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The US Navy selected Boeing over Northrop Grumman to develop its 6th generation carrier-based attack aircraft, to eventually replace F-18 models in the 2030s. The decision endorses Boeing's capacity to deliver next-generation fighters following the Air Force's selection of Boeing to build the F-47.

Why it matters: We thought Northrop had the upper hand in the competition, so the US Navy could diversify its supplier base, but Boeing managed to allay the military's concerns about its capacity to successfully run two fighter programs at the same time. Boeing's storied St. Louis facility, where it produces F-15 and F-18 aircraft (with Northrop supplying F-18 fuselages), will proceed to develop and presumably supply the F/A-XX and F-47 stealth fighters. Northrop, which hasn't built fighter aircraft from scratch since the 1990s, will, along with Lockheed Martin, continue its involvement in the F-35 program for decades to come and will likely develop yet-to-be announced unmanned companion aircraft for 6th generation air wings.

The bottom line: We trimmed our forecast for aerospace revenue at wide-moat Northrop and added these to Boeing's defense line. Our $630 per-share fair value estimate for Northrop Grumman is unchanged, with $10 per share of time value offset by the F/A-XX hit. Our fair value estimate for wide-moat Boeing increased to $254 per share from $246. At recent prices, shares of both firms (coincidentally) trade around 24% below our fair value estimates. Defense sector shares have traded downward since peaking as a group in mid-August, after Iran made conciliatory remarks about opening the Strait of Hormuz.

Coming up: Northrop has the option to appeal the Navy's decision, but we doubt the outcome will change if it does. We think it likely that Northrop ends up utilizing its specialized engineering and manufacturing capacity to participate in the F/A-XX program, for example, by building fuselages as it does today on F-35 and F-18.

Our fair value estimate for Boeing is $254 per share, which represents an enterprise value of 41 times our 2026 EBITDA estimate. We raised our estimate from $246 to credit the US Navy's selection of Boeing to produce its 6th generation F/A-XX stealth fighter.

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, versus 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 awards of the F-47 and F/A-XX fighter programs to Boeing, but we think growth should eventually 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 Morningstar Economic Moat Rating because of very durable intangible assets and customer switching costs in all three of its business segments.

We believe the technical complexity of aircraft manufacturing and extensive regulatory barriers to market entry make for durable intangible assets. Further, we see the lack of alternative suppliers of aircraft, their mission-critical nature, and very long product cycles as presenting powerful customer switching costs. Boeing and Airbus both benefit from these, operate as a duopoly in the large commercial jet market, and supplied more than 99% of jets with more than 130 seats over the past 25 years. We expect economic profits to persist at both Boeing and Airbus for decades.

Before Boeing’s crises began in 2018, it regularly earned returns on invested capital above 30%, well above its 8.5% cost of capital. We do not believe the 737MAX crisis breached Boeing’s commercial jet moat, and we forecast Boeing’s ROICs increasing from recent lows, topping 25% in the 2030s.

Boeing still has the know-how and facilities to develop and deliver large commercial aircraft, which is ultimately the valuable intangible asset. Boeing only lost about 30% of its unit order backlog from the 737 MAX crisis, meaningful since airlines could leave orders without penalty during the crisis. Boeing’s 737 MAX backlog continued to grow even while it reworked manufacturing processes and cleared inventory. The 737MAX crashes in 2018 and 2019 almost met criteria we set out to downgrade Boeing’s moat, namely disruption to the aviation industry and great harm to Boeing’s reputation from an aircraft failure resulting explicitly from a systemic design or manufacturing flaw that cannot be remedied in the normal course of maintenance or recall. In practice, airlines have little choice but to keep buying and using Boeing’s products. Further, the risk of such a failure recurring is so remote, in our view, that we don’t model it.

Both serious attempts to enter the commercial jet market in the past two decades faced considerable development delays and marketing difficulty, which we think demonstrate barriers to entry in action. In 2018, Bombardier sold the CSeries aircraft it had designed since 2005 using borrowed funds to Airbus for a fraction of its development cost. It would become the A220, and Airbus avoided US tariffs by completing assembly in Mobile, Alabama. China’s Comac C919 narrow-body development has been the longest in history: in design since 2008, it first flew in 2017 and was certified in late 2022. Comac delivered just three C919s in 2023 and 15 in 2025. While we assume production will accelerate, we don't think it can ramp enough to satisfy the massive Chinese market, which absorbed almost 30 aircraft per month in 2015-19. The C919 is also inferior in almost every way to modern narrow-body aircraft—737 MAX7s have roughly 75% longer range, for example. Though we see some demand moving to Comac, we do not expect enough to mar the economics for Boeing or Airbus.

Boeing’s services segment provides about one-fifth of sales and 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 originals built into the plane. Typically, only the original manufacturer of the part knows its specifications, which gives it a monopoly on the part for a time. We also see switching costs from the lack of alternative suppliers and the mission-criticality of aircraft to airlines. Since 2015, this business has generated operating margins averaging 14.5%, exceeding 18% recently, which we forecast to persist for the foreseeable future.

About one third of Boeing’s revenue comes from defense contracting, where we believe significant intangible assets imparted by extreme product complexity thwart new entrants, and switching costs that a risk-averse customer faces emerge from the mission-critical nature of the products, often decades-long product lifecycles, and prohibitive time and cost to switch suppliers. These give Boeing’s defense business a wide moat, too. We believe incumbent firms are most eligible to service the military’s need to purchase arms (broadly defined). Arms production requires specialized expertise and usually lacks commercial viability outside of defense (aside from commercial aerospace), so new entrants would need to develop know-how from the ground up. We observe incumbents in each major defense category. SIPRI’s arms industry ranking further evinces limited competition: Lockheed Martin, Boeing, BAE Systems, RTX, Northrop Grumman, Airbus, and General Dynamics have remained the top six or seven global arms producers for the past 15 years.

Boeing makes a range of military aircraft, spacecraft, intelligence-gathering and communication systems, sensors, and munitions. Product development ranges from years to decades, and if the military is dissatisfied with a product, it is much faster and easier to work with the existing contractor to fix it than to fund an alternative. We view the products with the longest procurement cycles, like jet fighters and attack helicopters, as the moatiest because they provide extraordinarily long-term revenue and profit visibility. Further, the military’s ability to succeed while protecting soldiers’ and civilians’ lives is contingent on these products working as intended, which we think protects proven suppliers from competition.

While Boeing is more exposed than peers to risky and atypical fixed-price development programs it entered into in the 2010s, we estimate these programs account for only about 15% of the portfolio. We estimate that Boeing’s core defense franchises centered on helicopters, transport aircraft, and fighter jets have generated high-single-digit operating margins and can continue to do so.

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.