Annual Meeting, Virtual
David L. Calhoun
President and Chief Executive Officer
The Boeing Company
April 27, 2020
Thank you, Larry, both for the introduction and your board leadership. Let me add my welcome to all of you joining us virtually today.
I hope you are all staying safe and healthy during this global crisis. My sympathies go out to everyone who has a family member, friend or colleague affected by COVID-19 or who is suffering themselves.
Amid the pandemic, our first priority is to protect health and safety at our sites and in our communities. That’s why we have chosen to suspend operations where necessary at certain Boeing locations and resume work only when it is safe to do so. When employees return to our sites, we have put additional precautions in place to help keep them safe, including new physical distancing tactics and voluntary temperature screenings — this in addition to enhanced cleaning efforts, telecommuting where possible and more access to health resources.
We’re also proud to join the COVID-19 fight through support for the brave health care professionals in our communities. Boeing teams are 3D printing face shields at our sites across the United States and partnering with the Department of Health and Human Services and Federal Emergency Management Agency, or FEMA, to distribute them where they are needed most. We have delivered nearly 10,000 so far, and we’re continuing to make more.
In addition, our company has donated tens of thousands of units of personal protective equipment to support frontline medical professionals. I am also proud we can provide our airlift capabilities — including our Dreamlifter — to help transport urgently needed supplies.
Boeing teammates are also stepping up in their communities. For example, our people in Washington state and San Antonio have donated hundreds of thousands of dollars to local food banks, and team members in St. Louis have provided surplus laptops to students in need.
I am humbled, I am inspired by their personal generosity, but I’m not surprised. The way we take care of one another and our communities gets to our values and who we are as a company. It is also why Boeing and our teammates and retirees last year invested more than $240 million and 750,000 volunteer hours where we live and work globally. We step up to help — it’s what we do.
The health crisis is unlike anything we have ever experienced. With fewer people taking to the skies, global airline revenues are set to drop by $314 billion by the end of the year. In the U.S. alone, more than 2,800 airplanes have been idled, and passenger volume is down over 95% compared to the prior year. It will be years before this returns to pre-pandemic levels.
And this has a direct effect on the products and services our customers will want and will need. Airlines are cutting back operations dramatically. As they assess their businesses, they are making difficult decisions that result in grounding fleets, deferring airplane orders, postponing acceptance of completed orders, and slowing down or stopping payments. They are also accelerating aircraft retirements and requiring fewer services. All of this adds pressure on our supply chain beyond what it is already experiencing because of the pandemic.
We are in an unpredictable and fast-changing environment, and it is difficult to estimate when the situation will stabilize. But when it does, the commercial market will be smaller, and our customers’ needs will be different. We will need to balance the supply and demand accordingly as the industry recovers.
But I remain confident in our industry and in Boeing — we will recover. We are already preparing for the new reality.
For roughly the past 18 months, we have been making changes to build on our strengths, learn from our challenges and prepare for the future. This is true for the steps we are taking to protect our people and company during the pandemic, and for the work we did throughout 2019 to reshape the way we do business after the 737 MAX accidents.
Currently, our team is focused on the best ways to keep liquidity flowing through our industry and to our supply chain until our customers are buying airplanes and related services again. Specifically, we have drawn down on a loan, reduced operating costs, suspended dividend payments, extended our existing pause on stock buybacks, de-prioritized some strategic investments, and accelerated some progress payment receipts with the help of our defense customers. Larry and I also are forgoing all pay until the end of the year.
In addition, we continue to explore funding options for our business. We applaud the administration and Congress for working together to pass the CARES Act, which will be critical to supporting the entire aerospace manufacturing sector, which comprises 17,000 suppliers and 2.5 million jobs. We expect the programs coming out of the bill and the funding options the government is putting in place will provide support to help the credit markets function again.
The recent $25 billion support package agreed to by the airlines and the government is a pivotal step toward maintaining the aviation pillar of the United States economy, even if full recovery will take years, not just months. Knowing that the U.S. airline industry has critical financial support through the pandemic allows us to plan our production and services systems for the medium- and long-term impact on air travel.
We have also been doing everything we can to keep our skilled team intact. We kept our 737 MAX team engaged with alternate work when we suspended our 737 production. We adjusted pay practices to support our employees at sites where we temporarily suspended production due to COVID-19. And we are offering a voluntary program that allows eligible employees who want to exit the company to do so with a pay and benefits package. These moves have been intended to limit the impact on our people as much as we can. And we continue to recruit in certain areas to ensure we are able to meet our customer commitments now and in the future.
At the same time, we have been resizing, reshaping and continuously reviewing our business — starting at the top with our leadership structure. We are streamlining roles and responsibilities and preparing now for the post-pandemic industry footprint.
With each decision, we have kept our people and stakeholders involved and informed with a commitment to transparency — a key learning from 2019 and the 737 MAX accidents.
Our people are tirelessly committed to the customers who purchase, fly on, and use our products and services. And we continue to feel the deepest sorrow for the loved ones and colleagues of those who died in the Lion Air Flight 610 and Ethiopian Airlines Flight 302 accidents. We have not forgotten them. We never will. The loss of life is devastating and always will be. We are deeply humbled by these tragedies, and they fuel our determination to continue implementing the lessons we have learned and to uphold our commitment to safety.
