Thank you for standing by. Good day, everyone, and welcome to The Boeing Company's fourth quarter 2016 earnings conference call. Today's call is being recorded. The management discussion and slide presentation, plus the analyst and media question and answer sessions are being broadcast live over the internet. At this time, for opening remarks and introductions, I'm turning the call to Mr. Troy Lahr, Vice President of Investor Relations for The Boeing Company. Mr. Lahr, please go ahead.
Thank you. Good morning. Welcome to Boeing's fourth quarter 2016 earnings call. I'm Troy Lahr, and with me today is Dennis Muilenburg, Boeing's Chairman, President, and Chief Executive Officer, and Greg Smith, Boeing's Chief Financial Officer. After management comments, we'll take your questions. In fairness to others on the call, we ask that you limit yourself to one question. We've provided detailed financial information in today's press release, and you can follow the broadcast and presentation through our website at boeing.com. Before we begin, I need to remind you that any projections and goals in our discussion today are likely to involve risk, which is detailed in our news release, various SEC filings, and the forward-looking statement disclaimer in the presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of non-GAAP measures that we use when discussing our results and outlook.
Now, I will turn the call over to Dennis Muilenburg.
Thank you, Troy. Good morning. Let me begin today with a brief overview of our 2016 operating performance, followed by an update on the business environment and our expectations going forward. After that, Greg will walk you through our financial results and outlook in greater detail. With that, let's move to slide two. Throughout 2016, employees across our company worked to build on the strengths that have positioned Boeing as the aerospace industry leader after 100 years in operation. In delivering on our customer commitments during the year and extending our broad market leadership, we generated strong revenue, solid core operating earnings, and record cash. We redoubled our focus on profitable long-term growth strategies, disciplined execution of our production and development programs, growing our services business, and driving further quality and productivity gains across the enterprise.
We also demonstrated our commitment to investing in our people and our business while once again returning significant value to our shareholders. For the full year, we returned nearly $10 billion to shareholders through the repurchase of 55 million shares for $7 billion and dividend payments totaling $2.8 billion. In December, we deepened our commitment in this regard as our board of directors authorized a new $14 billion share repurchase program and a 30% increase in our quarterly dividend. The increases are part of our balanced cash deployment strategy and reflect the confidence we have in our strong lineup of products and services and our long-term outlook for the business. Turning to our core operating performance for the year, Boeing Commercial Airplanes reported revenue of $65 billion, driven by 748 deliveries, which further extended our market share leadership in airplane deliveries to a fifth consecutive year.
Net new commercial airplane orders were a healthy 668, which added to our robust backlog of approximately 5,700 airplanes, which is more than seven years of production at current rates. Key milestones in 2016 included first flight of the 737 MAX and completion of the first eight production aircraft. We also began final assembly of the 787-10 in December, and we started manufacturing components for pre-production testing on the 777X. Boeing Defense, Space & Security had a solid year as well, with healthy revenue and margins and with the team making progress on critical program milestones, including first flight of our T-X trainer aircraft. In the quarter, we also successfully completed boom envelope testing on the KC-46 Tanker program.
Notwithstanding additional costs incurred for incorporating known changes into the initial production aircraft, which Greg will cover in more detail later, we continue to transition from development to production with testing tracking to plan and no new technical discoveries during the quarter. Overall, we continue to see the Tanker program as a profitable, long-term franchise program for the company with a need for approximately 400 aircraft worldwide. The $2.8 billion contract in 2016 from the U.S. Air Force for the first 19 KC-46 Tankers highlights the demand and market opportunity we see for this program. Other key contract awards and commitments for our defense and space business during the year included a contract from the U.S. Army for 117 remanufactured Apache helicopters and a $2.5 billion award from the U.S. Navy for 20 P-8 Poseidon aircraft.
In summary, during what was an exciting and memorable centennial year, we delivered solid core operating performance, achieved record cash generation, and strengthened our business for profitable long-term growth while making strategic investments to accelerate into our second century and returning cash to shareholders as promised. With that, let's turn to the business environment on slide three. We continue to see generally solid overall demand for our products and services across our commercial, defense and space, and services businesses. In our commercial airplanes business, our global customers continue to recognize the compelling value proposition that our new, more fuel-efficient product family brings to the market. Order deferral activity is approximately 2% of our backlog and remains well below the historical 15-year average of 6%. New order activity is continuing at a moderated but healthy pace.
For 2017, we expect our new order intake to be approximately the same as what we captured in 2016. In the narrow body market, we are seeing continued strong demand, as illustrated by the 550 orders we captured in 2016, including the December 737 MAX orders from GECAS for 75 aircraft and the SpiceJet order for 100 aircraft. In the wide body market, we are seeing varying levels of demand across aircraft models. For the full year, we captured orders for 118 wide body aircraft, with 58 of those being orders for the 787. However, on the 777, the near-term hesitation in order activity we discussed with you on previous calls resulted in a total of 17 orders booked for the year.
Over the long term, we remain highly confident in our commercial market forecast that continues to project strong global demand, with customers expected to order more than 39,600 airplanes over the next 20 years. That forecast includes the need for more than 9,000 wide body aircraft, underpinned by a large upcoming replacement cycle early in the next decade. Our overall confidence in the long-term market outlook is based on solid, ongoing replacement demand and traffic growth. Global passenger traffic continues to solidly outpace GDP, with IATA reporting 6% growth in commercial passenger traffic and 3% growth in freight traffic for 2016 through November. Turning to individual airplane programs, as I previously mentioned, customer demand remains strong for the 737, with a robust backlog of more than 4,400 firm orders for the NG and MAX models combined.
We remain on track to raise the 737 production rate from the current 42 per month to 47 in the third quarter of 2017, followed by 52 per month in 2018, then 57 per month in 2019. Importantly, even at the 57 per month rate, we continue to be oversold. Simply put, this is a big, attractive market, and the 737 family's position within it is solid. Our confidence in the future of the 737 MAX is reinforced by the fact that within our top 20 narrow body customers, we continue to see a large capacity for additional orders when we compare existing order totals to their overall fleet size. For the current generation 777, our backlog at year-end was 136 airplanes. In December, we announced our decision to lower the 777 production to match supply with near-term demand.
We have transitioned to the seven per month production rate this month before we lower to the production rate in August to five per month, as previously announced. Within the updated rate plan, delivery slots for the 777 are now nearly sold out for 2017. For 2018 and 2019, when we begin phasing in 777X production, we are now approximately 90% sold out for both years, where, as a reminder, we will be delivering at a rate of approximately three and a half per month. This rate plan includes the recent agreement from Iran Air for 15 777-300ERs, and we continue to work a number of 777 sales campaigns to fill out the remaining production slots. Based on the current sales environment, we believe the rate plan we've put in place establishes a production floor for the 777 program.
We have a strong foundation of 320 777X orders and commitments that support our production plan for ramping up 777X deliveries. Our 787 Dreamliner program also stands on a strong foundation for long-term production, with 700 firm orders in our year-end backlog. Securing additional 787 orders to solidify the 14 per month production rate at the end of the decade remains a priority. We've booked several new orders in 2016. There's still more work to do. On the 747 program, we are encouraged by the modest recovery in the air cargo market and the October order from UPS for 14 747-8 freighters with options for an additional 14. This order helps to fill the production skyline for the foreseeable future and significantly de-risks the 747 program. We continue to see the commercial and defense services market as a major growth opportunity for us.
