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Boeing Defense Is No Rocket

Jun. 03, 2020 1:30 PM ETThe Boeing Company (BA)52 Comments


  • Boeing Defense earnings will be more prominent in the earnings mix but that reflects weakness in the Commercial Airplanes business.
  • Boeing Defense has had - and is having - its own program-specific challenges.
  • Boeing likely to return to previous earnings mix levels as time passes.
  • With Commercial Airplanes beaten down, shifting focus away from the ugly reality is not warranted.
  • Boeing Commercial Airplanes will drive earnings up again.
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In recent reports, I had a look at Boeing’s (NYSE:BA) Commercial Airplanes monthly order overviews and the pressures on demand for commercial aircraft. Although the order and delivery overviews have been part of my coverage for years, some readers have now perceived that as me viewing Boeing as a “commercial aircraft only” company while ignoring the other business segments. That’s not quite accurate as we have been dealing with the defense and services segment sides as well. The fact remains that the biggest changes have been happening on Boeing Commercial Airplanes. In this analysis, I will explain why Defense indeed shouldn’t be ignored, or any of Boeing’s other segments for that matter, and why Defense is becoming more prominent but isn’t the solution to Boeing’s problems.

Boeing Defense Is No Skyrocket

Source: Defense News

In this article we us some abbreviations:

Boeing Commercial Airplanes: BCA

Boeing Defense, Space & Security: BDS

Boeing Global Services: BGS

Boeing Commercial Airplanes: Bulk of the revenues

Figure 1: Revenue distribution Boeing segments

When looking at the distribution, we see clearly that commercial aircraft account for around 60% of the sales. In 2018, we saw an uptick in revenue share for Boeing Global Services and that further increased in 2019 due to the acquisition of KLX Aerospace. In 2019, the Boeing 737 MAX was largely absent from the delivery mix. To show this, we added back the scheduled Boeing 737 MAX deliveries as if there would be no crisis and added the Starliner charge on revenues back as well:

Figure 2: Revenue distribution Boeing segments with 737 MAX added back

What we see is that the distribution would be more or less stable and you could really ask yourself whether we should shift our focus away from Boeing Commercial Airplanes because this segment is not performing well at the moment, which

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This article was written by

Dhierin Bechai profile picture

Dhierin-Perkash Bechai is an aerospace, defense and airline analyst.

Dhierin runs the investing group The Aerospace Forum, whose goal is to discover investment opportunities in the aerospace, defense and airline industry. With a background in aerospace engineering, he provides analysis of a complex industry with significant growth prospects, and offers context to developments as they occur, describing how they might affect investment theses. His investing ideas are driven by data informed analysis. The investing group also provides direct access to data analytics monitors. Learn more.

Analyst’s Disclosure: I am/we are long BA, EADSF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (52)

Waiting for FAA chiefs comments and outlook for MAX approval. Need these out to justify a price of 220. Training will then take some time and evaluation of deliveries. Earnings in late July will not be pretty!
My friend what happened, when the stock going down you wrote 1 article a day, now when it is going up, you stopped, please we need you, don't stop, your wonderful analysis and points are so valid and are needed. for all your followers to build their conviction on loading or holding thr shares,, I am also Long dude. thk you keep up the great work. the funny part is your disclosure i am long but will only point negativities. not many here are thr with your calibre. enjoy your life man..
Dhierin Bechai profile picture
@guyrogers27, Seeking Alpha somehow is running on lower editorial capacity than normal which is leading to delays in publishing. There is nothing I can do to accelerate. Apologies. I got a bunch of reports pointing out negatives but also positives and I'd like to share those with you as soon as possible.
bengalesq profile picture
Dude what the hell is happening with this stock (price)?!?! Now people are writing bullish articles on it as if it is a deal at $200. Please advise.
Its call riding with the wind. These articles and people are going with trend. you hear people bashing on boeing when it was at mid 100s. When the stock goes up, they became silent. Now its the people who bought the stock and gained profit that are bullish. The truth is, eventually it will go back higher, but it will be a bumpy ride.
Expect dividend will be reinstated NLT Jul 2021 at a reduced rate.
I sold 1000 shares after div was eliminated. At age 77, I can’t wait 5-10 years! However, would take my chances if I could get in for 125 but not optimistic!
good luck getting back in for 125. wont happen. You should consider reinvesting in GE or Ford.
Not to ignore the elephant in the room, but when is the FAA finally going to make a decision on the MAX......Based on past references, it was supposed to have been decided by now.

