Boeing Company Earnings Call Nuggets: Operating Unit Goals, Research & Development

Boeing Company (NYSE:BA) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Operating Unit Goals

Howard Rubel – Jefferies: Your operating margins were helped to some degree by the absence of 78 on the other hand pre R&D margins on commercial were up year-on-year and defense business was also very strong. Could you address Jim maybe a little bit further from your commentary what sort of goals are you setting for your operating units so that you can see this ongoing improvement?

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W. James McNerney, Jr. – Chairman, President and CEO: Well, Howard, first of all, productivity and affordability is fundamental to everything we do, whether it’s running a factory, whether it’s running a back room or whether it’s designing or building airplane. So, that has been a main theme that has – that is beginning to pay off, has paid off and we will not let up on even though we’re beginning to grow significantly, led by our commercial business. So productivity is foundational. Now growth is also a piece of the margin expansion equation. We have taken up rates on 777 and 73, you are going to begin to see the rate which is on schedule and we have confidence in that scheduled and 87 begin to increase a couple of multi-years have been nailed down in our defense business, which also gives us opportunity to use volume to help drive margin expansion. I also think the other comment I make is that we are entering an era now where R&D is being used more efficiently and I think that will not stop this quarter. And so notwithstanding some development programs ahead of us, I think you may see more efficient use of research and development costs over the next period of time. So, that that would be my answer there.

Research & Development

Sam Pearlstein – Wells Fargo: I was wondering if I could follow-up on what you just mentioned which was R&D, because you did come in relatively low in spending and R&D and given that year-over-year decline in commercial R&D, how do you get to the $3.4 billion this year. Is it driven by the potential launch of 777-X and/or 787-10 to drive that pickup over the course of the year? How should we think about it?

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W. James McNerney, Jr. – Chairman, President and CEO: Yeah, I would think the – the thought here would be and I would include the MAX and what you just said there, in terms of some ongoing development efforts. I think, look, if you step back for a second and look at this decade compared to the last one, we have the opportunity to harvest some hard-fought gains in our commercial airplane business and we all remember the times of fighting through the 87 development where the technologies weren’t quite as mature as we’d hoped they’d be. At certain points in time we had to spend a lot of money. The 47-A cost us little bit more than we assumed it would. And we spent a lot of money in research and development. Now this decade, this team is committed to harvesting some of the learning from that decade and also harvesting some of the technology maturation that was hard-fought and we now have in hand. So I think when you look at the 777X, you look at a 10X or you look at a MAX, these are derivative programs that tend to leverage more efficiently what we know. There is not a lot of invention going on. There is a lot of creative application and use of a technological lead that we have and that leads to – and I know this is a broader answer than maybe you were looking for – but that leads to confidence that more restrained levels of R&D can continue for longer periods of time.