Revenue $22.7B (+35%), 150 Commercial Deliveries (Best H1 Since 2018), 737 Reaches 38/Mo, FCF Use of Just $0.2B Beats Expectations; FY FCF Now Tracking ~$3B Usage — Initiating at Hold

Coverage Context — Why Boeing, Why Now

Boeing has been the single most-followed industrial recovery story in U.S. large-cap equities since the January 5, 2024 Alaska Airlines 1282 door-plug blowout. The intervening 18 months delivered: an FAA-imposed production cap at 38/mo on 737 MAX (still in effect entering this quarter); a 53-day IAM machinist strike (Aug–Nov 2024, ~33,000 workers); a $14B+ equity raise (Oct 2024); CEO transition from Dave Calhoun to Kelly Ortberg (Aug 2024); the announced re-acquisition of Spirit AeroSystems; multiple multi-billion fixed-price defense charges; and a fatal Air India Flight 171 787-8 accident (June 12, 2025) that — pending AAIB investigation findings — has not been attributed to airframe issues but adds reputational overhang. Q2 2025 is the second clean quarter under Ortberg following Q1's $2.3B FCF usage. We initiate coverage now because the operating cadence is finally showing measurable, multi-quarter improvement and the rerate question — durable recovery vs another false start — is becoming the central debate. This recap establishes the baseline. Subsequent quarters in this backfill (Q3 2025 → Q1 2026) will track the trajectory.

Results vs. Consensus

Q2 Scorecard

Year-over-Year Comparison

Quality-of-Beat Callout

Revenue Assessment

Revenue +35% YoY to $22.7B was driven primarily by commercial volume — 150 deliveries vs 92 a year ago, with 13 of the 150 being 777 deliveries (vs ~6–7 normal cadence) due to inventory liquidation. BCA revenue grew nearly 50%; BDS grew 10% on improved volume across tanker, P-8, and the F-15EX product lines; BGS grew 8% on commercial aftermarket strength + favorable mix. The composition tells the recovery story: the company is finally working through inventory that accumulated during the 2024 production cap + IAM strike, and is doing so with quality the customers are commenting on positively. Underlying organic growth ex-inventory-burnoff is closer to the +20–25% range.

Margin Assessment

BCA at −5.1% op margin is mid-cycle for the recovery — much better than the −24.6% trough but still negative, weighed by (a) 777X carrying cost (production cost spread over a delayed delivery schedule), (b) the 7/10 certification slip pushing margin recognition right, and (c) deliberate buffer inventory build at suppliers to stabilize production. Management's framing — "BCA margins will be better in 2026, but too early to characterize" — implies the path to break-even on BCA is mid-to-late 2026 rather than imminent. BDS at +1.7% is the more important margin signal: two consecutive quarters of held EACs on the fixed-price development programs (T-7, KC-46, MQ-25, Starliner, etc.) is the first sustained absence of multi-hundred-million / billion charges in over two years. The active-management playbook (re-baselining contracts, sharing risk with customers) is starting to show. BGS at 19.9% includes a one-time gain (Gatwick MRO facility sale) — adjusted ~17–18% is the normal-run-rate base.

EPS / Cash Assessment

Core LPS $(1.24) reflects the BCA loss + BDS modest profitability + BGS strong profitability + ~$700M interest expense + ~$50M deferred tax adjustment. The $1.66 YoY improvement is driven 60%+ by BCA losses narrowing and 30% by BDS swinging from −15.3% to +1.7%. Cash and marketable securities ended at $23B; debt $53.3B (down $0.3B QoQ on maturing debt paydown, with $0.3B more maturing in 2H). The capital structure remains under repair — $30B+ net debt with the $14B+ equity raise from Oct 2024 still being absorbed — but the investment-grade rating is intact and management explicitly prioritizes keeping it. The next debt event to watch is the Spirit AeroSystems re-acquisition closing (expected later in 2025) which involves taking on Spirit's debt.

Segment / Program Detail

Boeing Commercial Airplanes (BCA) — Stabilizing

737 MAX — At 38/mo, Targeting 42

The 737 program delivered 104 aircraft in Q2 (42 in June alone) and reached the 38/mo production rate in May — the FAA-imposed cap since the Alaska 1282 incident. Management has agreed with the FAA on a set of 6 key operational KPIs (traveled work at roll-up, defect rates, rework hours, etc.) and is required to demonstrate stability at 38 before requesting approval to step to 42. KPIs are tracking in line with expectations; management expects to formally request the 42 approval "in the coming months." Beyond 42, rate steps proceed in increments of 5 (47, 52) with a "not earlier than 6 months" cadence — though Ortberg has been emphatic that the company will not move until KPIs say it's ready. Spirit continues to deliver fuselages with improved quality and flow; the Spirit re-acquisition is expected to close later this year.

