Diana Sands - VP of IR Jim McNerney - Chairman, President and CEO James Bell - EVP, Corporate President and CFO Tom Downey - SVP Communications

Troy Lahr - Stifel Nicolaus Ron Epstein - Bank of America/Merrill Lynch Doug Harned - Sanford Bernstein Cai von Rumohr - Cowen and Company Heidi Wood - Morgan Stanley Howard Rubel - Jefferies Joseph Campbell - Barclays Capital Rob Spingarn - Credit Suisse Joe Nadol - JPMorgan Robert Stallard - Macquarie Research David Strauss - UBS James Wallace - Seattle PI Newspaper Bill Rigby - Reuters Ann Keeton - Dow Jones Dominic Gates - Seattle Times Lynn Lunsford - Wall Street Journal Susanna Ray - Bloomberg News Kevin Done - Financial Times

Good day, everyone, and welcome to The Boeing Company's Fourth Quarter and 2008 Year-End Earnings Call. Today's call is being recorded. The management discussion and slide presentation, plus the analyst and media question-and-answer sessions, are being broadcast live over the Internet. At this time for opening remarks and introductions, I am turning the call over to Ms. Diana Sands, Vice President of Investor Relations for the Boeing Company. Ms. Sands, please go ahead.

Thanks and good morning. Welcome to Boeing's fourth quarter and full year 2008 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 comments by Jim and James, we'll take your questions. In fairness to others on the call, we ask that you limit yourself to one question. As always, we've provided detailed financial information in our press release issued earlier today. And as a reminder, you can follow today's broadcast and slide presentation through our website at Boeing.com. Before we begin I need to remind you that any projections and goals we may include in our discussions this morning are likely to involve risks, which are detailed in our news release, in our various SEC filings and in the forward-looking statements at the end of this web presentation. Now I will turn the call over to Jim McNerney.

Thank you, Diana, and good morning. Let me start today with a discussion of our 2008 performance and the business environment we're facing for 2009. As part of that, I will talk pointedly about the things we're doing differently to respond to current challenges. After that James will walk you through our results, and then we'll take your questions. Starting with slide two, 2008 was a challenging year for our company. While we made progress on many fronts, that progress was outweighed in our results by the machinists' strike during the fall, the impact of delays on key development programs, and the effects of the unprecedented crisis in the financial markets. Across Boeing, the vast majority of our programs are healthy and performing well. However, in our business, a small percentage of underperforming programs can have a big impact to overall results, and we are addressing that reality in our plans for 2009. On the topic of development programs, let me first talk about the 747-8. The work statement on this airplane has expanded since the start of the program to meet performance commitments to our customers, and to recover from our original underestimation of the scope of engineering work that needed to be done on this airplane. The resulting design changes, which have been substantial, coupled with limited availability of engineering resources to do the work, drove the schedule change we announced in November. Since then, a full assessment of the supply chain impact of these and other additional design changes, along with increased pension costs, resulted in the reach-forward loss we recognized in the fourth quarter. James will talk more about this charge in a moment. I'm disappointed that we weren't able to provide you insight on this charge sooner, but our full assessment was only completed earlier this week. I'm also disappointed with the outcome. But let me say one more thing. Notwithstanding the challenges this program has presented us, we still believe the 747-8 is a very competitive airplane with a strong future in a significant market niche. It is worthy of investment and will provide great value for our customers. Turning to the 787, that program made notable progress in 2008, including Power On in June, successful tests of the landing gear, horizontal stabilizers and wing box, and high pressurization of the static airframe. The FAA also approved the 787 maintenance program. In spite of that progress, however, we also endured challenges, including delays from the machinists' strike and the requirement to replace certain fasteners, all of which resulted in the revised schedule we announced in December. The fastener replacement activity is moving along and is largely behind us on the first two flight test airplanes. We are on track for first flight in the second quarter. Prior to that, we will be exercising a series of gauntlet tests during which we run the airplane systems on the ground as if it were flying. After those tests and the ground vibration test on airplane number two, it's all about getting airplanes in the air and successfully completing the flight test and certification process. We also continue to make progress with our 787 program partners to improve the condition of assembly of airplanes coming into our Everett factory. Our main focus now is working with the supply chain to get the production system into a rhythm and [rather] work back to normal levels. As we've mentioned before, our plans call for reaching a production rate of ten airplanes per month in 2012, and we will evaluate possibilities to increase and/or accelerate that rate. We are having ongoing discussions with our customers on how the delays and the current business environment are affecting their business models, and what steps we can take to constructively mitigate the impact. The 787 backlog remains high at about 900 airplanes. Although we booked 93 new orders in 2008, we do expect some puts and takes on 787 orders in 2009, with one customer's orders for 15 787s late in the next decade coming off the books this week. Despite a modest level of orders churn, we are confident in the long-term value of the 787 for our customers. To address what has clearly been unsatisfactory development program performance at BCA, Scott Carson and I have undertaken a fundamental realignment and strengthening of the BCA