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Boeing Earnings: Paying for Mistakes Made Long Ago, Taking Back the Factory Floor

Slightly raising our fair value estimate of Boeing stock.

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What We Thought of Boeing’s Earnings

Discussing Boeing’s BA first-quarter results, CEO David Calhoun said the firm is asserting control over its manufacturing discipline, partly prodded by the Federal Aviation Administration’s mandate to publish a safe manufacturing plan by late May. Losses in the quarter reflected necessary slowdowns at 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 to account for the 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.

Calhoun said the primary milestone the company is working toward (which the FAA has emphasized) is receiving and accepting only “clean” fuselages from Spirit to enter the final assembly process. Many of Boeing’s headaches over the past few years, including the door plug that failed on Jan. 5, resulted from disruptions caused by reworking defective parts of Spirit-made fuselages.

Manufacturers normally avoid traveled work—also known as out-of-station or nonstandard work—because small variations in the building process can more than double cycle time, with costly and disruptive effects. Spirit sends 737 fuselages by train from Wichita, Kansas, to Boeing’s plant in Renton, Washington, where wings and everything else are added. In early 2018, before crashes and covid-19, Boeing had trouble increasing production from 47 737s per month to 52, as fuselages had only a few days to travel to the plant. When Spirit began delivering faulty fuselages, Boeing accepted them and allowed Spirit to send staff to Washington to rework them, even as Boeing personnel were trying to complete the final assembly.

Boeing Stock vs. Morningstar Fair Value Estimate

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Nicolas Owens

Equity Analyst
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Nicolas Owens is an industrials equity analyst for Morningstar Research Services, LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the aerospace and defense sector, including Boeing, Airbus, and major North American commercial airlines and defense contractors.

Owens previously covered the aerospace sector for Morningstar from 2002-05. Since then, he filled a range of business roles commercializing Morningstar research across a wide swath of the investment audience.

Owens holds a bachelor's degree in politics from Princeton University. He also holds a Master of Business Administration in finance and strategic management from the University of Chicago Booth School of Business.

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