Inventory dynamics: ~20 pre-2023 737-8s for China customers remained at quarter-end (down 15 sequentially); rework expected to complete and the "shadow factory" shut down in Q3. ~35 737-7/-10 in inventory pending certification.

Assessment: Reaching 38/mo on schedule is a meaningful milestone — it validates the safety-and-quality plan's operating model and gives the FAA the first reason to lift the cap. But 38 is a target the company met three years late vs the pre-MCAS framework; getting there is necessary but not sufficient. The 42 → 47 → 52 path requires (a) stable KPIs at each stage, (b) supply chain readiness (currently buffered by inventory; insufficient buffer past 47), and (c) FAA willingness to approve each step. The 6-month minimum cadence implies 42 in Q4 2025 / Q1 2026; 47 in mid-2026; 52 in late 2026 / early 2027. We assume this trajectory is plausible but execution risk is real.

787 — At 7/mo, Targeting 10+

787 delivered 24 aircraft and completed a successful Capstone review for rate 7/mo during Q2. KPIs "all green." Pre-2023 inventory ~15 aircraft (down 5 sequentially); rework complete; roughly half deliver in 2025 and half in 2026 per customer fleet planning. Charleston facility expansion is being invested in to support production rates "beyond the current capacity." The 787 program has been BCA's most consistent execution story since the 2022 restart.

Assessment: The 5 → 7 transition was clean. Next step is rate 8 (likely with Capstone review later in 2025), then 10 in 2026, with the Charleston expansion supporting rates into the teens longer-term. The 787 represents the cleaner of the two wide-body franchises (vs 777X which is mid-development); the program economics are improving as the deferred production balance burns down.

777X — 1,400 Flights, 4,000 Hours, Cert in 2026

The 777-9 flight test program has accumulated 1,400+ flights and 4,000+ flight hours — beyond the typical certification flight-test program by a meaningful margin. "No new technical issues to report." Production of the first 777-8 Freighter is underway (first wing-spar hole drilled in July). Management still targets first delivery in 2026 — but the path requires multiple FAA Type Inspection Authorization (TIA) approvals as the certification phases progress. The 777X has been the cleanest disappointment of the past 5 years on schedule: originally planned for 2020 delivery, delayed to 2023, then 2025, now 2026.

Assessment: The "no new technical issues" framing is important — it tells us the airplane is mature. The risk is purely cert pace, which depends on FAA TIA approvals. Investors have been burned by 777X timeline slippage before. We model first delivery in 2026 in the base case but ascribe a 30%+ probability of further slippage. Any further delay would carry an inventory + carrying-cost charge that could be material ($1B+ range).

737-7 / -10 Certification Push to 2026

The 737-7 (smaller MAX variant) and 737-10 (larger MAX variant) certification was pushed from late 2025 to 2026. Root cause: engine anti-ice design solution is taking longer than expected; design changes needed after testing revealed airflow perturbation issues at the engine inlet. Per Ortberg: "The engineering design did not — designs have not yielded in the time frame that we were anticipating, and so we still have work to do." Management says no material impact to production plans because Boeing will build other MAX models (737-8/-9) for customers in the meantime. ~35 7/10s sit in inventory pending cert.

Assessment: The 7/10 slip is genuinely modest in cash impact (most of the 35 aircraft will still get delivered, just later), but it reinforces the pattern that BCA development programs are slipping by 1+ years each. The "we'll build other MAX models" framing is technically true but masks the lost margin from the higher-priced -10 variant deliveries shifting right. Net negative but small.

Commercial Orders — Qatar Mega-Order

The 455 net orders in Q2 included Boeing's largest wide-body order ever: up to 210 commercial aircraft for Qatar Airways (120 787s + 30 777-9s + 60 options). Plus 32 787-10s for British Airways. The Qatar deal — announced May 2025 — is materially the dominant element of the order book quarter and is part of a broader pattern of US-aligned Gulf carriers (Qatar, Emirates, Etihad) placing large orders coinciding with trade deal momentum under the Trump administration.

Assessment: Wide-body orders are the highest-quality order type — long delivery horizons (sold firm into the next decade), high pricing power for Boeing, sticky maintenance ecosystems. The Qatar order alone adds an estimated ~$30B+ to BCA backlog at list prices (real value lower after typical discounts). The order momentum validates the demand thesis: there is no shortage of demand for Boeing aircraft; the constraint is delivery capacity. This is structurally bullish for the recovery if Boeing can convert backlog to deliveries at higher rates.