organization, its processes and leadership. We are reintroducing rigorous functional discipline with clear lines of sight and accountability, and tighter integration of program, business unit and corporate decision making. We both believe it's time to end the era where development programs were stood up to operate as islands of their own. While this structure served a purpose to foster the kind of tremendous innovation like the 787, our recent experience has shown it to do so at the expense of execution and predictable performance. Our objective is to advance a new era and operating model characterized by seamless integration of business unit and corporate functions, reliable and disciplined execution, and responsible and accountable program leadership. More specifically, late last year we substantially reorganized BCA to strengthen airplane programs and supply chain management. We put all airplane programs together in one organization under Pat Shanahan to allow for more disciplined and efficient management of program resources. Notwithstanding this change, Pat will continue to own the 787 until its introduction; though we continue to add leadership to the program most notably Scott Fancher, the new program leader, who comes to us from managing some of the more difficult, technical and supply chain programs in IDS. We also elevated the supply chain management function and we consolidated within it management of both internal and external suppliers under Ray Conner. With Scott's leadership, Ray and Pat are working closely together to improve both development program performance, and overall operational performance and productivity at BCA. We will be taking the results of their work and additional measures to further strengthen the team and the operating model will be critical to our success in 2009 and beyond. Now, despite the significant challenges we faced in 2008, there were many areas of the business that performed very well. Virtually all of our production and services programs in both defense and commercial are executing to plan or better. Programs like the FA-18, the 737, commercial services and defense support systems, to name just a few, are providing customer value and delivering strong double digit margins. There are also many development programs, like GMD, FCS and the 777 freighter, that are achieving both technical and financial milestones according to plan. As we begin 2009, a year that no doubt will test us again, we are reassured by the fact that our fundamental product and services strategy and competitiveness remain intact. We have built a record backlog, which at year end stood at $352 billion. Commercial Airplanes booked 662 net orders in 2008, and its backlog now stands at $279 billion, representing about eight times its annual revenue. IDS' backlog is 73 billion, and 2008 included wins for B-22 and Chinook multi-year contracts and some significant international business, including the P-8 India award. We also executed some key defense acquisitions last year to support our overall strategic objectives and expand our presence in adjacent markets. Fundamentally, this is a solid company with a strong growing core business. We are, of course, like all businesses today, facing a very challenging business environment which we will address on slide three. The global economy continues to weaken and is adversely affecting air traffic growth and financing. We are also expecting pressure on defense budgets in light of the economic recovery and financial rescue packages put forth by various governments. While it's hard for us to know the final impact of all of this, we can and must prepare for the continued market uncertainty, while ensuring our ability to fund our growth initiatives. In that regard, we have stepped up our drive to get more competitive and productive. We are being ever more aggressive in managing both costs and investments. Specific actions we are taking include streamlining organizational structures, reducing discretionary and capital spending, eliminating unnecessary work, and reviewing staffing levels, all to drive higher levels of productivity. Part of that, unfortunately, will mean reduced employment in certain areas of the company. We are targeting these reductions to exceed 6% of our current workforce, or approximately 10,000 positions to support our productivity efforts and infrastructure reduction. This will occur through a combination of attrition, retirements, reduction in some contract labor, and layoffs. While difficult decisions must be made, we will do as much as we can to assist our employees who are affected by them. Despite this challenging environment, our backlog is holding. In 2008, we had but six order cancellations at BCA and accommodated about 110 aircraft deferrals. The deferrals represent about 3% of our commercial backlog, which is not out of the norm. We do expect to see an increase in the numbers of deferral and cancellations in 2009. However, the size, diversity and quality of our backlog provides greater flexibility than we've had in the past to accommodate our customers. As you all know, the financing environment also remains challenging. Boeing Capital regularly examines overall financing capacity as well as specific financing sources for each aircraft to be delivered by BCA. In 2009, we believe financing sources are sufficient to meet expected requirements for our products. We are assuming in our guidance that BCC will need to do about $1 billion of new financing in 2009. The actual amount could be more or less, but we feel will be in a range that's manageable. Let me summarize by reiterating that we are indeed facing one of the more difficult commercial and financing markets that most of us have ever seen. However, we have a solid foundation from which to work through this environment with half our business in defense, strong commercial products and a large backlog. Equally important is the fact that the actions we are taking now are not business as usual. Looking forward this year, our 2009 EPS and cash flow guidance prudently balances pension and other cost headwinds with an aggressive productivity plan, while recognizing both operational and market uncertainties. Now let me turn it over to James, who will provide a more detailed review of the numbers and our outlook. James?

