Boeing's Crossroads: Can Defense Strength and Commercial Momentum Outweigh Supply Chain Headwinds?

Boeing (NYSE: BA) stands at a pivotal juncture. Recent operational improvements, a resilient defense portfolio, and robust commercial aircraft demand suggest the company could finally emerge from years of setbacks. Yet lingering supply chain challenges and production bottlenecks threaten to undermine progress. With Boeing's upcoming presentation at the Bernstein Strategic Decisions Conference (May 29), investors must assess whether this is a moment for valuation re-rating—or a warning of persistent underperformance.

Operational Improvements: Deliveries Rise, Backlog Grows, But Cash Flow Strains Persist

Boeing's Q1 2025 results highlighted progress in commercial aviation. Deliveries surged to 130 aircraft, up from 83 in the same period last year, with the 737 MAX program on track to hit 38/month by year-end. The 787 production rate is set to rise to seven/month, while the 777X—Boeing's next-gen wide-body—began FAA certification flights, targeting first deliveries in 2026.

The commercial backlog now totals $460 billion, fueled by orders like Korean Air's 40-aircraft deal (20 777-9 and 20 787-10) and BOC Aviation's 50 737-8 MAXs. Yet operating cash flow turned negative ($1.6B), reflecting working capital pressures and a $2.6B quarterly dip in cash reserves. Investors must ask: Is Boeing's margin recovery sustainable amid rising deliveries?

Defense Resilience: F-47 Win Anchors a $62B Backlog

Boeing's Defense, Space & Security (BDS) segment offers a critical offset to commercial volatility. The $200B+ F-47 fighter contract (pending final approval) secures decades of revenue, while the segment's $6.3B Q1 revenue and 2.5% margin reflect operational stability. Notably, 29% of BDS orders now come from non-U.S. customers, diversifying revenue streams.

This segment's strength contrasts with Lockheed Martin's (LMT) struggles in fighter programs, positioning Boeing to capitalize on global defense modernization. The F-47's eventual backlog inclusion could be a May 29 catalyst.

Commercial Aircraft Demand: United's Fleet Plans Highlight Boeing's Critical Role

United Airlines' (UAL) Q1 2025 presentation underscores Boeing's importance. United is modernizing its fleet with 145 Boeing 787 orders (to replace aging 767s) and 167 737 MAX 10s, while retiring older models like the 757. Its 2025 delivery plan includes 84 MAXs and 28 787s, directly boosting Boeing's production.

Starlink Wi-Fi rollout and premium cabin growth at United align with Boeing's 787 and 777X capabilities, which offer superior passenger comfort for long-haul routes. However, United's domestic revenue decline—driven by weak off-peak demand—raises questions about broader commercial aviation trends.

Supply Chain & Tariff Risks: The Ceiling on Growth

Despite progress, Boeing faces systemic headwinds. The 737 MAX produced just 31 units in April—below its 38/month target—due to supply chain bottlenecks and tariffs. The 787 program delivered only 8 units in April, lagging its 7-10/month goal.

While Airbus also faces delays, Boeing's reliance on U.S. suppliers (e.g., Spirit AeroSystems) exacerbates vulnerability to tariffs and labor constraints. CEO David Calhoun's pledge to “aggressively reduce costs” remains unproven.

Catalysts vs. Risks Ahead of Bernstein Presentation

Catalysts for Re-Rating:
1. F-47 contract finalization and backlog inclusion.
2. 777X certification timeline clarity.
3. 737 MAX production ramp-up plan exceeding 38/month.
4. Margin stabilization in commercial aviation.

Risks of Underperformance:
1. Delayed 787/777X deliveries pushing back free cash flow recovery.
2. Tariffs on U.S.-built aircraft deterring international buyers.
3. Competitor inroads by Airbus (EADSY) on narrowbody dominance.

Investment Thesis: A Wait-and-See Stance, but Leaning Bullish

Boeing's defense segment and commercial order backlog provide a sturdy foundation. United's fleet modernization plans highlight Boeing's irreplaceable role in premium aviation. Yet until production bottlenecks are resolved, cash flow will remain strained.

Recommendation:
- Hold Boeing until the Bernstein presentation clarifies production timelines and margin trajectories.
- Buy if F-47 wins are confirmed, 737 MAX output exceeds 38/month, and 777X certification is on track.
- Avoid if supply chain delays persist, or tariffs on aircraft escalate.

Boeing's story is no longer about “if” it can recover, but how quickly. The Bernstein event will be a key test of management's ability to turn operational progress into sustained investor confidence.

Stay tuned for updates post-May 29.