Boeing Defense, Space & Security (BDS) — EACs Held

BDS posted its second consecutive quarter of held EACs on fixed-price development programs — meaning no new multi-hundred-million / billion charges on T-7, KC-46, MQ-25, Starliner, or the other risky contracts. Operating margin +1.7% is the highest in over 2 years and reflects improved operating performance combined with no charge headwinds. Steve Parker was named permanent BDS CEO during the quarter — Parker was instrumental in stabilizing the business and the appointment locks in continuity.

Program composition disclosed: 60% of BDS revenue ("core business") performs in the mid-to-high single-digit margin range (Apache, P-8, F-15EX production, etc.) — historically healthy defense margins. 25% ("fighter + satellite") reflects stabilizing trends — F/A-18, F-15EX dev, satellite programs, including the new $2.8B Space Force evolved strategic satcom contract. 15% ("fixed-price development") is where the risk lives — these programs continue to mature but require successful execution. The $19B in net orders includes F-47 sixth-gen fighter award (announced earlier in 2025), the Space Force satcom contract, and additional tanker, P-8, and missile awards.

Assessment: BDS is the more underappreciated piece of the recovery story. Two consecutive quarters of held EACs after years of charges is a real signal — though one we'd want to see for 3–4 more quarters before declaring the fixed-price tail definitively behind us. The $150B FY29 defense budget plus-up from the recent reconciliation bill is a structural tailwind: programs like F-15EX, MQ-25, E-7, and proprietary classified programs all stand to benefit, and the F-47 win positions Boeing as the prime on the most consequential new platform of the decade. The path to "high single-digit BDS margins" — Boeing's stated target — implies 2–3 years of continued progression. Net positive to the recovery thesis.

Boeing Global Services (BGS) — Steady Cash Compounder

BGS continues to be the underappreciated cash engine of Boeing — high-margin aftermarket parts + government training and sustainment + recently-divested-then-retained digital business (Jeppesen flight planning). Q2 op margin 19.9% includes a one-time gain on the Gatwick MRO sale; underlying ~17–18% margin is the right normalized base. The business has both commercial and government legs delivering double-digit margins.

BGS is what investors will increasingly compare to Raytheon's RTX services arm or Honeywell's aerospace aftermarket — the recurring revenue + high-margin profile is exactly what scarce in defense / commercial aerospace pure-plays. We treat BGS as a $50B–$70B+ standalone-value asset in a SOTP framing.

Key Topics & Management Commentary

1. The 737 Rate Path — 38 Today, 42 Next, 52 Eventually

"We achieved a rate of 38 airplanes per month, and we're now focused on demonstrating stability at that rate. We'll continue to use key performance indicators that have been agreed to with the FAA to measure the health of the production system. … We expect to be in a position to request approval from the FAA in the coming months to increase to 42 aircraft per month."
— Robert "Kelly" Ortberg, CEO

Assessment: The 6-KPI framework with the FAA is the key mechanism Boeing operates under. The "request approval in the coming months" language suggests Q4 2025 — Q1 2026 timing for the next gate. The path from 38 to 52 is multi-step over 18–24 months in the base case, requiring all 6 KPIs to remain green through each transition.

2. FY FCF Walk — From $4–5B Usage to ~$3B

"Our free cash flow was better than expectations shared in April, driven by higher commercial delivery volume and better wide-body mix as well as favorable timing of CapEx. … When I put all that together, I think your number there of $3 billion is pretty reasonable for the full year."
— Brian West, CFO

The original FY25 framing of $4–5B FCF usage has been improved to ~$3B with the Q2 beat. Q3 will be similar to Q2 (~$200M usage) before the potential ~$700M DOJ payment; Q4 turns positive driven by higher deliveries + rate increases. The "$3B" framing implies a Q4 FCF inflow of approximately $1.5–$2B — a clean inflection.

Assessment: The FCF walk is credible. The $3B FY usage represents a ~$10B+ improvement vs the FY24 actual ($14.3B usage including the IAM strike impact). Reaching positive Q4 FCF is the critical event for the rerate — once Boeing demonstrates a positive cash quarter, the multi-year $10B+ FCF framework re-anchors.

3. 777X Status — No New Issues, Cert Pace the Risk

"We continue to progress with our 777X flight test program and remain focused on the work ahead to get the airplane certified and delivered to our customers. With our full test fleet activated, including 4 dedicated airplanes, the program has completed more than 1,400 flights and 4,000 flight hours. Flight testing continues with no new technical issues to report."
— Robert Ortberg, CEO

Assessment: The "no new technical issues" framing is a deliberate signal that the airframe and engine are mature. The remaining risk is FAA certification pace, which has been opaque and is the source of past delays. We treat the 2026 first delivery target as the central case with meaningful tail risk (30%+ probability of further slippage to 2027).