Thank you, Jim, and good morning. I will begin with our 2008 results on slide four. Revenue for the year was $60.9 billion, which was down 8% from a year ago. Results were impacted by the strike, which reduced commercial deliveries by about 105 airplanes and revenue by an estimated $6.4 billion. Earnings per share was $3.71, and was impacted by an estimated $1.63 per share due to the strike. Operating cash flow for the year was a use of $400 million, reflecting the strike impact of about 2.5 billion and planned inventory buildup on the 787. Now let's take a look at the fourth quarter performance on slide five. Revenue of $12.7 billion was down 27% from the prior year. The strike reduced fourth quarter revenue by an estimated $4.3 billion and commercial deliveries by about 70 airplanes, including the recovery of the galley-delayed deliveries from the third quarter. Earnings per share was a loss of $0.08, driven by the strike impact of an estimated $1.09 per share, the 747 charge of $0.61 per share and a litigation related reserve of $0.09 per share. Now let me talk about BCA in a little more detail on slide six. Commercial Airplanes fourth quarter revenue of $4.6 billion reflects an estimated $4.3 billion strike impact. Operating margins were significantly impacted by both the strike and the 747 charge. The 747 reach-forward loss was $685 million. Late maturity of the 747-8 design drove substantial changes for our supply partners. This coupled with the already existing schedule pressure caused significant disruption throughout the supply chain resulting in the charge we took this quarter. Now, about 50% of the charge is related to the late maturity of wing design driving new load requirements into the fuselage and statement of work changes for our suppliers, causing both schedule disruption and increased recurring production costs. Approximately 15% is related to later than planned transition of component manufacturing to lower cost suppliers due to their production readiness. Another 10% is due to design and load changes, which resulted in reduced commonality with the 747-400 causing some of the procured components and systems inventory to be obsolete. 10% is the impact to our internal production process as a result of the issues facing our supply chain. The remaining 15% is due to, as Jim mentioned earlier, the higher pension costs in our program accounting cost base. Earlier this week, we concluded our detailed analysis of these impacts and recorded the charge. For the year, BCA delivered 375 airplanes and captured 669 gross orders, ending the year with a backlog of $279 billion. This backlog continues to reflect the strength in the market demand for our commercial product portfolio. Now let's move to slide seven and discuss our defense business. IDS delivered margins of 11% on revenue of $8 billion in fourth quarter, reflecting outstanding performance across our large diversified portfolio of defense programs. During the quarter, IDS grew its backlog to $73 billion and continued to capture new business, including sales of the P-8 to India and C-17s to NATO. IDS also achieved key program milestones, including GMD's most complex flight test to date, and Airborne Laser's successful test of the entire integrated weapons systems on the plane. For the year, IDS delivered a solid 10.1% margin on $32 billion of revenue, as all its business segments delivered outstanding performance that help offset the AEW&C charge from second quarter. IDS continues to pursue growth opportunities through targeted acquisitions. During the quarter we completed the acquisition of Federated Software and Digital Receiver Technology. Now let's turn to slide eight and talk about our backlog. As Jim mentioned, our backlog is at unprecedented levels. In the current market environment, we expect some of the backlog will get deferred to a later date or canceled. But the size of our order book provides us much greater leverage and flexibility than we've had in prior economic downturns. If deliveries move out, we have more opportunities to move other deliveries forward. It also provides us a solid foundation to continue improving productivity and financial performance. Let's turn to slide nine and our other businesses. In 2008, Boeing Capital delivered solid pre-tax earnings, reduced its portfolio size and returned cash dividends to Boeing. We do expect BCC to book some new aircraft financing this year. After reducing its portfolio from a high of $12 billion to about $6 billion at the end of 2008, we are well positioned to reenter the financing market in a disciplined and prudent manner. Other and unallocated costs declined during the quarter, primarily due to lower pension and environmental expenses. Within the unallocated segment, we recorded a reserve of approximately $0.09 per share related to satellite litigation. Now let me turn to our pension plan performance in 2008. The overall equity market performance significantly affected our pension plan funded status. Our asset returns were down about 15% in 2008. The strategy we implemented last year to reduce volatility in our net pension obligations has paid off. Transitioning our assets from a high equity concentration to more fixed income assets matched with our liabilities, resulted in substantially better performance than the overall equity markets. Since the third quarter discount rates have turned down sharply which has increased our pension liability. Our discount rate at year end was 6.1%. The company's pension plans are now 83% funded on a financial accounting basis, down from 110% funding at the end of 2007. This resulted in an equity adjustment of approximately $8 billion in the fourth quarter, which produced a negative book equity as of year-end. This accounting adjustment will not impact our ability to pay dividends or comply with our debt covenants. Now let's turn to slide ten and discuss cash flow. During 2008 we used $400 million of operating cash flow reflecting the strike and planned working capital increases. During the year, we also paid down about $700 million of debt at Boeing Capital, used about $900 million for eight targeted acquisitions and used $2.9 billion to buy back 42 million shares. Now let's turn to slide 11. Despite the significant challenges we faced last year, our financial position remains solid. We ended the year with $3.6 billion in cash and marketable securities, and we reduced our debt loads. However, because of the strike and development program delays, we ended the year with a cash balance that was lower than in prior years. Having said that, we have confidence in our ability to handle cash requirements and expect stable to higher cash balances in 2009. We also continue to enjoy access to capital if needed through our commercial paper programs and longer-term debt markets. Turning to slide 12, our financial guidance reflects good performance at our businesses in an uncertain market environment. We're setting 2009 EPS guidance at $5.05 to $5.35 per share. Our 2009 revenue guidance is $68 billion to $69 billion, and includes the 787 and the 747-8 schedules announced in fourth quarter. Our baseline assumption is that in-production commercial airplane programs remain at stable delivery levels over the next several years. However, our financial guidance does consider risk around operational performance and market uncertainties, including the risk of potentially having to take modest production cuts at BCA. We expect first quarter revenue, earnings per share and cash flow to be the lowest of this year based on timing of volume and deliveries. Our 2009 commercial delivery forecast is between 480 and 485 airplanes. We expect higher levels in 2010 as we begin delivering our 787s. Our 2009 operating cash flow guidance is greater than $2.5 billion. This assumes continued inventory buildup on our development programs and an assumption that BCC will need to provide new aircraft financing of about $1 billion. Now we will leverage our new aircraft financing with debt so the impact to our cash balance will be significantly less than the amount of airplane financing. For 2009, pension funding is assumed to be approximately $500 million. Mandatory funding in 2009 and 2010 is expected to be less than $100 million in each year. Future year's required funding will increase, unless markets rebound significantly. For example, in 2011 if markets don't recover, requirements could be in the range of a couple of billion dollars. Total company pension expense is expected to be about $1 billion in 2009. Our forecast reflects the actual 2008 asset returns, a 6.1% discount rate and a long-term expected rate of return of 8%, which is 25 basis points lower than our assumption last year. The business units will be recognizing greater pension expense than they have in the past. Essentially all the $1 billion of pension expense in 2009 will be recorded at the units. IDS will realize about half of the expense, and we expect a portion of that to be reimbursable under government contracts in 2009. We expect total unallocated expense to be approximately $900 million in 2009, with other segment expense forecasted to be approximately $300 million. R&D expense is forecasted to be between $3.6 billion and $3.8 billion, reflecting the 787 and the 747 program delays announced in the fourth quarter. We're not forecasting any supplier cost sharing payments in 2009. We expect R&D expense to decrease substantially in 2010. Share repurchase will decrease significantly in 2009 to approximately 200 million, which will offset dilution from our compensation plans. We are forecasting total capital expenditures to be $1.4 billion in 2009, which is nearly 20% lower than in recent years as we manage down discretionary spending. Now let me turn to slide 13 to discuss how we will bridge our 2008 performance to our 2009 guidance. In 2008, we had significant impacts from the strike and charges that we don't expect to incur in 2009. Overall, pension expense will be higher by about $300 million. We realized deferred compensation income in 2008 due to lower stock prices. We expect to recognize expense this year as the markets improve. Because of lower cash balances and short-term interest rates that are close to zero, we are forecasting significantly less interest income in 2009. BCA is realizing greater cost absorption on existing programs because of the strike and development program delays offset by the business's aggressive pursuit of infrastructure cost reductions that Jim talked about earlier. Our 2009 guidance also considers all of this, plus the operational and marketplace uncertainties. We plan to provide 2010 financial guidance later this year as we continue to evaluate the impact of market uncertainties on our business. Now let me turn it back to Jim, who will give you some final thoughts.

