Berkshire requires a 25–50% discount to intrinsic value before buying.

BOEING CO (BA) — Investment Analysis

April 15, 2026 · SEC EDGAR 10-K · gemini-2.5-flash · 10-K context cached

Q1: What is the business?

The Business in One Sentence

Boeing primarily designs, produces, and services commercial jet aircraft and defense, space, and security systems for customers worldwide.

How the Money Actually Flows

• Revenue Streams:
  • Products: Generated $75,356 million in 2025, representing 84% of total revenue. These are commercial jetliners (737, 767, 777, 787 models, with 777X and 737-7/737-10 in development) and military aircraft, weapons systems, strategic defense, satellites, and space exploration systems (Consolidated Statements of Operations, page 54; Item 1, page 1).
  • Services: Generated $14,107 million in 2025, representing 16% of total revenue. These include supply chain, maintenance, upgrades, training, and digital solutions for both commercial and defense customers (Consolidated Statements of Operations, page 54; Item 1, page 1).
• Segment Contribution (2025 Revenues):
  • Commercial Airplanes (BCA): $41,494 million (46% of total) (Summary of Business Segment Data, page 59).
  • Defense, Space & Security (BDS): $27,234 million (30% of total) (Summary of Business Segment Data, page 59).
  • Global Services (BGS): $20,923 million (23% of total) (Summary of Business Segment Data, page 59).
• Pricing: Commercial aircraft are sold via "firm fixed-price aircraft sales contracts with indexed price escalation clauses" (Item 1A, page 6). Defense is a mix of "fixed-price contracts" (~58% of BDS revenue in 2025) and "cost-type contracts" (~40% of BDS revenue in 2025) (Note 24, page 117; Item 1A, page 13). Services are a mix, too.
• Margins: BGS had the best operating margin at 64.4% in 2025, largely due to a disposition gain. BCA had the worst at (17.1%) (Summary of Business Segment Data, page 59).

The Customer

• Who Pays: Commercial airlines globally, the U.S. government (primarily Department of War and NASA), and foreign governments. Non-U.S. customers accounted for 46% of total revenues in 2025 (Note 24, page 116).
• Why They Keep Paying: For commercial aircraft, it’s delivering "superior design, safety, quality, efficiency and value" (Item 1, page 3). For governments, it's about "ensuring our national security" (Item 7, page 24). Once committed to a platform, the investment in training, parts, and infrastructure creates substantial switching costs.
• If Boeing Vanished: Global aviation and defense would face immense disruption, forcing customers to turn to competitors like Airbus, incurring massive costs for new fleets and re-tooling.

The Honest Assessment

The revenue model is clear enough: big-ticket aerospace products and the services to keep them flying. BGS's margin in 2025 of 64.4% looks great, but that's inflated by a $9,566 million gain from the Digital Aviation Solutions Divestiture (Note 3, page 72).

What makes me nervous are the "reach-forward losses" on fixed-price development programs like the 777X and KC-46A, which highlight significant cost estimate challenges (Note 9, page 82; Note 15, page 91). This suggests management has a tough time predicting costs, and the "significant judgment" required for these estimates worries me (Item 1A, page 11). The fact that the 777X program, launched in 2013, is only expecting first delivery in 2027 with billions in losses already recognized is concerning (Item 1A, page 7; Note 9, page 82). They took a $4.9 billion hit on 777X alone in 2025 (Note 9, page 82). That's a lot of money to be wrong about.

Q2: Is the moat real and durable?

Moat Type — Be Specific

Boeing should possess a regulatory/IP moat due to the immense capital, technical expertise, and stringent certifications required to develop and produce commercial aircraft and advanced defense systems. They also benefit from switching costs once airlines commit to a fleet type. However, recent performance suggests this moat is leaky.

The Financial Evidence

The numbers don't lie, and they don't flatter.

• ROE: Sky-high figures like 3085.5% (2018) are more a symptom of a shrinking equity base (from past losses) than a sign of robust profitability. The subsequent streak of losses (2019-2024, XBRL data) and an anemic 41.0% (2025) recovery show profound structural issues.
• Margin trend: Operating margins collapsed from 10.3% (2018) to a dismal -17.8% (2024), recovering only slightly to 2.5% (2025) (XBRL data). This is not the profile of a company with strong pricing power or an unassailable cost advantage.
• Pricing/Volume: While Commercial Airplanes revenue increased in 2025 to $41,494 million (Item 7, page 33) due to higher deliveries of 600 units (Item 7, page 34), management admits to "intense pressures on pricing" and "significant increases in supplier prices" (Item 1, page 4; Item 7, page 33). This indicates they're absorbing costs, not effortlessly passing them on.

