Company Reports

Discussing first-quarter results released April 24, CEO David Calhoun described Boeing asserting control over its manufacturing discipline, prodded in part by the Federal Aviation Administration's late May deadline to publish a safe manufacturing plan. Losses in the quarter reflected necessary slowdowns in the 737 factory, but we believe Boeing can meet our 2024 forecast if it gets the plant rolling and delivers existing jets in the back half. We increased our fair value estimate by $2 per share to $221, mostly for time value of money, offset by the pending acquisition of Spirit AeroSystems and tapering our long-term forecast of 767 deliveries, now only built as a freighter or tanker.

Boeing is a major aerospace and defense firm that makes most of its money manufacturing large commercial airplanes. Its narrow-bodied planes are ideal for high-frequency, short-haul routes, and its wide-bodied ones are used for long-haul and transcontinental flights. Worldwide sales of narrow-bodies have increased over the past 20 years with the rise of low-cost carriers and middle-class consumers in emerging markets.

On April 17, whistleblowers testified to warning Boeing to stop its assembly lines due to inconsistent and unreliable manufacturing processes. Boeing managers did not heed those warnings in time to prevent two 737 MAX 8 crashes that killed 346 people, yet Boeing did halt the 737 line in 2019 and all but stopped 787 production in 2021 for 20 months each.

We greet news of the management shakeup at Boeing with resigned exhaustion. While the changes do not alter our $219 fair value estimate, we think new leadership will likely increase the probability that wide-moat Boeing can dig itself out of its mess and get back to delivering high-quality planes on schedule.

Reports that Boeing is in talks to acquire Spirit AeroSystems make eminent sense to us. We are maintaining our $31 fair value estimate for Spirit until we learn more about the contours of a possible deal.

We believe the 45 recommendations for Boeing and the nine for the FAA contained in the Expert Panel Review on Safety report published Feb. 26 are sound and should be achievable. We have not altered our forecasts or fair value estimate.

Boeing is a major aerospace and defense firm that makes most of its money manufacturing large commercial airplanes. Its narrow-bodied planes are ideal for high-frequency, short-haul routes, and its wide-bodied ones are used for long-haul and transcontinental flights. Worldwide sales of narrow-bodies have increased over the past 20 years with the rise of low-cost carriers and middle-class consumers in emerging markets.

Boeing will pause its 737 MAX assembly line expansion plans until the Federal Aviation Administration is satisfied that its manufacturing processes are stable and reliable enough to certify that its planes are consistently built to their specified design and safety standards. Boeing will also wait a bit longer for certification by the FAA of its 737 MAX 7 and MAX 10 models—the MAX 7 is essentially custom-built for Southwest Airlines' specialty short-haul flights. During the company's fourth-quarter earnings call on Jan. 31, CEO Dave Calhoun noted quite candidly that the pause mandated by the FAA will benefit Boeing's manufacturing and supply chain, offering suppliers time to build up buffer stock and the company and its employees time to "stand down" and re-examine their intricate assembly process. We anticipate the stabilization will take until mid-2025 and have tapered our forecast for 737 deliveries accordingly, lowering our fair value estimate to $219 from $232.

Boeing announced changes to its operations intended to increase assurance that its products will be built to meet safety standards and comply with their intended design. These include increasing inspections throughout its manufacturing process by customers and regulators. While we see these steps as welcome, their introduction begs the question why they are taken only now, as missing bolts in a door plug were only the latest in a series of manufacturing lapses that have come to light and hampered Boeing’s ability to deliver its bread-and-butter 737 and 787 jets for the last four years.

Neither the inferno of the Airbus A350 operating as Japan Airlines Flight 516 nor the fuselage panel failure on the Boeing 737 MAX 9 for Alaska Airlines Flight 1282 during the first week of 2024 resulted in serious injury to passengers or crew. This is due to safety features built into commercial airplanes that add to the complexity and cost of manufacturing but are obviously worthwhile to protect lives. Investors in Boeing and Airbus bank on the companies' long-term durability and safety records and ongoing obligation to adhere to the strictest product governance standards to meet safety requirements. The fatal crashes of two Boeing 737 MAX 8 aircraft in 2018 and 2019 had serious consequences for Boeing, including the grounding of the entire 737 MAX fleet by global aviation regulators for nearly two years, because they called into question Boeing’s ability to fulfill its product governance commitment.

Boeing is a major aerospace and defense firm that makes money mostly by manufacturing large commercial airplanes. Its narrow-bodied planes are ideal for high-frequency, short-haul routes, and its wide-bodied ones are used for long-haul and transcontinental flights. Worldwide sales of narrow-bodies have increased over the past 20 years with the rise of low-cost carriers and middle-class consumers in emerging markets.

Investors were heartened on Dec. 21 when Boeing confirmed approval of a direct delivery to a Chinese customer of a 787 Dreamliner. We believe this likely indicates a resumption of further deliveries to Chinese customers, including 737s, from Boeing's backlog.

Reports that in the last week Boeing shared a moderately slower ramp-up schedule with its suppliers than its publicly declared goals to accelerate 737 production do not impact our forecast or $223 fair value estimate for the wide-moat aircraft maker.

Three branches of the U.S. military grounded their fleet of more than 400 V-22 Osprey rotorcraft following the investigation into the crash of an Air Force Special Operations Osprey in Japan on Nov. 29 that killed eight servicemen. Because the investigation indicated possible mechanical issues, though the root cause has not yet been determined, the decision to ground the fleet seems merited in the name of caution.

Boeing's disappointing third quarter included a litany of cost overruns and more production delays, resulting in revenue declining 8% since the second quarter and an $808-million operating loss.

Boeing is a major aerospace and defense firm that makes money mostly by manufacturing large commercial airplanes. Its narrow-bodied planes are ideal for high-frequency, short-haul routes, and its wide-bodied ones are used for long-haul and transcontinental flights. Worldwide sales of narrow-bodies have increased over the past 20 years with the rise of low-cost carriers and middle-class consumers in emerging markets.

Boeing is a major aerospace and defense firm that makes money mostly by manufacturing large commercial airplanes. Its narrow-bodied planes are ideal for high-frequency, short-haul routes, and its wide-bodied ones are used for long-haul and transcontinental flights. Worldwide sales of narrow-bodies have increased over the past 20 years with the rise of low-cost carriers and middle-class consumers in emerging markets.

Boeing's second-quarter results saw revenue continue to grow in commercial jets—up 41% since the June quarter of 2022—though defense and space came in flat and neither of these businesses turned a profit in the quarter. Nevertheless, with a few offsetting adjustments to our near-term forecasts, and mostly because Boeing's future cash flows are less discounted as they grow nearer in time, we have raised our fair value estimate to $230 per share from $225.

Boeing's first-quarter results saw revenue grow in commercial jets—up 60% since early 2022—and defense up 19.3%, though neither unit turned a profit. More importantly, because of management's prognosis for commercial aircraft deliveries, we have raised our fair value estimate to $225 per share from $220.

Boeing is a major aerospace and defense firm that makes money mostly by manufacturing large commercial airplanes. Its narrow-bodied planes are ideal for high-frequency, short-haul routes, and its wide-bodied ones are used for long-haul and transcontinental flights. Worldwide sales of narrow-bodies have increased over the past 20 years with the rise of low-cost carriers and middle-class consumers in emerging markets.