Jim McNerney - Chairman, President & Chief Executive Officer James Bell - Corporate President & Chief Financial Officer Tom Downey - Senior Vice President of Corporate Communications Diana Sands - Vice President of Investor Relations

Cai von Rumohr - Cowen & Company Howard Rubel - Jefferies David Strauss - UBS Robert Spingarn - Credit Suisse Ron Epstein - Banc of America-Merrill Lynch Joe Nado - JPMorgan Joe Campbell - Barclays Capital Doug Harnett - Sanford Bernstein Heidi Wood - Morgan Stanley Noah Poponak - Goldman Sachs Itay Michaeli - Citi Troy Lahr - Stifel Nicolaus & Company Sam Pearlstein - Wells Fargo Securities Dominic Gates - The Seattle Times Daniel Levin - Associated Press Susanna Ray - Associated Press Hal Weitzman - The Financial Times Dan Reed - USA TODAY Mike Mecham - Aviation Week

Good day, everyone and welcome to The Boeing Company’s second quarter 2009 Earnings Call. Today’s call is being recorded. The management discussion and slide presentation plus the analyst and media immediate question-and answer-sessions are being broadcast live over the internet. At this time for opening remarks and introduction, I’m turning the call over to Miss Diana Sands, Vice President of Investor Relations for The Boeing Company. Ms. Sands, please go ahead.

Thank you and good morning. Welcome to Boeing’s second quarter earnings call. I’m Diana Sands, and with me today are Jim McNerney, Boeing’s Chairman, President and Chief Executive Officer and James Bell, Boeing’s Corporate President and Chief Financial Officer. After comments by Jim and James, we will take your questions. We ask that you limit yourself to one question in the interest of time and in fairness to others on the call. As always, we have provided detailed financial information in our press release issued earlier today and as a reminder you can follow today’s broadcast and slide presentation through our website at boeing.com. Before we begin, I need to remind you that any projections and goals we may include in our discussions this morning are likely to involve risks, which are detailed in our news release and our various SEC filings and in the forward-looking statements at the end of this web presentation. Now I’ll turn the call over to Jim McNerney.

Thank you Diana and good morning everyone. Let me start today by giving you my perspectives on our current performance and the environment we’re facing. After that, James will walk you through our financials and then we’ll take your questions. Starting with slide two please. Our second quarter results reflect good performance across the majority of our businesses despite the broadly systemic pressures of the current market environment and the execution challenges we’ve had on the 787 program. I’ll discuss both of these topics in just a few minutes. The fundamental operating engine of this company is running very well right now. Production and services programs in both BCA and IDS delivered strong earnings in the quarter, supported by our continued focus on productivity improvements and disciplined cash management. We are also making solid progress on some key development programs including the P8-A and the 747-8. The first two P8-As completed their first flights in the quarter and the program is achieving major milestones on or ahead of schedule. On the 747-8, we have performed the final body join and started systems installation on the first freighter model. Assembly is now 75% complete on this airplane and the program continues to work toward a first flight late this year and first delivery in the third quarter of 2010. Much to our disappointment, the 787 continues to challenge us. As evidenced by our decision last month to postpone first flight due to a need to reinforce an area within the side of body section of the airplane. Along with Chief Technology Officer John Tracy, I have been in frequent contact with the BCA team and reviewed the program in detail last week. I can tell you the team is making solid progress toward resolving this issue. We have duplicated in our analytical models the condition we discovered during static testing and we have identified a technical solution chosen from a number of options. From an engineering standpoint, the fixed design is straightforward and involves a relatively small number of parts supplied to the areas that need reinforcement. There is nothing we have learned to lead us to believe that this is anything but a local issue which can be addressed with a local fix. The team is currently in the process of evaluating alternative ways to implement the preferred solution, taking into account a variety of factors including accessibility of the physical area requiring modification. We are approaching this effort with an abundance of caution to ensure that no collateral issues are created by the installation process we select, particularly on airplanes already built. Once the implementation approach is determined, an aircraft modification and testing plan will follow. As these plans firm up, the team will assess impacts on our flight test and production schedules and then determine the resulting financial impacts. While addressing this issue, we are working hard to minimize any additional impacts on the overall program effort. Postponing first flight was the right decision; given the reduced flight envelope we would have had available to us. I fully understand the desire everyone has for revised schedules for first flight and first delivery. We are working through this matter as quickly as we can but will not sacrifice quality for expediency on such an important effort. A thorough and comprehensive plan will be finalized and shared later this quarter. This latest 787 development strongly underscores the importance of our drive and imperative to strengthen enterprise, technical and supply chain disciplines on our programs, both inside and outside our four walls. We have and will continue to make changes to our processes and organizations to accomplish this objective. We have also been implementing tactical adjustments to the 787 operating model with the recent agreement to purchase Vought’s South Carolina operations being a key step in both optimizing work between Boeing and our suppliers and also bolstering our ability to develop and produce large composite structures. We expect this transaction to close in the near future. We are learning from our lessons on this program and will not hesitate to take the steps necessary to ensure its ultimate success, even if it means redrawing some lines that were established when we first started. Despite the delay in first flight, the 787 program is moving forward with critical flight test preparations and has made some important progress. We completed gauntlet testing and taxi testing at speeds up to 130 knots on the first flight test aircraft. The airplane performed as expected and we were pleased with the results. Airplane number two has moved to the flight line and has performed engine runs. Airplanes three and four have completed power on and the team is in the process of assembling the major sections of airport number seven, the first production aircraft. Through all of our experience on this program to-date, it’s important to remember that we are doing something here that has never been done before. The innovation and technology applied to this program is unprecedented in scope and in the impact it will have on commercial aviation. We remain gratified by a 787 backlog that stands strong with 850 orders from 56 customers around the world, and we continue to believe the 787 is a game changer that will add tremendous value to both our customers and our company over time. Beyond the 787, BCA continues to generate strong operating performance in a very difficult period for the industry. Deliveries remain on track for the year and the team has made good progress on productivity and cost improvements to help offset a range of market pressures that include, lower production rates, softening spares volumes at lower delivery price escalation forecast. IDS’s engine is also running very well. The team is solidly focused on executing and driving productivity through its businesses, as evidenced in its strong operating performance during the quarter. These are two fundamentally healthy businesses that especially in these tough times, we are fortunate to have at the core of this company. Let me now turn to the market environment on slide 3. The environment continues to be challenging in both commercial and defense markets. In April we announced a reduction to our 777 production rates starting in June 2010 and we postponed rate increases planned for the 67 and the 47. Since that time, BCA has accommodated about 70 airplane deferrals in addition to the 60 processed in the first quarter, and the backlog of deferral requests has come down this quarter. Accordingly, there has been no change in our current thinking about commercial production levels including our assessment that we can hold 737 at its current build rate. We will continue to evaluate production rates based on market conditions and customer discussions. The aircraft financing markets, while still tough, are also showing signs of gradual improvement. It has been encouraging to see U.S. capital markets begin to open up with recent double EETC offerings completed by a few U.S. airlines. On the defense side, the funding environment remains challenging due to both shifting priorities within the U.S. defense department and pressure on overall U.S. defense spending levels. We are actively engaged with our customers to work through their individual program needs amidst these budget constraints. While programs like Future Combat Systems and Ground-based Midcourse Missile Defense have executed very well, there is uncertainty surrounding them due to the factors I just mentioned. We believe, we will retain a major role in, both programs, although at a reduced scope which unfortunately will have an impact on our revenues and employment. We are anticipating top line pressure on the defense business in the mid single digit percentage range, which we think will be somewhat mitigated by growth plans. IDS is appropriately dealing with the revenue pressure by adjusting costs with a goal to preserve margins. Having said that, the majority of our programs are being well supported in the budget process. The recently signed fiscal year 2009 supplemental defense bill provides funding for additional C-17s and congressional reports include language encouraging a third FA-18 multiyear purchase to address a shortfall of tactical aircrafts. Our Washington, D.C, and IDS teams are working closely with our customers and the Congress to provide any and all information needed for the important defense decisions being made this year. We continue to view IDS as increasingly well-positioned as we disproportionately support growth investments and international defense opportunities and adjacent markets including intel and cyber security, unmanned systems and services. There is no doubt that both our commercial and defense businesses face challenging times right now, but I see a solid foundation from which to work through these challenges with fundamentally strong products and services, a solid balance sheet and a large backlog which now stands at $328 billion, nearly five times current annual revenues. We also continue to aggressively manage our infrastructure, costs and investments. As of June, we have reduced our headcount by approximately 5000 positions versus our November 2008 base line and we remain on track toward the estimated 10,000 position reductions we expect by year’s end. With that, let me turn it over to James, who will discuss second quarter results and our outlook. James.

