Thank you for standing by. Good day, everyone, and welcome to The Boeing Company's First Quarter 2023 Earnings Conference Call. Today's call is being recorded. The management discussion and the slide presentation, plus the analyst question-and-answer session are being broadcast live over the Internet. [Operator Instructions] At this time, for opening remarks and introductions, I'm turning the call over to Mr. Matt Welch, Vice President of Investor Relations for Boeing. Mr. Welch, please go ahead.

Thank you, and good morning. Welcome to Boeing's First Quarter 2023 Earnings Call. I am Matt Welch, and with me today are Dave Calhoun, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer. As a reminder, you can follow today's broadcast and slide presentation at boeing.com. As always, detailed financial information is included in today's press release. Furthermore, projections, estimates and goals included in today's discussion involve risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the end of the web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of certain non-GAAP measures. Now I will turn the call over to Dave Calhoun.

Thanks, Matt. Good morning, everyone, and thank you for joining us. We had a solid first quarter, and we continue to make real progress, steady progress in our recovery. Challenges remain. There's more to do. But overall, we feel good about the operational and financial outlook shared last November, including cash flow and delivery ranges set for 2023 as well as for the 2025, 2026 time frame, where we can see $10 billion in annual free cash flow. Let's start with an update on our 737. Our team has been working hard over the last week. We've been progressing in our early inspection of affected airplanes. The issue's understood. It's isolated to two specific fittings, and we know what we have to do. The work will impact the timing of our deliveries over the next several months. However, we still expect to deliver 450 737 airplanes this year. Unfortunately, the timing of these delivery shortfalls will impact summer capacities for many of our customers, and we feel terrible about that. Deliveries and production will be lower near term, but we will recover over the coming months, and we plan to increase our rate to 38 per month later this year. As mentioned last week, we're also not changing the supplier master schedule to ensure that they can keep pace, and we're comfortable adding parts inventory. Stepping back, we appreciate that Spirit promptly notified us of this issue. They're an important partner. We're working closely on the recovery plan, and we are working in a very constructive way. We will continue to work transparently with the FAA as always. As well, we will work transparently with our customers to support their fleet planning and scheduling requirements. As we mentioned last week, there's no immediate safety of flight issue, and the fleet can continue to operate safely. We will work diligently through this process together. We will prioritize safety. We will prioritize quality and transparency every step of the way. Taking a wider view. I couldn't be more proud of the MAX team and the progress that we have made. We now have over 1,000 737 MAX airplanes flying in the fleet. And since our return to service, the fleet has safely flown more than 4 million flight hours with exceptional reliability. And with respect to China, our focus has been and is on supporting our customers and their return to service. All MAX operators have returned to flying airplanes in service, and 45 of their 95 airplanes are back in the sky. In addition, the CAAC released their 737 Aircraft Evaluation Report. It's an important step toward the delivery of aircraft that are currently in Boeing's possession. We will follow the lead of our customers. Moving to BCA. I'll start with orders. Demand remains very strong across all of our product lines. We booked 107 net airplane orders in the first quarter. And on top of this, we were proud to announce major customer commitments earlier this year: Air India, 190 737 MAX, 20 787s and 10 777Xs; and Riyadh Air, the newly established airline in Saudi Arabia; and Saudia, ordering up to 121 787 airplanes. On the subject of deliveries, with strong demand, we're working to meet our customer commitments. We delivered 130 commercial airplanes in the quarter, including a strong month in March with 64 deliveries. However, variation in monthly deliveries remains high, and we still have work to improve stability. Of course, that starts with the 737, as I mentioned earlier. On the subject of production, we are also steadily increasing rates across key programs to meet the robust demand. And we'll prioritize our stability and not push the system too fast. And yes, we will pause when we are notified of defects. On development, we're progressing across all of our key development programs. And certification time lines have not changed on the 737-7, -10 or the 777X. Now let me switch to BDS, Boeing Defense. In defense and space, we still have more work to do to improve our operating performance. But our portfolio is well positioned, and our products are performing well in the field. First quarter results were impacted by the added cost on the KC-46A Tanker program, driven by a supplier quality issue that we previously shared last month. The good news is we understand it, and we're progressing through that rework. On the operational side, the tanker is continuing to perform its mission well. Customers' decision on the KC-Y is a great opportunity for us, and it reflects the capabilities the tanker is delivering for the United States Air Force. On the demand side, we're continuing to see solid order activity. In the quarter, we booked key orders on the tanker, the Apache and E-7. In addition, we are accelerating the delivery of missiles and weapons in response to our customers' needs. We're also encouraged by the initial presidential budget request recently released. It's in line with our expectations. And our portfolio and capabilities are well positioned to support the needs of the nation and our allies, both in the short and the long term. Our defense business is well positioned, and we'll continue to improve operational performance to more normalized levels. In Boeing Global Services, another very strong quarter. Solid, steady performance has enabled both commercial and military customers to keep fleets flying through a very dynamic time. The services business has now fully returned to pre-pandemic levels. I'm very proud of the team and the progress that they have made. All things considered across the businesses, we remain on the right path. We'll work through most recent MAX issue transparently and in partnership with our customers and our suppliers. We're focused on the long term, and we'll continue to drive stability across the business and the supply chain. In our November guidance, we did not predict significant supply chain improvement until well into 2024. We remain in the same place today and share that same view. That said, we've seen improvement, and our line of sight is getting better every day. Demand is strong and our portfolio is well positioned. We have a robust pipeline of development programs, and we're innovating in new capabilities to prepare for the next generation of products. Lots of work to do, but we're on track to restore our operational and our financial strength. And we still feel good about the outlook that we've shared, both for this year and for our longer term. With that, I'll turn it over to Brian.

