Stephanie Pope - VP, Investor Relations W. James McNerney - Chairman, President, and CEO Gregory D. Smith - CFO

Douglas S. Harned - Sanford Bernstein Robert Spingarn - Crédit Suisse Joe Nadol – JPMorgan Cai Von Rumohr - Cowen and Company Ronald J. Epstein - BofA Merrill Lynch Carter Copeland – Barclays Samuel J. Pearlstein - Wells Fargo Securities Howard A. Rubel - Jefferies & Company Josh Freed – Associated Press Al Scott – Reuters Jon Ostrower – Wall Street Journal Phil Lebeau - CNBC Dominic Gates - Seattle Times Susanna Ray – Bloomberg News Mike Mecham – Aviation Week John McDermott – The Post and Courier

Good day everyone, and welcome to the Boeing Company’s fourth quarter and full year 2012 earnings conference call. [Operator instructions.] At this time, for opening remarks and introductions, I’m turning the call over to Ms. Stephanie Pope, vice president of investor relations for the Boeing Company. Ms. Pope, please go ahead.

Thank you and good morning. Welcome to Boeing's Fourth Quarter 2012 Earnings Call. I am Stephanie Pope and with me today are Jim McNerney, Boeing's Chairman, President and Chief Executive Officer; and Greg Smith, Boeing's Chief Financial Officer. After comments by Jim and Greg, we will take your questions. In fairness to others on the call, we ask that you please limit yourself to one question. As always, we have provided detailed financial information in our press release, issued earlier today. And as a reminder, you can follow today's broadcast and slide presentation through our website at boeing.com. Before we begin, I need to remind you that any projections and goals we 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 disclaimers at the end of this web presentation. In addition, we refer you to this morning’s earnings release and to the presentations that accompany the webcast for disclosures and reconciliations of non-GAAP measures that we may use when discussing our results and outlook. Now, I will turn the call over to Jim McNerney.