Thank you, James. To close, let me simply say that despite progress and strong performance in many areas, we were not satisfied with our results in what was a very challenging 2008. For 2009 and beyond, our driving focus is on improving execution where we have been underperforming, bolstering productivity across our long list of programs that are performing well and preserving financial strength to deliver growth through this difficult economic climate. While recognizing the risks at hand, we do feel we are relatively well positioned with the fundamental competitive strength of our product and services, the size and diversity of our backlog, and the long-term outlook for the markets we serve. I remain optimistic about this company's future and our ability to become the strongest, best and best integrated aerospace company in the world. With that said, we'd now be glad to take your questions.

(Operator Instructions). Our first question comes from Troy Lahr from Stifel Nicolaus. Please go ahead. Troy Lahr - Stifel Nicolaus: Thanks. Please talk about the financing that you are providing to customers. It seems like you are doing that a little sooner than you thought previously. I thought you mentioned that you were talking more about the back half of '09. Now it looks like you're doing more in the first quarter. But it seems like you are keeping the financing number the same at $1 billion. Have other areas improved? Are other areas stepping up? What do you feel comfortable moving up to? I mean, could you do $2 billion or $3 billion if need be if the markets really turn down further?

Troy, I don't think we've changed the profile on what we think we'll have to lend over the course of 2009. So it's remained stable in terms of what we think we'd see. So it starts out small at the beginning of the year and grows towards the end of the year. So as I mentioned to you earlier, obviously our portfolio at one point was $12 billion. We surely don't expect to go to that, and particularly in a year, and we are now down to six. Obviously we can do more than $1 billion, and we'll just have to see on a case-by-case basis how that makes sense, and then what we're able to then leverage out in the markets. But we're pretty comfortable with what we see today, that both the profile will start slow and rise over the course of the year and it will be around $1 billion. Troy Lahr - Stifel Nicolaus: Okay. So that I'm clear, you guys were expecting to have to do financing in the first quarter?

Yes. Troy Lahr - Stifel Nicolaus: Okay. Thanks.

Our next question comes from Ron Epstein from Bank of America/Merrill Lynch. Please go ahead. Ron Epstein - Bank of America/Merrill Lynch: Good morning, Jim and James.

Good morning.

Good morning. Ron Epstein - Bank of America/Merrill Lynch: Jim, just a follow-up on your comments on how you are changing the product development process. You suggested that the programs can't be islands any more. Can you give us some more color on there? Because it almost seems like what happened on 787 cascaded into 747-8, and in the past it doesn't seem like program development was as big an issue as it's become.

I think Boeing went through an era where creating islands in the name of innovation and entrepreneurship during a period, end of last decade, beginning of this where we needed entrepreneurship and innovation, was a very successful strategy. But I think as we look back on it, we waited too long to move as the requirement for execution around this innovation. We took too long to move back into a model that integrated functions that spanned the entire business that had disciplines, that allocated people most effectively, that shared best practices across programs. We waited too long to move back to that model. Now organizational, there are horses for courses and organizational models fit different times, different places. We are at a place where execution of supply chain and development are fundamental and we need to move to an organization that is single mindedly designed to do that. That's the discussion we've had internally. Those are the moves you began to see at the end of last year. There will be more to come. There are tighter processes, review and approval processes, around those. But it's all about execution and accountability, and leveraging the skills and size that we have as a company. Ron Epstein - Bank of America/Merrill Lynch: So what do you have to change I guess? Ron Epstein - Bank of America/Merrill Lynch: As I mentioned, we have -- to use an aerospace term, we have cored up our supply chain and development teams in BCA. We have reintegrated the engineering function more tightly into both the supply chain and the development programs. The supply chain and engineering were in the name of creating entrepreneurial programs which were somewhat isolated from other programs. Now they have to be tightly integrated and we also have review processes that are more, shall we say, more often and harder hitting. Ron Epstein - Bank of America/Merrill Lynch: Okay. Thank you.

Sure.

Our next question comes from Doug Harned from Sanford Bernstein. Please go ahead. Doug Harned - Sanford Bernstein: Good morning.

Good morning. Doug Harned - Sanford Bernstein: On the 787, when you look at the flight test program that's planned, as it has been, it's a shorter flight test program than we've seen in the past. I know that's predicated on more integrated system testing and advanced and also more parallel flight test work. Could you talk about the timing of when you are likely to see flight test units two, three, four, and what you need to have out there in order to make sure you can deliver on that timeframe?

Doug, this is Jim. Obviously, getting the first two airplanes completed and into the program on the timing that we've talked about is step one and we are feeling comfortable with the timing around those. As we mentioned, some of the rework is largely -- the rework on those airplanes is largely completed. The software integration is moving I would characterize it as normally. We're integrating the systems with real pilots on real airplanes, and we're getting ready for the groundwork now. So we're feeling comfortable there. The next two airplanes are on schedule. You are right. It is a tight schedule on paper, although as you know we've been able to get a lot of work done. One of the benefits, I guess you would say of, the delay, a lot of the systems work done, and some certification work done earlier, which gives us a little bit of a tailwind. Just to specifically answer your question, the schedule has all six of the airplanes being in the air within four months of the first airplane being in the air, and it sort of comes out every few weeks from the first airplane. We see no reason to say that that schedule is not on track. Doug Harned - Sanford Bernstein: You are now in reasonable shape in terms of engineering resources when you go across the 787 and the 747-8? Is that still a constraint at all?

It is a lot better. There are still some more resources to come out of the 87 into the 47, but a lot have already moved over. So we're in much better shape than we were over the last 18 months where we had some pressure. But there's still more to go. We feel that the current schedule that we announced and the cost impact that James went through anticipates and has a very reasonable pace of that kind of migration. Doug Harned - Sanford Bernstein: Okay. Thank you.

Yes

Our next question comes from Cai von Rumohr from Cowen and Company. Please go ahead. Cai von Rumohr - Cowen and Company: Yes, thank you very much. IATA is, as you probably know, forecasting a 3% traffic decline this year. What sort of risk do you see to your out-year delivery schedules? Could you explain a bit more -- you talked about the accrual rates assume the schedules are flat, but you have a risk provision for lower rates. Are you assuming it flat or lower rates? I guess I was a little confused by that.

Cai, let me take a shot, and then Jim can jump in. So the baseline assumption in our operating plan is that these rates will stay stable throughout the planning period. The reason for that is obviously we're under contract to deliver airplanes that would require the stable rates in order to meet those obligations. Now, we also said in our guidance, we've taken in consideration operational and market uncertainty, and so we have tried to provide for this, although we think '09 is pretty stable, and I think you'd probably agree it is also, but the out years are less certain. There is no question about things which could happen as the backlog moves around, and so we've tried to provide in our '09 guidance the eventuality if some of that does happen. But it won't impact our ability to make this guidance, because we're not naive to the fact that even though we have it in the backlog and under contract that there can be some uncertainties out there that could cause that to move.