Great. Thanks, Dave, and good morning, everyone. Let's go to the next page and cover the total company results. First quarter revenue was $17.9 billion. That's up 28% year-over-year, primarily driven by higher volume in both commercial and defense. Core operating margin was minus 2.5%, and the core loss per share was $1.27, both big improvements versus last year due to higher commercial volume and improved operating performance. Margins and EPS were negative driven by expected abnormal costs and period expenses as well as a charge on the KC-46 Tanker program that I noted last month. Free cash flow was a usage of $786 million in the quarter, significantly better versus last year driven by the higher commercial deliveries as well as an advanced payment tied to lot 9 on the tanker program, another important award for the KC-46 franchise. As we noted in our last earnings call, cash was lower this quarter than the fourth quarter due to lower wide-body deliveries and expected seasonality. Turning to the next page, I'll cover Commercial Airplanes. Let's start with orders. BCA booked 107 net orders in the quarter, including JAL and Lufthansa, and we have a backlog of over 4,500 airplanes valued at $334 billion. Moving to the figures on the left. Revenue was $6.7 billion, up 60% year-over-year, driven by 130 airplane deliveries with increases on both the 87 and the 37 programs, partially offset by 87 customer considerations. Operating margin was minus 9.2%, which was significantly better than last year. But margins are impacted by expected abnormal costs and period expenses, including higher R&D spending. Let's take a minute on the 737 program. The 37 had 113 deliveries in the first quarter, up 31% year-over-year, including 53 deliveries in the month of March. Picking up where Dave left off regarding the supplier fuselage item. We found the issue. We booked a nonmaterial financial impact in the quarter. We understand the rework steps required, and we started repairs on several airplanes. And although near-term deliveries will be impacted, we still expect to deliver between 400 and 450 737s this year. April and 2Q deliveries will be lower, but the first half monthly average will be about 30 airplanes per month, in line with what we said previously. The second half deliveries are expected to be around 40 per month, with sequential quarterly improvement in the back half. While the high end of the delivery range is pressured, ultimate performance will be dictated by the pace of the fuselage recovery. Regarding inventory, we ended the quarter with approximately 225 MAX airplanes in inventory, including 138 that were built for customers in China and roughly 30 -7s and -10s. Within these 225 inventoried airplanes, roughly 75% will require the fuselage rework. And the number of inventoried airplanes will likely increase in 2Q, and we still expect most to be delivered by the end of 2024. On production, we're completing airplanes in final assembly and expect to recover in the coming months, paced by fuselage availability. We're supporting Spirit through this recovery, including manufacturing and engineering resources as well as a cash advance. To support overall supply chain stability, we're not changing the master schedule, including anticipated production rate increases and we've contemplated any near-term parts inventory builds into our forward look. Within final assembly, as Dave mentioned, we expect to increase our rate to 38 per month later this year and 50 per month in the '25, '26 time frame. Moving on to the 787 program. We had 11 deliveries in the first quarter and still expect 70 to 80 deliveries this year. We're producing at 3 per month and still plan to reach 5 per month by year-end. We ended the quarter with 95 airplanes in inventory, most of which will be delivered by the end of 2024. We booked 379 of abnormal costs in the quarter, in line with expectations, and there's no change to the total estimate of $2.8 billion. We still expect abnormal to be largely done by the end of this year. Finally, on the 777X program, efforts are ongoing. Both the program time line and the abnormal estimate of $1.5 billion are unchanged. We booked $126 million of abnormal costs in the quarter, in line with expectations. With that, let's turn to the next page and go through defense and space. BDS booked $10 billion in orders during the quarter, including awards for the U.S. Air Force for 15 KC-46 Tankers and an E-7 development contract as well as 184 Apaches for the U.S. Army. The BDS backlog is $58 billion. Moving to the figures on the left. Revenue was $6.5 billion, up 19% year-over-year, driven by the KC-46 Tanker award, program milestone completions and underlying volume. We delivered 39 aircraft and 3 satellites in the quarter and also began production of the MH-139 Grey Wolf. Operating margin was minus 3.2%, significantly higher than last year but still negative, driven by a $245 million pretax charge on the tanker program, which I noted last month. Let me give you a little bit of context on the overall BDS portfolio. Remember, 15% of the revenues in the quarter are the firm fixed-price development contracts. These contracts get a lot of attention, and there is a commitment to derisk these programs as much as we can as we move through the development cycles and into full-scale, stable production. Next and importantly, over 60% of revenues in the quarter collectively delivered double-digit margins. We have many important programs that are performing to historical performance levels. The balance of the 1Q revenue is made up of a small number of established programs that are experiencing negative margins on certain contracts due to specific near-term supply chain and factory stability pressures that we've highlighted previously. It will take time to work through these issues, and we fully expect that these programs will improve through the course of this year and return to normal margin levels over time. The BDS team is fully committed delivering the development programs to our customers. We've implemented new contracting disciplines, accelerated efforts around lean manufacturing and we're investing in innovation and in our people, all of which underpin our plans going forward. Overall, the defense portfolio is well positioned. There's strong demand across the customer base, the products are performing in the field, and we're confident that our efforts to drive execution and stability will return this business to performance levels that our investors would recognize. Turning to the next page, I'll cover Global Services. As Dave mentioned, BGS had another very strong quarter. We received $4 billion in orders during the quarter, and the backlog is $19 billion. Looking to the figures on the left. Revenue was $4.7 billion, up 9% year-over-year, primarily driven by our commercial parts and distribution business. Operating margin was 17.9%, an expansion of 330 basis points versus last year, with both our commercial and government businesses delivering double-digit margins. Operating margins in the quarter were higher than expected due to favorable mix, and we don't assume that will repeat. In the quarter, BGS announced the first Boeing Converted Freighter line in India, delivered AerCap's 50th 737-800 Boeing Converted Freighter and broke ground on a new component operations facility in Jacksonville, Florida. Turning to the next page, I'll cover cash and debt. We ended the quarter with $14.8 billion of cash and marketable securities, and our debt balance decreased to $55.4 billion. We paid down $1.7 billion of debt maturities in the quarter and absorbed the expected cash flow usage driven by seasonality. We also had $12 billion of revolving credit facilities at the end of the quarter, all of which remain undrawn. Our liquidity position is very strong. The investment-grade credit rating is a priority, and we're deploying capital in line with the priorities we've shared: generate strong cash flow, invest the business and pay down debt. And flipping to the last page on our outlook. The 2023 financial outlook is unchanged from what we previously shared, including $3 billion to $5 billion of free cash flow generation. Commercial demand remains strong across our key programs and services. Passenger traffic in February increased over 55% year-over-year and is at 85% of pre-pandemic levels, comprised [indiscernible] domestic and 78% international. Defense demand is robust, and the initial FY '24 presidential budget is in line with expectations. As Dave mentioned, our portfolio and capabilities are well positioned to support the needs of the nation and of our allies. On the supply chain front, as you'll recall when we set out our 2023 framework last November, we predicted the supply chain instability would likely continue. The good news is that we plan for it within our financial and delivery guidance. There's progress in many areas of the supply base, but we will likely face pockets of variability through the rest of this year. We continue to make key investments, including higher inventory buffers and forward deployment of resources as we take appropriate actions to mitigate impacts and improve predictability. From a quarterly perspective, we continue to expect financials to improve throughout the year. On 2Q specifically, we expect core EPS will be roughly in line with 1Q '23 performance absent the tanker charge, as the 737 delivery impacts would be largely offset by higher wide-body deliveries. We expect free cash flow to be breakeven to slightly negative as we work through the 37 recovery. All things considered, we feel good about what's in front of us. And we remain on track to achieve our long-term guidance, including $10 billion of free cash flow in the '25, '26 time frame. With that, I'll turn it over to Dave for any closing comments.

