Boeing

Boeing delivered 314 jets in the first half of 2026, fueling 8% commercial revenue growth and a $322 million loss in the second quarter. Defense sales grew 13% but lost $15 million with another Air Force One charge. Aftermarket services were flat, contributing $968 million in operating profit.

Why it matters: We estimate that half of Boeing's enterprise value is derived from its 737 product line. Increasing the rate at which the company can make and deliver these jets is the single biggest driver of its near- and long-term profitability and cash flow, and Boeing is working on upping its monthly 737 output from 42 to 47 by late 2026. Completion of flight testing and certification by the US Federal Aviation Administration of Boeing's newest and largest jet, the 777X, is due later in 2026, and certification of the MAX-7 and MAX-10 variants of the 737 is also imminent. Provided these milestones are met, we believe the company will generate approximately $1.5 billion in free cash flow in 2026 and could surpass its $10 billion goal by 2028.

The bottom line: We increased our fair value estimate for wide-moat Boeing to $246 per share from $238, primarily reflecting the time value of money since our last valuation update and slightly higher long-term investment required in the business. The shares trade within 10% of our revised fair value estimate.

We value Boeing at $246 per share, which represents an enterprise value of 41 times our 2026 EBITDA estimate. We think enormous special charges and fleet groundings are almost certainly behind Boeing, especially since it recorded a $4.9 billion charge in the third quarter of 2025 for further delays in the 777X certification process and yet another KC-46 tanker charge in the fourth quarter. We forecast one more year of really hard slogging as the company clears up certification, manufacturing, and supply chain issues that hamper its production pace. Our valuation reflects healthy long-term global demand for Boeing's products and the successful scaling up of deliveries and, eventually, margins on its bread-and-butter 737 and 787 models in 2027 and beyond.

Late in 2025, Boeing stabilized its manufacturing processes enough to certify to the FAA that its planes are consistently built to its specified design and safety standards and began increasing the rate at which it builds them. Longer term, we expect the mix shift toward the high-margin 737 MAX and eventual returns to learning-curve-based cost efficiencies should help the company improve margins while also absorbing increased salaries for its machinists. We expect the firm to return to 2018 levels of 737 production by late 2027. We anticipate the firm will be able to deliver 68 737 MAX planes a month in 2031 versus 47 737s per month in 2019, resulting in commercial operating margins in the midteens. Overall, we expect operating margin to exceed 12% at midcycle, versuss 11.9% in 2018, resulting in more than 20% compound earnings growth per share between 2026 and 2034. These forecasts include aggressive research and development and capital spending on a brand-new airframe design within our forecast period, though we don't expect any next-generation designs to enter service until the 2040s.

In the 2010s, Boeing's defense unit bid more aggressively for more fixed-price development contracts than other contractors, which has led to much more operating income variability than peers and resulted in numerous disappointing charges for cost overruns in the past several years. We model a return to reasonable margins for the defense business by 2026. We broadly assume medium-term end-market growth driven by increased geopolitical tensions and the US Air Force's award of the F-47 fighter program to Boeing, but we think growth should normalize to GDP-like levels.

We expect the services business will be able to grow in line with global air traffic, a touch higher than GDP, while retaining profitability higher than Boeing as a whole.

Including newly issued preferred equity that accounts for about 2.8% of the capital structure, we calculate a weighted average cost of capital for Boeing of 8.5%.

We think Boeing merits a wide moat rating because it benefits from durable intangible assets and switching costs. Although Boeing has taken competitive hits from Airbus in the commercial aerospace duopoly, the commercial airplane market is large enough and so difficult to break into that it supports two wide-moat aircraft manufacturers: Airlines have almost no choice but to continue buying their products. We think Boeing's defense business is more exposed to operational risk than peers' due to its higher exposure to underbidding on fixed-price contracts in the mid-2010s. We think the firm is turning a corner operationally and benefits from intangible assets stemming from the technical complexity of its products, switching costs from the time and effort the military faces to switch suppliers, and a lack of viable alternative suppliers. We see the global services segment as possessing intangible assets from proprietary access to aftermarket part designs as the FAA and other regulators require that spare parts be identical to the original design, as well as benefiting from switching costs stemming from a lack of alternative suppliers for such parts.