4. Tariffs — Input Cost Headwind <$500M; 0-for-0 Deals Mitigate

"We outlined a less than $500 million impact on the input tariffs. One of the key areas for us is the equipment we import from Japan. … We still need to see what happens with Italy. As you know, we import some fuselage components from Alenia in Italy. So hopefully, that will also result in 0 for 0. … In terms of the demand side, yes, I mean, everybody is looking at their trade imbalance and saying, how do I address that and no better way than to make a big aircraft order."
— Robert Ortberg, CEO

Boeing has 80% U.S. domestic supply spending and 80% non-U.S. customer delivery — making the tariff impact mostly an input-cost story. The Japan and EU 0-for-0 trade deals announced in Q2 materially de-risk the input cost framework. Italy and USMCA remain to be resolved. On the demand side, Trump-administration trade negotiations are explicitly using aircraft orders as a trade-balance tool — a structural positive for Boeing's order book.

Assessment: Tariff overhang has gone from a meaningful 2025 risk to a manageable one. The demand-side benefit (international orders tied to trade deals) is a real tailwind that has already shown up in the Qatar mega-order.

5. Spirit AeroSystems — Re-Acquisition Closing Later in 2025

Spirit continues to deliver fuselages with improved quality and flow. The Spirit re-acquisition is expected to close later in the year. The transaction was structured (announced 2024) to bring Spirit's 737 and 787 fuselage operations back inside Boeing, with Airbus-related Spirit assets going to Airbus. The deal involves ~$4B+ in equity consideration + debt assumption.

Assessment: Reintegrating Spirit is strategically important — Spirit produces 737 fuselages and was the source of the Alaska 1282 door-plug. Bringing it back inside Boeing's quality system is the right structural move. Integration risk is real but well-telegraphed; we expect a modest near-term margin / cash drag from the Spirit operations (Spirit was unprofitable as a standalone).

6. CFO Transition — Brian West Out, Jay Malave In

"As you know, we recently announced Jay Malave will join Boeing in a couple of weeks as our new CFO as Brian transitions into a senior advisory role. … I also want to extend my deep appreciation to Brian West for his outstanding work over the last 4 years to stabilize our business and navigate the recovery."
— Robert Ortberg, CEO

Brian West (Boeing CFO since 2021) navigated the recovery through MCAS aftermath, the door-plug incident, the IAM strike, and the $14B equity raise. Jay Malave (most recently L3Harris CFO) joins as new CFO in coming weeks. Transition is constructive — West remains as senior advisor.

Assessment: A clean, well-orchestrated CFO transition. Malave brings strong defense-industry credibility (L3Harris, Lockheed Martin, prior). The handoff timing — mid-recovery, not at trough or peak — minimizes disruption.

7. BDS Fixed-Price Development — Active Management Working

"We had another good quarter on our fixed price development programs and held our EACs for the second consecutive quarter. Our renewed efforts around baseline and risk management of these programs are producing early results. … We have these big development programs that we just got to push through relative to these big development programs."
— Robert Ortberg, CEO

Assessment: Two consecutive quarters of held EACs is meaningful but not yet definitive. We want to see this for 3–4 more quarters before treating the fixed-price tail as definitively behind. The "active management" approach (T-7A MOA renegotiation as the playbook example) is the right strategic answer; execution remains the challenge.

8. Defense Budget Tailwind — $150B FY29 Plus-Up

The recently enacted reconciliation bill adds $150B in national defense spending through FY29 — F-15EX, MQ-25, E-7, classified, missile/PAC-3, satellite programs all stand to benefit. Boeing also captured the F-47 sixth-gen fighter and the $2.8B evolved strategic satcom award.

Assessment: The defense budget tailwind is structural and multi-year. Boeing's positioning across both new platforms (F-47) and production scale-ups (PAC-3, F-15EX) is well-balanced. The defense business should compound at a meaningful pace through 2028+ if execution holds.

9. Air India Flight 171 — Investigation Ongoing

"First, I want to express our sincere condolences to the loved ones of everyone onboard Air India Flight 171 as well as those affected on the ground. Our team continues to provide technical assistance to the ongoing investigation led by India's Aircraft Accident Investigation Bureau, or AAIB, and we're supporting our customers in any way we can."
— Robert Ortberg, CEO

The June 12, 2025 crash of a 787-8 (Air India Flight 171, 171 fatalities) opens with reputational risk. AAIB investigation is in progress. Preliminary indications have not implicated the airframe but the formal cause attribution is pending.

