And then international mix is the other where we don’t expect significant international growth in 2024, but we do expect that to step up based on our pipeline and particularly the strong weapons demand outside the U.S. in 2025. That gives you a sense of what will be a tailwind to margin rate win.
Operator: Thank you. One moment for questions. Our next question comes from Myles Walton with Wolfe Research. You may proceed.
Myles Walton: Thanks, good morning. I was wondering, Dave, or Kathy, you previously talked about a $4 billion free cash flow target in 2028, effectively doubling what you’ve done in 2023. I just want to make sure that’s still on the table, despite the charge absorption in that period of time? And then maybe, Kathy, on the margin expansion specific to Aerospace, is that still a 10% margin business? Or do we have to glide slope down a little bit further into 2025, 2026.
David Keffer: Thanks for the question, Myles. Let me kick off with the 2023 free cash flow number. I appreciate the question on that because I think that too is core to the outlook going forward. Yes, we are reaffirming that $4 billion target for 2028. And essentially doubling the level that we were projecting at the midpoint of our 2023 guidance, which was $2 billion. Of course, we exceeded that by $100 million in our final result for 2023. The drivers of that growth are much of what we’ve talked about already. Certainly, growth in the top line. As Kathy just noted, some of the drivers of margin rate expansion opportunity which leads to margin dollars having an opportunity to exceed the growth rate of our top line through 2028.
And importantly, CapEx will moderate during that same period. So we’ve noted that 2023 and 2024 of these peak years of capital intensity that continues to be our outlook with declines in 2025 and beyond. And then pension and tax will serve as tailwinds during that same period. So that leads you to the $4 billion number. And I think if you look at the 2024 and 2025 numbers we’ve reiterated for our free cash outlook today and add in that 2026 range, you’ll get to that same glide slope that would push you upward toward the $4 billion number by 2028. So those are the building blocks and the way we plan to get there.
Kathy Warden: And Myles, on AS margins, what we’re seeing, as Dave noted earlier is that with the B-21 growth being a bit stronger than we had anticipated, AS is stepping up on top line. It is putting some pressure on margin rate, but margin dollars are exactly where we had anticipated they would be coming into 2024, and our guide therefore, remained consistent for AS on a dollar basis, even though we now are looking at more of a mid-9s rate projection. As you go out over time, it’s less dependent on what happens with absorbing that lower rate on B-21 and more what happens in terms of other new programs coming into the AS portfolio and the rate at which we will book those programs. So we’ll provide you more insight into that over the coming year as we look towards 2025 and beyond.
Operator: Thank you. One moment for questions. Our next question comes from Robert Spingarn with Melius Research. You may proceed.
Robert Spingarn: Hey good morning. Kathy, a few minutes ago, you alluded to international and I wanted to bring up IBCS because it’s had some strong demand signals from international customers and thought maybe you could dig into that program a little bit, give us a sense of how large it is in revenue or how — in 2023 or 2024? And how big it might be, let’s say, 5 years from now?
Kathy Warden: It certainly is an area of strength in our portfolio. We’ve seen strong performance by the team on the U.S. Army program and also as we are deploying in Poland, and we see follow-on opportunities in Poland as a result. We’ve also, as I’ve spoken about throughout the course of 2023, added a number of additional countries who have expressed interest in the program to the pipeline, and that’s what would drive the growth that we anticipate in the 2025 time frame. As you noted, I mentioned international demand. Part of that is weapons part of that is the IBCS portfolio. And then, of course, we have some aircraft and mission system strength in the pipeline for international in 2025 as well. The program itself is growing at a fairly rapid rate, but off of a relatively small it’s about $400 million of annual sales. And we expect that to grow, of course, but not a major contributor is the enterprise line for growth.
Operator: Thank you. One moment for questions. Our next question comes from George Shapiro with Shapiro Research. You may proceed.
George Shapiro: Good morning. Kathy, I wanted to ask on the charge for the B-21, what caused it to be bigger than the 0 to $1.2 billion range that you’ve kind of been reiterating since last year? And then just specifically, maybe the margin that you had said would be around 10% is now maybe 9.5%. I know you alluded to a few minutes ago, the B-21 was growing faster. But it’s got to grow a lot faster to drop the margin by 50 basis points. So I was just wondering if you could explore that a little bit more. Thanks very much.
Kathy Warden: Let me start with the first part of your question and Dave will cover the second. As we noted, we identified this risk last year, and we, throughout the year, revisited it on a quarterly basis. There were 2 primary changes in the fourth quarter that both led us to deem it probable loss as well as impacted the value of that loss. First, we significantly reduced our projections for funding related to macroeconomic impacts, as we’ve talked about a couple of times already. Although we continue to partner with the government to address these impacts. We believe it’s prudent in light of the current budget status to reduce those assumptions. And so we did that. The second is we’ve experienced growth in our cost projection, both in the internal production costs as we’ve continued to build aircraft as Dave talked about through our negotiations with suppliers.
We have learned and built that learning into the forward-looking estimates that we now have in the EAC, so those were the factors. As we’ve talked about, we did a very detailed look at this EAC in the fourth quarter and had matured and had actual data to reflect on that we did not have at an earlier point.
David Keffer: Let me follow up on the second part of your question because I do think it’s an important nuance. The AS business was operating in the mid-10 billions in scale over the past year, it exceeded our original expectations in sales in 2023 and now is projected to exceed them even more significantly compared to where they were a year ago in 2024. We were talking about a flat 2023 and very modest growth in 2024 based off of that mid-tens level. And now we’re all the way up into the low 11s. And so that low 11s at a mid-9% margin rate is the same as the mid-to-high 10s at a slightly higher margin rate. We’re really focused on driving the dollar volume of operating margin in our Aeronautics business and across our business, it’s that return on invested capital, the growth in margin dollars and in free cash flow that results from it, that is really our core focus.