Moat Trajectory

Narrowing significantly. A series of self-inflicted wounds and external pressures have eroded pricing power, inflated costs, and severely damaged operational efficiency. The financial results are proof of a moat under siege.

The Kill Shot

Persistent failure to execute on quality, safety, and production schedules, coupled with intensified competition from Airbus and emerging Chinese aircraft manufacturers. If the FAA or other global regulators permanently restrict production rates due to systemic quality failures, as hinted by the 737-9 accident and subsequent FAA oversight (Item 1, page 4), Boeing's ability to compete at scale would be crippled.

Verdict

No, probably not. Boeing's operational failures and regulatory issues have undermined trust and allowed competitors to gain ground, making its once formidable moat increasingly vulnerable.

Q3: What do the numbers say?

Earnings Quality

• Net income of $2.2B for 2025, yet free cash flow was -$1.9B. This is a stark divergence; cash flow is where the rubber meets the road, and this company isn't generating it from operations.
• A substantial $9.67B gain from dispositions (Note 3, Consolidated Statements of Operations, p. 54) propped up 2025 net earnings. Selling off parts of the business to show a profit isn't sustainable.
• Persistent reach-forward losses on fixed-price contracts, totaling $1.38B in 2025, $6.56B in 2024, and $2.94B in 2023 (Note 1, p. 61). This signals fundamental issues with estimating costs and executing complex programs.

Returns on Capital

• Reported ROE of 41.0% in 2025 is less impressive when considering equity was negative in 2024 (Consolidated Statements of Financial Position, p. 56). It's easy to show high ROE on a shrinking or historically negative equity base.
• Investing $2.9B in capital expenditures in 2025 (Consolidated Statements of Cash Flows, p. 57) while operating cash flow struggles suggests poor returns on new capital. The business isn't compounding effectively.

The Balance Sheet

• Total debt has exploded from near zero in 2018 to $54.1B in 2025 (Note 17, p. 95, and 10-year record). That's a heap of leverage. It shows a desperate need for capital.
• Earnings before income taxes of $2.635B (Consolidated Statements of Operations, p. 54) barely covered interest and debt expense of $2.771B in 2025 (Consolidated Statements of Operations, p. 54). This is a precarious position; one hiccup and they're underwater on debt service.

Shareholder Treatment

• Diluted weighted average common shares outstanding increased from 605.8M in 2023 to 762.3M in 2025 (Consolidated Results of Operations table, p. 26). Shareholders were significantly diluted, including through common stock issuance and the Spirit acquisition.
• No open market share repurchases since March 2020 (Item 5, p. 23). They're issuing shares, not buying them back.

🚩 Red Flags

• The enormous increase in debt and consistent cash burn are deeply troubling.
• The reliance on one-time gains and constant reach-forward losses on fixed-price contracts indicates a company struggling with operational execution and truthful accounting estimates.

Q4: How does management think?

Capital Allocation Scorecard

This company has been lighting capital on fire for years, and 2025 is no exception.

• Reinvestment: Capital expenditures were $2.9B (Item 7, p. 120), while net cash from operations was $1.1B, and free cash flow was negative $1.9B. Still spending more than they earn in cash. R&D expenses were $3.6B (Item 7, p. 30).
• Acquisitions: Acquired Spirit for $8.4B (Note 2, p. 70) in shares, loan settlements, and assumed debt. A big bite for a troubled supplier.
• Divestitures: Sold Digital Aviation Solutions for $10.6B cash, generating a $9.67B gain (Note 3, p. 72) that heavily flattered 2025 net earnings. Selling parts to look good on paper is not operational excellence.
• Buybacks: The common stock repurchase program was terminated in March 2020 (Item 5, p. 23). Minimal shares were transferred for tax withholding.
• Dividends: Common stock dividends have been suspended since 2020 (Item 7, p. 43). They did pay $331M in cash dividends on mandatory convertible preferred stock in 2025 (Consolidated Statements of Equity, p. 58).

Owner Orientation

• Insider Ownership: The 10-K refers to the proxy statement for this information, which is not provided. Cannot assess current skin in the game.
• Compensation: Long-term incentive PRSUs are tied to cumulative free cash flow and include a "product safety downward modifier" (Note 19, p. 107). Stock options granted in 2025 were "premium-priced" (Note 19, p. 105), which is better than giving them away, but performance still needs to materialize.
• CEO Communication: The report is direct about production issues, regulatory oversight, and fixed-price program losses, but the positive spin on "culture transformation" (Item 1, p. 2) feels a bit hollow given the recent safety issues and financial results.