Yes, not much to add. Just a reminder that in November, when we did finally set out guidance for all of our investors, we described an environment that would continue to be strained through 2023 and through most of 2024. We still see the world exactly that way. Demand is as robust, if not more than what we had thought back in November, and so we remain confident. So thanks for your time, and let's take some questions.

[Operator Instructions] And our first question will come from the line of Myles Walton from Wolfe Research.

Dave, the quality slip or escape at Spirit, it sounds like it's been going on for several years actually. So I think the natural question we've been getting is, why did it take so long to discover? And how should we be comfortable that things like this won't continue to pop up, particularly with the FAA's sort of renewed zero tolerance for noncompliant deliveries?

Yes, Myles, I appreciate the question. This particular defect, I happen to take a look at it, by the way, along with the rest of my Board. We happen to have our shareowner meeting shortly after the issue came to our attention. It's not only a defect. It's in that app section of our airplane and very difficult to visibly assess. In fact, it's impossible to visibly assess once the process to do it is complete. So without witnessing firsthand that process in action, you're not likely to find it from that point forward. It's -- process was not standard. And importantly, there was a ceiling that was applied on top of the fitting that made it impossible to notice any cracks. So it's just one of those. Again, no safety implications. The margins in our designs provide for significantly greater safety protection. So anyway, I don't ever accept and I hope you don't think we might ever accept that where these things go on, but this one, in particular, very, very difficult, no matter how many people you put in the field or that Spirit puts out there to see. Anyway, the good news is we've now been through the unveiling of the issue. We've been through the rework procedures, both on the captured fuselages in our factory that have not yet gone through the subsequent stages. And we've already looked at finished good airplanes where we have to remove the fin in order to get at it. And these are all now defined work scopes. And now we just get more efficient in the process of doing that reworking. That's why we're confident in our guidance. But again, we don't accept them. They are, without a doubt, over time, becoming more manageable. And things like this, I will celebrate the fact that an employee witnessed the procedure and raised his hand and said, "That doesn't look right." That is the only way that we would have ultimately found out about it. And I'm encouraging everybody in our supply chain, if they see something of that sort, to raise their hand.

The next question is from the line of Sheila Kahyaoglu from Jefferies.

Maybe how do we think about BCA margins going forward? How do we think about the production trajectory of your impact, concessions historically in aircraft and inventory impacting BCA margins?