We are aggressively targeting this market as we strengthen our services and support areas, including our traditional parts, modifications, and upgrade business, as well as expanding further into data analytics and information-based services. In December, we announced plans for Boeing Global Services, an integrated new business unit that we are forming from key elements of our commercial aviation services and global services and support groups. When this new business unit begins fully operating during the third quarter, it will leverage synergies across the company and further support our growth ambitions in this market. That market is expected to total $2.5 trillion over the next 10 years. Turning to defense, space, and security, we continue to see solid demand for our major platforms.
While the fiscal year 2017 U.S. federal budget is not yet finalized, DoD and congressional support for our key BDS programs is firm. We continue to anticipate modest defense spending growth over the next five years. International demand for our offerings remains healthy as well, in particular for rotorcraft, commercial derivatives, fighters, satellites, and services. We are encouraged with the notification to Congress regarding the foreign military sale of 48 Chinooks to Saudi Arabia and 37 Apaches to the UAE. We have cleared congressional notification for 36 F-15s to Qatar, with options for 36 more, and 28 F/A-18s to Kuwait, with options for an additional 12. We are pleased with the announcement of Canada's intent to purchase 18 F/A-18 fighters. We are engaged with the Canadian government as we work to finalize this sale.
The F/A-18 has a proven track record of demonstrated results with unparalleled mission success for our war fighters, while providing the best value for our taxpayers. The defense, space, and security team remains focused on driving market-based affordability of our products and services and increasing overall profitability. During the quarter, we announced additional organizational streamlining and major facilities consolidations in support of these efforts. With these plans, by the end of 2020, we expect to reduce facility space by an additional 4.5 million sq ft. Concurrent with the steps we're taking to improve cost competitiveness and affordability, we also continue to invest in areas that are priorities for our customers, such as commercial derivatives, rotorcraft, satellites, services, human space exploration, and autonomous systems. Much of that investment supports the priority we have placed on capturing future franchise programs, where we are leveraging capabilities and technologies across the enterprise.
For JSTARS recapitalization, Ground-Based Strategic Deterrent, advanced weapons programs, and other important opportunities such as the T-X trainer and the unmanned aircraft carrier-based MQ-25A. In summary, our team is intent on building upon the strategic progress and business performance momentum established over the past several years to meet our commitments to our stakeholders and accelerate improvements in quality, safety, and productivity. All to drive further innovation in our products and processes and deliver long-term growth and value creation for our company. Now, over to Greg for our financial results and our 2017 guidance. Greg?
Thanks, Dennis. Good morning, everybody. Let's turn to slide four. We'll discuss our full-year results. Revenue for the year was a strong $94.6 billion on solid commercial airplane deliveries and continued growth in our services business. Core earnings per share totaled $7.24 a share for the full year, reflecting strong core operating performance across the company that was offset by the charges on the tanker program, as well as the second quarter 787 R&D reclassification and 747 charge. Operating cash flow for the year was a record $10.5 billion. The robust cash generation was largely driven by solid core operating performance for the full year and a slight impact from favorable timing of receipts and expenditures at year-end. Moving now to our quarterly results on slide five. Fourth quarter revenue was $23.3 billion, driven largely by solid commercial airplane deliveries and healthy defense revenues.
Core operating margins for the quarter were 8.9%, reflecting solid productivity gains in both businesses that were more than offset the fourth quarter after-tax charge on the tanker program. Fourth quarter core earnings per share was $2.47, again, on solid core operating performance that, again, more than offset the $0.32 charge on tanker. As Dennis mentioned, we have more work to do on the EMD program, but we're making good progress on the test and certification efforts, as well as retiring risk. The tanker charge this quarter was primarily on the production phase of the contract as we incorporate changes on the airplane in the factory and make investments in our production system that will allow us to build future aircraft in a more efficient manner. Let's discuss commercial airplanes now on slide six. For the fourth quarter, our commercial airplane revenue was $16.2 billion.
Commercial airplane operating margins in the fourth quarter were 9.1%, excluding the tanker charge at BCA-generated operating margins at 10.6% on favorable delivery mix, lower R&D, and improved overall performance. Commercial airplanes captured $23 billion in net orders during the quarter, strengthening our backlog that now stands at $416 billion and more than 5,700 aircraft. For the full year, we captured $49 billion on 668 net orders. On the 787 program, the deferred production balance continued its downward trend, declining another $215 million in the quarter. The improvement was driven by the delivery mix, internal productivity efforts, and supplier step-down pricing. Over the long term, we continue to focus on 787 cash generation, again, driven by the favorable mix, internal productivity improvements, and additional supplier step-down pricing. Let's turn now to Defense, Space & Security results on slide seven.
Fourth quarter revenue at our defense business was $6.9 billion, operating margins were 11.8%, largely due to solid core performance and timing of deliveries. Apart from the tanker charge at BDS, the segment generated operating margins of 12.8%. Revenue at Boeing Military Aircraft decreased to $2.6 billion in the fourth quarter, resulting from timing of deliveries, operating margins were 11% in the quarter. Network & Space Systems revenue declined to $1.8 billion in the fourth quarter on lower planned satellite volume, N&SS generated operating margins of 8.7%. Global Services & Support reported revenue of $2.4 billion and generated strong operating margins of 14.9%, driven by performance and favorable contract mix. Defense, Space, and Security reported $8 billion of new business in the quarter, the backlogs now stands at $57 billion, of which 37% represents customers from outside the United States. Turning now to slide eight.
Operating cash flow for the fourth quarter was better than planned at $2.8 billion. The strength of our cash flow was driven by solid performance across the company, as well as slight impact from favorable timing of receipts and expenditures at year-end. Again, operating cash flow for the year was a record $10.5 billion. The robust cash generation for the full year was driven by solid deliveries, strong core operating performance, and continued efforts on disciplined cash management. With regard to capital deployment, we paid $672 million in dividends to shareholders and repurchased four million shares for $500 million in the fourth quarter, bringing our 2016 repurchase activity to 55 million shares for $7 billion. As Dennis mentioned earlier, we announced in December that our board of directors increased the share repurchase authorization back up to $14 billion and increased the dividend another 30%.
We now have increased our dividend per share by more than 190% in four years, over the same period, we have lowered our share count 18% through the repurchase of 174 million shares. Our capital deployment strategy demonstrates the strength of our backlog and our confidence in our marketplace and our business performance going forward. Returning cash to shareholders, along with continued investment to support future growth, remains top priority for us. Moving now to cash and debt balances on slide nine. We ended the quarter with $10 billion of cash in marketable securities. Our cash position continues to provide solid liquidity and positions us well going forward. This financial strength allows us to continue to invest in key growth areas of our business, return cash to shareholders, and execute on our balanced cash deployment strategy going forward.