In the commercial aircraft manufacturing segment, we believe the technical complexity of aircraft manufacturing and the extensive regulatory barriers to entering the market constitute wide-moat-caliber intangible assets. Boeing and Airbus benefit from these barriers to entry, which means they operate in a duopoly in the global large-frame jet aircraft market; we expect virtually all global revenue for airframes associated with air travel growth will continue to flow through the two incumbents' top lines. We estimate demand from airlines for their products will remain high enough for long enough that both firms will generate economic profits for decades.

Further, we see the lack of alternative aircraft suppliers, the criticality of their products to the customer, and very long product cycles as presenting powerful switching costs. These three factors usually reinforce one another to allow for long-term economic profits to persist at both Boeing and Airbus: the intersection of airplanes' long service life, the economics of operating them, and that there are only two global suppliers is the arena in which long-term competition between Boeing and Airbus takes place. At present, Boeing has a superior product in the wide-body or long-haul category, and Airbus is enjoying the advantage with variants of its narrow-body A320 and A321 lines.

Boeing and Airbus supplied more than 99% of the commercial aircraft deliveries for aircraft with more than 130 seats over the past 25 years. We don't see the process of designing new commercial aircraft as having gotten any easier or cheaper over that time. There were two serious attempts at entering this market in the past two decades, but both faced considerable delays and difficulty marketing the aircraft, which we think demonstrates the barriers to entry in action.

The first was Bombardier, an experienced regional jet manufacturer based in Canada and an ideally qualified new entrant. In 2005, it targeted a relatively untouched market segment between regional jets and narrow-bodies with its aircraft design, the CSeries, launched relatively quickly by 2013. The firm had significant engineering talent and experience designing aircraft, but in 2014, roughly a year after the CSeries' first flight, one of the test aircraft experienced an uncontained engine failure, which extended development time by two years. The aircraft was certified in mid-2016, and Swiss International Air Lines became the first operator. At that point, the expensive process of aircraft development had bloated Bombardier's balance sheet considerably as the firm borrowed cash to fund it, and Bombardier did not have substantial orders for the aircraft. Bombardier secured a large order for 75 aircraft and 50 additional options from Delta in early 2017, but because customers are highly skeptical of new suppliers (another barrier to entry), Delta demanded a price discount considerably deeper than the industry standard of 50% to close the sale (some industry reports suggested the discount was somewhere between 66% and 75%). Boeing used this knowledge to accuse Bombardier of dumping, or selling the aircraft below production cost to gain market share. The US Department of Commerce agreed with Boeing and placed a preliminary 300% tariff on the transaction, which effectively killed Bombardier's US marketing efforts—and entering the large US market was critical for the aircraft to succeed.

As Bombardier was in a difficult strategic and financial situation, it reacted by giving away a 50.01% majority stake to Airbus (and later sold its remaining 31% stake in the program to Airbus for $591 million, a fraction of the program's development cost) so that Airbus could complete final assembly of the aircraft in Mobile, Alabama, and avoid the tariffs. Bombardier used every resource at its disposal to break into the commercial aviation market and was able to design a capable aircraft, but it still was unable to set up a durable business. We think the result was a win for the duopoly, even if it was a relative loss for Boeing because the firm effectively forced a small competitor to sell valuable intangible assets at fire-sale prices to its only other competitor.

Today, the most serious potential new entrant is Comac, based in China. It has been designing its C919 since 2008 and has successfully introduced the ARJ21, a regional aircraft, after extended development. The C919's development has been the longest in history: The aircraft completed its first flight in 2017 and in September 2022, the Chinese civil aviation administration approved the plane for commercial use in China. Comac delivered three C919s in 2023, followed by 12 in 2024. While we assume production will accelerate, we don't think that C919 production will be able to ramp up nearly quickly enough to satisfy narrowbody demand in the massive Chinese market. The ARJ21 was certified in late 2014 and was still delivering at a rate around two aircraft per month in 2023, which we think shows the difficulty of ramping up aircraft production. For context, between 2015 and 2019, Chinese air carriers took delivery of almost 30 aircraft per month, on average. We have no reason to believe that ramping up the larger and more complex C919 will be easier than ramping up ARJ production.