Yes. Thanks, Sheila, for the question. Broadly speaking, as we've said, margins will be a bit volatile this year and the next as we do a couple of big things. First, we got to liquidate the 37 and 87 inventory levels as well as shutting down those shadow factories. We also have to move through the abnormal expenses on the 87, the 777 and then prepare to ramp rates. So it will be a little up and down as we move through and get out and get out of next year. In terms of the near term, I did indicate last month that the first quarter BCA margins would be lower than fourth quarter, and that's for things like the abnormal and things like the lower volume. 2Q will also be negative. But as we move into the back half of the year, the margins will improve. And of course, as Dave mentioned, by the time we get to '25, '26, we still see a path to get BCA back to the double-digit margins that you all recognize. So we got to work through what's in front of us. It's clearly defined, and we just got to execute.

The next question is from Doug Harned from Bernstein.

On the 787, you're on the path to reach 5 a month in Q4 and then go to 10 a month in '25, '26. And you've also had some discussions that the rate could potentially go higher longer term. Now this is all being done in Charleston. And if we go back a few years, the maximum capacity at Charleston was 7 a month. So as you go to 10 per month there or higher, what do you need to do in terms of investment? And how would you expect margins for the 787 out of a single facility then compared to what they were before the downturn when you were operating out of both Everett and Charleston?

So let me start from the back end and work my way toward the front end. As you might imagine, when you go from 2 to 1 and you optimize that 1 and you don't transport parts from one to another, you expect higher margins, and we do, and I'm confident we will achieve that. With respect to investment, this has a lot less to do with physical investment in equipment and more to do with how we route things through that factory. Today, our factory is pretty constrained because we have this joint verification effort that has taken up lots of space, both inside the factory and we continue to do that workup up in Everett. So we have got to work our way through that. We have a team that works full time planning the new routings in the factories, and we're confident we can get it to 10. I don't think -- not only don't think, we don't see a big demand on investment to get us from what you noted as 7 to 10. So it's just going to take us time, and we've got to remove that joint verification effort from our business.

And Doug, as it turns to margin, on the program margin side, we fully expect by the '25, '26 time frame to have 87 margins that are higher than they were back in '18. And it will be because of things like this consolidation to Charleston. And also on the cash front, on the unit margin perspective, 87 margins will get better on the improved -10 content as well as the benefits that Dave described of consolidating in Charleston. So we think we've got a good plan in front of us, and we are very focused on 10. 10's the number, and there's like execution that's underwriting that.

The next question is from Noah Poponak from Goldman Sachs.

Wanted to try to ask about the 737 pace in the near term and then also in the medium term between now and the plan you've outlined for '25. So I guess, how many units are somewhere in process somewhere in a factory? It seems like those need to be reworked before you could then restart to sort of clean off the line units. Brian, it sounds like the averaging 30 for the first 6 months, you kind of have implied second half of April as disrupted, May as maybe heavily disrupted, June starts to look normal again. Is that all correct? And then in the medium term, in terms of the ramp, there's some reputable press talking about this 38 being close to the middle of the year, wanting to be at 42 early in '24 and wanting to be at 52 early in '25. I guess we know the demand is there. In a scenario where the supply chain is relatively consistent, is that at least what you're working towards?

Yes. Let's start with that back end. So we will have a plan to get to 38. In terms of subsequent ramps to higher numbers, let's let that take care of itself. Let's focus on getting to 38. And we still believe that 50 is the number in '25, '26. And in terms of the near term, so in terms of what's in front of us, we know barrel by barrel in Spirit's factory and obviously, we know everyone in our factory in terms of what's got to get done. If the unit is not too far into the production -- our production cycle, the time to take to repair one of these, it's days. As you have the vertical fin on an airplane, obviously, it's more complicated, then it takes more time. But we will sort our way out. In the near term, getting back to production levels that are normal will be months. In terms of the inventory that we've described, the 225 finished goods inventory, 75% of those are going to have to have this fix. The good news is that this will not take us off our path to liquidate that inventory in the 37 of 225 by the -- largely by the time we get out of 2025. It's going to cost a little bit more. We provided for that -- 2024 rather, yes, liquidated by 2024. It will take a little bit more cost, but we factored that into our closing position in the first quarter. So all in all, we think we know what's in front of us and working closely with Spirit. And as we move our way out of the short-term recovery, then we get back to an area we can start to get to the 38. And I think that the -- for us, the biggest thing is that, one, we're calling it out; and two, we have not changed the master schedule. And that's a big deal. We want to make sure that the supply chain keeps pace as we move our way through the rest of the year.