Let's now turn to slide 10, we'll discuss our outlook for 2017. Our guidance for 2017 reflects solid core operating performance, planned productivity improvements, as we have long discussed, growing cash flows. Operating cash for 2017 is forecasted to increase by approximately $250 million to $10.75 billion, largely driven by improvement 787 cash generation, higher 737 production rates, overall disciplined cash management efforts, all of which more than offset the cash impact from the lower 777 volume. We expect 2017 pension funding to be approximately $500 million, which is an increase from $100 million of funding in 2016. As 777X investments peak in 2016, capital spending is forecast to decline in 2017 by approximately $300 million to now be approximately $2.3 billion.
Revenue for 2017 is forecasted to be between $90.5 billion and $92.5 billion, largely reflecting lower 777 production and military volume, which more than offset the planned higher 737 production and growth in commercial and defense services. We continue to expect revenue growth over the remainder of the decade, with additional commercial airplane rate increases planned as we deliver on our robust backlog and execute our services growth strategy. Core earnings per share guidance for 2017 is set to be between $9.10 and $9.30 per share. Our 2017 commercial airplane revenue guidance is between $62.5 billion and $63.5 billion. As we have previously discussed, this is largely based on deliveries ramping up on the 737 program, offset by the lower 777 volume. In all, BCA is expected to deliver between 760 and 765 airplanes.
Commercial airplanes operating margin guidance is between 9.5% and 10% on improved operating performance that more than offsets the impact of the lower 777 volume. We continue to assess the implementation of the next 787 rate increase that is currently scheduled to ramp up to 14 per month at the end of the decade. A production decision could impact 2017 BCA margins, but this is largely bounded within the guidance range we've provided. Defense, Space and Security revenue guidance for 2017 is between $28 billion and $29 billion, reflecting the defense spending environment and lower planned C-17 deliveries. Operating margin guidance at our defense business is approximately 11.5%, reflecting continued productivity efforts as our team work to offset the lower volume.
We expect research and development spending to be relatively flat year-over-year in 2017 at approximately $3.6 billion, with about 75% related to BCA, primarily driven by planned increases in 777X development, while BDS continues to invest in key strategic opportunities. Consistent with prior years and given the seasonality of our business, as we look into the next quarter, we expect first quarter revenue to be the lowest of the year. Core EPS is estimated to be approximately 20% of our full-year earnings, and 1Q cash flow is forecasted to be near breakeven, again, driven by the timing of receipts and expenditures. Turning to 2018, let me provide you some brief insight. We focused on delivering on our backlog and continue to aggressively drive productivity, which supports our outlook for 2018.
We're expecting growth in key financial metrics for 2018, growth in revenue, deliveries, BCA and BDS operating margins, core earnings per share, and finally, operating cash flow. Furthermore, as we've discussed over the remainder of the decade, we continue to expect to see revenue earnings, cash flow growth as we execute on the robust backlog, including the 787 production rate ramp, improve 787 cash generation, capture further working capital efficiencies, further implement our services growth strategy, and deliver on enterprise-wide productivity efforts. With that, I'll now turn it back over to Dennis for some final thoughts.
Thanks, Greg. In retrospect, with solid fourth quarter results and focus on meeting customer commitments, we now put 2016 in the books as a year of solid core operating performance, record cash flow, and healthy return to our shareholders. Furthermore, we continue to de-risk our business and advance our strategies for sustaining our leadership of the aerospace industry and earn our place as an enduring global industrial champion. As we look to 2017, we are intensely focused on profitable long-term growth, disciplined execution of production and development programs, expanding our services business, and improving quality and productivity across the enterprise. Our priorities are to continue leveraging the unique competitive advantage we have in operating as one Boeing, building strength on strength to deliver on our existing plans and commitments, and to stretch beyond those plans by sharpening and accelerating our pace of progress on key enterprise growth and productivity efforts.
We're giving clear and consistent attention to the profitable ramp-up in commercial airplane production, continuing to strengthen our defense and space business, growing services, delivering on our development programs, driving world-class levels of productivity and performance throughout the enterprise to fund our investments in innovation and growth, and to develop and maintain the best team and talent in the industry. All of which is to position Boeing for continued market leadership, sustained top and bottom-line growth, and to create increasing value for our customers, shareholders, employees, and other stakeholders. With that, we'd be happy to take your questions.
Ladies and gentlemen, to ask a question on today's conference, please press the star key followed by the digit one on your touchtone telephone. Again, it is star one for questions. In order that your question be clearly heard, we ask that you not use a speakerphone, cell phone, or phone headset. Please use your handset to ask a question. If you're on a speakerphone, please be sure your mute function is switched off so your signal can reach our equipment. Star one for questions. As a reminder, in the interest of time, we are asking that you limit yourself to one single part question. Again, star one for questions. We'll go to Howard Rubel with Jefferies. Please go ahead.
Thank you very much. Good morning, Dennis and Greg.
Good morning, Howard.
Good morning.
Dennis, sometimes I might call you the chief salesman, and I'm sometimes, I want to be always worried about risk. Could you help us walk through a little bit of some of the opportunities you have, to improve operating performance? We saw a little bit in commercial in Q4 with excluding the charges, some very good operating numbers. What more can you do going forward, or can you provide a little bit more framework as to how we're going to get to some of the longer-term margin goals you've talked about?
You bet. Howard, thanks. That's a very keen focus for us as a team. We're committed as an enterprise, as I said, for the longer run, towards the end of the decade, getting to mid-teens margins for our business. You see us stepping in that direction as we head more deeply into double-digit margins in the coming year. Exclusive of the tanker charge that we took this past quarter, you'll see that reflected in the underlying performance as well. We see signs of progress with more work to do. We have a comprehensive program in place to drive productivity, quality, and safety throughout the enterprise. This includes our lean and capturing the value of quality initiative. It includes an initiative around our Partnering for Success effort with our suppliers. We anticipate additional investments in our development program excellence initiative will pay off.
Albeit, we took a tanker charge in the fourth quarter. It's very clear that we are driving risk to closure on that program and our development program excellence efforts are paying off. We see that reflected, for example, in the 737 MAX program, which is delivering on schedule and on cost, actually a bit ahead of schedule. That comprehensive investment in productivity efforts is really important to us. I can tell you we're committed to it at the leadership level, and it's in the culture of our company, and our people are committed to it. In addition to those initiatives, we're also driving longer-term investments around things like second-century design and manufacturing, bringing additional automation and technology capabilities into our manufacturing facilities. Also as we invest in services, we anticipate that our services business will be accretive to margins as we grow that business.
I look at this as a comprehensive, well-defined program. It's across the enterprise. We're leveraging all of Boeing's capacity to do that, we are committed to driving productivity and quality in everything we do. In the end, you're going to see that show up at the bottom line. You'll see it in margins, and you'll see it in earnings and cash performance.
First questions from Carter Copeland with Barclays. Please go ahead.
Hey, good morning, guys.
Morning.
Morning.
Greg, a couple accounting housekeeping and a question for you, Dennis. On the accounting, Greg, when do you hit another 100 unit block on the 787 cost? Presumably, that has an impact on the deferred production. Additionally, with all this moving around, are we going to get program accounting disclosures on the 777 at some point? Then question for Dennis, I hate to put it so bluntly, but we've clearly had a series of charges on the Tanker program at this point, I'm just sort of wondering, are we to the point where you can draw a line in the sand and say, you think you've got it appropriately bounded? Or, I just want to get a kind of take your temperature on, is the bad news fully behind you at this point? Thanks, guys.
