After a session that most likely should have gone the other way, Boeing closed Monday at $221.30, down 2.67%. Israel had approved a $119 billion military expansion, which included a new squadron of F-15IA fighters, two days prior. Meanwhile, EgyptAir received its first 737 MAX, marking the beginning of an 18-aircraft lease with SMBC Aviation Capital. That is the type of news flow that boosts a stock on a typical weekend. Rather, BA surrendered six dollars and change.
Walking through a Boeing assembly plant or simply reading the quarterly filings gives the impression that the company is moving, albeit slowly and erratically. Revenue increased by almost 14% to $22.2 billion in the Q1 report. With a backlog currently at a record $86 billion, the defense unit alone brought in $7.6 billion, a 21% increase. Demand for what Boeing produces is by no means an issue. Everything that takes place between the order book and the wing rolling out the hangar door is the issue.
The amount of free cash flow was negative by $1.45 billion. That’s a number worth considering. A $1.45 billion shortfall in a single quarter, along with a net loss of just $7 million, indicates that the recovery is still being financed, not yet earned, even though Boeing has been losing money for so long that investors have almost stopped recoiling at it. Kelly Ortberg, the CEO, described it as a “strong start to the year.” The market interpreted it in a different way.
Boeing’s defense division needed a deal like the one with Israel. The procurement was framed by Prime Minister Benjamin Netanyahu, who discussed maintaining “overwhelming air superiority.” Israel Katz, the minister of defense, cited the Iran War as an example. The F-15IA squadron is part of a larger 350 billion shekel modernization project for Boeing, which also brings Lockheed Martin a fourth batch of F-35s. An option for an additional 25 aircraft was included in the $8.6 billion F-15IA contract signed in December, and it now appears more likely to be exercised. The final terms are still being negotiated with the US government.
The delivery from EgyptAir was more symbolic than it was monetary. Ahmed Adel, chairman of EgyptAir Holding, described the 737-8 as a turning point in his airline’s modernization while standing on the Cairo tarmac. Compared to the previous generation, the MAX is expected to reduce emissions and fuel consumption by about 20%. It will be flown by EgyptAir to Paris, Brussels, Istanbul, and Vienna—short and medium-distance flights that generate revenue. Additionally, earlier this week, Bangladesh’s Biman placed its biggest-ever order with Boeing for fourteen aircraft, including eight 787-10s, with deliveries scheduled for between 2031 and 2035. Demand has a lengthy runway. Investors are focusing on the runway of execution.
Because this is the problem. With FAA approval, Boeing hopes to increase its monthly production of narrowbodies from 42 to 47 this year. First deliveries are anticipated in 2027, but certification for the 737-7 and 737-10 variants is still pending. The cash flow story quickly becomes more ugly if there is a slip in that timeline, such as a miss or an output stumble. Holding his $270 buy target, Ronald Epstein of Bank of America described the trajectory as “baby steps in the right direction.” Baby steps are generous. It’s probably true as well.
It’s difficult to ignore the fact that Boeing has been in this exact position for many years. The door plug incident from early 2024 seems almost as far away as the 737 MAX grounding. And yet, we are still debating whether Boeing can increase monthly production from 42 to 47 aircraft. In contrast, Airbus simply keeps delivering. The P/E of 97 is pricing in patience rather than distress, and investors appear to think Boeing will eventually figure it out. No one at the Arlington headquarters can say for sure whether that patience will endure another quarter of negative free cash flow.
You get the impression from watching this stock that the market is fed up with being ahead of Boeing’s turnaround. Perhaps the drop on Monday had nothing to do with Egypt or Israel. Perhaps it had to do with the tedious process of waiting.