I think the only thing I would add, Cai, because you'd probably want some more definition around that knowing you. But it really is hard to predict. We've made a modest assumption in here. But as you know, until you understand timing, model mix, derivative timing, it's very hard to come up with a specific kind of assessment. So we've made a general, modest, should we say, sort of provision in our guidance. Cai von Rumohr - Cowen and Company: Okay. But to the first part of the question, IATA is assuming 3% traffic decline. Are you assuming less than that? Because given the number of planes you and Airbus propose to deliver, we're looking at pretty substantial decline in load factors if, in fact, we get a 3% decline.

No, no, Cai, we don't quarrel or we're not at variance significantly with a conservative view of load factors. We understand the world out there. I think the math that leads us to where we just described is we are overbooked significantly. Yes, there will be some airlines and some carriers who will want to defer or who will cancel. When you do that math that could end up with a 2% or 3% decline. But the over-ordering we think in most cases will absorb that in our case, because of the mix of our backlog. So we're not resting our case on ignoring the traffic realities. It's more the absorption of overbooking and we've provisioned to a degree to the extent that we're wrong there. Cai von Rumohr - Cowen and Company: Thank you.

Our next question comes from Heidi Wood from Morgan Stanley. Please go ahead. Heidi Wood - Morgan Stanley: Good morning.

Good morning. Heidi Wood - Morgan Stanley: James, I know there are different ways to account for the 787 delay, and its costs. I am aware these can include discounts on 777s and zero margin 767, so I'm going to approach the question from a different tact. If I were a Board member of Boeing asking you for an estimate of the all-in costs of the 787 between R&D, customer penalty payments, supplier support payments, discounts on other aircraft, everything, will the 787 cost to Boeing, does it range about $15 billion, $20 billion, $25 billion? Can you help us just round to the nearest $5 billion? Thanks.

No, if you were a Board member you would be an insider, and we'd tell you exactly what the number is, Heidi, in terms of what our thinking and assumption is. But I think the best way to characterize it is we are working closely with our customers. We are doing better. I bet it's early yet than what we've assumed we would do using all of what you said as ways to come to a way that deals with the customer needs, while maintaining a business case for Boeing that continues to have us believe this plane will bring value to the company and also deliver value to our customers. But you know we can't get into specific numbers. Heidi Wood - Morgan Stanley: A range of $5 billion is not specific. You can't give us any kind of a range just so we can have an outside sense as to what this could cost?

No, but let me just say this. When you think about the 87 and its introduction, as compared to other airplane models and other new introductions we've done in the past, we've sold almost a thousand of these airplanes, and obviously you know in terms of a profitability assessment of new products the most difficult assumption is that of market. Here even though this market has some risk, it's a lot lower than we've done in the past. The fact that we do have the stability of about a thousand units, we'll be able to work all these issues over time and be able to, I think, work them to a point that's satisfactory to both us and our customer sets. The same holds true with the productivity on the airplane being able to set the production rates for an extended period of time having sold so many planes that we still believe, and we do this assessment every quarter that this airplane is going to deliver value to our customers and to us. But I can't get into specifically the cost elements, Heidi. Heidi Wood - Morgan Stanley: Okay. Then maybe one you can give us color on. Can you maybe then break us down the $2.5 billion cash drain on the strike? That was pretty remarkable. How does that compare versus prior strike cash impact, James?

I think that the strike had a lot to do with the amount of advance payments we would've gotten on the 787, so those moved. Also some of the development issues that moved the schedule caused that issue as well as the 747-8. But all the production models obviously moved. Now at the early stage of the strike, our customers were still paying advances, so we had to true that up.

Higher productions rates --

And then we had obviously higher production rates than we had in prior strikes, and then also the strike itself was longer. Heidi Wood - Morgan Stanley: All right, great. Thanks very much.

All those things add to the cash drain. Heidi Wood - Morgan Stanley: Okay. Thanks very much.

Our next question comes from Howard Rubel from Jefferies. Please go ahead. Howard Rubel - Jefferies: Thank you very much. I just want to talk ask you to elaborate on some of these integrated elements to your plan. You talked about higher R&D, and you seem a little bit conservative, James, with respect to cash flow. How long will it take you to get over the impact of the strike? There is a lot of extra working capital. Some of this R&D -- how should we think about how it will unwind going forward?

The first question iswhen we'll get through the strike. Obviously, we're back up pretty close to rates now, so we'll continue to work that. Barring any other market uncertainty disruptions I think that we will start to see things flow pretty well by the end of the first quarter. The R&D, we've guided you to it being higher, because it is going to be higher because of some of the issues we ran into in 787, 747-8. However, we are expecting that in 2010 R&D to be down substantially. So this is the year, Howard, that we'll get through our major R&D expenditures. Howard Rubel - Jefferies: All right. I'll follow up later. Thanks.

Okay.

Our next question comes from Joseph Campbell from Barclays Capital. Joseph Campbell - Barclays Capital: Good morning and thanks for all the color. Could you walk us through on the commercial margin changes that used to be 11.5 and are now 10. Apart of this I guess we lost 787 at zero margin. You added 500 million of R&D. We had problems on overhead absorption from the 87, I guess more from 47 and from the strike. Then you fired, I think I saw 4,500 people already and you talked about more, so there must be some pluses from efficiency. Maybe there's some cushion or other stuff in here. It seems more complicated. At first read I just went, well, it's $500 million of R&D and that's the difference. But just if you could shred it out for us?

Joe, you explained it as well as I can. But let me go back -- Joseph Campbell - Barclays Capital: But can you give me the numbers that go in the pieces?

Let me go back and just repeat what you said. If you want to look at the walk from the 11.5 to 10, so R&D is higher, and that was probably a point and a half impact given what we're seeing today. The one piece you missed was pension. The pension headwind is going to impact us about half a point. The cost absorption that results from both the strike and the delays from both 747-8 and the 87 is another about half a point, and then the deliveries. The [slide of] deliveries from the time we gave guidance before at 11.7 on the 787s where we had more in there, that was the lift that you are seeing, because you know those airplanes are dilutive to margin. So if you take what I said, and that would probably -- that's pretty close to walking you through from the 11.5 to the 10. Joseph Campbell - Barclays Capital: What about the cushion? Did you put that in that segment?