Noah, on the finished goods, by the way, it's two things to keep in mind. One, we are largely through a couple of them already. So -- and we are defining the scope of that work and again, measured in a few weeks, not measured in months. And so we're confident in that. But the other thing to keep in mind on the finished goods is you know we have a big conformance work scope now even without that defect. A lot of that work can get done concurrently, so it's not a pure add.

Right. Right. The finished goods, it would just seem like as long as you can rework faster than you deliver, that doesn't change your pace and the deliveries were -- the percentage of deliveries from that wasn't enormous. So that makes sense. That's what I was sort of trying to get at, what's factory, but I think I better understand it now. So appreciate all that color.

The next question is from Rob Spingarn from Melius Research.

Just a quick clarification and then a question. The clarification, the production rates you're talking about, the 38, et cetera, is that Renton only? Or does that include deliveries out of inventory from Moses -- or rather production out of Moses Lake on the mods? And then the question is on the pricing environment, just with the other guys sold-out on narrow-bodies and the 787 really being the strongest airplane out there on the wide-body side at least from a demand perspective, how has the pricing been on these big recent orders? And how do you [Audio Gap] as we go forward here?

You broke up a little bit at the end of your question on pricing. Could you just...

So it didn't work. Basically, I just asked you, with the sold-out conditions on the narrow-body side at Airbus, how's pricing on the MAX? And then on the wide-body side, 787 is arguably the strongest offering. So how is pricing there just given the demand situation?

Yes. Let me comment on pricing, particularly on the wide-body world. Nobody is sold-out. We're just all selling further out. So we still compete and then we -- the deliveries themselves are important competitive factor in everything that we go for and then pricing follows. So the implication that the pricing environment is firming is probably a solid point of view, and we don't discuss pricing on these calls other than to suggest that as tight as the market is, it's both the prospect of when you get your airplane and the price itself. And each and every competition, we all do what we got to do. I will say I'm very happy and pleased with the orders that we have won, and I'm sure Airbus says the same.

And in your clarification question, the first part, that 38 is the final assembly number. So right now, it's at 31, movement of 38 sometime later in the year.

So it's a Renton number.

Yes.

The next question is from David Strauss from Barclays.

Just following up on the MAX issue. Has Spirit fixed the manufacturing issue from their end? In other words, are fuselages coming off their line clean now? And when would you actually start to expect to see those come to you?

They know the fix there, they know the scope, and they're going to start delivering clean ones imminently. So we feel good about what they've got to go do. Of course, the harder work is on our end for something that's in finished goods inventory.

Okay. Quick follow-up, I think from the Investor Day, I recall the pacing item on going to 38 a month being activating the third line in Renton. Have you actually activated the third line at this point?

You bet.

And we're still moving forward on the fourth.

The next question is from Jason Gursky from Citi.

Just a quick question on the outlook for orders in the commercial business. So wondering if you could kind of provide a little bit of color on your expectations from a book-to-bill perspective for the year, given the pipeline that you're seeing. And I don't want to get too far ahead of ourselves here, getting the MAX back up in the air and China is great. Deliveries are next. But I'd also be interested to get your thoughts on the future for deliveries in China specifically.