Thank you, Jim and good morning. I’ll begin with our second quarter results on slide 4. Revenue for the quarter was $17.2 billion and that’s up 1% from a year ago. Net earnings were $1.41 per share, up 22%. Performance was strong across all our businesses. Now let’s move to BCA results on slide 5. Commercial airplanes recorded second quarter revenues of $8.4 billion, 2% lower than that of the prior year driven by lower services volume. Operating earnings increased 5% to $817 million as lower research and development expenses were somewhat offset by that lower services volume. Jim talked about the 787, but let me discuss how we evaluate the financial status of this program. Each quarter we perform a 787 gross margin accounting analysis. At the pre-delivery stage in the program, the primary purpose of this analysis is to determine if we believe the program is in a profit or a loss position over an initial quantity of airplane. Up to the point to decide a body issue, our assessment was that the program was not in a loss position. The cumulative impact of scheduled delays including the current one being assessed is obviously putting pressure on the program’s profitability. At the same time, BCA has an ongoing effort to evaluate opportunities to improve efficiencies within our factory and across the global supply chain as we prepare to ramp up bill rates. Both schedule impacts and cost improvement opportunities are being evaluated and upon completion they will be incorporated in the 787 accounting position. This will also include an assessment of potential financial impacts on our current production programs. We will update you on that in conjunction with the 787 schedule revision. Included in the company’s gross inventory is $7.9 billion related to 787 work in process, supplier advances, tooling and other nonrecurring costs. Our gross inventories on this program has been building at approximately $800 million per quarter. As we work through our 787 challenges, the remainder of BCA continues to perform very well, strong execution in the core production and services programs generated good financial results in this quarter. BCA’s second quarter margins were 9.7%. Unit cost margins were 10.8% driven by 777 model and customer mix as well as lower supplier costs. The 777 deferred production balance decreased approximately $400 million during the quarter which reflects favorable mix and a lower supplier cost for both delivered and work in process units. BCA won 57 gross orders during the quarter including 36 737’s while 52 orders primarily 787’s previously disclosed were removed from the order book. BCA’s backlog remains large at $257 billion representing greater than seven times current annual revenues. Now, moving to slide 6 and our defense business. IDS revenue was $8.7 billion in the second quarter, up 9% from the prior year. Margins were 10.1%, up from an 8% a year ago reflecting strong execution across IDS’s broad portfolio programs. Last year’s results were also affected by an AEW&C charge of $248 million. The IDS backlog is $70 billion, more than two times expected 2009 revenues. During the quarter, new contracts were received for international Chinook and multiple support programs. In addition, the U.S. government approved funding for an additional eight C-17s in the fiscal year 2009 supplemental defense spending bill. As Jim mentioned, the P-8A completed first flight during the quarter. IDS also achieved key flight milestones on directed energy programs as the airborne laser tracking system engaged in accelerating target in the advanced tactical laser fired a high powered laser successfully hitting a ground target. The IDS team is performing well across its businesses and is on track to achieve its goals for 2009. Now, turning to slide seven. Boeing capital delivered another solid quarter with pre-tax earnings of $36 million on revenue of $167 million. BCC had five new aircraft financing and other volume in the quarter totaling $429 million which was offset by portfolio runoff. Our guidance still assumes that we will finance about $1 billion of new aircraft sales during this year. Unallocated expenses increased this quarter as compared to last year due to higher deferred compensation and share based plan expense. Somewhat offset by lower unallocated pension expense. We expected total unallocated expense to be approximately $700 million in 2009 with other segment expense forecasted to be about 200 million. Now, let’s turn to slide 8 and discuss cash flow. We generated $1 billion of operating cash flow in the quarter, reflecting cash from earnings somewhat offset by continued working capital buildup on our development programs and timing of accounts receivables. During the quarter we did not acquire any of our shares, but we did pay approximately $300 million in dividends. Turning to slide 9; our financial strength remains solid. We ended the quarter with $5 billion of cash in marketable securities and that’s up 6% from the end of the first quarter. Debt declined during the quarter due to maturities principally at BCC. As previously announced, we expect to be using cash in the third quarter for the purchase Vought’s South Carolina facility and to pay guarantees related to the Sea Launch Chapter 11 filing. In light of these and other cash demands, our primary focus is to continue aggressive management of cash flows related to our operations. We are also fortunate to have good access to the debt markets at reasonable rate. We have had a successful bond offering in March and this form of capital rising continues to be an attractive option for us. Now let’s turn to slide 10. Our financial guidance remains unchanged and will be reevaluated upon completion of the 787 assessment. 2009 earnings per share is expected to be between $4.70 and $5 per share with revenues of 68 billion to 69 billion. The 2009 commercial delivery forecast remains between 480 and 485 airplanes. 2009 operating cash flow guidance remains at greater than $2.5 billion, although the 787 schedule assessment will likely put downward pressure on the timing and the level of cash flows. We are still assuming 2009 pension funding of approximately $500 million, although the amount of mandatory contributions this year is less than $100 million. We will make a final decision on funding towards the end of this year. Total company pension expense is expected to be about $900 million in 2009, with slightly more than that recorded at the business unit and a small offset in the unallocated segment. The R&D expense forecast is unchanged at $3.6 billion to $3.8 billion and capital expenditures are expected to be approximately $1.4 billion. Now, I’ll turn it back over to Jim, who will give you some final thoughts. Jim?