We're assuming that we're going to have some productivity to offset some of that, and so that is in the numbers. That's in our assumption. Joseph Campbell - Barclays Capital: How much efficiency is in the assumption?

It's enough to offset the cost of the disruption, and I think you have a pretty good sense of the range of that. We had talked about it before, but time over time it's what, about $600 million is the disruption and the productivity we think would offset that. Joseph Campbell - Barclays Capital: Great. Thank you very much.

Thank you, Joe.

Our next question is from Rob Spingarn with Credit Suisse. Please go ahead. Rob Spingarn - Credit Suisse: Good morning.

Good morning.

Hi, Rob. Rob Spingarn - Credit Suisse: James, I was going ask a similar question to Joe's in terms of walking through the EPS impact of the new guidance versus the old, something similar to your slide 13, but instead of comparing to '08, comparing to the [690] midpoint that you were giving back in July for '09.

Yes. Rob Spingarn - Credit Suisse: Could you apply some of that from an EPS perspective?. The other thing I wanted to ask you though was you've got this high inventory build in Q4, presumably on the strike. But how much of that is actually 787? Then why wouldn't the remainder draw down a little bit more forcefully for better operating cash flow in 2009?

The bulk of it is 87 buildup. Then there's also now some from the 747-8, and so they won't be relieved in '09 and that's why you are not seeing that having a more tremendous impact in '09, because now those deliveries are moving out and then they're extended. So that's the cash question. The EPS question, they are the same categories. The higher R&D expense is probably worth about $0.50 to us. The higher pension headwind you are seeing is worth about 40. The lower interest income, because of the lower cash balances, and as I mentioned the interest rates being at about zero is another 25 impact. Then we put in a number -- we have surely put in some reserve for the cost absorption that we talked about with Joe, and the productivity and volume mix. So that would get you down to where we are, Some contingency for the uncertainty that we will see in outside of 2009, that may drive back into 2009 profitability on production rates. Rob Spingarn - Credit Suisse: You just mentioned production rates. Anything more than a modest drop-off in production we'd have to take another look at '09?

I think that -- exactly, that's the way to view it. As Jim said earlier, we can't predict exactly what's going to happen, and we baselined our assumption to be level production rates based on our order book and the requirements we have from a contractual nature. But then wanted to make sure we took something in the event that the uncertainty in 2010 and out years come back to 2009. We'll be looking at that closely and that's why we're delaying the 2010 guidance, because we want to understand better a little of those uncertainties, and when we do understand that it may impact '09. We don't think so. We think we have enough, but we'll see. Rob Spingarn - Credit Suisse: Jim, you mentioned overbooking earlier. Can you quantify how overbooked you are for '09? Clearly there's a lot of strike airplanes to deliver. But can you give us some sense of your comfort level here that allows you to hold production rates flat?

The majority of our production units are 737s. The overbookings there remain with pretty healthy margin of overbookings. If you include some options on top of that, you get up to somewhere in the 15% range. Rob Spingarn - Credit Suisse: Okay. That is helpful. Thank you.

Sure. Operator Our next question is from Joe Nadol from JPMorgan. Please go ahead. Joe Nadol - JPMorgan: Thanks. Good morning.

Good morning, Joe. Joe Nadol - JPMorgan: I’d like to get just a clarification, and as well as question, James. To clarify, could you help us with what the unit margin assumption that's baked into the BCA number for 2009 is relative to the 10% program? On the question, Jim, just on the 47-8 can you walk us through the cost benefit analysis you went through looking at the program as to why you are still going forward with it and all components of it? There's the $685 million charge. There's obviously a lot of R&D, and there's the cash that you are going to be out in the next couple of years that you are recovering at the end of the program. So significant costs on this debt aren't sunk yet. Just wondering why you are still going forward with the program.

Let me answer the second part while James gets set for the unit cost question. Look, obviously, we have applied a judgment here that says we have a very competitive airplane here that has already got a good start on orders. If we didn't believe that the revenues would outweigh the costs, you are right, we wouldn't go forward with it. I suppose if the airplane didn't have the margin of competitiveness that we see on both the freighter and the passenger side right now, we would stop it. But we are committed to customers who value this plane highly, and when you add it all up we still see a viable business proposition here. Now, obviously, if we ever got to the point where we didn't, we'd have to work with our customers to come up with a different answer. But that's not what we see right now. Joe Nadol - JPMorgan: Okay. Did you bake in, in your cost benefit analysis significant orders in addition to the 114 that are in backlog that will be more profitable at the end?

We did assume, like in most programs, where you've got 900 orders out of the chute. Most programs, if you look through our history, have many, many fewer orders, more are characterized sort of at the level of the 747-8. You typically assume an accounting quantity that reflects your view of reality, which is in general more than the actual bookings you have at that time, and it's that kind of thinking that we're applying to this 47-8 right now. Joe Nadol - JPMorgan: Okay.

But, Joe, the accounting quantity is relatively conservative, and we've contacted units outside of this current accounting quantity. So we still think that this airplane is going to deliver value to us. Joe Nadol - JPMorgan: Okay.

Your unit margin question, as you know, unit margins were higher in the fourth quarter, and that was principally driven by the 747-8 charge, which had more of an impact on program than it did on unit, because in the unit calculation most of the 747s, [in fact] all of the 747s there are just the 400 in that production lot, and both were impacted by the strike. Going forward, they will be closer together, and on a quarter to quarter basis we may have some volatility, but they’ll be very close. Joe Nadol - JPMorgan: Okay. That’s what your contention is, James, or is it elsewhere?

It's spread everywhere. It’s further, it's not just in those -- in the margin assumptions, it's spread across a variety of things in our financial analysis and in our financials. Joe Nadol - JPMorgan: Okay. Thank you.

Our next question is from Robert Stallard with Macquarie Research. Please go ahead. Robert Stallard - Macquarie Research: Good morning.

Good morning. Robert Stallard - Macquarie Research: Jim, just a quick question on the deferrals. You said we could expect deferrals to increase this year. Could give us an idea of the scale of these. At what point you would start to be concerned that this would have a negative impact on your production forecast for 2010?

