Investors will be forgiven for wondering whether the question should be where Boeing (BA -0.43%) will be in the next three months, let alone three years. It's already been a highly eventful year for the company, raising more questions about its midterm guidance. Here's how to consider investing in Boeing over the next few years.
Where will Boeing be in 2026?
When CEO David Calhoun laid out Boeing's midterm guidance of free cash flow (FCF) of $10 billion in the 2025/2026 time frame, he was probably aiming to hit the target in 2025. However, there are now serious doubts about Boeing's ability to hit the target in 2026.
Interestingly, the Wall Street analyst consensus for FCF in 2026 is significantly lower at just $8.2 billion. Despite this, Boeing's management remains steadfast and holds onto the target.
Here's CFO Brian West on an earnings call in April: "We continue to expect that this goal will take us longer than we originally planned and later in the '25, '26 window primarily tied to the 737 and 787 production delivery ramps of 50 per month and 10 per month, respectively."
Calhoun is set to step down as CEO at the end of the year. As things now stand, he will leave office sticking to the $10 billion in FCF in the 2025/2026 target.
Why the $10 billion matters
The FCF target matters because Boeing is earmarking its FCF generation to meet debt maturities over the next few years and use any excess to accelerate debt repayments. This is crucial in an industry that requires significant, multiyear investment to develop new airplanes.
As you can see below, Boeing's debt ballooned due to recent events. Even though Calhoun has told investors not to expect a new Boeing airplane in place before 2035, the company still needs cash to invest in developing it years in advance.
BA Cash and Equivalents (Quarterly) data by YCharts.
As West noted above, embedded in the target is the assumption that Boeing will hit production of 50 a month on the Boeing 737. For reference, due to the need to address quality-control issues, Boeing delivered just 67 Boeing 737s in the first quarter and expects to deliver a similar amount in the second quarter.
On a brighter note, management expects to hit a rate of 38 a month on the 737 in the back half of this year.
Boeing's cash-flow pressures are mounting
While Wall Street estimates already imply that Boeing will fail to hit the target, a lot is happening that could threaten the company's cash-flow generation.
- Delivery delays can result in airline compensation claims, and Boeing may have to discount pricing on new airplane orders to reflect delayed delivery rates.
- Boeing is currently in contract negotiations with the International Association of Machinists and Aerospace Workers (IAM) over a new contract after the current one expires in mid-September
- The company's defense business will likely report another loss in the second quarter, and West has already acknowledged the defense business is behind in its recovery plans and hinted it might contribute "maybe not quite as much" as planned for in the medium-term plans.
- Boeing's planned acquisition of 737 fuselage maker Spirit AeroSystems will cost money and require investment, particularly as Spirit has bled cash in recent years and needs to ramp up fuselage production to meet Boeing's implied production rate.
Image source: Getty Images.
Where will Boeing be in 2026?
Ramping up airplane production is hard enough, let alone when the company is under pressure to deliver, as it is now. As such, looking at the $10 billion in FCF in 2025/2026 with a healthy dollop of skepticism makes sense, and even using Wall Street's estimate of $8.2 billion might prove optimistic.
Boeing will almost certainly be in a stronger position in three years. Still, the uncertainty around its financial position and its ability to invest in developing a new airplane continues to hang over the stock.
There's no doubt Boeing wants to ramp up production. Still, the new contract and the investment in improving quality and Spirit AeroSystems may result in lower profit margins and cash-flow generation than the market thinks.