Basically, what's the hold-up?
Dhierin Bechai profile picture
Uhm... COVID-19 signficantly delayed the schedule.
@metal mike - The Boeing 737 MAX must be certified by all the world regulatory authorities. If only by the FAA the MAX will not have far to fly.
BAemployeeLeadTesterAIcontrols profile picture
Government are waiting to obtain another FISA warrant to continue undertaking unlawful activities in order to recoup past losses in lieu of COVID-19 not becoming eliminated
Greenhorn Investor profile picture
One day doesn't make a stock but nice to see BOEING go BOING today.

Long BA.
Andrew Boydston profile picture
The 737 Max crashes are more of an aberration than a permanent market deviation from the norm. The come-back is certain, despite the Covid-19 crises in play. Boeing must make the 737 whole since it has a second chance with its single-aisle offering which seemed doomed in 2019. It has made the 737 Max whole during the last so many months, as it had the scramble on. Max is solid! it won't disappoint. Stock investors can risk the Boeing single-aisle in its portfolio due to the big moves it has made in its corporate world.
Hi Dhiren, really appreciate all of your articles, i always read your outstanding articles since Boeing was at 120 per share, at that time i loaded after your views and you are absolutely right, even i am long JUST LIKE U sir, i loaded at 120 and still holding , we need writers like you, because it is too hard to say long and provide various dimensional views like urself. , i enjoy reading all of your articles, we all kindly need you for a long run upto 360 per share and with a disclosure at the bottom saying I AM SUPER LONG. i bought 1k shares at 120, its not a bad trade with your blessings. i wish you keep writing your outstanding articles, do not get disheartened my friend we all need you. keep writing super long thesis articles. GL my friend.
Dhierin Bechai profile picture
Thank you for reading!
GreenPirate profile picture
Listen to physicians on this and monitor for the sake of your own safety and that of your family. It is very possible that the daily number of confirmed cases will begin to rise again. Monitor the CDC's sites for warnings and information.

This relates to any and all travel related companies, including BOEING, BA.
An April 2020 CDC warning about a resurgence of COVID-19 was timely but widely ignored.

'Flu and coronavirus will launch dual 'assault' on America next winter if we don't prepare now, CDC chief warns. If COVID-19 resurges at the peak of flu season this winter, the health care system will be even more strained than it is now, CDC director Redfield warns.'
'A resurgence of COVID-19 next winter could hit the United States health care system even harder than the original outbreak has, the director of the Centers for Disease Control and Prevention (CDC) has warned.

If the virus has a second wave that coincides with the start of flu season — which is responsible for thousands of American deaths per year — then the nation's health care system will likely be even more overwhelmed and under-supplied than it has been during the current outbreak of coronavirus in the U.S., CDC Director Robert Redfield told The Washington Post on Tuesday (April 21).'

Now, on June 3, 2020, a vaccine is still months away. Again the CDC has warned that ending stay at home orders and not restarting them if COVID-19 cases rise again would be a tragic mistake. See May 20, 2020

"Experts warn of second coronavirus wave in Dallas, Houston, Alabama and parts of Florida"
May 20, 2020 at 11:40 p.m. EDT

'Montgomery Mayor Steven Reed said Wednesday that his Alabama city is out of intensive care beds. “Right now, if you’re from Montgomery, and you need an ICU bed, you’re in trouble,” Reed said at a news conference. Alabama Gov. Kay Ivey (R) allowed restaurants, bars, retail businesses, churches, gyms and salons to reopen this month, and is expected to outline further steps this week.
Dallas, Houston, Southeast Florida’s Gold Coast, the entire state of Alabama and several other places in the South that have rapidly reopened are in danger of a second wave over the next four weeks, a research team says.'
where are the people who says boeing will go to zero now?
kenith46 profile picture
@karondongotbanned ..Boeing is going to zero. Said it. BA will go BK. No date...but I see it as a certainty. A quote from a strategist for a capital firm in England "There is nothing normal about what is happening". That goes double for BA. At the end of 2019 it had negative book value, which has only worsened. Calhoun should have taken the $25 billion in new funding and immediately declared BK and used it as DIP financing. Break the company up into at least 2 separate stocks, BC & BD. Could have guaranteed the new bond holders equity in the new companies to cover their cost. Unload most of the older debt, or give small percent in new companies. The pension system would take a hit, but some could be salvaged. Who knows, Calhoun may still do it. Or be forced out and a new CEO that will do it brought in. The new stocks would take off like a SpaceX rocket (oh yeah, that is Musk). The Fed heroin injection has only made the inevitable crash of the overall stock market to be pushed out a few more weeks or months...but not years. The demand destruction that exists in our economy now is unreal. Investors I read and trust say we are looking into an abyss with the demand destruction. We are only 2.5 months into this depression. By this time next year there will be no doubters. With that said, I can easily see the stupid money pushing BA to $200/share before the end of June. Who knows? Just my opinion, like everyone else on here.
too much complicated guestimated analysis which has no meaning in stocks whatsoever, good luck
DB makes some good points. BA Defense isn't what it once was but is still underrated by the market. I must say that I'm shocked by the reaction of the consumer to travel. It appears they are ready explode on the scene and if virus doesn't raise its ugly head WOW is ahead.
@rockjcp it is not under rated by the market...it is dying a slow death..