Thank you, Stephanie, and good morning everybody. Let me start today by addressing the business environment, followed by some thoughts on our strong performance during the quarter, and then a few word covering my view of where we are at this point on the battery issue with the 787. After that, Greg will walk you through our financial results and outlook, including the new non-GAAP measures we’re introducing, which we believe will provide more insight into our underlying business performance. Turning now to slide two, our view of the business environment remains positive overall, given our record backlog and our customers’ continuing need for the efficient and value-creating products we provide. Passenger traffic remains resilient, despite limited global economic growth, and airlines continue to replace older airplanes in favor of new ones that provide compelling economics and increased fuel efficiency. We continue to monitor pressure in the air cargo market, with the expectation that conditions will begin to stabilize this year. In 2012, Boeing restored our market share leadership, and commercial airplane deliveries was 601 delivered, the most since 1999, and the second-most in commercial aviation history. On continued strong demand for our new airplanes, we also led the industry in net new orders, with 1,203, the second highest total in our company’s history. Orders for our new 737 MAX were especially strong last year, and the program has surpassed 1,000 cumulative orders to date. Our commercial backlog of nearly 4,400 airplanes totals a record $319 billion, and reflects global customer preference for Boeing airplanes. Nearly two-thirds of our order book is with customers outside the U.S. and Europe, a major shift, as many of you know, from past cycles. In addition, demand continues to be split roughly equally by worldwide fleet growth and a healthy replacement cycle. Furthermore, with ongoing volatility in fuel prices, our customers continue to seek accelerated deliveries, while requests for deferrals and cancellations remain below historical levels. Turning to Defense, Space, & Security, while overall U.S. defense budget pressures persist, the United States nevertheless remains a substantial market for our products and services. We also continue to capture extensive growth opportunities in international defense markets, driven by increased regional security requirements and the modernization of aging platforms and systems.In 2012, international customers for defense space and security represented 24% of revenue and grew to 41% of our current backlog. While notable alone for its size, the strength of our international defense backlog also comes from its diversity across our product and services portfolio and the wide geographic mix of its customer base.We continue to see strong demand for our offerings particularly in the Middle East, Brazil and the Asia Pacific region. Our defense business also continues to maximize efficiencies and reduce infrastructure costs, further enhancing our competitive position.These aggressive affordability actions combined with our existing portfolio of proven reliable and affordable systems and services uniquely positions us among our competitors in this challenging budget environment.And while the threat of budget sequestration creates added uncertainty, unmanned systems, C4ISR, cyber security and international markets continue to offer a broad range of new opportunities.As I mentioned last quarter, we continue to focus at an enterprise level on our initiative to partner with suppliers to drive significant improvement in supply chain quality and flow and efficiency, to increase productivity at lower product and services costs for customers.Given the growth potential booked in our backlog and with pending new program decisions, we are offering supplier partners who step up to the challenge, a win-win opportunity to share in that growth and profit potential and earn work on future programs.We are taking a team oriented one (Boeing) approach to examine opportunities up and down the supply chain in design, production and support. We are applying lessons learned on past programs sharing best practices and process expertise and where we find partners who can’t, who won’t step up to these objectives, we will recomplete the work or pull it back in-house if that’s what provides the most value to our customers.We are pleased with the response from many of our partners at this early stage and the effort is already producing real savings.Moving on the Slide 3, 2012 was a year where we successfully achieved our plan for higher airplane production rates, improved execution on new programs and continued strengthening and repositioning the defense business.We reported strong revenue growth, sustained solid operating margins and generated significant cash flow. These achievements, combined with the strength of our balance sheet, enabled us to announce in December a dividend increase of 10% and the resumption of our share repurchase program this quarter. We delivered 165 commercial airplanes in the fourth quarter for a total, as I mentioned before, of 601 deliveries in 2012, which compares with 477 in 2011.For the quarter, we delivered 23 787s, reaching a total of 46 for the year. On the 737 program, we had record deliveries of 105 in the quarter and 415 for the year.Revenue of commercial airplanes reached a record $49 billion with a healthy operating margin of 9.6%, a meaningful accomplishment in the face of dilution from the 787 and 747-8 deliveries.In 2012, we also successfully achieved five separate rate increases on our commercial airplane programs. Other key accomplishments included delivering the 1000th 777, adding Boeing South Carolina to our commercial airplane production certificate and delivering the first three Charleston built 787s to Air India.Our success in standing up Charleston to expand our production capacity and geographically diversify our capabilities will be a competitive advantage for us going forward.We were also successful last year in more than doubling 787 production, increasing the rate from two airplanes per month to five per month. The program remains on track to further increase the final assembly build rate to seven per month in mid 2013 and 10 per month by late 2013 with a subsequent increase in delivery rates naturally following that achievement as we move into 2014.Job one on the 787, however, is supporting the investigations underway on the two battery incidents that occurred earlier this month. But while we are limited by the rules of the investigation on what we can say publically, let me assure you that’s not always comfortable for us. Nonetheless, we rigorously support the process because it gets to the right answers the right way, and that is what has made air travel the safest form of transportation in the world. We do believe good progress is being made in narrowing down the potential cause of the events. We have assigned hundreds of experts from across Boeing, brought in experts from outside, and are working around the clock with the NTSB, JTSB, and the FAA to identify the problem and develop any corrective action that may be needed to get the airplanes safely back into the air and to resume deliveries to customers. We deeply regret the impact this situation is having on our customers. Nothing is more important to us than the safety of the flight crews and passengers who fly our airplanes. We will get to the bottom of this, and in so doing we will restore confidence in the 787 and Boeing. I want to personally thank all the Boeing engineers, scientists, and other experts, along with the various government agencies for their tireless efforts over the past few weeks. As we work through these events, it is important to reiterate that 787 production continues as planned, and we remain confident in the future of the program and the integrity, safety, and performance of the airplane. We look forward to returning the airplane into service and our customers are looking forward to that as well, because of the compelling business case it represents for them. They chose the 787 for its game-changing fuel efficiency, its superior operating economics, its unparalleled passenger experience, and the lower noise and emissions it means for communities. We’ve seen the airplane in service for 15 months, and we know it delivers on those promises, and I am confident it will continue to serve our customers well for decades to come. Progress on the 787-9 continues as we near the end of the engineering and design phase. Early-stage assembly is underway, and final-stage assembly is still expected to begin in mid-2013. As we’ve discussed, and consistent with previous introductions of new minor models, we have planned a period of longer production flow times across the extended supply chain for the first few 787-9 airplanes. This will accommodate learning and ensure that we minimize disruption while still achieving our planned rate increases. First customer delivery remains on schedule in early 2014. The 747-8 is producing at two airplanes per month, with 10 deliveries in the fourth quarter and 31 for the year. Customer satisfaction with the airplane’s performance remains high, as it has set a new industry standard for efficiency. We remain focused on improving production processes and program profitability while closely monitoring the softness in the cargo market. Our core commercial airplane production programs, the 737 and the 777, continue to create tremendous value and growth. The 737 production rate will increase to 38 per month in the second quarter of this year and then move up to 42 per month in the first half of 2014. The 777 program successfully completed its increase in production rate to 8.3 per month. The 737 MAX development is tracking to plan, with firm configuration expected mid-year and entry into service in 2017. Progress on our wide body development efforts continues along the disciplined, gated process we’ve put in place based on lessons learned from the 787 and other past programs. More specifically, the case for the 787-10 airplane has strengthened based on our recent discussions with customers in anticipation of potential launch this year. We are also making good progress assessing customer requirements for improvements in the market-leading 777 to ensure this signature twin-aisle franchise maintains its advantage over competing products for years to come. We continue to strengthen and mature the business case. However, we have more work to do, and that’s a big part of what we’ll be focused on in the months ahead. Defense, Space, & Security generated revenue of $8.3 billion in the fourth quarter, delivering 34 aircraft and one satellite. Despite the challenging environment, revenues for the year increased 2% on 144 aircraft and 10 satellites delivered, including significant increases in production of Apache and Chinook helicopters.

