Corrected Transcript 20-Mar-2018 The Boeing Co. (BA) Bank of America Merrill Lynch Global Industrials Conference Total Pages: 13 1-877-FACTSET www.callstreet.com Copyright © 2001-2018 FactSet CallStreet, LLC The Boeing Co. (BA) Corrected Transcript Bank of America Merrill Lynch Global Industrials Conference 20-Mar-2018 CORPORATE PARTICIPANTS Ronald J. Epstein Analyst, Bank of America Merrill Lynch Randy Tinseth Vice President-Marketing, Boeing Commercial Airplanes, Inc. ...................................................................................................................................................................................................................................................... MANAGEMENT DISCUSSION SECTION [Abrupt Start] ...................................................................................................................................................................................................................................................... Ronald J. Epstein Analyst, Bank of America Merrill Lynch Randy Tinseth. Randy is the Vice President of Marketing for Boeing Commercial Airplanes. I think, Randy, here give us a pretty staple view on where we are in this commercial cycle and what's going on. And one thing I might add, Randy's got a pretty cool blog, throughout the blogosphere if you kind of see Randy's updates which are helpful. And then, maybe one last little housekeeping point. Tomorrow morning at 8 o'clock, we're going to do a commercial aerospace panel with Richard Aboulafia [indiscernible] (00:32) what's going on from their independent view in the commercial cycle and in the aftermarket. And then, in the afternoon, I urge everybody to come and see our defense panel. We've got Ambassador Hill. He was the Ambassador for South Korea; and John Park, who is the Head of the Korea Program at Kennedy School of Harvard, giving update on what's going on in North Korea. And eventually, [indiscernible] (01:02) session that's going to come up. So, without further ado, Randy. ...................................................................................................................................................................................................................................................... Randy Tinseth Vice President-Marketing, Boeing Commercial Airplanes, Inc. Thank you, Ron. Good morning. Welcome. It is absolutely both my privilege and pleasure to be here today to represent Boeing. Today, I wanted to share a few thoughts on where we are in the market today. I want to talk a little bit about where the market is headed long-term. And then before we take questions, I'll share with you a bit about where we stand in terms of our product and our public programs. You can imagine before we get started, I want to emphasize that the material, I'm sharing today, has some forward-looking information. I'll give you a moment to read our disclaimer. Having said that, let's now talk about where we are in the market, and do a really quick review of how we started performing last year. I think without question, 2017 was a very strong year both for the Boeing Company and 2 1-877-FACTSET www.callstreet.com Copyright © 2001-2018 FactSet CallStreet, LLC The Boeing Co. (BA) Corrected Transcript Bank of America Merrill Lynch Global Industrials Conference 20-Mar-2018 more importantly for our customers. In 2017, we saw a year, for the very first time in commercial aviation, where 4 billion people traveled by air. That's a doubling of the number of passengers traveling in the last 12 years. Last year, we saw a very robust market both for passenger traffic growth as well as growth in the cargo marketplace. 2017 marks the eighth great year in which we saw growth in the market, above long-term trend. It was also the eighth straight year in which we saw traffic growing faster than capacity. So, load factor has been on the rise. And as a result, last year, we saw record global load factor of over 81%. I want to also emphasize what's happened in the cargo market. Now, since the recovery that began in 2010, we see ups and downs in the cargo market. But over the last 18 to 24 months, we have seen industrial production come back. We've seen trade come back. We've seen a very strong and resilient cargo market. And to put in perspective how important that cargo market is, should the market continue to grow somewhere between 4% and 5%, we expect to continue to grow 4% or 5% in the coming year. That helps support production of two large freighter aircraft from our factories in Everett, Washington. And then finally, and probably most importantly, over the last eight years, we've seen strong profitability for our customer. In fact at the last three years combined, we have seen more profit in our industry than the 30 years before that time. So, we see margins improve. We see balance sheets improve. We see our customers managing their business better than they ever have in the past. From a Boeing perspective, 2017 was a really strong year in terms of Commercial. We've had 912 orders, which is a big order book, but I think what was really interesting about last year's order book is the fact that we received those 912 orders from 71 different customers. There was also broad demand for our products. The other thing that I would emphasize, last year we did exceptionally well in terms of wide-body order. We collected about 75% of wide-body orders in the market. That was driven by what we saw on the Boeing 787 as well as our Boeing 777 program. So, even though our competition at the end of the year probably edged us out a little bit in terms of total order count, I think we edged them out in terms of order value. Last year in terms of deliveries, we delivered a record 763 aircraft. Again, an industry record. We delivered almost half of the single-aisle airplanes in the market. We delivered almost 60% of the wide-body aircraft. What I think was important not only about this being record, but we did this essentially with no drama. At the beginning of the year, we set our guidance and that was to deliver somewhere between 760 and 765 aircraft. And at the end of the year, we delivered on that guidance. 2017 also marks a year where for now for the six straight year in a row, we have been the industry leader in terms of delivery. Now, we can talk a lot about orders. We can talk about backlog, and that's important. But at the end of the day, we're an industry that the deliveries are the most important metric which we looked at. And as we look at 2018, we see another strong year, a year in which we expect passenger traffic to grow around 6%, a year in which cargo traffic will grow somewhere between that 4% and 5% level that I talked about, a year in which load factors will remain at near record levels, another year in terms of profitability for our customers and a year in which we expect to see about 200 million passengers growth in the market. And what's important in terms of that passenger growth, about half of that growth will be from our airline customers in Asia. For us at Boeing, in 2018, we're looking at another healthy year in terms of order intake. I don't know if we're going to see exactly what we saw last year, but, again, another healthy year. And in terms of deliveries, we expect 3 1-877-FACTSET www.callstreet.com Copyright © 2001-2018 FactSet CallStreet, LLC The Boeing Co. (BA) Corrected Transcript Bank of America Merrill Lynch Global Industrials Conference 20-Mar-2018 to deliver somewhere between 810 and 815 aircraft. And that increase in deliveries is really a function of our increased production rates that being come online with Boeing 737 family. Today, on Boeing 737, we're delivering 47 aircraft a month. As we go through the year, our rate will increase to 52 Boeing 737 deliveries a month, and then next year we'll be delivering 57 Boeing 737s a month. So over this last eight-year period, as we've seen the market improve and our customers become more profitable, we have worked very hard to increase the number of deliveries to market. So our rates today are essentially 65% higher than they were in 2010. Long term, aviation is a growth market. Over the next 20 years, we expect the cargo market to grow about 4.2% per year. We're expecting passenger traffic to grow about 5% per year. And as a result of this growth and replacement demand we see in the market, we believe or we expect our airlines to take the delivery of more than 41,000 aircraft over the next 20 years, a demand that's valued in excess of US$6 trillion. Now, the biggest market will be the market for single-aisle airplane, almost 30,000 aircraft in terms of demand over the next 20 years, and aircraft that we have to meet that demand are airplane like our Boeing 737 Next Generation that we have today and the MAX that came on and started to deliver last year. Second largest market is the market for wide-body aircraft. Over the next 20 years, about 9,000 aircraft including close to 1,000 freighter aircraft. The other thing I wanted to point out in terms of [ph] demand to be (08:44)about 40% of the deliveries over the next 20 years will be for airlines in the Asia-Pacific region, about 20% for the North American carriers, about 20% for our European customers, and the remaining 20% will be spread throughout the rest of the world. The other thing to note here as we look out the next 20 years, we expect the world fleet to double from about 23,500 aircraft to almost [ph] 47,000 (09:10)airplanes in the year 2036.