Yes. Let me start. I want to make sure -- I want to speak out of both sides of my mouth here, if you don't mind. Number one, all of our guidance, all of our expectations are predicated on no China. So everything that we've discussed by way of production rate, supply constraints and demand in the marketplace does not factor that in, and I want to be clear about that. On the other hand, we are working very hard to regain China. And if and when we're able to do that, it takes risk out of the delivery of the finished goods inventory simply because there's less work to do in getting the airplanes to their originally intended customer. But it doesn't change much by way of production rates or anything along those lines because we're already -- our rates all the way out to 50 and beyond are constrained by supply. They're not -- these are not demand rates. I think we could add plenty if I thought the supply could meet it. So -- and with respect to how I think we should think about future orders, all I know is that every next order and they're sizable, and there are plenty in play as we speak, deliveries are further and further out. So now we're out, believe it or not, in the 30s. So it's -- I think that's the best way to just think about it, what does the backlog support in terms of deliveries over what period of time. And right now, we're out competing in years far out, 5, 6, 7 years.

The next question is from Cai von Rumohr from Cowen.

At the November Investor Day, you laid out a forecast of cash flow of $3 billion to $5 billion this year. And since that time, you've taken a couple of shells, you see the 737, you discussed the 767, and you mentioned because of supply chain having to build to higher inventories. So there were a lot of bad guys in that revised number. What are the good guys to get you home to stay in that number? I know you had the $1 billion tanker advance, but are the advances from airline customers substantially better? What are the good things in that forecast that allow you to maintain it?

Cai, let me start with a reminder, and then I'll let Brian mention one or two good guys. Sort of the tanker advance, we had always counted on. So it may have come a little earlier because of their need to get tankers in the field. But that was always counted on. But what we did when we gave you that guidance is we did not, like I said, expect the supply chain to come ripping back, and we never have any problems. So there was some judgment applied when we gave the range that we would have to live through some of these things. Now I would suggest that one or two of these might have been a little tougher than things we were thinking about, but not much. And so anyway, that was factored into our guidance. And that will continue -- that factor continues all the way into 2024. So Brian, you might want to comment on a couple of individual things.

Yes, just a couple of things. Thanks for the question, Cai. On the first quarter, 87 deliveries were a little light. We'll make that back up in the rest of the year. You mentioned the tanker benefit. That's something that we always plan for later in the year. The customer just wanted to get it done a bit sooner, which we think is good. So that's the first quarter. And then in the second quarter, as I mentioned, we'll be in more of a breakeven position largely because of the 737s that are going to push out. But again, it's going to be back half benefit. In the second half, as I think about the acceleration, it's going to be the 37 recovery, the 37 rate ramp. And there's going to be wide-bodies that are going to accelerate across the board, 777, 87, 67. So all of that's contemplated. And we've still got high conviction along that range. High end might be a little bit pressured, but we're committed to delivering that commitment of $3 billion to $5 billion.

Peter Arment from RW Baird.

Dave, I appreciate your comments on China. And I know you've derisked the skyline out through '26 on sort of deliveries, but seems like it's important steps that the regulator made. I'm just wondering whether you see this as that these next steps to delivery, is it customer-driven? Or is it still regulator-driven? How do you interpret that?

Yes. Again, I don't want anything to get misinterpreted here. The China market, which in my view has always been the issue with respect to taking deliveries of airplanes, has come back as robustly as anyone might have imagined. And domestic travel now is at the pre-pandemic level and will continue to grow. So they need airplanes. And so I'll just sort of state as a fact that our customers, in my view, are going to need more airplanes in the relatively near to medium term. And this is a pretty easy way for them to satisfy that need. So rather than get involved in any geopolitical discussion because no geopolitical discussion is actually required here. It's -- we have orders on the books. We have airplanes on the tarmac. And so this is just a nod from the Chinese government that they would like to take delivery of their airplanes. So that is the situation as it exists. And I'm going to stick with sort of my posture, if you don't mind, that all of our guidance and all of our activities are going to assume that the best things don't happen. And if they do, then we will welcome that news and get back to all of you.

The next question is from Seth Seifman from JPMorgan.

Dave, I wonder if we just talk for a second about Spirit in a broader context. I think the current issue might even predate the grounding, but they've been struggling there on a couple of different fronts lately. And the idea of moving to 38 and then to 50 is you can only go as fast as they can go. And it's pretty understandable because I don't think anybody has had a more challenging 3 or 4 years than Spirit other than maybe you guys. But how are you going to make sure that they're there to support that rate increase for you maybe more broadly, and then with a specific reference to the big labor contract that they have coming up in June?

Well, I'll be optimistic about the labor contract. I think as you might guess, I suspect their workers know the situation they're in. They know that they've got to deliver for Boeing, and my guess is they'll all get to a palatable answer. It's not my control, so you'll have to ask Tom about that. I am confident in their ability to ramp with us. We were on a steady course to keep them ahead of us in this ramp rate, and they were on a reasonable course there. This last defect will slow them down in measures in weeks and months, not in years and will not impede their ability to get to our rate increases. We're going to stay present with Spirit. We're in their factories, we're talking to their people. As I said, there's a couple of ways you can look at this issue that came up. Like I said, it's normally -- it was difficult to find, but an employee raised their hand and noticed a bad procedure and everybody jumped on it. Within a week, we had this resolved with the FAA. We had a clear picture of the airplanes that were impacted, and we were all at work on the rework. That is a signal of a healthy supply chain, not a weak one. And so we're going to maintain that attitude. We're going to continue to work constructively with Spirit. Brian mentioned you our willingness to advance them cash during this moment while they go through their recovery stages. So yes, we're going to stay constructive. I have confidence that Tom and the team at Spirit can get ahead of this. And I -- and we have been on the rate increase request and supply chain requests with them for quite some time, and we are confident they can get there.

The next question is from Kristine Liwag from Morgan Stanley.

Following up on the supplier master agreement schedule -- or sorry, the supplier master schedule for the 737 MAX, how long will the supply chain be at a higher production rate than your final production rate? And how much is that inventory build going to cost?

Yes. It's a matter of months, Kristine. Thanks for the question. It's a matter of months, and the inventory is all contemplated in our forward look. It's not anything we worry too much about. In fact, again, another indication of how we're thinking about this, we're perfectly comfortable keeping everyone at pace and hold a little buffer. We think that's a better alternative than keeping it a little bit too close to the wire. And we're going to keep having that posture, and that's going to help us get to 38 and then beyond.

Great. And a follow-up on Seth's question on the labor agreement with Spirit. Should we see a production disruption at Spirit? What are mitigating actions you could take? And are there things that you could do to make it easier for you to meet your targets if, again, there is a production disruption at Spirit?

Yes, I'm not going to speculate on that. I'm going to assume that our supplier and the workforce at our supplier are good enough and smart enough and can play far enough ahead to not worry about that.

And Lois, we have time for one final question.

That will come from Matt Akers from Wells Fargo.

Can you touch on BGS margins in the quarter? I think this is like the highest you put it since you broke that out. I know you mentioned the mix was positive, but can you say how much of that benefit was? I think this is kind of like a mid-teens margin pre-COVID. Should we expect to kind of gravitate back to that level? Or could it be kind of a little bit higher here?

Yes. Thanks for the question. We love the service business, right? It's a franchise that goes on for years and years and years. And the good news is, is that, as Dave mentioned, on the commercial side, we're back to pre-pandemic levels. That's a healthy sign. And the team is very focused on profitable, capital-efficient growth. And that's important in the service business. So I think we're set up very well. The quarter, a little bit of a mix benefit. But overall, we're set up very well to deliver a mid-single-digit revenue growth business with mid-teens margins and a high cash flow conversion just like we set out in November. And we get more and more confident about that business and the team that's running it. So I think it's going to accrue to our benefit over the next several years.

And if I just think in my short 3 years or maybe it feels long, we made a lot of changes to services, and we tightened up the capital disciplines in a pretty significant way. They all leaned in favor of higher margin, more intellectual property content in our work that we do. And of course, we now have a supply-constrained market around that. So I'm not surprised these margins have expanded, and I'm not expecting them to go down. I think the team is doing a great job.

And that concludes our first quarter earnings call. Thank you, everybody.

Thank you. And ladies and gentlemen, that does conclude the Boeing First Quarter 2023 Earnings Conference Call. Thank you for joining.