Operating performance from our 777 and 737 programs and our services business helped offset margin dilution from our planned increase in 787 fleet support for airplane deliveries to new customers and higher 787 and 747-8 deliveries. This strong operating performance is a testament to the focus and determination of our teams as they continue to execute and drive productivity and profitability on our airplane programs. Gross inventory for the company included $25.5 billion related to the 787 program, an increase in the fourth quarter of approximately $700 million. This is driven by the planned increase in production rates on the program, partially offset by the increased deliveries. Included in the work in process inventory are the deferred production costs. The deferred balance for the program was $15.9 billion at the end of the fourth quarter and includes approximately 46 airplanes still in process. Commercial airplanes captured $26 billion of orders during the quarter, and increased backlog to a record $319 billion. Turning now to Defense, Space, & Security results on slide nine, our defense business generated $8.3 billion of revenue during the fourth quarter, with strong operating margins of 9%. For the full year, Boeing Defense, Space, & Security reported sales of $32.6 billion, a 2% increase from the prior year driven largely by higher P-8 and Apache deliveries and growth in our service and support business. International customers accounted for 24% of our defense revenue in 2012. Aircraft deliveries increased to 34 in the quarter, and were 144 for the full year. Operating margins for the year were 9.4%. Ongoing affordability efforts at our defense business further reduced our cost structure, allowing the business to continue to be more competitive in this challenging environment. Our focus on market-based affordability efforts will continue into 2013. Boeing Military Aircraft revenue was $4.2 billion in the fourth quarter, a 5% increase, driven by higher volume on U.S. Air Force Tanker and deliveries of P-8. Operating margins of 8.1% was primarily driven by delivery mix. Network Space Systems reported $1.9 billion in revenue. Operating margins of 6.2% reflect lower earnings versus fourth quarter 2011, due to lower margin on our ground-based mid-course defense contract and favorable contract settlements on several satellite programs in 2011. Global Services & Support had fourth quarter revenues of $2.3 billion, primarily driven by lower volume on the C-17 sustainment contract. Operating margins improved in the quarter to 13.1%, reflecting strong performance in integrated logistics. Defense, Space & Security maintained a solid backlog of $71 billion, reflecting more than two times current revenue. International business remains very strong, with approximately 41% of our current defense backlog representing sales to customers outside the United States. If we could now turn to slide 10, Boeing Capital generated $116 million in revenue during the quarter. The portfolio balance remains steady at $4.1 billion. Unallocated expense for the core operations of $200 million was relatively stable compared to prior quarter. Moving now to cash flow, on slide 11, as I mentioned earlier, we had very strong operating cash flow in 2012. The $9.1 billion of operating cash generated by the businesses was driven by higher deliveries of both commercial and defense, strong core operating performance in both the businesses, and timing of international business captured at our defense business in 2012. Moving now to cash and debt balances on slide 12, we ended the year with $13.5 billion of cash and marketable securities. Debt levels were down during the quarter on scheduled debt maturities, and as Jim indicated, based on our strong liquidity, continued cash management, and increased confidence in our backlog and production plans, in December we increased our dividend 10% and announced our plan to resume share repurchase in 2013. We expect to spend about $1.5 billion to $2 billion on repurchases in 2013.