To that end, we have taken many actions, including establishing and operationalizing a new Product and Services Safety organization that reviews all aspects of product safety. We are installing a new design practices program to further enhance the work our engineers do. And we are fortifying our Engineering team by organizing engineers into a single function reporting directly to Boeing’s chief engineer. This realignment effort, which will be completed later this year, will further strengthen our engineering work and elevate the safety and quality of our products and services.
We also launched an enhanced reporting channel for employees to speak up about safety, quality and ethics concerns. And I am determined to ensure that the accountability for modeling our culture lies with leaders — and that starts with me.
We are able to learn and adapt to challenges thanks to the strong foundation of aerospace achievement built by generations of Boeing teams. Through good times and tough times, our people rise to the occasion. This is something I have witnessed firsthand in my initial months as president and CEO. No matter what, our people continue to deliver for our customers, providing expertly engineered products and services that improve the lives and enhance the security of people around the world.
In 2019, this included debuting two commercial airplanes, the 737 MAX 10 and the 777X. After the successful 777X first flight in January, we are rigorously testing the airplane ahead of our first delivery next year.
We keep driving toward the safe return to service of the 737 MAX while working closely with global regulatory authorities, including the U.S. Federal Aviation Administration, the FAA. We are committed to supporting their process and timeline, and our progress has continued during the pandemic.
On the defense side, we continue to see a healthy market with solid demand for our major platforms, programs and related services both domestically and internationally. We are maintaining focus on future franchises, such as the MQ-25, our aerial refueling tanker; the T-7A Red Hawk trainer for the Air Force; the MH-139A Grey Wolf helicopter; and our large-scale unmanned underwater vehicle, while continuously improving performance on our existing platforms, including the KC-46A tanker.
While that program has had delays and other challenges, with this month’s agreement with the U.S. Air Force on the tanker’s Remote Vision System, we will ensure the KC-46 becomes the standard by which all future refueling aircraft are measured. The men and women of the U.S. Air Force have our full commitment, and our investment in the tanker reinforces that dedication.
Our space teams completed the core stage of NASA’s Space Launch System and learned key lessons from the CST-100 Starliner’s Orbital Flight Test. We will re-fly this test to demonstrate the quality of the Starliner system, paving the way for future crewed flights. It’s the right thing to do for our NASA customer and the astronauts who ultimately fly on it.
In services, our team continues to improve customer operations and drive life cycle value by expanding our digital offerings; strengthening maintenance, modification and supply chain capabilities; and leveraging our industry-leading analytics platform. We continue to achieve synergies by integrating our subsidiaries and growing our government services business in the U.S. and abroad.
Turning to Embraer, we announced Saturday that we have terminated the agreement to establish a strategic partnership between our two companies, covering both the planned commercial and defense joint ventures. We worked diligently for two years to finalize the transaction, but ultimately we could not come to a resolution around critical unsatisfied conditions for the deal under our Master Transaction Agreement. It is deeply disappointing, but we had reached a point where continued negotiation was no longer helpful, and so we exercised the rights set out in the MTA to terminate the agreement.
Looking ahead, we will continue to concentrate on what is most important across Boeing. To that end, I established six company priorities in January. They include returning the 737 MAX safely to service and earning back trust with our stakeholders. We are also committed to delivering excellence across our businesses and restoring our production health. And we are determined to invest in our future while always living our values.
During the pandemic, we are supporting our commercial and services customers where we can, even as their own businesses slow to a trickle. We are working hard to meet commitments to our defense and space customers, which have seen less of a market impact from the health crisis. And we are maintaining the stability of our supply chain so we are ready to ramp up again when the pandemic subsides.
The inability to travel in recent weeks has only reminded us of the critical role air travel plays in connecting people and places. Though the recovery will be slow, we continue to believe strongly in the future of aviation and of Boeing as the aerospace leader. That’s because the underlying fundamentals that have driven the aerospace industry and doubled air travel over the past two decades remain intact. These include the need to connect the world’s economies, the affordability of air travel and a growing middle class around the globe with the resources and desire to travel.
Based on what we know now, we expect it will take two to three years for travel to return to 2019 levels and an additional few years beyond that for the industry’s long-term trend growth to return. This outlook is based on decades of analysis and customer insights, including how the industry has reacted to prior market shocks.
But there is no doubt people will start flying again. Our customers’ operations will stabilize again. Airlines will need to continue buying and maintaining new and cleaner airplanes, and not just in response to changing traffic demands. Their important fleet-planning decisions will focus in part on our priorities as an industry, which include the environment and our industry’s related targets and regulations. Airplanes that we plan to deliver this year will be 25% to 40% more fuel-efficient than the airplanes they’re replacing that are now as much as two generations old. And as the industry recovers, slowly at first and then with greater vigor, we’ll be ready with a diverse portfolio of products and services that our customers want and need.
While I am new to the CEO role, I am not new to Boeing, and I have long admired the business and its people. This year I have seen them at work. I have seen their dedication to our customers. And I have seen the way they uphold our values in everything they do. It’s because of them I am confident that Boeing will not just emerge from the crisis but will thrive again as the leader in our industry.
History has proven Boeing is a company that rises to the toughest challenges with people who are second to none. Going forward, we will succeed by understanding, meeting and exceeding the expectations of our stakeholders.
I’m proud to be part of the Boeing team.
Thank you, and that concludes my report.