Munger's Three Tests

• Intelligence: Mixed. They clearly understand the deep technical challenges and regulatory scrutiny, but operational execution has been a disaster, indicating a failure to adequately forecast and manage complexity.
• Integrity: Questionable. The $244M fine and $445M compensation fund related to the 2025 non-prosecution agreement regarding the MAX accidents (Note 23, p. 114) is a damning indictment. They got caught, then tried to manage the fallout.
• Energy: High, but misdirected. Much effort is spent trying to "ramp up production" and integrating suppliers amidst "significant uncertainties" (Item 1A, p. 7; Item 7, p. 34), rather than consistently delivering quality and positive cash flow.

Bottom Line

This management is swimming in red ink operationally, propping up earnings with asset sales, and is haunted by past integrity failures. Not deserving of capital.

BOEING CO (BA) — Investment Memo

🐂 The Bull Case (Warren's voice)

If you strip away the recent headlines and look at the skeleton of the business, Boeing sits at the heart of an essential global industry.

• Durable, Compounding Moat (Potential): This should be a duopoly business with an enormous regulatory and intellectual property moat. The capital required, the technical expertise needed, and the stringent certifications for aircraft and defense systems are nearly insurmountable barriers to entry. Once an airline commits to a fleet, switching costs lock them in for decades, driving demand for parts and services. The underlying demand for global air travel and national defense is a secular trend that should compound.
• Exceptional Economics (If Executed): The business model should yield high returns on capital. Unit economics on a profitable plane are substantial. Aftermarket services (maintenance, repair, overhaul) are recurring, high-margin revenue streams. Defense contracts provide long-term, stable backlogs. This is an indispensable provider of complex machinery, and in theory, it possesses significant pricing power due to its market position.
• Attractive Price Range: A business like this, properly managed and generating consistent cash, would be genuinely attractive if purchased at a significant discount to its intrinsic value. If the company were to truly fix its operational issues and start generating substantial free cash flow, we might consider it around $50-$60 per share as a "fix-it-up" special.

🐻 The Bear Case (Charlie inverts)

"Show me where I'll die and I won't go there." With Boeing, there are too many ways to bleed out slowly.

• Permanent Erosion of Trust & Brand Value: The most insidious threat is the ongoing series of quality control lapses and safety incidents. This isn't just bad press; it erodes the fundamental trust of regulators, airlines, and the flying public. If this continues, the "regulatory moat" becomes a regulatory burden, inviting stricter oversight, slower certifications, and a preference for the competitor (Airbus). This translates directly into lost market share and decreased pricing power.
• Structural Inability to Generate Free Cash Flow: The company's persistent cash burn, highlighted by a -$1.9B free cash flow against $2.2B net income in 2025, is a flashing red light. Spending $2.9B on CapEx and $3.6B on R&D while only generating $1.1B cash from operations suggests a fundamental flaw in cost management and project execution. A business that continually "lights capital on fire" and relies on asset dispositions (like the $9.67B gain in 2025) to flatter earnings is structurally impaired. This isn't a cyclical downturn; it's a deep-seated operational and cultural problem.
• Most Likely Scenario & Timeframe: The combination of eroding trust and structural cash flow issues are the most probable and intertwined path to permanent impairment. Airbus is gaining an insurmountable lead, and Boeing's pipeline is delayed and expensive. This slow decline will manifest over the next 5-10 years as its market share shrinks, profitability remains elusive, and its balance sheet becomes increasingly strained by debt needed to fund operations, not growth.

💰 Valuation & Margin of Safety

Our DCF estimate indicates an intrinsic value per share of $64.44.

• Intrinsic value estimate: $64.44 per share
• 25% margin of safety entry: $48.33 per share (conservative)
• 50% margin of safety entry: $32.22 per share (Buffett's ideal)

Relative to the current market price (which is often significantly higher than our intrinsic value estimate), Boeing is currently significantly expensive. The market appears to be pricing in a recovery that is not supported by the company's current financial performance or operational track record.

Verdict: PASS

The fundamental business, while possessing an impressive theoretical moat, is currently being undermined by severe operational and capital allocation deficiencies. The divergence between reported earnings and actual cash flow, coupled with recurring quality issues, indicates a deeply troubled enterprise. Until management demonstrates a sustained ability to generate robust free cash flow and rebuild trust, this is a clear pass for Berkshire.