BA defense revenue does not outpace the losses.

The space sector is all but dead, and a money loser, that is not an opinion, but fact. When the losses from the failed Starliner are posted, or buried by BA financial accounting techniques...there is virtually nothing left but to supply contracts for small missile systems that have been in place since MCD...

When will the Starliner be operational, and at what loss to Boeing ???.

Meanwhile Spacex will have successfully flown how many crewed missions to the ISS? (not to mention hundreds of supply sorties)

Has anyone seen the interior of the Boeing Starliner vs the SpaceX dragon???

Boeing Retroliner is more like it...they used the plans from George Jetson and Spacely Sprokets for the design of the flightdeck...

No worries, the upgrade includes design parameters from the Millenium Falcon as an upgrade...,


NASA will follow the FAA lead to actually force Boeing to consider human factor engineering in the design....

oh oh
joesamm profile picture
I can imagine that the hundreds of subcontractors, not to mention the thousands of various employees dependent on Boeing's size and revenue diversification would have some impact on their financial and manufacturing plans. This article reminds me of the similar arguments for or against companies like Apple and their foray into the services segments like music. Services may or may not ever replace the iPhone revenue stream but they helped push Apple to a trillion dollar market cap.
Navid, PhD profile picture
Trimmed my position at 170$
Why so scared. i will trim at $250.
GreenPirate profile picture
Woops. I held back at buying more so...
as long as profit is made. no regrets. i held back at buying more too. i only bought a few shares.
I do feel that this whole thing will at least make it clear to Boeing that they need to continue future investment/R&D into their defense business. While they have had some great wins recently, Iv felt like it was always very much on the back burner for them.
BDS and GSS used to be combined. A lot of the military contacts relied on the GSS side of profitability since a lot of them are long term. Too many of the military contracts are fixed price. Hence when revisions come in, there's a loss.
Invader from Earth profile picture
We all can watch BA dive into the dirt until it wakes up. BA refuses to address the needs of their consumers (passengers). Until BA alerts itself to their passenger requirements, there is almost no hope for BA. Today we are in the COVID world now and forever. Passengers need room. Space. Partitions. Perhaps bring the Business Class section to the back of the plane. Yet, all we hear from BA is static. We are tired of this and are NOT GOING TO TAKE IT ANY MORE. No
More talk of filters. We want action and safety and not planes that do not stay in the sky. Cut back on the golden parachutes for the bosses.
Airlines decide the seating configuration. Not Boeing. The airlines are Boeing's customers, not you and me.
joesamm profile picture
Really, maybe we (the passengers) could stand up. Boeing could just remove all the seating and we can all stand like we do in subways and buses. Jets would cost less to build, be more fuel efficient, and fares would be cheaper.
When you start finding pasesngers who can withstand the 40 g vertical load test, let me know. The FAR requirements for passenger restraint make your thoughts nonstarters......
Space did make money prior to the merger. Also, many of the same technologies are used for land based ICBMs, which was one of Boeing's bedrock businesses prior to the merger. Now it isn't even a qualified bidder to upgrade systems it built. On the commercial side, there is not future there either unless new products are in continual development, and currently, none are. If you don't do an all new plane periodically, you lose the ability to do it at all. The current round of layoffs and buyouts are targeting more senior people, so the odds of eventual recovery keep getting longer and longer, and the price of that recovery just keeps going through the roof. I keep a few shares for sentimental reasons, not because I expect them to ever be worth what they once were. I've even contemplated getting some certificated and discontinuing DRIP. A frame certificate would be a nice reminder of what once was a great company.
Ahhh...still lotsa old guys there:) They gotta get there 401s back in shape..:)
AngelaRyse profile picture
I think my cousin just got her job back there last week in Tacoma WA. Worth researching. I highly doubt BA goes under. I’d go long tho.
How come you are long the stock, but always write negative articles about the stock? :))
Dhierin Bechai profile picture
This article is negative? 🧐
03 Jun. 2020
Honest reviews
I mean in general. You dont seem to pump it which i respect
they should sell their space division and get some more cash. Space has never made money for them and does not align with the portfolio
Dhierin Bechai profile picture
As far as I know, Boeing's space segment does hundreds of millions in profits per year. In what way does space not align with the portfolio?
it still makes profit so it does not align with BCA
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