Blain’s Morning Porridge 15^th May 2025 – Boeing scores largest aircraft order, but….

“If it’s a Boeing I’ll have to think about going..”

Boeing is slowly climbing its hill towards recovery. The last few years saw the firm tumble on the back of a host of crises of its own making. It’s coming back together, but the question remains: can it remain relevant without a big capital pool to spend on developing the next generation of aircraft, in the face of new competition?

Regular readers may recall I once called Boeing the worst company on the planet – following their attempts to cover up the corporate failings that lead to 346 deaths when 2 B-737 Max planes crashed. Today I follow it closely – mostly out of curiosity to see what they break next. I have a sneaking feeling they may finally be getting somewhere.. but with reservations.

Boeing just scored the largest sale in aviation history – $96 bln for a mix of 230 B-777x, B-737-Max and B-787 Dreamliners. Qatar Airways, notoriously one of the hardest and toughest price negotiators on the planet, will have won a massive discount on the price, and probably preferential slots on Boeing’s crowded delivery schedule. On Tuesday IAG (British Airways parent) and the Saudi’s both announced big ticket orders. Donald Trump is, of course, basking in the credit he’s receiving for these big, beautiful deals. Fact is, all these orders were going to happen anyway – airlines need new aircraft.

Boeing is on a recovery uptick – something we suggested would happen over a year ago as it began to solve it multiple issues around poor management, atrocious work-force issues, and safety issues. My great chum Julian Wheeler, Shard’s US stock picker, has reminded me of a host of reasons to buy:

• After the tariff agreement, the Chinese are now accepting delivery of Boeing aircraft.
• It is expected to be given permission to increase production by the FAA – which had been slowed due to safety concerns.
• It’s no longer on credit-watch – the cash flow from new orders will keep it solvent. (How profitable will it be?)
• They have just won the contract on the F-47 next generation fighter on a cost-plus basis.
• Further new orders are expected to roll in at the Paris Air Show in June.

Let’s not get overly frothy.

Boeing has an uncanny ability to generate headlines that snatch defeat from the jaws of victory. 2 years ago it was a door falling off a plane in flight. Last year it was the failure of the Boeing Starliner spacecraft that left Astronauts stuck on the ISS for months.

This year it’s the ire of Trump over the delayed VC-25B Air Force One replacement, and his apparent decision to accept a $400mm flying luxury palace from Qatar as “a gift” to replace the elderly Jumbos currently in the role. Fortunately for Boeing, the reality is… Trump is largely responsible for all the noise around Air Force One. (The problem is – folk listen to Trump, not to Boeing.)

To understand the problems of Boeing relating to Air Force One I recommend starting with the Disney + documentary Air Force One Flying Fortress. Trump appears on it (during his first presidency) explaining the brilliant deal he’d done with Boeing. Rather pay for new B-747 aircraft as the US Air Force wanted, he decided they should buy 2 newish aircraft a bankrupted Russian carrier had defaulted on and refit them. Oh dear.

Demonstrating his in-depth understanding of the aviation industry proved not to be Trump’s strong-suit. Buy cheap and pay more. He was warned at the time it would have been much cheaper, easier and faster to build new ones, but Trump is the master of the art of the bad deal. Boeing has struggled with the conversions for all kinds of reasons. It has cost Boeing over 2 billion on the fixed-cost contract they were forced to accept. The Air Force has discovered Trump’s new paint-job design for the plane – as on the model sitting in front of him in the Oval Office – isn’t any good for hiding its thermal image. In short – another disastrous Trump deal.

Since the B-747 Jumbo production line is now closed, it’s a bespoke job to build new ones. The new deal – whereby Trump gets ownership of a $400mm gift to be Air Force One is causing even hardened MAGA supporters conniptions. The reality there is it will prove even more difficult to convert it to military standard – and is unlikely to be ready before the end of Trump’s second term. (Yes, I know.. Steve Bannon says its 100% certain he’ll need it for his third term.)

The noise about Air Force One and how it demonstrates the heightened political risk wafting around Boeing from a vindictive, mercurial president should not be over-played – but neither should it be ignored.

This week’s large ticket sales is great news for Boeing – and for GE, which got the engine orders – but they do raise a host of questions. It is very much the junior firm in a duopoly dominated by Airbus. (It’s also a publicity boost for Trump, coming at time when he needs to show the American public he’s delivering for America.) But what’s really going on? That is a much bigger issue.

The global air travel market is set to expand dramatically in coming decades – everyone agrees on that. It is estimated 44,000 planes will be required to replace older aircraft and provide new capacity over the next 20 years. Much of that demand will come from South-East Asia, and the Chinese have plans to sell their COMAC aircraft into the regional market. Together the Airbus/Boeing duopoly is delivering well short of filling the order books.

At present airlines face multiple operating problems:  There is an engine crisis exacerbating capacity issues; new fuel-efficient engines have proved to require much more ground time in service – making them expensive. Deliveries have been slow; production delays caused by Covid, a hiatus in B-737 Max deliveries following their grounding as the entirely preventable crashes were investigated, the slowing of Boeing production lines for safety issues in the wake of the door-falling-off incident, have forced airlines to extend service lives (keeping the SuperJumbo A-380s in service for example), and using older aircraft.

The biggest issue is delivery times. Pre Max and pre-Covid, Boeing would brag about it taking 2 years from signing an order to taking delivery. Boeing has a current backlog of over 6,300 aircraft on order including 4763 Max. However, while they hope to be allowed to increase production to 42 aircraft per year, that will still take 9 years to clear current orders. There were 836 Dreamliners on order before this week -and they hope to increase to 7 per month taking 10 years to clear, meaning that if Qatar is getting them in 4 years, someone else’s delivery is delayed.

To give Boeing credit, deliveries are rising. To produce more aircraft, safely and profitably Boeing needs more aviation engineers which means training them (a long-term issue, and DOGE just closed the education department), or bringing them in via immigration. Both of these will take time.

The real issue is where does Boeing go from here? Where will its recovery lead? It is resolving the crisis of the 20-teens – which we warned would be a 10-year process to re-establish its corporate culture and for engineers rather than cost accountants to regain control of the firm. That is happening.

But the firm is running day-to-day relying on new order payments to maintain cash flow. The Dreamliner has not proved a profitable programme and hasn’t banked money to pay for developing its successor. It needs the B-737 Max programme – an elderly design that’s been turned into a Frankenstein monster through repeated modifications – to make money… The B777x programme has been delayed for decades and may not be profitable. It doesn’t have the capital it will require to develop new more efficient aircraft. Airbus is not sitting on a cash pile either, but is in better financial shape to plan a new generation of aircraft.

Meanwhile, new DefTec firms in the US want to eat Boeing’s breakfast – building the next generation fighter. They want to use cheaper, more efficient drones and understand the Trump administration is seeking to cut, not hike, defence spending. The Chinese will be eyeing the opportunity to supply Asia – their aviation tech is currently a generation at least behind the West, and they’ve shown they can play catch up. Watch that space.

A reader asked the other day about the apparent success of Pakistan’s new Chinese fighters vs India last week, shooting down 5 of the Indian planes, including current European designs. That wasn’t so much about the aircraft (which are blatant rip-offs of Western designs), but China’s current mastery of long-range missiles – something Westen Air Forces are greatly concerned about.

Out of time, and back to the day job (still from North Wales this week…)

Bill Blain

Author of the Morning Porridge

Founder Windshift Capital

Partner Shard Capital