Greg, you want to take the first one?
Yeah, sure. We break into that next block in the summer timeframe, Carter, obviously as we move forward, that obviously helps our overall margin. There's mix, obviously there's supplier step down, then there's learning curve. I would say, from an internal perspective, team's doing a great job. When I say doing a great job, Charleston, Seattle, working together, focused on unit over unit improvement, sharing best practices. Teams are very engaged, really, again, on a daily cadence, work package by work package. Certainly a lot of work to do, but, they're doing a terrific job there. Then again, we've got the other elements that'll help overall. Kind of in that summer timeframe. On the 777, we'll go through that disclosure as we get closer to delivery and the accounting block size and so on.
We still got quite a bit of time before we get into that.
Okay. Carter, to your second question on Tanker. Like you, we're disappointed with the Tanker charge we took in the fourth quarter, it's well understood and defined. I will say that the nature of the risk on the program's clearly changing, as expected, we've moved now from the development program into the initial production program. Last year, we were talking about key development risks, flight test risks, you recall that we had to work through some challenges on the refueling boom. Just to give you a sense of the progress there, that new boom has now been flown, cleared throughout the envelope. We've completed all of the boom envelope testing as part of the development program, we've closed out that risk. We've got five aircraft in flight test.
We've completed more than 1,500 hours of flight testing, we are steadily knocking out test points every day. While we still have flight testing to go, it's very clear now that we're not discovering new technical risks. It's now about getting the first 18 aircraft delivered. The charge we took in the fourth quarter was around the previously defined configuration changes, the wiring changes that you recall from last year. Now implementing those at the detail level in the initial production aircraft. That work is known, it's well defined. We have some job categories that are just taking longer than planned in terms of hours per job, that's what you see in the charge in the quarter. This is not new work. It's well understood.
It's very clear to us that the risk is closing out, we're going to drive it to closure and begin delivering Tankers this year. We're in the final stages of doing that, we'll move fully into the full production program. We're working very closely with our Air Force customer. Very strong relationship there, confidence in the long-term strength of the program. I think it's, again, important for us just to step back and understand, while the development program has been challenging, this is a great long-term franchise program, we expect this to be 400-plus aircraft in the long run, it will go for decades. It'll be a great airplane for our customers, it'll be good business for Boeing.
Thanks for the color.
Our next question's from Cai von Rumohr with Cowen and Company. Please go ahead.
Yes, thank you very much. Your fourth quarter commercial margins, if we back out the Tanker charge, really looked quite good. Could you give us a little bit more color regarding any block changes, any catch-up adjustments, where were period expenses, all of those issues? Thanks.
Sure, Cai. Look, there was no block extensions. There was actually a contraction on the 777 as we brought that rate down. Overall margins, there was improvement there, and then taking into account, of course, again, the 777 rate change. We did have some favorable period expense. I would equate, certainly not all of it, Cai, but a lot of it to a lot of affordability action taking place as we've talked about, and some of that taking hold in the fourth quarter, and us being able to bring that to the bottom line. I wouldn't say it was one single thing. Again, it was across the board on product as well as support, and on G&A as well. Team did a great job with a very strong finish to the year.
Cai, just to add a little color to that, as Greg said, this focus on driving competitiveness and affordability at the team level, really proud of the progress our team is making, and our team understands the connection between driving affordability and margins and our ability to invest in the future and win in the marketplace. We know we're in a competitive marketplace. Our team is focused on winning, and you can see all of the drive on competitiveness is showing up in increasing margin performance. That'll allow us to invest for the future. That dynamic is clearly owned at the team level, and that's some of the energy you see in the numbers.
Thank you.
You're welcome.
Next, we go to Doug Harned with Bernstein. Please go ahead.
Thank you. Good morning.
Morning.
Hey, Doug.
Dennis, in November, you made two very important moves, one, naming the first outsider that I'm aware of to lead BCA, then standing up the new Services Unit. First, can you point to things that Kevin McAllister may be doing that will be different for BCA? Then for the Services Unit, it's not in guidance, but how large do you expect that unit to be for commercial and defense, and what kind of growth do you expect to see over the next three to five years?
Doug, thanks for the questions there. On the first one, regarding Kevin, we're very pleased to have Kevin on our team, as you know, as I've told you many times, one of the most important investments we make is our investment in leadership and talent. Now, I will say, although Kevin's coming to us from outside of Boeing, he's been a very close partner for many, many years. Understands Boeing well. Great fit with our culture. He's been a close partner during his time at GE, that's been a seamless transition for us. That said, I think it's also healthy for us as we build our team for the future to have both internal and external candidates and teammates. Kevin coming in with some new eyes and fresh views and new ideas, I think there's synergy to be had there.
Already we're seeing that in our team, the combination of some of the ideas we already had, some new ideas and approaches that Kevin's bringing to the table. It's going to make us better as a team, better as a company. I'm pleased with that. Then, with Ray Conner's help, again, the whole transition and ensuring that goes very smoothly with our customers and with Ray's mentorship, is further just accelerating Kevin's ramp-up in the company. I'm proud of that, and we're going to continue to invest in our team. To your point on Services, yeah, that was a big strategic move for us. As we've said for some time, we're looking at and targeting Services growth for the long run.
As we've evaluated our options and the investments we're making, we thought one of the key strategic steps was to create an integrated services business whose number 1 job every day is to serve our customers and grow our services business. That's in combination with the other investments we're making in both organic and inorganic growth. Growing our parts business, growing our mods and upgrades business, growing our data analytics business. It's all part of a holistic services growth strategy. We'll have that unit fully up and operating in the third quarter of this year. At that point, we'll begin showing you the integrated financials for that unit. We expect that to be one of our fastest-growing businesses going forward. As we've told you, we've put a longer-term target out there to make that a $50 billion a year services business.
We've got a lot of work to grow it to be that capacity, but we're focused on a strategy to enable that. We're putting the building blocks in place today. You'll see when we roll that business out fully in the third quarter that it's already a healthy, strong business, but a lot of upside to grow. We see services as a $2.5 trillion marketplace over the next 10 years. Today, we have about a 7% market share in commercial services and about a 9% market share in defense services. We believe there's plenty of market space to grow, and by attacking that market as a one Boeing entity and integrated services strategy with the right cost structure and the right capabilities to pursue it, we think we'll be successful in growing market share and growing within an overall market that's also expanding.
Okay, very good. Thank you.
Next question's from Ken Herbert with Canaccord. Please go ahead.
Hi, good morning.
Hey, Ken.
Hi, I wanted to ask Dennis, about the Defense market. It looks like when you back out the C-17 revenues you had in 2016, you're flat to down slightly in 2017, maybe. Clearly in the last couple of months, both, with the election, the backdrop seems to have improved. It seems like you're getting more traction with F-18 and some other programs. Two questions on it, really. First, has the outlook changed post 2017 for maybe the top-line on the Defense business, and how are you thinking about growth of that business now? Then second, at what point do you start to accelerate investments in that side of the business to perhaps capture some of the more emerging opportunities?
