Brian West
Chief Financial Officer, Executive Vice President, Finance at Boeing
Thank you, Dave, and good morning, everyone. This was an important quarter. We made good progress on key programs and a pretty dynamic macro environment affected by inflation, labor availability and supply chain constraints, all of which impacted both us and the industry. Despite these challenges, we improved our quarter-over-quarter cash performance and importantly, generated positive operating cash flow. Cash was driven by higher commercial delivery volume as well as order activity and advanced payment timing. This keeps us on track to generate positive free cash flow for the year and higher cash flows in 2023. We still think about our performance in three parts and remain confident about the trajectory. First, as Dave mentioned, we made progress on key milestones. We're nearing a return for the 87 and are preparing airplanes for delivery. We continue to focus on 37 production stability of 31 MAXs per month. And we've derisked China from our near-term delivery profile. Next, as we see continued progress on these programs, we anticipate improvement in our performance metrics, including deliveries, revenue, margin and cash flow in the back half of the year.
We also expect cash flow benefits from order activity and favorable receipt timing over the next two quarters. Finally, our financial performance should start to accelerate into 2023. Going forward, there is a significant opportunity for our company to return to sustainable growth. And we look forward to sharing our plans at our Investor Day on November one and two. Before getting into the financials, I want to make a few points on the current business environment on slide three. Demand for commercial airplanes is strong, especially in the freighter market. We've seen cargo traffic increase from 2019 levels largely driven by e-commerce and the efficiency of air freight. With more than 90% share of the freighter market, our lineup is well positioned to capture continued growth. On the passenger side, traffic has recovered significantly but is still well below where it's been historically relative to global GDP. As airlines are currently in the middle of the summer high season, operational and supply constraints are becoming the pacing item for air traffic growth in the markets leading the recovery. That said, the commercial traffic recovery is accelerating. And passenger traffic has reached its highest point since 2019 in both North America and Europe. Domestic traffic remained relatively stable at 77% of 2019 levels as of May. While China still lags significantly, we saw some improvements in flight operations in June as travel restrictions lifted.
Excluding China, domestic traffic was over 90% of 2019 levels. International traffic is gaining momentum at 64% of 2019, up from just 48% in March, especially in regional markets such as intra-Europe, transatlantic and U.S.-Mexico as well as notable improvements via the Middle East and in some parts of Asia. Overall, our commercial passenger market recovery expectations are in line with what we've shared previously. We still see overall passenger traffic returning to 2019 levels in the 2023 to 2024 time frame. Taking all of this into consideration, we recently released our 2022 commercial market outlook, which forecasts a total addressable market valued at more than $3.3 trillion over the next decade and demand for nearly 20,000 airplanes. The forecast closely aligns to what we laid out last year and reflects the market's continued recovery. More specifically, we anticipate demand for more than 14,000 narrow-bodies or over 120 per month on average over the next 10 years. From a 20-year perspective, we project demand for more than 41,000 new airplanes, including 940 dedicated freighters.
We are very confident in our product lineup, which is well suited to capture this long-term demand. And we feel very good about last week with over 200 orders and commitments at Farnborough. We appreciate the trust and confidence our customers are placing in us. Our services business also continues to benefit from growing commercial fleet and strong cargo markets with several Boeing converted freighter and materials management agreements recently announced. Over the next 10 years, we see a $3.3 trillion service market that aligns well with our broad customer-focused portfolio of offerings. In Defense and Space, we see solid long-term markets, both domestically and internationally. In the United States, there is support for increased defense spending in Congress to meet the challenges of today. Internationally, many of our fellow NATO members, partners and allies have announced plans for increased spending on national defense, and we look forward to more specifics around these priorities. Turning to the supply chain. We continue to experience real constraints.
We're taking action to mitigate risk in a number of areas, including engines, raw materials and semiconductors. To stabilize production and support our supply chain, we're increasing our on-site presence at suppliers, creating teams of experts to address industry-wide shortages, utilizing internal fabrication for search capacity and managing inventory safety stock levels and growing where needed. With that backdrop, let's turn to financials on slide four. Second quarter revenue of $16.7 billion declined 2%, and we generated $0.5 billion of core operating earnings. After accounting for interest expense and taxes, we had a core loss per share of $0.37. Operating cash flow was positive $0.1 billion, in line with our expectations and an improvement from the same period last year. Let's move to Commercial Airplanes on slide five. Second quarter revenue was $6.2 billion, up 3% primarily driven by higher 37 deliveries, partially offset by lower 87 deliveries.
Operating losses of $0.2 billion and the resulting negative margin rate reflect abnormal costs and period expenses, including higher R&D expense as we continue to invest in the business. On the 87 program, we're very close to resuming deliveries. We're readying airplanes together with our customers and have completed flight checks on the initial airplanes. As always, we will follow the lead of the FAA on the specific timing. We have 120 airplanes in inventory and are making progress completing the necessary rework to prepare them for delivery. As stated last quarter, we're producing at very low rates and we'll continue to do so until deliveries resume, gradually returning to five airplanes per month over time. Similar to the 37 program, the supply chain remains a key watch item for 87 production and deliveries. We recorded $283 million of 87 abnormal costs in line with expectations, and we still anticipate a total of about $2 billion with most being incurred by the end of 2023.
These costs are driven by rework and production rates below five per month. It is important to keep in mind that cash margins on the 87 remain positive and are expected to improve significantly over time. However, as we deliver the first few 87 airplanes, you may see some variability in cash payments as we compensate customers for delays. The 87 continues to be the most utilized wide-body airplane due to its operational efficiency and flexibility. With over 400 airplanes in backlog, recent orders and commitments announced at Farnborough and additional demand as the commercial market recovers, we see a strong future for the 87 program. Moving on to the 37 program.
We've delivered 189 airplanes year-to-date, below our original expectations due to three things: supply chain disruptions, flow time of taking airplanes out of storage and timing of deliveries to Chinese customers. We don't anticipate making up those deliveries in the back half of the year, and we'll continue to experience monthly variability, including a light month in July. We now expect delivery to be closer to the low 400s for 2022, short of what we discussed earlier this year as we drive stability and predictability. We ended the quarter with 290 MAX airplanes in inventory, of which roughly half are designated for customers in China. Given this uncertainty with our customers in China, we now expect more deliveries of airplanes from inventory to shift into 2024. Due to overall progress on MAX production, we did not book abnormal costs in the quarter.
Additionally, we've reached agreement on over 95% of our MAX customer consideration liability. Shifting to the 777-9 program, our status is largely unchanged from what we shared last quarter. We still anticipate delivery of the first 777-9 airplane in 2025 and continue to coordinate with the FAA to prioritize resources across our development programs. We booked $102 million of 777 abnormal costs in the second quarter, in line with our expectations. And we still expect to record $1.5 billion of these costs through 2023 while 777-9 production remains paused. Turning to overall demand at BCA. During the quarter, we booked 184 commercial airplane orders, including 169 orders for the 737 MAX. At the end of the second quarter, we had over 4,200 airplanes in backlog valued at $297 billion. Let's now move on to Defense, Space & Security on slide six. Second quarter revenue was $6.2 billion, down 10% driven by lower volume and operational performance. Operating margin was 1.1% driven by approximately $400 million of charges on fixed-price development programs, most notably $147 million on MQ-25 and $93 million on commercial crew. This total also includes relatively small cost growth on the T-7A tanker and VC-25B, with no one program impacted by more than about $50 million.
And the drivers were largely supply chain impact and inflation. All of this will be outlined in the Q. We also saw these same pressures across a few of the mature programs. While this performance was disappointing, we're making progress narrowing our development risk profile and remain confident over the long term. We received $2 billion in orders during the quarter, and BDS backlog was $55 billion. Additionally, the Chinook helicopter has been selected to bring heavy lift capability to the German military. We also achieved important milestones across the portfolio. NASA's Space Launch System completed a wet dress rehearsal, and the KC-46A tanker is now certified to refuel 97% of the military's air refuellable fleet. Let's now turn to Global Services results on slide seven. The Global Services team celebrated its fifth anniversary this month and continues to perform well, especially in our parts and commercial training businesses. We're encouraged by the overall momentum. Second quarter revenue was $4.3 billion, up 6%, and operating margin was 16.9%. Results were driven by higher commercial services volume now nearly back to pre-pandemic levels and favorable mix.
We also discontinued an engine distribution agreement in the quarter, which will impact our government service revenue profile going forward. We received $4 billion in orders during the quarter, including a contract for airlift flight dispatch services for the U.S. Air Force and a contract for avionics upgrades and cybersecurity support for the U.S. Navy. The BGS backlog is $19 billion. With strong support for our defense business and our highly valid commercial capabilities, our services business is poised for growth as the commercial market continues to recover. Now let's turn to slide eight to cover cash and debt. We ended the second quarter with strong liquidity comprised of $11.4 billion of cash and marketable securities on the balance sheet and access to $14.7 billion across our bank credit facilities, which remain undrawn. Our debt balance decreased slightly from the end of last quarter to $57.2 billion driven by repayment of maturing debt.
Our investment-grade credit rating is a priority. And we remain committed to reducing debt levels through strong cash flow generation over time. As far as the rest of the year is concerned, we still anticipate 2022 total company revenue to be higher than last year primarily driven by higher commercial airplane deliveries on the 37 and 87 programs and growth in our services business, partially offset by lower defense revenue. Looking into 2023, we expect total company revenue growth from this year. BCA revenue is planned to be higher again on 37 and 87 deliveries. The demand outlook for the defense business remains steady, and we expect 2023 revenue to be better than 2022 as the business stabilizes. While we forecast BGS revenue to continue to grow next year, the growth rate will be tempered as we are nearly back to pre-pandemic levels. Turning to cash. We still expect to generate positive free cash flow this year. And the key drivers of second half improvement are higher 37 and 87 delivery volume, orders of advanced payments, BDS receipts as well as favorable expenditure timing.
As we look to 2023, we still expect cash flow will be higher than 2022, and we plan to share more details in November. Overall, our performance is tied to several key items: supply chain, production system and delivery stability, 37 and 87 delivery ramp, successful execution and certification of development programs, the commercial market recovery and the macroeconomic environment. While our progress depends on some factors beyond our control, we'll remain focused on our own performance and taking the right actions to drive stability and predictability and growth in the future. Taking a step back, this business and our team have come a long way over the last few years. We've seen our fair share of challenges and more hurdles still remain, but we're making progress. Demand for our product is strong. We're investing in our future, and our people are demonstrating exceptional commitment.
With that, over to Dave for closing comments.