While we think that the C919 will be supported by some Chinese demand, we don't anticipate meaningful international demand for the aircraft beyond Southeast Asia and potentially among countries already closely aligned with Chinese commerce or development loans. Comac's C919 is inferior in almost every way to modern narrow-body aircraft—the 737 MAX 7, for instance, can travel roughly 75% more nautical miles than Comac's similar-size C919, and economics drive airline purchase decisions.

The technical complexity of aircraft manufacturing is a material barrier to entry, which we believe constitutes intangible assets. Boeing and Airbus are the only two capable suppliers of globally competitive aircraft larger than 130 seats, and we don't see any globally competitive new entrants entering the market anytime soon. Therefore, we believe it's reasonable to assume that almost all global demand for new aircraft will flow through the income statement of incumbents, though we concede that some Chinese demand will likely move toward Comac, but not enough to mar the economics for Boeing or Airbus.

To address the second premise, that the market is large enough and undersupplied enough to support two wide moats, we built a 20-year aviation forecast for deliveries. We believe more than one producer can generate economic profits if the industry is structurally undersupplied. This was the case in aviation sales before the pandemic, as both manufacturers had backlogs that covered more than five years of production for narrow-body aircraft. We see additional evidence that customers face switching costs from a lack of alternative suppliers as aircraft purchase contracts always allowed for manufacturer-friendly clauses such as the requirement that airlines put down large deposits at signing and make additional predelivery payments for aircraft for years leading up to delivery. We think customers would only accept such terms if the industry were structurally undersupplied. Our long-term aircraft demand forecast supports our assertion that the market will remain in an undersupplied state such that both manufacturers would continue to benefit from barriers to entry and switching costs from a lack of alternative suppliers.

Our forecast begins with global GDP estimates and their relationship to demand for travel, measured in revenue passenger kilometers. Although travel generally reached 2019 levels by 2024, in our forecast revenue passenger kilometers do not return to the original prepandemic trendline: There will be a permanent two- to three-year gap between the prepandemic trend and our forecast. To get there, we assume air travel elasticity to GDP in line with long-term global historical rates, and we assume global load factors follow recent trends and cap at about 88%, leading to a 3.2% available seat kilometer compound growth rate, which implies available seat kilometers will reach double 2019's levels by 2040. We then examine aircraft per available seat kilometers globally and in the US to determine a normalized level of aircraft required to meet demand. We determine that there will need to be a global fleet of about 48,000 aircraft to support this level of travel and expect about 82% of that fleet will be narrow-bodies. We assume about 80% of the current fleet of about 23,000 aircraft will be retired in our 20-year forecast.

When we split the relevant markets between Boeing and Airbus, we assume Boeing will have a 40% delivery share of the narrow-body market versus Airbus (excluding Comac, Embraer, and Russia's United Aircraft deliveries). Airbus' A321LR and A321XLR are the only viable midmarket aircraft today, and Airbus' impressive backlog share at the top end of the market shows its attractiveness to airlines. We think that Boeing's 737 MAX 8 is a capable aircraft for the traditional narrow-body market but that Boeing missed the opportunity to build a "light" middle-of-the-market aircraft and is paying the price by ceding a sizable portion of the narrow-body market to Airbus. Even though Boeing now lags in the narrow-body market, we think the market is large enough that the firm will ramp up 737 MAX production well above previous peak production.

We assume Boeing will retain its advantage in wide-bodies as we expect the 787 will remain the dominant small wide-body, the 777X will be launched successfully, and the cargo market remains mostly in Boeing's hands. We expect Boeing will achieve a 60% share in wide-bodies.

Finally, we address the long-term impact of Boeing's recent operational failures on our moat rating, namely, the 737 MAX groundings and the 787 production problems that led to the delivery halt in July 2021. Ultimately, we think that it will be difficult to assess the extent to which these changes have improved Boeing's design process for several years because the problems with both the 737 MAX and the 787 predate the changes, so we think the first real test for the company will be in the rollout of the 777X, which has also been complicated by fraught relations with the regulator. The company is also improving its manufacturing processes, which were severely disrupted by the overlapping MAX grounding and covid pandemic. Notwithstanding the nonfatal failure of a MAX 9 door plug in January 2024, we think a significant portion of the portfolio has been heavily scrutinized by regulators and reworked by Boeing. We don't think investors should expect incremental failures stemming from design or manufacturing flaws on the 737 MAX or the 787 after the intense scrutiny these programs have received and the underlying design of aerospace systems to include multiple redundant safety features. These two programs alone compose over half of our estimated long-term operating income for the firm, so incremental failures on other programs would be less material.

