happen there, it took us longer than we thought, but I think we are largely through it. We feel comfortable with it and it did explain a lot of the non-recurring pressure that we had particularly last year.

And is that increasing the cost to about the levels Heidi cited of 3 to $4 billion?

Yeah, I don’t think we talk about that publicly. It obviously cost more than we thought it was going in, but we remain very comfortable that this will be a profitable program and the business case remains strong.

Alright. Thank you.

Thank you, Dominic.

(Operator Instructions). And our next question comes from [Mike Mecham of 8th Week].

Hi. A couple of weeks ago, Steve talked about some weight issues in the 787 continue to had in the -10 as you know isn't a particular program yet, but those implications there as to how you might set the company up to compete with the A350, the larger A350s that would creep into your 777 programs as competitors? Is there any thinking about a development effort on 777 to position against the A350 or are you confident that what you have got definitive 300-ER?

That's a good question. Obviously, the A350-1000 as it comes together, it comes together as Airbus has characterized it will in terms of its performance would put some pressure on our longer range 777 fleet and we would have to answer the question what we would do about it. So it's very much of a wide issue. I think the driver is what were the real performance of the A350-1000 be and since that probably won't be introduced until 16ish, I am guessing here, but I think that's right, it's introduced after the 800 and 900, we have plenty of time to make the decision on what kind of modification might be needed if the performance does threaten the bottom of our long range part of our 777 fleet. But given the order rates that we continue to have on 777s, I don’t think the marketplace is all really worried about it yet, but it will be an issue we have to address.

You are doing so well on the 737, is it possible you might address this issues before you address an issue on replacing 737?

Well, yes, it's possible and it's also possible we could be -- there could be some overlap as we address both. But we are asking the questions independently obviously because there are two different, very different market segments, but yes, you could paint a scenario where some work on the 777 would be done before the majority of the work on the next generation 37 but we don’t know yet either.

Okay. Thank you.

You are welcome.

Operator, we have time for one more question.

And the last question comes from [Suzanne O'Halloran] of Bloomberg. Your line is open, ma'am. Suzanne O'Halloran: I am sorry about that. Can you hear me now?

Yes we can hear you. Suzanne O'Halloran: Sorry. You mentioned company-wide part gains in your release and I am just wondering if you could give some examples. And then also since your plane deliveries, I guess they will be flat next year if you strip out the 787, does that means you have already achieved all the productivity gains that helps you with this deliveries last quarter?

The productivity gains are pretty much across the board in our productions programs. If you looked at both on IDS and on commercial airplanes, you look at the 737 the 777 and you look at F-18, F-15, C-17 you would see good year-over-year productivity on all of our major product lines. It is an article to face each year that we will make progress there. So I think its in across the board story. And your other question I couldn’t quite hear you. Suzanne O'Halloran: I just was wondering it looks like your commercial plane deliveries will be flat next year, if you strip out the 787, and so I am wondering that that means you have already achieved all the productivity gains with this delivery last quarter?

Absolutely, not. And I think the example I would cite there is our largest facility, our Edward facility, James mentioned it earlier, there are productivity efforts that are just gaining maturity up there on the 777 in particular and on the 747 that will produce significant productivity for us even at rate. And there is still productivity approvals year-over-year planned for renting as well. So like I said it’s an article of fake, we never get there. Suzanne O'Halloran: Okay. Thank you.

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