Thank you, James. To close, let me just reiterate something I said at our investor conference in May. Our goal through these challenging times is to not merely to withstand them, but to use them as an impetus to accelerate our pace of change to better compete and grow as we move ahead. Our priorities remain, getting the 787 on track and in the hands of our customers, continuing to reposition our defense business while extending our existing programs and expanding in the international markets, growing our services businesses, maintaining our lead in innovation technology and preserving our financial strength through productivity improvements and aggressive cash management. I do believe we will get through the current challenges and at the end we will be a fundamentally stronger company with the right products and better position to grow and improve financial performance overtime. With that said, we would now be happy to take your questions.

(Operator Instructions) Our first question comes from Cai von Rumohr - Cowen & Company. Cai von Rumohr - Cowen & Company: Yes. Thank you very much. I guess 787 is on a lot of our minds. Jim, you mentioned that the fix is straightforward, but I guess first would be with this fix, if it’s straightforward, what does it imply for performance of the aircraft maintainability and service life? Secondly, there have been all kinds of rumors about kind of a partial redesign of the wing, is that just to make it easier to kind of implement this fix or is it something broader and what kind of rough range of timeframes could this imply?

Well, we have learned nothing, Cai that says this is anything other than a local issue with a local fix. I’m not sure where the discussion comes from that says a major redesign of the wing is in the offing. We don’t see that. Having said that, we have been through the analysis that confirms and predicts what happened analytically. We have now have chosen the approach we want to take on the fix itself in terms of the parts and their placement to reinforce the area and we have done some initial testing to give us a high degree of confidence that we have got the right fix. Now we are onto putting together an implementation plan which has some challenges as you’re moving around in very tight spaces in the airplane and getting some things done and that’s what we are in the midst of doing. So a high degree of confidence in knowing what to do and working through with an abundance of caution exactly how to do it, but with a great deal of confidence that we are on the right path here. As to its impact on the performance on the airplane, we don’t see that. Either performance metrics or maintainability, there is not much weight involved. The performance of the airplane is not impacted and therefore it’s a matter of working through this issue and getting to the other side and getting the program back on track, and we will be updating you as we said this quarter.

Our next question is from the line of Howard Rubel - Jefferies. Howard Rubel - Jefferies: Thank you very much. I just wanted to talk for a moment about inventories. It’s appreciated that you disclosed the size of the 787, but could you address how you’re recovering from the strike and why we’re not seeing some improved runoff and then also how is it that you’ve now finally been able to or talk about the success on the 787 in relieving some of the deferred costs there, James?

Hey Howard. We have liquidated quite a bit of the strike inventory we did over a billion one in first quarter and another about half a billion this quarter. Obviously, it’s been more than offset by the increase in inventory on our two development programs, both 787 and on our 747 programs and obviously that’s been impacted as the delivery of those units slide, but clearly we have done that. Now, you talked about the how we’re going to relieve the inventory on 87. Obviously we are not going to be able to do that until we start getting into delivery and we’ll have to wait until we complete the assessment of the fix to actually know when that will resume and then how those inventories will be relieved over time. Howard Rubel - Jefferies: So we’ll continue to see an inventory build for the next 18 to 24 months?

We will continue to see an inventory build until we start delivering, that is correct.

Our next question is from David Strauss - UBS. David Strauss - UBS: Jim, just to clarify your comments on 787, so the fix that you talk about and you identified in the press release, were you’re referring to is a permanent fix or is this a temporary fix that you’ve identified?