Qualitatively, we don't think Boeing's intangible assets have deteriorated. While Boeing has a gap in its product lineup in the narrow-body middle market, it still has the know-how to develop and deliver aircraft, which is ultimately the valuable intangible asset. Switching costs can be shown more empirically through the backlog. Boeing only lost about 30% of its ASC 606 adjusted unit orders from the 737 MAX crisis, which is meaningful as airlines could leave orders without penalty during the crisis. Boeing has been able to continue to increase its 737 MAX backlog even while reworking the manufacturing process and clearing existing inventory.

We think Boeing's defense segment possesses intangible assets due to the complexity of manufacturing defense products and from the predominantly sole-source contract structure of defense production. Boeing's defense unit produces crewed and uncrewed aircraft, spacecraft, and missiles. Military product development costs billions, so the government typically has a competitive contract bidding process and then gives a sole-source contract to the winner to avoid cost redundancy. We think this puts a nearly unshakeable barrier to entry on the firm's existing portfolio, which has yearslong contracts to fulfill, as the military does not switch providers after a contract is won. Typically, development programs are granted in a manner that is beneficial to the contractor, as well. During the early stages of development and production, the government generally purchases using cost-plus contracts that shift the financial risk of solving new engineering problems to the customer, while the potential profit to the contractor is generally lower. Given the immense risk of cost overruns in designing complex products such as fighter aircraft, this dynamic works in the contractor's favor. When the costs of the product are better understood, the contract typically switches to a fixed-price contract. While Boeing is more exposed than peers to highly risky fixed-price development programs, we estimate these programs account for only about 15% of the portfolio, and some fixed-price development programs have not taken material charges. We think the effects of the most problematic fixed-price development program, the KC-46A tanker, have been taken care of as the military is accepting delivery of the aircraft, but we estimate Boeing spent roughly twice the contract value on product development.

We see switching costs from a lack of viable alternative suppliers for a product as well as the significant time and monetary investment required to switch. Since military products are purchased on a sole-source basis, the military cannot shop around for a new contractor after a product is developed. The military would instead need to cancel the program and invest time and billions of dollars in a new contractor to recreate the capability, which could take several years. During that time, the military would face a capability gap that could be exploited by a military adversary, and military platforms and weapons systems are mission-critical for military operations. Due to the immense difficulty of switching and the mission-criticality of the product, the military almost always chooses to work with the contractor to fix whatever problem arises rather than switch to a new military platform. This can lead to cash-cow platforms such as the F-15, a product that was originally developed in the 1970s and is still delivered in significant quantities, though Boeing has made numerous upgrades to the platform.

Boeing global services provides aftermarket parts and services and acts as a manufacturer and distributor of a wide variety of consumable and expendable aftermarket parts. We believe this segment benefits from wide-moat-caliber regulatory intangible assets as airlines must maintain aircraft to type certificate standards, which require aftermarket parts to be identical to the original parts built into the aircraft. Typically, the original equipment manufacturer of the part, which could be a variety of aviation suppliers, is the only source that has access to the original schematics for the part, which gives the manufacturer a monopoly on the aftermarket. We see switching costs from the lack of alternative suppliers and from the mission-criticality of aircraft to airlines. Since the manufacturer possesses a monopoly on the market for aftermarket spare parts and airlines need to have functional aircraft to run their business, the airlines have little choice but to accept the prices charged by the manufacturer.

Boeing has a large backlog that covers several years of production for its most popular aircraft, which gives us confidence in aggregate demand for aerospace products.

Boeing is positioned to benefit from emerging-market growth in revenue passenger kilometers and a robust developed-market replacement cycle over the next two decades.

We expect commercial airframe manufacturing to remain a duopoly for most of the world for the foreseeable future. We think customers will not have any meaningful options other than continuing to rely on incumbent aircraft suppliers.

Boeing's reputation for engineering prowess may have taken a permanent hit since repeated manufacturing flaws in 737 MAX jets have hampered the assembly pace and disrupted airlines' and passengers' schedules.

In the long term, changed consumer behavior, especially among business travelers, could be unfavorable for aviation.

Aircraft development is notoriously susceptible to development delays, hiccups, and cost overruns.