[Operator instructions.] And first we’ll go to Doug Harned with Sanford Bernstein. Please go ahead. Douglas S. Harned - Sanford Bernstein: I know you can’t go into detail related to the recent battery incidents while the investigations are underway, but if you think hypothetically, if we were to see an extended delay in deliveries for, say, six months, I’m interested in how you would think about the impact on your plans in two areas. One, what would make you consider reducing production rates for the 787, and then also, how might this affect the availability of engineering resources for other programs, such as the MAX and the 777-8X/9X?

Well, Doug, you’ve presented a highly hypothetical situation that’s very difficult for me to comment on. I can’t predict an outcome, and I’m not going to. We’re in the middle of an investigation. We’re making progress in the investigation. We have got every expert in the world looking at this issue. We are working with the regulatory agencies productively, and for me to predict an outcome, or to sort of drive any kind of a hypothetical follow-on set of actions off a hypothetical is just not someplace I could go. And so our plan, as you know, is to continue production of the 787, and to continue the development of the wide body airplanes we’ve told you about. And we’re continuing to do that. Douglas S. Harned - Sanford Bernstein: Well, if you look at it just from the standpoint of engineering resources, I’m assuming this is a priority effort. It’s taking probably more resources than you would normally expend. Is that impacting what you’re doing on the other programs, on the other development efforts?

No. It isn’t. This is a highly compartmentalized issue. We have a deep supply chain with expertise, and we have deep expertise within Boeing. I mean, we’re bringing people from all around Boeing to help look at this. And because of the specialized nature of the technology and of the investigation, it’s not drawing from any critical resources on any other growth programs we’ve got.

And we’ll go to Rob Spingarn with Credit Suisse. Please go ahead. Robert Spingarn - Crédit Suisse: Jim, attempting not to ask you about the investigation, since we know you can’t comment there, but could you talk a little bit about the parallel paths that Boeing might be pursuing here, ranging from perhaps a modest software or procedural solution against a battery replacement or a more complex electrical system change? And then Greg, perhaps could you give us some sense on the numbers the relative probability of those various paths and cost that they would represent, especially given the fact that the media has really highlighted or perhaps characterized a very high cost to this thing at this point. And I’m wondering if you could clarify that.

Well, I think my answer to Doug’s second question sort of puts a dimension around the drain on resources, which is not significant. Look, I cannot talk about any of the specific paths of investigation, but I can assure that there is a comprehensive root cause analysis and related series of technical efforts that I am confident will identify the root cause of these incidents. And so confidence in the process, confidence in the right resources, confidence that it’s not distracting to the balance of Boeing, and when we know the answer, we’ll know the answer, and we’ll act on it. And again, as much as it frustrates me, it also frustrates you. I really can’t comment on the specifics at this stage. Robert Spingarn - Crédit Suisse:

Rob Spingarn – Credit Suisse:

Joe Nadol – JPMorgan:

Joe Nadol - JPMorgan:

Cai Von Rumohr – Cowen and Company:

Cai Von Rumohr - Cowen and Company: Thank you. And second question, if I look at your guidance, you’re basically saying you’re going to deliver nine planes out of EMC, and I believe you said you had 46 in process, of which I would assume 35 or 40 are EMC, because you’re building at five a month? Why don’t we get more planes out of EMC? Or is it going to take until 2015 or 2016 until all these early 787s get delivered?