No. This is a fix that will both be retrofittable on airplanes that have already been built and will easily flow into the production process technically. David Strauss - UBS: Okay. Then as a quick follow-up, James, on cash flow, it looked like in the quarter you benefited from relatively stable advances and low cash taxes. How did advances hold given what’s going on with order activity and what’s the outlook for cash taxes for the year?

The advances held well. They came in on time. We assume that they will continue to do that. That is part and parcel somewhat due to our aggressive cash management activities underway but we do have people identified that are tracking our customer -- working with our customers on a daily basis to make sure those get in and on our cash taxes, I think it will be favorable over the course of the year. We will see us do a little better there.

We will go to the line of Robert Spingarn - Credit Suisse. Robert Spingarn - Credit Suisse: Question on guidance. Why not just adjust it or withdraw it when you know there is some type of cost coming that’s associated with the 787 fix or perhaps is it simply absorbable this year and more of a 2010 event?

Rob, first and foremost at Jim mentioned and I think our results reflect, the underlining engine in this company is performing well and that’s predominantly the basis of our guidance, and until we really have a clearer understanding of the impact of the fix on that performance, we think it’s appropriate to hold it and just make sure we disclose that to date we haven’t included in it yet what, if any, impact on those numbers the fix will have. Robert Spingarn - Credit Suisse: Is it fair then, James, to say that this item might be small enough that upside in the IDS margins performance elsewhere can contain the incremental cost in R&D?

We don’t know that yet. As I said, we want to complete this assessment. I mean, the real question is it containable in the program accounting assumptions relative to what the total implementation of the fix is. We don’t know yet if the impact of the design or not would be contained in our current guidance on R&D, but if those two things occurred, then obviously the guidance would be fine for ‘09, but it’s too early to call yet. Robert Spingarn - Credit Suisse: Okay, and then of the 7.9 billion in 787 inventory; what portion of that will be amortized over the delivery aircraft?

All of it. Robert Spingarn - Credit Suisse: All of it? Then some of its just work in process?

Yeah, some of it is work in process, some of it is advances to supply chain which will ultimately result in work in process being delivered to us in the future, and then some are deferred costs like tooling, and so over the course of this program we would expect all those costs to be amortized over the deliverable units. Robert Spingarn - Credit Suisse: I guess I’m talking about the latter portion that’s going to be somewhat linearly equal over each delivered aircraft. So the development associated costs, the tooling, the capitalized development.

Yeah, that’s probably the smaller portion right now of the inventory balance, but in fact, it is the smaller portion of the inventory balance right now, but it will be amortized primarily over the bulk of the units. Now, as you know in deferred production costs, that grow as you introduce new models and there’s new tooling, new effort that is a benefit to the subsequently delivered units. So that number will change over time, but it will get amortized over the deliveries.

Next we go to the line of Ron Epstein - Banc of America-Merrill Lynch. Ron Epstein - Banc of America-Merrill Lynch: Jim and James, just maybe a broader question. When you step back and you look at the culture of Boeing commercial and kind of how everything played out at the air show and how news flow went on the 787. From an outsider looking in it appears that bad news doesn’t flow up. Is that the case and if it is, what can you do to change that?

I’ll take a swing at that one. The story here is a tough program, not that news doesn’t travel around our company. I do recognize, though, where your question comes from because we all sounded confident that we were going to be flying in June and pretty late in the game we sounded confident and that’s because we were and it’s just one of the latter tests we did just before flight turned up wrong and we found out about it right away and so this was not an issue of information flow. It’s an issue of the thousands upon thousands of tests we do to confirm our analytics with static testing, in this case or other kinds of tests that bear on certification, the performance of the airplane and these literally are thousands upon thousands that one of them turned up wrong that we didn’t anticipate. So the story here is not information flow. The story here is the comprehensiveness of our testing because we have got to get this airplane right. We all wish it didn’t happen, we all wish that we didn’t sound so confident at such a late stage, but other than this, the development of this plane was on track and feeling good about it as subsequent testing has borne out. Ron Epstein - Banc of America-Merrill Lynch: The one piece I guess I don’t understand, Jim, is the issue about the stringer run out; the extra stress on the stringers, particularly in a composite wing isn’t really a new issue, right? I think the engineers knew it a couple of months ago other folks could actually have experienced for the composite wings. I could have predicted something like this might have happened, so I guess that’s what I don’t understand, I mean how the confidence could be there up till the very end and then, then it was this one test that?

The purpose of static testing is to confirm analytical models based on the material you use and the forces and stresses you put on them. By and large our analytical models are pretty good, but the reason why you do static testing is to confirm them and in this case they were not confirmed and there are lessons for us. Of course we understood stringers and wings and we do understand composite structures, but this is one where the model did not predict the behavior we should have done better and we will do better but that’s what happened and we are going to as I said in my remarks we are going to continue to tighten up our engineering disciplines as we go forward and you always try to learn from these things.

Our next question is from the line of Joe Nado - JPMorgan. Joe Nado - JPMorgan: Question for either or may be for both Jim and James. Just in the balance sheet, James thanks for the additional color you gave in your prepared comments its tough at this point to predict what the use of the cash are going to be on the absence of the 787 schedule over the next two or three years, but in terms of sources you hinted pretty strongly that you are going to go back to the bond markets in you did a successful $2 billion or close to it offering in Q1. How much more do you think you can or want to do in terms of bond offerings? Then if you could and may be help out in terms of the rank order of alternative source of cash. How are you thinking about dividend policy in terms of the pension you have signaled that you have may be a few hundred million dollars of opportunity there not putting in, some of your discretionary contribution, et cetera?

Yeah. You know, first and foremost, we are going to continue to have aggressive management of cash in this company and we are starting to see and I think you saw in the second quarter benefits of that. We are controlling pretty tightly any expenditure that doesn’t directly support our priority which is obviously getting the 787 airplane, getting that development done and in the hands of our customers, and any other expenditure that’s not going into the productivity or the production of our products we are managing very, very carefully so that’s our first priority. Clearly, we do have the ability to get back in the bond markets and we’ll probably do some of that, I don’t know exactly what the optimal number is, but you’ll see it and we’ll let you know as we do that. We are not at a point where we are considering cutting our dividends. I want to be very clear on that. We are not there. We do have some options relative to how much we put into our pension plan and we’ll take a hard look at that as we go forward and, again, we’ll be very aggressive in managing our expenditures going forward and we will be very disciplined in managing the cash inflows to make sure that on delivery we are receiving the cash associated with the deliveries and making sure we stay on our, get our advances on time and for our contracts. Joe Nado - JPMorgan: Okay. Then just a clarification; you highlighted during your comments that you’re obviously, look at every quarter you look at the 787 program in its entirety, whether it’s in a profit or a loss position and you’re going to do that after you get a new schedule. Again, just it’s never been quite clear to me exactly the block size that you, under which you evaluate that. You’ve said repeatedly that you’re going to determine that when you delivered the first airplane, but you have to have something in mind when you do this analysis every quarter, given your backlog now entered in 50 units, what sort of block are you going to use to determine that after you get a schedule together?

You’re absolutely right, we haven’t been clear on that and we are not going to be, Joe. We are not going to determine that until we start recording either a profit or loss on this program, but I think you got a pretty good indication knowing that we have 850 orders, then the issue is when the market looks out over the time period, we can estimate it and produce a number of airplanes. So clearly it’s going to be higher than what you’ve seen traditionally, but until we finally have to book financials on our P&L statements, we are not going to disclose what that number is.

Our next question is from Joe Campbell - Barclays Capital. Joe Campbell - Barclays Capital: I’d like to stay on this 787 inventory and the conclusion that it’s not in a forward loss position. I mean, you’ve got a lot of numbers, we’ve had a lot of delays but as far as I can tell, really the only number you’ve shared with us is the 8 billion that we now see this quarter in inventory and I’m wondering, there’s a lot of delays, no commentary ever about, what the cumulative overrun will you know is going to be. I mean, it seems like its, 8 billion, 6 billion, 10 billion. It’s hard for me to understand given all the commentary about need to pay penalties all the suppliers say you owe them each hundreds to even 1 billion. It seems like the run rate is another 800 million a quarter, plus whatever the extra R&D is and it sounded in the comments like maybe you need other Boeing efficiencies to make sure this thing doesn’t have a forward loss and if you’re talking about $85 billion you know, 800, 850 planes, you’re talking about estimating out to 2018. I mean, how are you sure that you’re not losing money on this thing?

Well, clearly we’ve had our challenges on this program, Joe, and all you’ve said are things that we have to take in consideration, but the one other thing that drives most of this and which is normally the most difficult thing to estimate over time is the revenue stream. Well, we have sold 850 of these and we know we are way ahead of our competition and the market is still going to be robust over a timeframe that we think we have the ability to estimate and there are a lot of factors and a lot of moving pieces in determining that and we go through a very careful disciplined process quarterly to satisfy ourselves and our auditors that where we are relative to profitability on this program. Now again, as I mentioned in my opening remarks, this last assessment and combined with the cumulative impact of the other things you mentioned, really puts pressure on the profitability of this program, but on the other side of this, we have a new production system that allows us to really have substantial improvement beyond anything we have ever experienced in the past and then the assurance of the amount of orders. This being the best selling wide body airplane in the history of civil aviation gives us a lot of assurance that we’ll have production rates going for a you know, a pretty long time and we ought to be able to harvest the productivity. Now, obviously we have to capture all of that and we’ll be conservative as we have been in how we would book keep that today and we’ll learn more as we go, but as you know, airplanes, 850 airplanes is a wide body program and when you think of the 777 and we have only sold a 1000 of those to-date and delivered a little over 700 of them. Again, we have seen an extraordinary improvement in performance over the life of that program that we have to figure out how to predict given the size of the program that we have in front of us. Joe Campbell - Barclays Capital: It sounds like we are trying to say that this delay is local, we know the fix. You’re talking about a program that’s $85 billion big if you pick these great big block sizes, you must have spent, 20 on the way to 30 before we get into production, and if we pay the you know, if we count up the penalties and the other things. I’m having a hard time trying to sort of reconciling how this little local delay is going to push us close to being an overrun position on the black side that’s not big.

That’s not what I said. I said to you the cumulative impact of all the other schedule delays and then what… Joe Campbell - Barclays Capital: Yeah, but we knew all these delays last quarter, and we weren’t worried then.

Oh, I’ve never said we weren’t concerned about it, Joe. I just said that when we have gone through and done our assessments, we still believe the program to be profitable. We have always been concerned with the cumulative impact of the schedule delays and the pressure it puts on costs. We also have been concerned with the delays to our customers and how that converts to penalties or settlements we have to work through with them. I’ve never said we weren’t concerned. What I have said to you is that we have gone through a very disciplined process and quite frankly, the element that’s most difficult to tie down and get high assurance on is the revenue stream and we have it on this program because of the unprecedented success of this offering. So it’s not like it’s not without its challenges, but so far we have determined that the program is profitable. We’ll be back to you as quickly as possible with this latest assessment and see how that plays out along with the other cumulative impact of the other things and challenges we are dealing with.

Our next question is from the line of Doug Harnett - Sanford Bernstein. Doug Harnett - Sanford Bernstein: On current production programs. The deferrals you are describing, they are coming in at a rate of more than half of the rate of deliveries, and presumably you’ve got customers picking up these slots, but given the difficult airline environment, where are these customers coming from? What types of carriers or regions and are you having to provide more favorable terms for some of them to take these slots?