I was having trouble hearing you there. Was it deferrals that you said? Robert Stallard - Macquarie Research:

As I mentioned, it's very hard to predict the deferrals we're going to see. I think our sense of it comes as we talk to our customers, who we talk to every day, is that they will be greater next year than they were this past year. I don’t think the noise level are such that we think it will impact production rates in the near term. If we did, we’d have a different assumption on production rates than we do. So we see the deferrals being handled within the overbookings that we’ve got now or the ability to just to move things around to accommodate different airlines as they face their own business challenges. Remember these airlines have taken out huge amounts of capacity, most of them, largely older airplanes and so the airplanes they are buying from us and our competitor aren’t net adds. In many cases they involve net decreases. So it's not inconceivable that the way we see it is the right way to see it. Robert Stallard - Macquarie Research: So if we were to see, say, maybe 50 to 100 deferrals in the first half of this year, it still wouldn’t have an impact on your 2010 plan?

It would depend on where they were, what they were, but that kind of deferral level on an average basis is very manageable. Robert Stallard - Macquarie Research: Thanks very much.

You're welcome.

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

Okay. And our last question comes from David Strauss from UBS. Please go ahead. David Strauss - UBS: Good morning.

Good morning

Good morning, David. David Strauss - UBS: Back on the same sort of topic, in terms of the deferrals that you are seeing or in terms of timing, are you seeing airlines push out for a year or longer than that? Iin terms of who is moving up, could you give us some color maybe from a geographic standpoint or a model standpoint in terms of what were you seeing from airlines that actually want to move up in this environment?

The deferrals on a timing basis are all over the place. They range from opportunistic, push out a quarter and then we bring someone else in the quarter to longer term. I think last year in terms of your geographic question, we saw more of them in North America as you would expect. I think going forward as the North American airlines have now more right sized their capacity, got pricing in line or some consolidation going on, I would expect -- and it's hard to predict, okay, so this is not an official prediction. But one man here would expect this to be a little more worldwide next year and a little less North America.

We'll now move on to media questions please.

That completes the analysts 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.

Thank you. We will continue with the questions for Jim and James over the next few minutes. 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.

And our first question comes from Richard Safran from Goldman Sachs. Please go ahead.

Sorry, that’s an analyst.

I am sorry. Our next question goes to James Wallace from Seattle PI Newspaper. Please go ahead. James Wallace - Seattle PI Newspaper: Can you provide a little more color on the 10,000 job cuts, that’s 5,500 more than the BCA numbers. Does that mean that those additional job cuts will not come from BCA or they could come from BCA?

As we said at the end of last year, we anticipated more than 5% overall. We're now seeing 6%, which is about where we thought, which is about the 10,000. The BCA numbers that were announced are part of that. The balance comes from other places in the company. They come from support corporate services; they come from corporate functions and IDS. They come from all around and it’s the total that we talked about today. This does not change the announcement that Scott and his team had a number of weeks ago. James Wallace - Seattle PI Newspaper: One quick question on the order cancellation for the 787, those 15 planes. What reason did the customer give for cancelling? Was it the delay in the program?

It was more characterized by the business environment they faced and the resulting moves they had to make to respond to it. James Wallace - Seattle PI Newspaper: Okay. Thank you.

Yes

And our next question comes from Bill Rigby from Reuters. Please go ahead. Your line is open for question. Bill Rigby - Reuters: Thanks. I was going to ask about the job cuts, but I guess that has been answered. So you are specifically saying that you wouldn’t make further cuts, maybe 10,000 will not be in BCA?

The plan is that the 4,500 that were announced a number of weeks ago will come from BCA. The balance from other places in our company. Bill Rigby - Reuters: Okay. The order which was canceled for the 787, that’s not reflected as yet on the order book that I see online?

I think it goes live tomorrow. Bill Rigby - Reuters: Okay. So we can look out who it is tomorrow?

Exactly. Bill Rigby - Reuters: All right. Thank you.

Yes.

Our next question is from Ann Keeton with Dow Jones. Please go ahead. Ann Keeton - Dow Jones: A follow-up on expected deferrals this year. Can then tell us a little bit more about which parts of the order book are most at risk, whether globally or by type of customer?

I think it’s hard to predict. I think it more relates to the condition of the airline than the model involved in general. So I think we will be trying to accommodate customers who have financial market needs of their own and try to mesh it all together. And so it’s hard to characterize it by model. Ann Keeton - Dow Jones: Okay. Thanks.

You are welcome.

Our next question comes from Dominic Gates with Seattle Times. Please go ahead. Dominic Gates - Seattle Times: Good morning, Jim.

Good morning, Dominic. Dominic Gates - Seattle Times: Could I just ask for a little clarification again on the job cuts? Obviously we know about the BCA cuts here, and the impact of that is mostly in Washington. For the rest that you are now talking about to make up that 10,000 can you give any geographical color at all? I mean, we’ve got SSG and substantial IDS presence here in Washington State. How do you think Washington State will be affected or can you tell me how it will be impacted there?

Well, the rest of the cuts cut across all of our geographies. Some are in the state of Washington. I don’t have that number here. But I would characterize it as spread across all of our geographies, including Washington, the extent to which some of our support services are there. Dominic Gates - Seattle Times: Okay. One more question. On the 747, you’ve said that you’re committed to the program and you don’t see cancellation of it. But I want to ask about the passenger version. You were expecting an order on that. You haven’t got it. Given that the airlines almost universally for this year ahead are saying no growth. Do you expect to get a passenger version order this year? Does going ahead with the program depend on the passenger version?

Obviously, orders in general are under pressure and we are assuming our orders will be down this year. We do have a number of discussions we’re having on the passenger version of the 747-8. Exactly when they’ll be converted in this environment, it’s hard to predict. Our assessment is that both the cargo and the pax versions will be buyable business propositions and add a lot of value to our customers. Obviously, we are in an environment now where the future is really hard to predict specifically. So our call now is that this is a terrific airplane that represents a good business for us and we are confident that it will come. We’ll keep reading it with our customers as we go forward though.