As I said earlier, the planes that are expected to deliver this year do have significantly more work than the 2012 airplanes we delivered, so that’s why there’s this longer flow. So we’re not able to deliver 32 like we did in 2012. Looking forward, as I’ve said before, right now the plan is to have them complete by 2015, all airplanes out of EMC. We’re certainly working to pull that to the left as much as we can, but that’s the current plan that we have in front of us. Cai Von Rumohr - Cowen and Company: But how does it square? If you’ve got 35 or 40 planes to go, the only way those numbers work is if you increase deliveries.

We don’t have 35-40 airplanes to go. That’s where I think we’re seeing a difference there. Cai Von Rumohr - Cowen and Company: Okay. Well, I mean if you have 46 in process, what is left to go of EMC?

46 is work in process throughout the factory.

And we’ll go to Ron Epstein with Bank of America Merrill Lynch. Please go ahead. Ronald J. Epstein - BofA Merrill Lynch: Maybe changing gears a little bit, because it seems like you can’t say too much about the ongoing investigation, but jumping on to other product development, so maybe one big question, but how’s it going with the 737 MAX? What should we think about 787-10, when that might happen? You alluded to maybe the second half of the year? And then three, and most importantly, the 777-X, or whatever you want to call it, I guess one, timing on that, given A350 seems to have gotten some orders, and two - and this is a question that I think Jim we brought up when we visited in Chicago - is it’s a 20-year-old airplane. So how do you incrementally evolve a 20-year-old airplane, as opposed to 787-10, which is a clearer derivative of existing new technology?

I’ll try and get all that. The MAX development is going very well. I think we are hitting all benchmarks at or slightly in advance of schedule. Our engine partner, Snecma, and GE, [unintelligible], are hitting their benchmarks, so our confidence is growing every day that we will deliver that airplane, not only on time, but at the performance and productivity levels at least that we’ve promised. So we’re feeling very good about that. I think the -10, as you know, we have been conditionally offering the airplane in the marketplace and the response has been very strong. And so that is less of a technical challenge in the sense of there’s not as much technical scope to that airplane, so our confidence is growing daily that that airplane is going to be a winner at a price and value equation that makes sense for both Boeing and their customers. So I don’t want to prejudge when we might reach a final launch decision, but good progress toward that. Very good progress toward that. Ronald J. Epstein – BofA Merrill Lynch:

Ronald J. Epstein – BofA Merrill Lynch:

Carter Copeland – Barclays:

And next we’ll go to Samuel J. Pearlstein with Wells Fargo Securities. Please go ahead. Samuel J. Pearlstein - Wells Fargo Securities: If I could change gears from the 87 to just the 47, if I just look at that, it seems like for a wide body airplane, it’s going to take a lot longer in terms of configuration. I’m wondering, do you need to make a decision soon about 2014 rates, given a backlog of 67 airplanes? How do you sustain that at two per month?

Well, the pipeline is pretty good. We are mindful that there is softness in the cargo market. So we are getting volume the old fashioned way on this program right now, which is finding customers, working with them. We’re very fortunate that the economics of this airplane, particularly in the cargo market, are very, very compelling. So notwithstanding a difficult market situation, as we sit here today we have confidence that we’re going to be able to hold rate. But we’re going to be taking a look at it every quarter. But right now we have a good pipeline of folks that we’re working with that gives us confidence that we can hold rate. When that changes, we’ll discuss it. Samuel J. Pearlstein - Wells Fargo Securities: And actually just on a follow up, if you can help in terms of the increase in the deferred production on a per-unit basis, where it moved back up. Is that all -9 related, and if we took out the -9 would we have continued to see that path down on the -8s?

Yeah, you would have. It’s predominantly -9, and then increased rates, as I said, some of the supply chain actually broke rate earlier than planned. But primarily -9.

Operator, we have time for one more analyst question.

And that will be from Howard Rubel with Jeffries. Please go ahead. Howard A. Rubel - Jefferies & Company: I want to go back to talk just for a moment about production efficiencies on the 78. Jim, what are you seeing, and could you talk about quality and final delivery, and some of the other metrics that you’ve posted us on before? And also, while you’re at it, prior to this event can you talk a little bit about what the operating performance of the airplane has been in terms of reliability and sort of fuel burn, and some of the other efficiency measures?