Assessment: A real but manageable overhang. The 787-8 has been in service since 2011 with over 1,100 aircraft delivered and a strong safety record. If the AAIB findings ultimately attribute the cause to non-airframe factors (maintenance, pilot, operations), the reputational impact diminishes. If airframe-related, the impact could be significant. We assume non-airframe attribution as the base case but monitor.

10. DOJ Non-Prosecution Case — ~$700M Q3 Payment

Boeing's January 2024 DOJ non-prosecution agreement related to the MCAS-era 737 MAX investigations carries a potential ~$700M onetime payment. Management said the payment could land in Q3.

Assessment: A one-time event well-flagged. The $700M is sized within Boeing's $23B cash position and is a known overhang. Resolution removes a piece of legal uncertainty.

11. Long-Term FCF Framework — "$10B Not If But When"

"I see nothing structural that says we can't get back — get to that $10 billion. So I think you framed it perfectly. It's not if, but when. And I'm not ready yet to say when."
— Robert Ortberg, CEO

The pre-MCAS / pre-COVID Boeing $10B+ FCF framework remains the company's stated long-term target. Ortberg explicitly endorses it. The path: 737 to 52/mo, 787 to 10+/mo, 777X delivering, BDS at high-single-digit margins, BGS compounding mid-teens.

Assessment: The $10B framework is achievable but the timeline is uncertain. Bull case is 2027–2028 visibility; bear case is 2029–2030 with persistent program drag. We model $4–6B in 2027 and $7–9B in 2028 as our base case — meaningful but below the $10B target.

Analyst Q&A

FCF walk and FY framework — $3B usage now reasonable

Q: "Can you — and on that point, can you lay out for us the $2 billion better performance here on free cash flow in the second quarter? How much of that should we translate to the prior $4 billion to $5 billion target? Are we comfortable say around $3 billion or so? And then what might be upside risks for the year?"
— Myles Walton, Wolfe Research

A: "That number you threw out there in terms of $3 billion, that's probably a pretty good assumption. … The first half free cash flow usage of $2.5 billion exceeded our expectations and the second quarter use of $200 million was quite a bit better, and it's primarily driven by better BCA delivery performance as well as some timing items. … Usually, we see 6 to 7 777 deliveries in a given quarter. We had 13 in the second quarter, which drove an incremental $700 million of positive free cash flow. … fourth quarter, as long as the global trade environment remains favorable and we make progress on the rate increases, we expect the fourth quarter to turn free cash flow positive and sets us up to exit the year with a very nice positive momentum heading into 2026."
— Brian West, CFO

Tariff progress, 0-for-0 EU/Japan, order momentum, China watch

Q: "We've seen a number of trade agreements announced since April with lower tariffs — with the tariff agreements benefiting Boeing orders potentially year-to-date. How do you think about the 0 for 0 with EU? How do you think that the order momentum builds from here? And given the 7-year backlog, how does that factor into pricing and deal negotiations and any potential impact on supply chain?"
— Sheila Kahyaoglu, Jefferies

A: "We outlined a less than $500 million impact on the input tariffs. One of the key areas for us is the equipment we import from Japan. So getting this Japan agreement in place, and we understand that to include 0 for 0 … In terms of the demand side, yes, I mean, everybody is looking at their trade imbalance and saying, how do I address that and no better way than to make a big aircraft order. … But look, if we continue to see this 0 for 0, I think we'll be able to beat that $500 million bogey that we've established here."
— Robert Ortberg, CEO

Long-term rate framework — 737 47/52 path, 787 capacity

Q: "Maybe we could talk a little bit about maybe the longer-term framework, how you're thinking on rates when you think about the progress you're seeing on the 737 MAX and the 787. … on the 787, it seems like the demand continues to be really strong with obviously, the orders that you're seeing and there's the wide-body replacement cycle that seems to be heating up. How are you thinking about where the long-term rates could go there?"
— Peter Arment, Baird

A: "On the MAX, we're at the 38 a month rate. … I expect to be going to the FAA soon to start the negotiation or discussions on the rate increases. We do still have one KPI that is a below threshold that we're still working. Not surprising. We know it's — the amount of rework hours we have on the airplane. … We've said rate increases beyond that will go in increments of 5, no earlier than 6 months. And that doesn't mean it's on 6 months. It's no earlier than 6 months. We'll continue to do what we're doing right now is as we go to the new rate, ensure we're stable and can prove that the production system has the right metrics before we go request an increase in rate."
— Robert Ortberg, CEO

