Boeing has faced a tough year in 2024, dealing with safety issues and delays with its 737 MAX, hurting its reputation and profits. While a $20 billion defense contract for the NGAD fighter jet gives its defense business a boost, the company still has a lot of work to do on its commercial side. In Today’s FA Alpha Daily, we’ll explore Boeing’s 2024 challenges, commercial operations and projects to recover.
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Boeing (BA) has faced an array of challenges in 2024, with its reputation shaken following production issues and safety concerns surrounding its flagship 737 MAX aircraft.
The year started with the controversy of door plug detachment on a 737 MAX operated by Alaska Airlines, reigniting questions about the safety of a model that had already endured global groundings and severe reputational damage following two tragic crashes in 2019.
This incident, coupled with ongoing FAA oversight, disrupted Boeing’s plans to ramp up production and deliver on its ambitious targets.
All these factors combined resulted in the company struggling with profitability, with Uniform return on assets ”ROA” falling to (11%) last year.
Despite these setbacks, the company stands at a critical juncture.
Boeing made headlines last week when it secured the U.S. Department of Defense’s $20 billion contract for its Next Generation Air Dominance (NGAD) fighter jet program.
Beating out rival Lockheed Martin (LMT), the win secures the company’s role in developing the F-47, a sixth-generation stealth fighter designed to operate with autonomous drones and counter growing threats in the Indo-Pacific region.
The news propelled Boeing’s stock upward 5%…
The NGAD award is a lifeline for Boeing’s defense unit, which has struggled with losses on fixed-price contracts and aging programs like the F/A-18 Super Hornet.
The F-47 program, structured as a cost-plus agreement during development, allows Boeing to recoup expenses and secure margins. The company has already invested $2 billion to expand its St. Louis production facility.
Lockheed Martin has dominated fighter jet manufacturing for decades with F-35 and F-22 platforms.
By keeping Boeing in the game, the Pentagon avoids over-reliance on a single supplier while preserving industrial capacity for future projects.
Despite the defense win, Boeing’s commercial division faces persistent hurdles.
The 737 Max, while cleared to fly after two fatal crashes, continues to grapple with regulatory scrutiny and production delays.
Its 777X widebody program is years behind schedule, and the Air Force One replacement project remains a lightning rod for criticism.
Boeing’s leadership has yet to outline a clear path to stabilizing its commercial operations.
Labor shortages, supply chain disruptions, and lingering reputational damage complicate efforts to ramp up production of its cash-cow 737 and 787 Dreamliner models.
Meanwhile, competitors like Airbus are capitalizing on Boeing’s missteps, securing orders for their A320neo and A220 aircraft.
Boeing’s stock surge shows the market’s hopes that the NGAD contract marks a turning point.
However, the company’s valuation now assumes a rapid recovery that its commercial division may not support.
We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.
The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.
In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.
At the current stock price, the market expects the company’s Uniform ROA to recover around 10%.
Boeing has posted negative returns in five of the past six years, and its ability to meet F-47 development milestones while fixing commercial operations remains questionable.
For Boeing to truly rebound, it must demonstrate consistent progress across both divisions.
The defense win buys time, but lasting recovery hinges on resolving 737 Max delays, delivering the 777X, and rebuilding airline confidence.
Until then, the stock’s rally seems too expensive.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research
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