Boeing(NYSE:BA) faces continued challenges in 2025. However, it also has opportunities to deliver on its current backlog in its commercial aerospace and defense businesses.
Despite the company's troubles, it closed the year with a large order from Pegasus Airlines which reiterates the basic demand for Boeing aircraft. To maximize returns for investors, Boeing needs to perform better starting in 2025.
In that context, here are three things investors need to look out for from the company in 2025.
Turkey's Pegasus Airlines' firm order for 100 Boeing 737 MAX aircraft, with the option to order another 100, highlights the strength of Boeing's continued demand and backlog. At the end of November, Boeing's total backlog of commercial aircraft was 6,268, of which 4,818 were the 737 MAX.
To put that figure into context, earlier this year, Boeing planned to reach a steady rate of 38 deliveries per month on the Boeing 737 MAX by the end of the year. That equates to 456 per year, a rate that suggests a 10-year backlog on the 737 MAX.
In 2025, Boeing will certainly want to prioritize boosting 737 MAX production. Unfortunately, a combination of self-imposed measures taken to slow down production and improve manufacturing quality in light of the Alaska Airlines blowing out in early 2024, and industrial action meant Boeing's delivery rate was disappointing in 2024.
Data source: Boeing presentations. Chart by author.
The first step towards recovery is to reach the initial target of 38 monthly deliveries on the 737 MAX.
It won't be easy. After all, Boeing will need to ensure that its suppliers match its delivery rates, not least because the 38 per month rate is the start of the ramp. Fuselage supplier Spirit Aero Systemsa company that Boeing intends to acquire in 2025, is having financial difficulties, and CFM International, the GE Aerospace a joint venture supplying 7373 MAX machines, missed its engine production target in 2024 amid ongoing supply chain difficulties.
As such, reaching the initial target would be very positive for the stock, and investors should keep an eye out for commentary on the matter.
Image source: Boeing.
The following chart indicates the difficulties Boeing's defense, space and security (BDS) segment is facing.
Data source: Boeing presentations. Chart by author.
Former BDS CEO Ted Colbert left the company in September, after Kelly Ortberg was appointed CEO of Boeing in the summer. The segment's problems stem from cost pressures and overspending on a collection of fixed-price development programs, including the KC-46 tanker, refueling aircraft; the MQ-25, an aerial refueling drone; the VC-25B, better known as Air Force One; and the T-7 trainer aircraft. These represent around 15% of its revenue. It has also faced cost problems with its fighter and satellite programs, which account for 25% of its revenue.
It is clear that there is an opportunity for Boeing to do better in BDS, and the earliest step in that recovery will come from increasing profits on the 60% of its business that is profitable. The strike dealt a blow to that profitability in the third quarter, but now that the strike is over, BDS should improve profitability in those businesses. Moreover, Boeing can continue to work through the fixed price development programs. As such, investors can hope that BDS will return to profitability in 2025.
Boeing has more than 480 orders for its 777X widebody, including 205 from Emirates. The problem is that the 777X, an aircraft originally planned for delivery in 2020, will not have its first delivery until 2026.
The delays are not only frustrating for airlines, not least because they are forcing them to carry out fleet reforms. They also lead to multibillion-dollar charges at Boeing and tie up cash in inventory before the planes are delivered.
The good news is that the end market remains vibrant, with United Airlines Chief Commercial Officer Andrew Nocella said in mid-October, “The fact is that the production lines for widebody aircraft probably won't meet demand over the next three to five years, based on everything we see.”
Here again, there is an opportunity for Boeing to outperform, and given that expectations are so low, staying on track with the estimate for the first delivery rate in 2026 will be positive for the stock.
Image source: Getty Images.
The end market environment remains favorable in both commercial and defense aerospace. If Boeing is to deliver significant shareholder value, the three factors I have outlined here must be considered. With the labor dispute out of the way and new leadership in place, Boeing is largely a self-help story, but it won't have a happy ending unless Boeing can ramp up 737 MAX deliveries, return BDS to profitability, and keep' r 777X on track.
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Lee Samaha does not have a position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group and GE Aerospace. The Motley Fool has a disclosure policy.