This is Jim, Doug. The answer is no to the last part of your question. As to the first part of your question, it’s pretty widespread across geography and model type. There is no real theme on the deferrals, which tells me it relates to the overall economic pressure that people across the globe during this global recession are facing. So, there’s really no themes there. As I said in my remarks, last couple of quarters, we sort of worked through deferrals and at about a steady rate and the backlog of deferral requests actually is coming down right now. So it’s not that we are not concerned about it. We are working through each and every one, but that sort of sizes it for you. Doug Harnett - Sanford Bernstein: As a quick follow-up, in IDS, you had $250 million in R&D in Q1. Now 306 million in Q2, and this is higher than you’ve historically done. I’m assuming this is intended to support the growth initiatives that you described in cyber, unmanned systems and so forth. Where should we expect R&D to head for IDS over the next 18 months or so as you move forward on these initiatives?

Well, we expect them to stay relatively flat. I mean, I think what we are seeing right now some timing on some new acquisition, new business acquisition funding is just the timing and some prototyping that they are using to support those efforts, but we expect it to be flattening out over the course of the next year, year and a half. Doug Harnett - Sanford Bernstein: Flat at these levels or flat at what?

If you look at the run rate for the first half of the year, I think it’s more appropriate. Don’t look at the quarter-to-quarter has some timing differences in it.

Our next question is from Heidi Wood - Morgan Stanley. Heidi Wood - Morgan Stanley: Yes. Thanks, guys. I got dropped so I apologize if I’m asking a question that was asked before. I just Doug got back on again. I have a question about timing on the certification. I’m presuming that during this fix situation, I imagine that you’re still able to progress with getting some of these FAA tickets are completed. So, as we think about you giving us guidance on this reverse first flight schedule, how does this delay affect the certification period? Are you still going to have kind of an eight to nine-month period certification from first flight or do you think you can compress it given being able to make progress from here?

Heidi, the certification work does continue as we are working through this fix. And, obviously, we’re keeping the FAA aware of what we are doing with the modification. We don’t anticipate a big impact, but, again, we have got to work through this thing and make absolutely sure before I make a definitive statement on the subject. Heidi Wood - Morgan Stanley: All right, fair enough. James I can ask then a small question on the financial implications just to understand what buckets we should put it in. The fix has been described as not costly. There’s 41 planes involved, so clearly that’s not what you need to update us on the financial implications, or should we be thinking about potentially higher R&D or greater working capital build or greater supplier support or customer penalty payments? Can you kind of just help us?

Yeah, but Heidi, I think we got to look at all of those. I don’t know what the magnitude of each of those buckets would be, but clearly there would be some R&D associated with it. There would be some recurring costs element of it. If it resulted in a schedule change or slight, or adjustment, which it very well could, then we would have to obviously deal with customers as well. Heidi Wood - Morgan Stanley: All right, great. Can I have one more question?

Heidi, go ahead. Heidi Wood - Morgan Stanley: Jim, you talked about one of the things. When you first got on board that you and I have discussed is this cultural openness that was stressed during the 777, where the emphasize both ability to kind of raise their hands, so their problems surfaced early, and we have had great discussions, you and I, about, the need for greater accountability and people sort of owning their problems. As you think about what’s happened here, where I think there was a lot of confidence about first flight materializing and this news coming really in the eleventh hour. How does that shape your thinking about what needs to be done with respect to that balance between letting people raise their hands and discuss problems and yet balancing accountability?

Yeah. This one was asked when you were dropped, Heidi, but let me say it again, because you frame it in a slightly different way. The story of this delay is not about information flow or openness. This is really a story of the thousands of tests that we do all the time leading up to first flight and one surprising us. The purpose of static testing is to confirm analytical models and this is one out of a thousand tests we did, where that confirmation was not forthcoming and the flight envelope available to us was not enough to really get enough out of the first airplane’s flight test. So, that’s why we made the call, but even though it did not look pretty, because we were all confident that we were going to be flying the airplane in June, because everything we knew is that we were, but this outlying test result is, we had to deal with it and we dealt with it right away.

Our next question is from Noah Poponak - Goldman Sachs. Noah Poponak - Goldman Sachs: I’d like to dig a little deeper on 737. You gave us the 70 deferral number versus 60 in the first quarter. The 60 number you had said was about half and half narrow wide body. Can you give us the split in that 70? Then you mentioned the backlog of deferral requests being down, I mean, can you sort of size that and give us a magnitude? Is it very meaningfully down or slightly down and what kind of second half deferral number does it imply versus what we saw in the first half?

Again, the deferral, I don’t have the plane-by-plane data here in front of me, but the deferrals were pretty much proportional across model types in terms of what we produce and also fairly proportional across geographies. So, very tough to find a model or geographic theme, this again leads me to believe that it’s a broad systemic economic credit issue for some airlines that are under pressure. As to the trend, this quarter is down meaningfully. Okay? Now, I again would treat that data cautiously. The extent to which you think the economy is totally out of the woods that would be a meaningful number. The extent to which you believe that the economy remains problematic until we see long-term improvement would suggest treat it as one data point right now, be somewhat encouraged by it, but we all want to see more. Noah Poponak - Goldman Sachs: You guys have also given us the extent to which you were oversold on 2010 and 2011, and I think last quarter you kind of said 2010 was all gone, and 2011 was still maybe 10% or 15% oversold. Would you care to update on those numbers?

It has not changed much. The assessment is about the same as where we were before, which is why we retain our confidence in the current production levels until we see different data. Noah Poponak - Goldman Sachs: So if we were to simply ask if you feel better, worse or the same on 737 versus the last time you held this call, it sounds like you would say same.

I think I would say the same. Yes, I agree.

Our next question is from Itay Michaeli - Citi. Itay Michaeli - Citi: Just wanted to drill back to the earlier question on the balance sheet. You mentioned that the possibility of looking to go back to the debt market, but when you look at the full year cash flow guidance of $2.5 billion, if you kind of hit that number, even when we assume, or bake in the thought of cash outflow, it looks like you probably end cash around the $4 billion ‘ish level at the end of the year. I know you mentioned earlier that the May meeting that you thought 2010 cash flow would be up meaningfully and the minimum cash is typically around 2 billion. So just wanted to drill a little bit more about the thought process around with that being the debt market at this time. Is it maybe just a desire to have more cash or is there meaningfully less confidence in the 2010 cash flow trajectory?

Well obviously we want to make sure that we have adequate liquidity to deal with the challenges that still lie ahead that are presented by the 787 and the other development programs we have. We also want to deal with the Vought’s transaction. We are going to use a considerable amount of cash or 600 million or so of cash there to close that deal, and then the issue with Sea Launch where we had the up front take care of those guarantees and we want to make sure that we deal with all of those things and still have adequate liquidity to deal with the operational challenges that lie ahead. Itay Michaeli - Citi: Okay. That’s helpful, and a quick follow-up, Jim, just on the earlier comment around the mid single digit top line pressure at IDS, is that sort of your expectation just to clarify for the next few years on top line growth? Or is that the gross hit that you would expect to offset with other wins in the future?

Yeah, I think the comment, the spirit of the comment was that when you add up the pressure on our current programs, based on the budget reprioritization and the overall budget pressure, that would reflect the pressure that we hope as we go through our assessment will be offset by, in part by growth in adjacent markets and current growth initiatives and so we have got to do that math, but I wanted to size the pressure for you that we are facing as we go through the budgeting process.

Our next question is from the line of Troy Lahr - Stifel Nicolaus. Troy Lahr - Stifel Nicolaus & Company: Thanks. James, how does the Vought facility purchase impact your 787 profit loss analysis and are you assuming that you guys end up doing a second line?

To your last question, it doesn’t assume that at all, but it does allow us to have better control over a significant element of the production process that supports the 787 and obviously our intent in going in and acquiring it is to drive better performance. So we don’t know how that ultimately will turn out but the hope, the aspiration is that it would improve the performance in both cost and technical performance on the program. Troy Lahr - Stifel Nicolaus & Company: Okay, thanks, and then on the 787 now, I mean, given the delays, how is that not impacting the 747? Because in the past you’ve said the 747 is delayed because you can’t switch the engineers over. So, how is it that one is delayed but the other one is still on track then?

This is Jim. We are largely beyond that issue of the engineering constraint. So these are fundamentally independent programs now as we go forward.

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

That will be from Sam Pearlstein - Wells Fargo Securities. Sam Pearlstein - Wells Fargo Securities: Good morning. I just want to follow-on when it comes to the Vought transaction. In terms of the $7.9 billion capitalized inventory or capitalized costs, how does that affect it because you’ve got the advances to the supplier and kind of when it comes back in as a certain size growth we should assume in terms of that inventory level?

While the inventory will continue to grow until we start delivering, then it will get relieved and so until I know the absolute delivery schedule and how many, because we intend to at this stage to keep the production system going while we work through the issue, but it all depends on how that sorts out Sam, but. Sam Pearlstein - Wells Fargo Securities: So, there’s not a step up with the Vought transaction I guess.

No, not at all, not at all. Sam Pearlstein - Wells Fargo Securities: Okay, and then I just wanted to follow-up on the R&D question that came up earlier. R&D clearly stepped down pretty significantly in commercial, and I just wanted to know, is the run rate that we should be thinking about for commercial down at these levels and IDS kind of up where it stepped up, because I always think of IDS is that R&D is part of the development costs that effectively is reimbursable on costs plus contracts, whereas the commercial is not.

Right. Well, the intent would be, and we had told you a year ago that we expected R&D spend to be down in BCA. Obviously, that’s going to be dependent on this assessment of this fix as to how much down, and so it is down as expected. The run rate will be determined based on us getting through this assessment, and as I mentioned earlier, the run rate on IDS is about if you take the six-month rate, that’s about where we intend to operate at.

Ladies and gentlemen that completes the analyst question-and-answer session. (Operator Instructions) I’ll 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 for a few moments 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 are ready for the first question, and in the interest of time, we ask that you limit everyone to just one question. Thank you.

Your next question comes from David Greising - Chicago Tribune. David Greising - Chicago Tribune: I’ve got a two part question. The first is when you look at the Vought facility purchase and you look at the issues facing Future Combat System program, I think if you look at them together it raises a bigger question about the systems integrator strategy and the viability of the kind of asset light approach that the company adopted when launching the 787. I’d like to know, Jim, what your view is of how viable that concept still is and the second part of the question has to do with your own leadership here. One of the analysts asked about accountability and it seems that if your analytics now can replicate the problems with that wing that was missed early on and I would like you to comment also on the question of your role as CEO of kind of that mix between accountability and vision. Where do you draw the line, well how much of it and what part needs to be insisting on accountability and what part needs to be kind of providing vision for where this company needs to go?

As to your first question on system integration, there is no doubt that we are drawing a line in a somewhat different place on 787, but still when taken in total is a big systems integration job with lots of partners working together, we have chosen to bring some of it back in house and that’s what I would anticipate as learning as you go, making practical decisions on what you do with partners and what you do yourself. This is a very innovative program and we are learning as we go, but we are not going to go back to the days where we do everything in-house. Future Combat Systems is more a story of the government wanting to reconfigure a specific program in a way that still leaves us with a lot of scope, but somewhat less scope, and that’s not uncommon in government contracting to sort of go back and forth and we are going to figure out a way to add as much value we hope as we would have added historically. So, drawing the lines and adjusting is really the story as opposed to is there one theory that’s always right or one theory that’s always wrong. The accountability issue; listen, I think there are a lot of people in this company that feel accountable for the results of the company. As a leader you are always trying to balance that culture with a culture of enterprising spirit and inspiration, and I’m not sure that one static test result is emblematic of the lack of accountability in the company. You always want to do better and we are going to learn from it, and we are going to continue to drive disciplines and accountability in this company, and engineering tools aren’t perfect, which is why you have static tests.

Our next question is from Dominic Gates - The Seattle Times. Dominic Gates - The Seattle Times: I have a question for Jim McNerney. I’d like to ask about the machinists. Recently through the Washington State legislators we learned that you at Boeing and you personally are pushing to try and get some agreement with the machinists that will stop the strikes that have hurt you so much. Now that coming out the way it did here, wasn’t, it was seen as an implied threat, the threat not to do the second line here. It wasn’t received very well by the machinists. Can you talk about your strategy for labor peace and do you anticipate any such agreement would come only through negotiations with the machinists. Do you anticipate offering some carrots that would go with the stick of the threat?

The performance of this company and the role of every person that works for us as we strive for better performance is what this company is all about and we’re not issuing ultimatums. We’re trying to figure out a better way to work with our represented employees. We will always, always try to do that. You’re right. The past has not been perfect. The IAM and the company are meeting together, trying to find new ways of working together so that we don’t impact our customers and the performance of the company as badly as we have historically as we go through these disruptions. We’re going to keep doing that. At the same time, the as you know and I think your question implied it we’re going through an evaluation of where we put the second line of the 787, and we will continue a balanced evaluation there looking at Seattle, Everett as well as other places and come up with the best answer for the company, but as we go through that process, we want to work with the IAM as productively as we can.

Our next question comes from Daniel [Levin] - Associated Press. Daniel Levin - Associated Press: There have been some reports suggesting that the 787 may not fly this year, that the fix maybe more expensive and time consuming than initially described by Boeing. Is that a reasonable estimate of the time frame for the first flight at this point?

Well, listen as we said before we’re not in a position to say what the impact is on our flight test and delivery schedule. We have characterized the fix in the best way we know how, and characterized where we are in the process of both designing it and implementing it and we are entering the implementation phase right now, and when we understand that we’ll have a much better understanding of its impact on the schedule and our financials and we’ll be in a position this quarter to talk about those impacts.

Your next question comes from Susanna Ray - Bloomberg. Susanna Ray - Associated Press: Jim, I am just wondering if you have enough engineering experience in your top management levels now and was it sort of shake up and new projections that were announced in December. Was that a way to address holes in that area and is there more that should be done in that area to make sure there are no further surprises?

This company has strong engineering capability in its management. Having said that, we can always do better with our disciplines and we’re always striving to do better with our disciplines, and that’s a never-ending challenge particularly when you’re dealing with the kind of innovation that the 787 represents. If we were just punching out aluminum airplanes, the challenge we give ourselves wouldn’t be as difficult, but we’re absolutely committed to lead innovation in this industry and that has its challenges, and we’re fighting through them with one of the best engineering teams around.

Your next question comes from Hal Weitzman - The Financial Times. Hal Weitzman - The Financial Times: First a clarification, later on in thinking that James told us that the late delay was putting pressure 787 profitability in the initial stages, but wouldn’t tell us what the initial stages are and my question is, where are these pressure coming from? Are they coming primarily from penalties and settlements or the cost of the fix or the implications for the production cost, or are they coming from the cost of the vote purchase?

I think what James said, and James you could correct me, but I think what James says was we go through a regular process that estimates to the best of our ability, the profitability on the program and which takes into account dues of unit volumes and revenues associated with that, as well as the cost and productivity we see on these programs. As you point out the costs include in our case because of some delays here, some customer settlements, some supplier impacts that impart we deal with and so there are as well as we work cost on the airplane So, we add that all up through a process that we have on a routine basis to assess our financial position and we’re going to do it again with latest fix we are working on. Hal Weitzman - The Financial Times: Where will most of the pressure come from? Will it come from the penalties or will it come from the cost of fixing the problem?

It’s hard to predict precisely. I mean every customer arrangement is different from every other one. Every supplier arrangement is different from every other one and every engineering change or fix is different from other ones and that’s why in the minds of many, we’re taking too long to come up with the assessment, but it’s a customized assessment every time, even though the process is routine.

Your next question comes from Dan Reed - USA TODAY. Dan Reed - USA TODAY: Sure you’ve heard the general criticism that marketing, and marketing driven by financial planning, financial goal was driving the company too far ahead of where engineering was proved to be capable of taking it in terms of the timeframe. A, how did you respond to that, and B is that necessarily a bad thing, is it true?

Listen, as you look back on this program, there is no doubt that the baseline was too ambitious, and it’s hard for me to characterize exactly whether it was marketing ambition, or financial goals, but clearly the initial plan outran our ability to execute it. That’s obvious. Now, you are right. Some of that is good, because it drives an organization and sets goals and milestones that people reach toward, but I think we got a balance wrong at beginning of this program. Operator? Dan Reed - USA TODAY: How long will it take not in terms of just the 787 fix, and getting that one program, how long will it take to get the company to rebalance to that?

I think with regard to the issue, you and I are talking about. It is rebalanced. In terms of base lines for future programs going forward, we’ve learned a hard lesson here.

Operator, we have time for one last question.

Your final question comes from Mike Mecham - Aviation Week. Mike Mecham - Aviation Week: Can you help us understand at what point in the testing you were with the bend of the wing? Was it close to the nominal bend at the 100% rates, was it higher than that and also is there any implication in the actual process of making the wing? The processing of the wing, the auto [Inaudible] and that sort of things implied here or is strictly designed?

Listen, this as I mentioned before is to the best of our knowledge and we’ve learnt nothing that says different that this is a local issue with a local fix associated with it. We do not see a systemic issue with the entire wing. Mike Mecham - Aviation Week: You were just a few days before first flight land. Had you passed the normal loads that you would expect on a wing or were you just getting to them. I mean, normally I think I have a certification picture clear up to the 150.

As you know Michael, there’s a lot of parallel testing going on as you prepare for flight and in this case, it was a retesting of a result that the team questioned and the retesting showed us that we just didn’t have the flight envelope we needed for first flight.

Operator 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.

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