Yeah, I think the quick answer would be every operating metric that I think you would be contemplating with your question - quality metric, jobs behind schedule, open jobs, [travel to] work, those kinds of things that are indirect measures of quality and delivery - are all improving significantly and at the rate that we anticipated in our learning curve. So we’re feeling very good about that. A subset of that would be Charleston. Charleston, I would say, ahead of most of the metrics that we’d planned on down there, and a terrific job by the team of standing that up. I think in terms of in-service, the second part of your question, the in-service numbers as reported by our customers, which is the acid test, have been at or better than we had promised them. I think the in-service, whether it’s fuel efficiency or whether it’s range, or whether it’s the kind of cabin experience that we wanted them to be able to provide to their customers, early dispatch reliability, were all sort of on par with either experience we’d had introducing new airplanes. And in the case of dispatch reliability, or as we’d promised in terms of fuel burn and we haven’t fully gone through the whole maintenance equation, so it’s tough predict that. And they’re the ones to ask. Most customers would say that the experience has been as promised. Now we’re working the battery issue.

Josh Freed – Associated Press:

Josh Freed – Associated Press:

Al Scott – Reuters:

Jon Ostrower – Wall Street Journal:

Jon Ostrower – Wall Street Journal:

Jon Ostrower – Wall Street Journal: And how do you think about that for the -8? How do you think about that same challenge for the -8, which is already dominating the overwhelming production of units coming through the factory?

Are you talking about the robustness of the supply chain? The plane’s largely designed. And it’s flowing. So we’re beyond the place, in general, where a major redesign is going to cause disruptions in the supply chain. I think it tends to be more of an issue during the development phase of an airplane.

And next we’ll go to Phil Lebeau with CNBC. Please go ahead. Phil Lebeau - CNBC: Is there any consideration of ditching the lithium ion battery in terms of using it in the Dreamliner? Or are you committed to sticking with the lithium ion batteries?

Nothing we’ve learned has told us yet that we have made the wrong choice on the battery technology. We feel good about the battery technology, and its fit for the airplane. We’ve just got to get to the root cause of these incidents, and we’ll take a look at the data as it unfolds. But there’s nothing we’ve learned that causes us to question that decision at this stage.

And we’ll go to Dominic Gates with the Seattle Times. Please go ahead. Dominic Gates - Seattle Times: I’ve got a question about the supply chain, and I’d like to focus on the electrical system. Not on the battery, but on the entire electrical system. You mentioned earlier your initiative to squeeze out costs throughout the supply chain. And I want to ask, first of all, does that put a lot of pressure on your suppliers? Does it worry you that costs will be cut, and quality might suffer? And also, how does your supplier management organization keep tabs, specifically, on all the electrical system components when your suppliers have such autonomy and have so many far-flung subcontractors?

I’ll try to get to all elements of your question here. We have done a lot to increase the visibility down through our supply chain, of their bill of materials, as they’re working it. And we’ve made significant progress there. So we tend to have far better knowledge when bottlenecks are coming, when there are supply and quality issues, and so I have confidence we’re making progress there. What was the first part of your question? Dominic Gates - Seattle Times: Whether the initiative to squeeze out costs may have consequences for quality.

Yeah. Listen, I can understand where that question comes from. I see it just the opposite, quite frankly. My view is, we want to work more efficiently with suppliers, reduce cycle time, which generally increases quality in almost every case I’ve been involved in, share business processes, as opposed to throwing things across fences to each other. And so it is not a cost-squeeze initiative. It is an improve process initiative, and costs will come out of it. And the people that are willing to make that investment in process improvement are the ones we want to do business with. And so the objective is to increase quality through improved process, and as a result, reduce cost. That’s the objective. Dominic Gates - Seattle Times: A follow up on your first answer. For example, obviously after the incidents with the battery, people have gone into the factory in Japan, the Yuasa factory, to look at their quality control. But before all this happened, before the two incidents that have grounded the airplanes, how much had Boeing people, in your supplier organization, gone into Yuasa? Or was that left to [unintelligible]?

Susanna Ray – Bloomberg News:

Mike Mecham – Aviation Week:

John McDermott – The Post and Courier:

John McDermott – The Post and Courier:

John McDermott – The Post and Courier: