Boeing Takes $4.9 Billion Hit, Delays 777X Launch

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00:00I thought these earnings were in line with what we expected. We had assumed about a $4 billion

00:03charge. They came in at $4.9, so about $900 million higher than we expected. And we had

00:08lowered our 26 free cash flow to around $3.5 billion. And the streets slowly come down over

00:12the last 45 days to that arena. So that's what we're anticipating. The 777X has an impact to

00:18free cash flow next year. But the results were in line. And I would say actually free cash flow

00:22core was about $400 million better. First positive free cash flow quarter in two years.

00:27So some momentum, but generally in line quarter. So as you know, I often compare these shares to

00:33the shares in Airbus. And I always look at a five-year window. It's just my default because

00:38the Bloomberg does that with the comp function. And I see over that period, Boeing has returned

00:4350 percent and Airbus has returned 262 percent. Is this a situation where Boeing eventually catches

00:51up to Airbus? Are they, you know, in this dual duopoly, always catching up to one another?

00:57I think that means that Boeing has a lot of runway to go with its share price, right?

01:00Up to August this year, through August of this year, Boeing has delivered more planes than it did

01:06all of 2024. They're stabilizing at 38 a month on the 3-7. They were only at 24 a month last year.

01:12On the 787, they're at 7, going to go up to 10. They were only at 3 to 5 last year. So they're improving on rates,

01:20and that's driving some of the positive momentum, which should help free cash flow. You deliver a

01:24plan on time, you receive, you know, the funds for that, and you receive new orders, and the

01:29backlog continues to be strong. By the way, ironic that their loss was 747, right? Which is their most

01:36iconic, in my opinion, their best commercial airliner, at least that I've flown on. Maybe it was

01:42rounded up intentionally. I was going to say, maybe the loss wasn't as bad, but they like tried to get

01:46it to 747. I don't think you want to remind investors that you no longer make the greatest

01:51plane, you know, commercial flyers have ever been on. You are probably right.

01:55I think it does go to show that, you know, President Trump has been a supporter of Boeing,

02:01too. And so with that, with the trade deals, I think that's been supportive of Boeing's order book.

02:06I would say, because also the FAA lifted its cap on 737 max production planes. How much of a difference

02:11is during a shutdown? Right. And that's the first the cap was put in place in January 2024 with the

02:17Alaska incident. So now they're at 38 and they're allowed to go to 42 as of October. With that said,

02:22we do have 42 production a month in our estimates for next year. So that's in our numbers. But good

02:28news that the cap is lifted. We were talking with Ed Ludlow about Nvidia, and he pointed out that Jensen

02:34Wong has made his estimates without including China revenue, although President Trump is likely to talk

02:39about that with President Xi on Thursday at 11 a.m. South Korea local time. Kelly Ortberg right now

02:47on CNBC saying that he's very hopeful for China talks as well. What's at stake here for Boeing in

02:53these in these trade talks? China at some point accounted for up to 20 percent of the order book.

02:59It's much lower than that now. So clearly it's over the last five, six years, Airbus has been dominant

03:05in China. So that opens up a market. But again, Boeing's not relying on that with almost six thousand

03:10aircraft in its order book. So they don't need China. But obviously it's incrementally positive. Well,

03:16speaking of government relations and specifically defense for Boeing, they still have that contract

03:20dispute. They haven't worked through yet with the workers in their St. Louis defense facility. How much

03:25of that is going to be a way on Boeing going forward if it doesn't get resolved soon? It's 12 weeks into the

03:31strike. And they're about what the workers are about break even for what they're asking in wage

03:35increases. So we would assume that's resolved soon. And defense is finally turning a quarter.

03:40This is a business that was losing billions in free cash flow per year. So now we kind of estimate a net

03:45neutral starting in 2027. So the big watch items that turn the corner are still the 777X and defense,

03:51but 3.7 and 8.7 are going pretty well.

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