You bet. Well, first of all, we see our Defense business as a healthy core business today, albeit our guidance for 2017 is down a bit on revenue based on planned delivery rates and C-17 coming down. Longer term, we still expect low to moderate top-line growth in our Defense business. That's been our projection previously, we continue to see the Defense business as a healthy, moderate top-line growth kind of business. We're also investing to continue to drive bottom-line performance, you see that in the underlying margin performance in that business, getting well into the double-digit margin range. That's allowing us to invest for the future. When we look ahead, I would say that we see some signs that are strengthening our prospects in the defense market.
We think domestically, we're seeing some additional strength on the underlying defense budget, alternatives to sequestration, which we fully support. We anticipate seeing some strengthening defense budget domestically. We also see continuing high demand internationally for our products, and we believe the products that we have, both today and the ones we're investing in, provide a great capability cost match for our customers. Leading-edge capabilities at best value. That spans commercial derivatives, satellites, fighters, helicopters, our services business, and more broadly, our human space exploration business. We intend to lead in those business sectors, and we're investing accordingly. To those future investments, as you alluded to, some key opportunities right in front of us, including T-X and JSTARS as examples, places where we are investing and leveraging across the Boeing enterprise. We see our defense and space business today as a healthy core business.
It's got some upside potential. We see some strengthening signals in the market, we are investing for the future to both grow top and bottom line.
Thank you very much.
Our next question's from Noah Poponak with Goldman Sachs. Please go ahead.
Hey, good morning, everyone.
Morning.
Hey. Hi, Noah.
Hey, I wanted to ask on 787 demand. The average annual new order number there, it's been 50 on average for, I guess, six or seven years now post-financial crisis. I wonder if we should start to think of that as a trend or not. With running deliveries closer to 140, if you were to have that gap for a few more years, the backlog that still looks sizable would wind down fairly quickly mathematically. Not asking if it's your base case, but I just wonder if there's any discussion in your internal scenario analysis about backing off that supply level, keeping a safer coverage, in case demand stays here, or do you have substantial reason to believe that order pace picks up pretty soon?
Yeah. Hey, Noah. First of all, I think it's important to note that, operating at 12 a month, right now we're at record production rates for a wide-body program, and the program is running well. You see it showing up in the numbers in terms of the efficiency of the program. We're very confident in the underlying operations of the program and confident in that 12-per-month rate structure. As you noted, we currently have a backlog of 700 787s. Now, orders will vary year to year, but we have 700 aircraft in backlog. Our confidence in being able to continue to operate at 12 a month is high. We are currently evaluating our decision around going to a 14-a-month rate towards the end of the decade. As always, we're going to be very disciplined on that decision. We're going to make sure that we match supply and demand.
While we've had some 787 sales, as I mentioned earlier, we still have more work to do to fill out the profile to 14 a month. Those are slots now that we're looking at filling towards the end of the decade. We remain very confident in the 787 line and our current rate, and we'll make a disciplined decision on 14 a month towards the end of the decade. The other thing to remember is longer-term outlook. This is a 20-year market outlook within our 39,000 aircraft that we see in our current market outlook, 9,000 of those are wide bodies. There is a significant wide-body replacement cycle in the coming decade, early in the next decade, and we have the 787 and the 777 families very well positioned for that upcoming replacement cycle. All of those lead us to great confidence in the 787 line.
We're going to continue to drive productivity and efficiency into that line that'll further drive our competitiveness in the marketplace so that we can win going forward.
Yeah. Agreed the 700 looks sizable for sure. I was just, back of the envelope, if you thought about 150 deliveries, depending on where you are between 12 and 14 and 50 orders, it's 100 unit annual gap. The 700 could come down pretty quickly. I guess, do you have visibility into that 50 pace changing in the near to medium term?
As I said, orders tend to move around year to year, don't take any one year and try to draw a trend line through it. Our customers will buy in cycles, you'll see year-to-year variation in order volume on 787. On a wide-body production line, 700 aircraft in backlog at current production rates, it's more than four years of backlog. That is a very strong position to be in. The 787, especially now as we're getting ready to roll out the -10, is extremely well positioned in the marketplace. It is the most efficient airplane in the marketplace, clearly, in that seat range, we're very confident of our ability to compete and win in the marketplace. We're going to continue to drive affordability progress again internally to make us even more competitive.
Terrific.
I think when the -10 gets into the marketplace, that's even going to put more confidence in that product line.
You got it.
I think the other thing that Dennis alluded to, this airplane has opened up 130 new markets, either planned routes or ones that are already being executed. This thing's a differentiator, obviously, in the marketplace. Our job is to continue to ensure that we invest in that program like we are in the -10 and continue to lead
In this segment of the market as the 787 has, and I think that's demonstrated in the 700 airplanes that are in backlog. We got a great machine here, and we're focused on the day-to-day execution, getting this Dash 10 up to rate, getting it in the market, get it in the hands of our customer, and we think they're going to love it.
That's great. Hey, Greg, would you tell us what's in the 2017 cash guide for change in working capital?
Change in?
For change in total working capital.
Improvements in working capital in 2017. That's what we're expecting. It's modest.
It's modest.
Yep.
Okay. Terrific. Thanks a lot.
You're welcome.
Our next question's from Jason Gursky with Citi. Please go ahead.
Hey, good morning. Hey, Greg, just a quick clarification on the tanker. Can you just let us know whether the cash burn on that, the peak of that is still in front of us, or if it's now behind us, given all the charges that you've taken? Dennis,
Yeah.
Can you just provide us maybe a comprehensive update on the 777X program? What milestones have you hit thus far? What's still in front of us? How much of the risk on that program is retired at this point? Thanks, guys.
Yep. On the tanker cash, yeah, 2016, 2017 is the primary burn. We'll be cash flow positive later in 2018.
Okay.
On 777X, we're continuing to march smartly through the development program. Development continues to be right on track. We're making the right capital investments up front. As you are well aware, we recently opened the composite wing center in Everett and getting ourselves in position to manufacture the fourth generation composite wing for that airplane. We're also pulling ahead some of the manufacturing technology to de-risk it in the current 777 line, again, to get us ready for a smart and efficient ramp-up of the 777X. The development program itself is going well. We're right now working through detailed design. We'll be completing our critical program review this year. We'll begin working our way through assembly. As you saw, we're already beginning to build parts for the 777X. We'll get into final assembly in 2018. We continue to be on track for entry into service in 2020.
Feeling very good about the program. It's on track. Clearly, we have work to do yet to get it to the finish line. All signals here are the investments we've made in development program excellence are paying off. We're confident that when the airplane comes to the marketplace, it's going to be a high-value airplane for our customers. We've seen very strong performance in all of the testing that's underway. The production system preparation is also on track, and we're confident that we'll be ready to ramp up.
Great. The first flight is first half of 2018 or second half?
Yeah.
Yeah.
Flight test is scheduled to begin in 2018.
Yeah. Okay, it's towards the tail end of you. Okay, thanks, guys.
Our next question's from Hunter Keay with Wolfe Research. Please go ahead.
Hi. Thanks. Sorry about that. A little more on 777X. Dennis, how are you thinking about, or are you thinking about maybe extending or even deepening some of the discounting to incent maybe a little more stability in the backlog, given you've got, I think it's almost 80% of your customers are the ME3 carriers whose results are obviously continuing to weaken. Is there a concern, maybe not just from the lack of order activity in general, but a lack of diversification in the skyline? Are you willing to maybe buy a little bit of backlog in exchange for some longer-term stability as you ramp?
Yeah, the key thing here is right now we're focused on filling the bridge from 777 to 777X. We do have 320 777Xs in our firm backlog and commitments with our customers. Our 777X skyline is in very good shape in terms of our production ramp-up. Our key focus right now is at filling the bridge, and that includes finalizing those 777-300ER sales through the bridge. We're seeing the airplane pricing holding up reasonably well in the marketplace. It's competitive, but not unusual. We have a number of campaigns underway with our customers to fill those remaining bridge slots. We think we've made the right decisions to balance demand and supply. As we said, we're stepping down to a production rate of five per month in August of this year. That effectively sets the floor for the production program.
Against that profile, we're about 90% sold out in 2018 and 2019. Again, we still have work to do to fill those slots, but the value proposition of the airplane is clear. Our customers recognize it, we're just going to continue working on those campaigns to finish filling out those slots and move smartly into the 777X production ramp-up.
Thank you.
Next, we'll to Myles Walton with Deutsche Bank. Please go ahead.
Thanks. Good morning.
Morning.
Just a quick one for Greg. Greg, I think the Dash 10 started to fold into the production stream in the quarter. Just curious if you can size the drag that had on the deferred production improvement, which was pretty good in and of itself, but just curious if there was a drag. Dennis, on the broader guidance, kind of gotten accustomed to a healthy dose of conservatism early in the year that would unlock through the course of the year. Would you characterize this guidance in 2017 as different than prior years? If so, is it because of the risk profile, or am I mischaracterizing it?
Yeah. Dash 10 didn't have a significant impact on deferred in the quarter, Myles. Obviously, the team's doing a great job getting that thing implemented into the production system, and frankly, it's coming together very well. It hasn't been a big drag, and I don't expect it to have significant. Now, quarter-over-quarter, as you know, there's going to be ins and outs on the deferred. Overall, we expect to continue to improve that going forward with the Dash 10 ramping up as well.
Myles, to your second question, our approach to our guidance is the same. Same process, same approach. We take a diligent look at our business plans, the marketplace, and how we expect to perform, and you see that reflected in our numbers. I'd say our fundamental approach hasn't changed at all. That said, when you look at the numbers that we've guided to and you see the strength of those numbers, both in terms of EPS and cash, I think that reflects the underlying confidence we have in the business. As we've mentioned to all of you previously, we are on a solid growth trajectory in an aerospace sector that's healthy. We have the right plans and products in place, and we are prepared to ramp up our commercial airplane production, as we delivered in the mid 700 aircraft this year.
We're guiding to higher deliveries in the coming year, and we still expect that towards the end of the decade, we're going to be well north of 900 aircraft per year. On top of that, we're growing our services business, and we're selectively growing our defense business. All of that gives us top-line strength. You combine that with our backlog that's allowing us to make the investments to drive bottom-line performance. You see that reflected in our EPS guidance. You see it reflected in our cash guidance. As we told you before, our expectation is that this is a year-over-year cash growth business. Our guidance reflects that confidence.
Thanks, guys.
Next question is from Rajeev Lalwani with Morgan Stanley. Please go ahead.
Hi. Thanks for the time. Just a question on the 787 side. Greg, you made a comment about a production decision this year going to 14 a month and how that could impact that 9.5%-10% margin at BCA. Just some color here on how to think about that. Just relating to the 787. Any color on how to think about the deferred trajectory through the year? You gave some good commentary before, I guess, last year. Just something similar there.
Yeah. Quarter-over-quarter, we expect deferred to improve, and it really, again, kind of, Rajeev, falls into those three major categories. Obviously, improved unit performance in our factories, but that supplier step down I mentioned on a question earlier that we'll move into that next block in the summer timeframe, and that will be favorable. Quarter-over-quarter, again, you're going to see delivery mix impacting there, but all that will be more than offset of just continued improvement quarter-over-quarter on deferred. Of course, as I mentioned, mix. Getting that Dash 10 in smoothly as it has and replicating how we did that at the Dash 9 is exactly the game plan everybody's working to. That's key in there, and we're assuming all that goes as it has been going per plan, and that'll all translate into deferred.
Now, I would tell you, stepping back from that, obviously big focus on cash improvement overall on the program, and certainly deferred's a key part of that. Making our deliveries on all models on time, and ensuring that we're executing at that level on top of the overall productivity, the advances associated with our current delivery rates at 12 a month and beyond. Every element of, I'll say, cash flow is being actively managed quarter-over-quarter, and obviously we're cash flow positive last year, and we're going to be even more so this year. It's really all in those elements that are driving to that bottom-line performance.
Sorry, Greg, the other part to the question was just, and correct me if I'm wrong, but I thought you made a comment about how making a decision on going to 14 a month could impact margins for this year. Just some color there.
Yeah, we kind of put that in the range of the guide. Obviously, we're assuming at this point that we go to 14. The market supports that, going to 14. We don't have to make the formal decision yet. As we get closer to that, we'll continue to monitor the marketplace, fill in those unsold positions, and then look at, I'll say, more over a longer term until we make that formal decision. That's why we kind of put a range in there to try to take that into account if we decided to hold at the 12 a month, at least for the near term.
It's bounded in the guidance.
Yep.
As always, we're going to make a very disciplined decision here.
Yeah.
It's in our mutual interest to make sure we're aligning supply and demand and keeping the production system healthy while supporting our customers.
Very helpful. Thank you.
Operator, we have time for one more analyst question, and that will be from Peter Arment with Baird. Please go ahead.
Yeah, good morning, Dennis, Greg. Thanks for squeezing me in.
Morning, Peter.
Hey, first, just a clarification. Did you mention what the expectation is around MAX deliveries this year? The second part of this question is just more, Greg, how you think about the sensitivity in the backlog when you're thinking about terms of customers, particularly I'm thinking EM with the move we've seen in the dollar and expectations with given the policies that are going to be going forward that we may see a further strengthening, how you think about that?
I'll take the first one, and Greg, you take the second.
Sure.
On MAX deliveries, as we said, the flight test program remains on track. We announced that we're going to begin delivering aircraft in the first half of this year, and we're on track to deliver our first MAX in the second quarter of 2017. We feel very confident, and the airplane is performing well, and we're on track to begin deliveries this year. For the remainder of the year, as we ramp up the production system, the MAX will end up being about 10%-15% of the total 737 deliveries this year. A meaningful portion, but a fraction as we begin ramping up. Our team is doing a great job in the factory in Renton to make sure that we continue to deliver NGs while we ramp up the MAX. The production line preparation is on track.
Again, you can see that in the underlying performance of the 737 program. We remain very confident in that program. The market is strong. The airplane is selling well. Flight test is on track, and we'll begin delivering airplanes here in the first half of the year.
With regards to the backlog, Peter, certainly something that we look at and analyze from multiple, I'll say, angles as we assess the backlog and look for any potential areas that may be of softness and what mitigation plans. We really try to get ahead of that if we have any of that and move customers around within a skyline. Certainly, first and foremost, it starts with staying really engaged with your customer and understanding what their fleet plans are and specific timelines around deliveries. We're going to continue to do that, and if we see any changes, then we'll say we'll change accordingly. We're not seeing anything at this point that is, I'd say, anything outside the norm of what you all have seen, where we've got, as we've talked about, in particularly wide-body, areas of softness.
We know where they are, and we're deeply engaged, and back to Dennis's point, we'll make the right decisions if we have to around supply and demand as we face into those.
Appreciate the color. Thanks.
You're welcome.
Ladies and gentlemen, that completes the analyst question and answer session. For members of the media, if you have a question, please press the star key followed by the digit 1 on your touch tone phone. I'll now return you to The Boeing Company for introductory remarks by Mr. Tom Downey, Senior Vice President of Corporate Communications. Mr. Downey, please go ahead.
Thank you. We'll continue now with questions for Dennis and Greg. If you have any questions following this part of the session, please call our media relations team at 312-544-2002. Operator, we're ready for the first question, in the interest of time, we ask again that you limit everyone to just one question, please.
We'll go to Julie Johnsson with Bloomberg. Please go ahead.
Hi, good morning, everyone.
Hi, Julie.
Good morning.
Hey, Dennis, could you discuss your strategy for China, especially with some of the rhetoric we've heard and the possibility of trade tensions rising. Trump last year on the campaign trail took a shot or two at the 737 finishing center and also warned potentially of hiring being affected in the U.S. Where do plans stand at this point, and are you still committed to moving forward?
Yeah. Well, hey, Julie, great question. First of all, I think it's really important for all of us to understand that healthy trade relationships between the U.S. and China are important. I'm very confident that the incoming administration understands that. Mr. Trump, President Trump, is very much engaged with business. We've had the privilege of having a very open dialogue with him on business issues and all of the actions that are being taken around things like tax reform, regulatory reform, focus on trade policy. Those are all things that are going to allow us to grow economically and ultimately allow us to grow and add manufacturing capacity in the U.S. We're very supportive of those actions, very confident that those are headed in the right direction and being done with the right tone and tenor. Regarding China itself, that relationship continues to be very important.
I know we all understand that a productive and healthy relationship with China is key. It'll be grounded in principles of fair trade and a level playing field for all competitors. If I look at the marketplace, it's a commercial airplane marketplace of 39,000 plus aircraft over the next 20 years. About 6,800 of those are in China. It's important that we be able to compete and win in China and to be a partner there as they grow their aerospace industry. It's a highly competitive environment, and so actions that are being taken to ensure U.S. competitiveness are positive actions, and we support those. We're going to continue to work hard in that direction. Regarding our China finishing center, again, that's an important part of the partnership equation here.
That finishing center is a location where we'll be able to add value in China, but every airplane that goes to that finishing center is being built here in the U.S. This is a great example of by making the right targeted investments in China with our partners there, we're able to add volume, increase sales in China. As we increase sales in China, we increase building airplanes here in the U.S., and that's U.S. manufacturing jobs. It's a great example of how growth in China creates growth in U.S. manufacturing jobs. If I could, even more broadly on the aerospace front, if you look at global trade. The aerospace sector continues to be the strongest sector in the United States in terms of trade balance, with a positive trade balance of more than $80 billion per year. Boeing is a big part of that.
We're the U.S.' biggest exporter. Within that, we and our supply chain of more than 13,000 companies in the United States, create and sustain about one and a half million aerospace jobs. Aerospace is a big, important manufacturing sector for the U.S. Global competitiveness will help us drive that in the long run, and a healthy U.S.-China trade policy and relationship is an enabler for growing U.S. manufacturing jobs.
Our next question's from Doug Cameron with The Wall Street Journal. Please go ahead.
Good morning, everyone. I think I can spot a theme developing amongst our questions this morning. Dennis, given you're in the business of providing affordable solutions for the new administration, as indeed its predecessor, have you discussed border security at all with the President? Do you think there's anything from good old SBInet from yesteryear that you can harvest for the current initiative being discussed?
That's not an area that we're currently actively pursuing. Again, when and if the government has some opportunities there where they need some assistance, we're happy to provide some technologies and capabilities. We do have some very low-cost, affordable, and effective autonomous system solutions, unmanned aircraft, things like the ScanEagle, which have been used very effectively throughout the world for a variety of surveillance purposes. Those are the kind of capabilities that are available as we look to future solutions. We're standing by to support where we can any U.S. government decisions that are made along that path.
Next question's from Patti Waldmeir with the Financial Times. Please go ahead.
Yes. You've spoken a little bit about what kind of changes we might expect in the Trump era, tax reform, et cetera. Can I ask you a little bit what it's like to actually operate in this new environment where the Dow breaks 20,000 because there's optimism about what Mr. Trump will do for the business environment, but at the same time, we never know when the next tweet is going to come out of left field? What word or phrase would you choose to describe your mood in the current environment? This is for Dennis.
Yeah. Well, President Trump's clearly very focused on enacting policies that'll grow the U.S. economy and grow American jobs, and we're very supportive of that. His approach to engaging business, having an open dialogue, discussing the issues, finding solutions, finding ways to grow U.S. manufacturing jobs, I think are all very positive. That engagement is a productive approach. We welcome it. We've got a voice at the table, and as we move forward on things like tax reform, regulatory reform, defense budget strength, trade policy, creating jobs, investing in manufacturing for the future, things like the Ex-Im Bank, all of those are big enablers for us. I think the direct engagement and the open dialogue is very healthy. We very much support it, and I'm encouraged about what it means for future economic growth and growth of the aerospace sector.
Next we'll go to Dan Catchpole with "The Everett Herald." Please go ahead.
Hey, gentlemen. Thanks for taking my call here or my question. I was wondering if, in your reliance on a global supply chain, if Trump's focus on America First economics will affect your ability to procure components and materials, and if there's any changes that you're making in terms of procurement and supply chain relationships ahead of the potential effects.
No, we don't see any big changes here. The key thing to understand in our business model, while we have a global supply chain, and those partnerships are very important to us, and we'll continue to invest in those partnerships, in the end, as our products come together and we do final assembly, 90% of our final product base is built here in the U.S. and then delivered around the world. That's a very strong example of leveraging our global supply base while producing U.S.-based products. That strength's going to continue going forward. We see the aerospace sector as fundamentally having an advantage in that regard. We do have a global supply chain, but in the end, 90% of our Boeing employment is here in the U.S., and we deliver about 75% of our product base to customers outside of the U.S.
That's a big reason we have a strong contribution to a trade balance in the aerospace sector. As I said before, north of $80 billion a year favorable trade balance, Boeing is a big part of that. We're the U.S.'s biggest exporter, we leverage those global supply chains to create the world's greatest airplanes. It's advantageous not only for our global partners, but it's also advantageous for growing U.S. manufacturing jobs.
Our next question's from Alwyn Scott with Reuters. Please go ahead.
Hi, Dennis and Greg. Can you hear me all right?
Yes.
Yep.
Great. Productivity gains you've made have clearly been results in the operating performance you've shown. Since you've probably picked a lot of the low-hanging fruit, can you talk about what we can expect in terms of additional cost savings at this point? Where do you see that happening? Is it new processes? Is it automation? Is it labor reduction? Is it more supplier price cuts through Partnering for Success? What's your view on that going ahead? If you can be specific, that would be helpful.
Yeah, let me start. Maybe, Greg, you can add onto that. I would say this will be a relentless effort going forward. Our work on affordability and productivity, while we've made some strong strides over the last couple of years, you see it reflected in the performance, we have much more ahead of us than what's behind us. I don't see this effort losing any steam, any momentum. In fact, I see a great deal of opportunities ahead of us, and those are both internal and external. Internally, we're continuing to look at opportunities to lean out our operations in both our factories and office spaces. First-time quality is a key emphasis for us. Our working capital initiative is a key opportunity for us.
With our supply chain, working as partners under our Partnering for Success initiative, our value engineering work, where we're finding win-win solutions with our supply base, still much more opportunity under Partnering for Success ahead of us, than what's behind us. While we've made some good initial strides, I would say those are initial steps with an expectation that there's much more still ahead of us, and that's what drives our expectation that we're headed towards those mid-teen double-digit margins towards the end of the decade and driving year-over-year cash performance. Greg, anything you want to add?
Yeah, I think, as part of that, obviously, we're resetting the bar of where we want to be, near term and long term, and getting some market-based, I'll say, affordability targets put in place that not only are in our markets, but also looking at what I would call, or we would call, a top quartile industrial, and how can we learn from that, whether it's on program costs or even functions. As we look across functions in Boeing, how do we compare with those companies sharing best practices? All of that, combined with a lot of the things that Dennis said, that's what's going to allow us to win the marketplace. That's what's going to fuel our investments. That's what's going to allow us to return cash to shareholders.
That combination of efforts is definitely accelerated, at the same time, bringing an outside-in perspective combined with our inside knowledge, and how do we leverage the best not only of Boeing, but even outside of Boeing, and bring that right to the bottom line. Again, that's what's going to allow us to win, be competitive in the market, and that's what's going to allow us to continue to invest in this business and drive a lot of the employment numbers that Dennis talked about. It's a unique portfolio we have here with regards to what gets made here and the technology and the amount of investments we make in technology here in the U.S. and exporting 75% of our product outside. That will continue to be our focus going forward.
We've got a big market to play in, and we're focused on capturing all the share that we can capture in that market and deliver value back to all of our stakeholders.
Our next question is from Glenn Farley with KING-TV. Please go ahead.
How are you guys doing this morning?
Doing great.
My question is, with all the push that we're getting from the new administration on buying American, do you fear a protectionist backlash from countries like China that do want to build their own aerospace industry and other places?
Glenn, again, we take a look at the actions that are being taken here. This is all about helping business be successful, growing the economy, and we know in the global business that we operate in, as we grow our business here in the U.S., it provides lift around the world as well. That's the nature of our aerospace business. It is a bit of a unique business in terms of its structure, the fact that, again, as Greg and I have both said, with around 90% of our employment here in the U.S., yet we export 75% of our products, we create a tremendous volume and strength in our U.S. business base, an economic value that we add here. That said, as we deliver airplanes and we enable global travel and global cargo delivery, it drives overall economic growth around the globe as well.
The administration's very focused on ensuring that we're implementing pro-business actions and policies and implementing trade agreements that will be fair and ensure U.S. competitiveness. That's what we look for in our trade agreements, is our ability to compete around the world, compete on a level playing field. When we can compete on a level playing field, we'll win. That'll grow our business. It'll be good for our customers, and it'll be good for the global economy. We're going to continue to engage and work very closely with the administration. Again, we're encouraged by the pro-business agenda. We think it's going to be good for jobs growth. It's going to be good for the economy, and, in the end, it's going to be good for the aerospace sector and Boeing.
Our next question is from Jon Ostrower with CNN. Please go ahead.
Hey, good morning, guys.
Morning.
Hey, Jon.
Just a question about the DNA of Boeing right now. Dennis, you've been on the job for 18 months, you've had a chance to take the reins and really dig deep into what Boeing is. Your 777 rate went up to 8.3, heading down 60% to three and a half on deliveries. You've got what looks like a very, very small, almost under-investment from an airline perspective on 737 MAX 10 with an expected huge investment coming on NMA. I'm really curious, as you look to, again, more huge production ramp-ups on the 737 toward the end of the decade, how do you see the cyclicality of Boeing internally and its expenses on keeping a stable business? Whether or not you've thought about how to engineer that out of your company, and really whether or not there's any steps you're taking with Kevin in his new leadership role to think about cyclicality internally in a different way.
Hey, Jon, the way I look at that is we are designing and implementing a long-term, sustained growth business. We're in a fundamentally different position today than we've been in anywhere in the first century of Boeing. Today, we have north of 5,700 aircraft in backlog at a composite level, that's six to seven years of production rate. It's the most highly diversified backlog we've ever had with two-thirds of that backlog outside of the U.S. and Europe. We have a strong fundamental defense and space business as well, with some increasing market prospects there. That combination allows us to have a much longer-term view and design the business to have sustained long-term growth rather than being a tight cyclical business. This is the longest term backlog that we've ever had by far, so we can have a much longer-term view of how we design our business.
We're also very mindful of the risks, now with this kind of backlog that we have in position, we can look out a little farther and think about our investments and make sure that we're matching supply and demand. That's why we've been very diligent on our rate decisions so that those are sustainable rate decisions. Making the right investments for the future. Rather than having a choppy profile in our R&D investments, we have a very well-defined, smooth profile. Just as we're now wrapping up the MAX and delivering it on schedule, we're into the heart of the 777X development program now, feathered in very nicely on the backside of MAX. We're contemplating decisions on our next generation of product lines, both defense and commercial. Those investments, again, will continue to dovetail very nicely on the backside of 777X.
We have a long-term investment profile that will drive innovation and drive stability in our financial structure. Combine that with a strong backlog and diligence on our production rate decisions, this is all designed to be a long-term, sustained growth business, top line and bottom line.
Operator, we have time for one last question from the media.
That will be from David Koenig with the Associated Press. Please go ahead.
Yeah. Hi. Thanks. My question was asked and answered, but if I can follow up on something that Financial Times, I think it was, asked. You had said, Dennis, that you were encouraged by President Trump's engagement and what he wants to do on taxes and regulation. I'm still curious, though, what it was like to be the target of critical tweets and comments, about one of your programs, and aren't you worried that could happen again, that he'll demand further cost reductions in some of your programs? Can you talk about that?
As I said, I'm very encouraged by President Trump's engagement. As you noted, we had some targeted discussions, well-publicized discussions on things like Air Force One and fighter aircraft. I think those were very productive discussions as well. This is all about making sure we're providing best capability for our government and our war fighters, at best affordability, best value for our taxpayers. We're exactly on the same page there. Whether it's those kind of targeted discussions on programs, which I think have been very productive, or broader discussions on pro-business decisions around trade and tax reform and regulatory reform, those have all been excellent conversations. I give a lot of credit here to reaching out and directly engaging. President Trump has had business leaders at the table.
He's listening, he's engaging and making decisions that'll help us grow the economy and ultimately grow U.S. manufacturing jobs. I'm encouraged by that dialogue, I think having direct open dialogue is productive and very good for the future.
That concludes our earnings call. For members of the media, if you have further questions, please call our media relations team at 312-544-2002. Thank you.