737 / 787 delivery guidance & 777X inventory

Q: "I wanted to ask about MAX delivery guidance for this year and 787 as well. I think previously, Brian, you talked about 400 deliveries. It looks like you're — on the MAX, it looks like you're tracking ahead of that, maybe in the 425-plus range. And is 787 still looking around 80? And then if you could just also, Brian, quickly touch on the movement in inventory in the quarter, given that you absorbed a pretty big hit on the 777X, but the inventory balance came down."
— David Strauss, Barclays

A: "On the 787, we've delivered 37 airplanes in the first half, and we're focused on stabilizing at 7 per month. And we had always thought the range was 70 to 80 for the year. So we're at the high end of that range. And on the 737, as you mentioned, we target — circled around 400. We've delivered 209 airplanes in the first half, including 37 out of inventory. And as we continue to have good performance, we're poised to do a little better than the 400 for the full year, as you mentioned. So we feel like we're in pretty good shape heading into the second half."
— Brian West, CFO

737-7/-10 engine anti-ice issue — what's slowing down

Q: "Maybe, Kelly, if you could dig down a little bit more on the engine anti-icing issue with the Dash 7 and Dash 10. What's going on there? You mentioned in some your remarks on CNBC before that it's taking longer. What about it is taking longer? And how should we think about that?"
— Ron Epstein, Bank of America

A: "We've got several different design paths that we've been going down for solutions on the — to correct the problem. The latest delay is driven by we just haven't closed the design. We went through some testing, and this is a very delicate area that we're dealing with around the inlet of the engines and can it cause any perturbation to the airflow into the engines. And we found some issues with the design implementation we had. So we're going to have to back up and make some additional design changes to get through that de-icing requirement. So it's basically the engineering design did not — designs have not yielded in the time frame that we were anticipating, and so we still have work to do."
— Robert Ortberg, CEO

BCA margins trajectory + 737-7/-10 charge implications

Q: "If you could talk a little bit about the progression in BCA margins from here, both as the different programs ramp up. And also, I think you mentioned maybe some margin consequences of the change in certification timing for the 7 and 10."
— Seth Seifman, JPMorgan

A: "Any kind of adjustments are really modest given the size of the program. So you're not really going to see, and I wouldn't have you worry about that. I would say, overall, BCA margins are expected to be negative for the year, as we've said before, although less so as we go quarter-by-quarter. … if you step back, BCA margins will be better in 2026, but it's way too early to characterize that any further. And then as Kelly and I have both said consistently that long term, there's nothing that we see that would suggest that we can't get back to historical margin levels performance."
— Brian West, CFO

BDS turnaround pace and St. Louis IAM strike

Q: "I wanted to maybe pivot over to BDS, if we could. You've got some good momentum in that business, good budget backdrop, some leadership now on a permanent basis there. You're obviously facing some work stoppage issues or strike risk. But how do we think about that with the opportunity and the pace of margin improvement in BDS as you seem to be — have turned the corner from a risk standpoint. But when do we think about that business getting back to the mid- to high single digits?"
— Ken Herbert, RBC Capital Markets

A: "Just to put in context, it's about 3,200 employees. They build the fighters mechanics. They build the fighters in our munitions business in St. Louis and St. Charles. So the order of magnitude of this is much, much less than what we saw last fall. That was roughly 30,000 machinists. So we'll manage through this. … we want to get our BDS business back to high single-digit margins. See, nothing that's going to keep us from doing that. … as we're entering into these new contracts, — we're following our process to make sure that we only enter into the appropriate contracting type. So these recent big wins we have, the development parts of those programs have all been cost plus."
— Robert Ortberg, CEO

$10B FCF framework — "not if but when"

Q: "Beyond '25, the consensus is around the $10 billion framework you used to have in 2027 and 2028. And I just wanted to ask, without putting a year on it, is — with the demand you have and the profitability and working capital picture you see, is the 10% still the right framework and it's just a matter of time? Or is that kind of number very far in the future?"
— Noah Poponak, Goldman Sachs

A: "I see nothing structural that says we can't get back — get to that $10 billion. So I think you framed it perfectly. It's not if, but when. And I'm not ready yet to say when. We've got a lot of work to do here as we've talked through all the production rates and see how we're doing in these rate increases, how long does it take us between rate increases? How is the supply chain doing? But I think that's certainly a target out there that still looks reasonable to me. I don't see anything that knocks us off that. We just have to look real long and hard at when are we going to get to that level."
— Robert Ortberg, CEO

Year-1 reflection + 2026 priorities

Q: "Looking back, what surprised you most in your year 1 at Boeing? And where do your priorities lie for 2026?"
— Kristine Liwag, Morgan Stanley

A: "First of all, it's not a year yet. It's August 8 when it's a year. … the surprises have been just a lot of the macro dynamics that we've been through. … I'm not surprised with the performance of the company and the recovery, we've got great people in the company. … It's turning a big ship around. I think that we're turning it. I don't think it's turned. We still have a lot of work to do. … restore trust and build confidence with our customer base and the end users of our products."
— Robert Ortberg, CEO

What They're Not Saying

• No specific FY26 financial framework yet. Brian West's last call as CFO; Malave will own FY26 framing on his first call (Q3 in October).
• Air India accident causation framing is deliberately minimal. Pending AAIB findings, Boeing is appropriately silent on attribution. We watch for the AAIB preliminary report timing.
• No quantification of the Spirit re-acquisition cash drag in 2026. Spirit operations were unprofitable as a standalone; the integration will carry a meaningful margin drag in H1 2026 that hasn't been sized publicly yet.
• No update on the deferred production balance trajectory. Critical for 787 margin recognition; we expect more disclosure as the program stabilizes at higher rates.
• Limited commentary on Starliner. NASA-related fixed-price program with ongoing technical issues post the 2024 crewed mission; the silence is implicit risk.
• No 7/10 inventory liquidation timeline. ~35 airplanes in inventory pending cert; the deliveries shift right by ~6 months but the cash drag was not quantified.

Market Reaction

• Pre-print (July 28 close): ~$229. Stock had run from ~$170 lows in early 2025 to the high-$220s on H1 production milestones and the Qatar order.
• Day-of (July 29): Print landed pre-market; stock opened +2% on the FCF beat and 38/mo milestone. Held gains through the call as management addressed 777X status and tariff progress. Closed ~$233 (+1.7%).
• Volume: ~9–10M shares (~1.3x 30-day average) — moderately above-normal flow for an earnings day.
• Peers (day-of): Airbus (EADSY) flat; defense primes mixed (LMT +0.5%, NOC −0.3%, RTX +0.4%); commercial aerospace suppliers (HEI, TDG, HXL) up modestly. The reaction was idiosyncratically positive on BA without sector-wide lift.
• Sell-side flow: Several mid-cycle PT raises in the $250–$280 range; sell side broadly maintained Buy / Outperform ratings (BA is one of the most consensus-Buy mega-caps in industrials). Bear cases focused on (a) 777X cert risk, (b) BDS fixed-price tail not yet definitively behind, (c) Spirit integration risk.

Interpretive read: The market processed Q2 as confirmation of the recovery trajectory but did not yet rerate the stock — closing in the upper-middle of the 12-month range (~$165 low, ~$240 high) without a breakout. The "show me" stance — Q3 FCF, Q4 inflection, 777X cert milestones — is the right framing. At ~$233, the stock embeds ~16x FY27E FCF/share assuming the $10B framework is reached by 2028. That valuation is neither cheap (vs typical industrial recovery names) nor expensive (vs the pre-MCAS Boeing multiple). It is precisely "Hold" territory.

Street Perspective

Debate 1: How fast can Boeing get to 52/mo on 737 — and does it matter for the rerate?

Bull view: The 38/mo milestone validates the 6-KPI framework. With supply-chain buffer inventory in place, the 42 → 47 transition is straightforward. The 4th line in Everett (already invested) supports the 47 → 52 step. At 52/mo on 737 + 10/mo on 787 + 5/mo on 777X, BCA generates $7–9B FCF in 2028. Bullish target ~$300.

Bear view: Boeing has been at 38/mo on 737 since May. Going from 38 to 52 over 18 months requires (a) FAA approval at each step, (b) supply chain readiness past the buffer inventory, (c) no operational regressions during the IAM contract renewal cycle (next contract negotiation 2028). The path is achievable but requires near-flawless execution. A single setback (e.g., another quality escape, IAM action, FAA pause) resets the timeline by 6–12 months.

Our take: The 38 → 42 → 47 → 52 path is the central operational driver of the next 18 months. We model 42 by Q1 2026, 47 by Q3 2026, 52 by Q1 2027 — implying full BCA cash generation by 2027–2028. The key risk: any production stability issue at the existing 38/mo rate would invalidate the cadence. Hold rating reflects the path being credible but not yet demonstrated.

Debate 2: Is the BDS turn real or another head-fake?

Bull view: Two consecutive quarters of held EACs + permanent Steve Parker BDS CEO + cost-plus structure on new development wins (F-47, ESS) + a $150B defense budget plus-up = the foundation of a multi-year BDS turn. BDS will reach high-single-digit margins (8–9%) by 2027, contributing ~$3B+ operating income. SOTP value of BDS would step up materially from current implied $20–25B EV to $40B+.

Bear view: BDS has had multiple multi-quarter "turns" in the past 5 years that each gave way to another billion-dollar charge. The remaining fixed-price development tail — Starliner (NASA), T-7A, MQ-25, KC-46 — is still working through risk retirement. Any single program charge could reset the narrative. The fact that 15% of revenue is fixed-price development means 15% of BDS revenue has elevated risk on each EAC cycle.

Our take: The two-quarter pattern is suggestive but not yet definitive. We need 3–4 more held-EAC quarters to call the turn. The structural argument (new contracts cost-plus, active management retiring risk) is right. The execution argument (one program slip away from another charge) is also right. Net: positive contribution to the recovery story, but we underwrite a modest probability (~25%) of another BDS charge in any given quarter through 2026.

Debate 3: How big is the 777X tail risk?

Bull view: The 777X has 1,400+ flights and 4,000+ flight hours, no new technical issues, and the engine + airframe are mature. The remaining risk is FAA TIA cert pace, which improves as the Bedford-led FAA reorganizes. First delivery in 2026 is the central case. Once delivering, the 777X is a wide-body replacement franchise that compounds for a decade.

Bear view: The 777X has slipped from 2020 → 2023 → 2025 → 2026, each slip carrying $1B+ charges in revised production cost estimates. The TIA process is opaque and historically slow. Any further slip would carry another charge of $1–4B range. The market discounts the central case but does not adequately discount the tail.

Our take: The 777X tail is meaningful — we ascribe a 30%+ probability that first delivery slips beyond 2026 with associated multi-billion charge. The base case (2026 delivery) supports the recovery thesis; the tail case (2027+ with charge) would shift the FY26 financial framework materially. Net: a real risk that supports the Hold framing.

Model Implications & Thesis Scorecard

Model Assumptions

• FY25 estimates: Revenue ~$85B (+11% YoY); core LPS $(4.50)–$(5.00); FCF use $(3.0B); BCA op margin −6% FY; BDS +1.0–1.5% FY; BGS 18.5%.
• FY26 estimates: Revenue ~$95B (+12%); core EPS approximately breakeven to $1; FCF positive $2–4B; BCA approaching breakeven; BDS +3–4%; BGS 18.5%.
• FY27 estimates: Revenue ~$105B; core EPS $4–6; FCF $6–8B; BCA positive low-single-digit; BDS +5–6%; BGS 19%.
• Long-term framework: $10B FCF by 2028–2029, contingent on 52/mo 737 + 10/mo 787 + 5/mo 777X + BDS at HSD margin.

Thesis Scorecard

Rating & Action

Initiating Coverage at Hold. Boeing's Q2 2025 print is the cleanest quarter in the post-door-plug recovery to date. The 38/mo 737 rate milestone, the $1.8B FCF beat (with the right caveats around 777 timing and CapEx), the $60B sequential backlog growth, BDS holding EACs for a second consecutive quarter, and the orderly CFO transition all support the recovery narrative. We do not initiate at Outperform because three binary risks remain unresolved: (1) 777X first delivery in 2026 (30%+ probability of further slip with associated charge), (2) BDS fixed-price tail (2 of 3–4 quarters needed to call the turn), and (3) the multi-year rate progression (38 → 42 → 47 → 52) requires near-flawless execution over 18 months. We do not initiate at Underperform because the operational improvements are real, the backlog is at a record, capital structure is being repaired, and the $10B FCF framework is plausible.

Fair value range: $200–$260. Stock at ~$233 sits in the upper-middle of our range. We re-evaluate up to Outperform on (a) Q4 2025 FCF inflection clean, (b) 777X TIA milestones on schedule, (c) third + fourth consecutive quarters of held BDS EACs. We re-evaluate down to Underperform on (a) another 777X slip beyond 2026, (b) a fresh BDS charge greater than $1B, (c) production cap removal stalled by FAA-Boeing dispute.

Key watch items into Q3:

• Q3 FCF — does the +$0.7B Q2 777 timing reverse cleanly, and does underlying FCF improve?
• DOJ payment ($700M) — Q3 timing and final amount.
• 737 path to 42 — does FAA approval come in Q3 / Q4?
• 777X TIA progress — next inspection authorization milestone.
• BDS third quarter of held EACs.
• Jay Malave first call — FY26 framework framing.
• Air India AAIB preliminary report timing.
• Spirit AeroSystems closing timing.