Our next question comes from Lynn Lunsford with Wall Street Journal. Please go ahead. Lynn Lunsford - Wall Street Journal: Good morning.

Good morning, Lynn. Lynn Lunsford - Wall Street Journal: I wanted to find out two quick things. One is on production rates. Both American Airlines, which previously have been trying to get every airplane it could get its hands on and Southwest Airlines, have both announced that they're planning to take fewer airplanes this year than they had originally planned to do. Does that in any way play into your thinking on your production rates? It would seem like if you got those guys starting to slack off a bit then others are probably not far behind.

Well -- sorry, go ahead, Lynn. Lynn Lunsford - Wall Street Journal: No, go ahead.

No, I was just going to say, we have done some moving around of orders with both Southwest and American at the end of last year. We think we've captured in our guidance here what we know about them and others. I don’t know whether you are referring to something new that I don’t know about, but I think we're pretty close to where they are. Lynn Lunsford - Wall Street Journal: Okay. I guess where I am getting is just trying to get a little more color on that given where you see kind of the overall economy, I think people who don’t follow aerospace may look at Boeing's plans to essentially keep your production rates at sort of where they were last year. Wow, how do they do that? Can you explain a little better what plays into this that makes aerospace different from virtually like every other manufacturing business?

Lynn, we have long-term order books with financing arranged typically 12 to 18 months in advance. We have significant over-ordering. So I think our business in some respects is different. But that doesn’t mean that longer term we're immune from fundamental changes in demand or fundamental changes in the credit markets, and that's not what we're saying here today. What we're saying here today is, in this long cycle business that we're in, we have visibility on the next ten to 12 months and we feel comfortable with it. We're not issuing guidance for 2010. We need to read and react and see what the impact will be longer term. But we are different in the sense that we do have a little more visibility over the medium term than a lot of other companies do. Lynn Lunsford - Wall Street Journal: Great. One last question with regard to the 787, where do you see the [long pole] at this point that did somehow threaten the schedule that you are already working on?

I think the only thing that would concern me now, just answering your question, would be something unexpected that comes up in flight test. Some anomaly or some operating characteristics of plane that we would have to deal with. Now I don’t worry that we couldn’t deal with it, but it could impact the schedule. There is a lot more modeling done these days before these airplanes get in the air, so you have a higher degree of confidence. But that the unknown in flight test is a possible long pole in the tent.

Our next question is from Susanna Ray with Bloomberg News. Please, go ahead. Susanna Ray - Bloomberg News: Good morning,

Yes, good morning. Susanna Ray - Bloomberg News: You had mentioned whenever that was, earlier this month that the 4,500 [notes] it would start going out in February. So I'm wondering about the timing for the rest. Is that first quarter?

It’s spread over the year, a little heavier in the first half of the year. Susanna Ray - Bloomberg News: Okay. And what percent of that is layoff versus attrition?

We're working through the specifics of that right now, but whenyou add layoffs and attrition and that’s the majority of it. Susanna Ray - Bloomberg News: Okay. Can you say anything about what that’s going to cost? What kind of charge you may have to take this quarter or next quarter?

Any charges we’d have, any restructuring related charges are included in our guidance. Susanna Ray - Bloomberg News: Okay. One last question. A UBS survey last week was suggesting that almost a third of airlines are likely to defer their orders this year. I think just a few minutes before you were talking about anticipating a cancellation or deferral impact of just 2% to 3%. So I am wondering what makes you so much more optimistic.

I'm sorry. I missed the first part of what you're saying. A third of the airlines announced that they were going to… Susanna Ray - Bloomberg News: In a UBS survey that was released last week.

All I can say is that we're talking to every airline every day, and we are working through it. As I said, I think we had modest amount last year, and I think the numbers you just quoted were last year. We think there will be more this year and we're comfortable that we can deal with it. If it’s worse than our assumption, we’ll be back to you. Susanna Ray - Bloomberg News: Okay. So the 2% to 3%, you are expecting that to increase this year?

Yes. Susanna Ray - Bloomberg News: Okay. Thanks.

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

Our last question comes from Kevin Done with Financial Times. Please go ahead. Kevin Done - Financial Times: Hello. Hi.

Hi, Kevin. Kevin Done - Financial Times: I was wondering if you could give us a sense of order levels that you expect in 2009. Clearly, Airbus [had it start with] between 300 and 400 for it. I'm wondering what orders forecast you have for this year. And for 2010, what percentage of your deliveries have financing at the moment? In 2009, what broadly are the sources of financing? I think you say that you are fully financed. But what sort of roughly percentages are Exim and BCC [less or was in] banks? Thanks very much.

On the orders question, as I mentioned earlier, we see orders being down. I think the way we characterize it is, we'd see book-to-bill being less than one this year. As to your financing question, I am looking at my CFO here as I answer --

We’ve got $1 billion worth of financing that we're assuming for BCC.

So we're assuming about a gap of a billion that we potentially could step into, although that’s more of a watch item list than a know-it-right-now. So most of the people who are buying planes from us in '09 feel they have financing. We see a little risk in about $1 billion worth of it. About 80% of it is outside the US Exim related. Does that answer your question? Kevin Done - Financial Times: So 80% is Exim covered?

No, no. no.

Hold on .The backlog, I’m sorry, not of ’09. So how would you character it?

So I would say if you look at the revenue in ’09 we are guiding you to, think about $1 billion of it is going to be financed by us. The rest are going to be financed by external sources, either financing or whether some airlines that will pay in cash. We’ve gone through and every one of them has a plan today to take delivery of their airplanes. So what we’ve shown as the billion is what we would expect to contribute. Kevin Done - Financial Times: Right. So of what you are not contributing within the airlines plans, how much of that is accounted for by Exim and --

Yes. Kevin Done - Financial Times: Sorry.

I was just going to say the number I gave you, the 80% number, is across our entire backlog, and the number maybe somewhat different for ’09. We’ll have to get back to you with that number. We don’t have it here in front of us. Kevin Done - Financial Times: Okay. Thanks. And just to check, R&D last year, R&D last year of 2008 was how much?

About 3.7. Kevin Done - Financial Times: 3.7. So it would be about the same this year 2009?

About the same, a little more, but about the same. Kevin Done - Financial Times: Thank you very much.

Okay.

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

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation.