737 MAX ramp-up progress is visible, but free cash flow improvement still needs greater transparency

Overview

The report is based on field visits to 737 MAX manufacturing facilities in the Puget Sound region and discussions with Boeing senior management. Bernstein believes 737 MAX production, quality control, and workforce stability are all improving, and the current operating status is consistent with the company’s statements at its second-quarter earnings call and strategic meeting. The medium-term investment thesis depends on higher 737 and 787 production and margins, a return to positive cash flow in the defense business, and whether the path of free cash flow growth can be further clarified.

Core views

The 737 MAX is one of the most important operating drivers for Boeing’s share price. The Renton production line is currently running at 47 aircraft per month, and the institution expects it to rise to 52 aircraft per month in the first half of 2027 with support from the new Everett north line, before advancing toward 57 and 63 aircraft. Process remediation driven by the FAA after the 2024 door-plug incident, reductions in traveled work across stations, enhanced training, and higher quality and safety standards have improved production stability. Meanwhile, aircraft affected by historical 787 structural issues are close to being cleared, and higher output is expected to bring meaningful operating leverage; the defense business is expected to return to positive operating cash flow this year. The institution maintains its view that 2028 free cash flow will exceed US$10 billion, but wants the company to disclose a clearer breakdown and timeline for cash flow.

Analysis framework

The report combines factory field research, management interviews, analysis of production cadence and supply chain bottlenecks, segment margin and cash flow forecasts, and valuation using a terminal EV/EBITDA approach. The analysis shifts its focus from GAAP profit to free cash flow to reduce distortions caused by program accounting in assessing Boeing’s operating performance.

Methodology notes

• Fundamental researchField research and operational due diligence

  Verify capacity, quality, workforce, and supply chain conditions through on-site production observations and management interviews.

  The institution visited manufacturing facilities near Renton and Seattle, focusing on verifying the 737 MAX monthly production rate, progress on the new Everett line, process cadence, quality remediation, and the three key constraints of wings, Wichita fuselages, and engines.

• Valuation methodsTerminal EV/EBITDA valuation method

  Estimate enterprise value based on terminal EBITDA and valuation multiples four years forward, then adjust for net debt and discount back to the valuation date.

  Boeing’s terminal EV/EBITDA multiple is 16.7x, derived from a combination of multiples for the commercial aircraft and defense businesses, with adjustments for differences in unit and program profits for the 787 and 737 programs, ultimately producing a 12-month target price of US$298.

• Financial analysisFree cash flow analysis

  Use operating cash flow less capital expenditures to measure a company’s sustainable cash generation capacity.

  The report argues that program accounting distorts GAAP profit, so it uses free cash flow as the core metric while also assessing inventory, customer advances, delivery compensation, fixed-price defense programs, and 777X.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Boeing Co (BA.US)

  U.S. aerospace and defense stock directly covered by the report

  Strengths

  737 MAX production and quality improvements, upside potential for 787 cash margins, steady cash generation from the Global Services business, and the defense business is expected to return to positive operating cash flow.

  Weaknesses

  737 delayed-delivery compensation will continue to weigh on margins, 777X is still consuming cash, and balance sheet items lead to insufficient visibility into free cash flow.

  Comparison

  Bernstein’s Outperform rating means it expects the stock to outperform the S&P 500 by more than 15 percentage points over the next 12 months.

  Risks

  Deterioration in the supply chain, prolonged strikes, weaker-than-expected execution of commercial and defense programs, and delays in certification timing for the 777X and 737 MAX-7/10.

Key data

• Rating and target priceOutperform; US$298.00Relative to the 2026-08-07 closing price of US$234.42, the potential upside is 27%.
• Current 737 MAX production rate47 aircraft per monthAffected by production open slots and 2 to 3 737-10 aircraft per month that cannot yet be delivered, the actual rollout and delivery rates are slightly lower.
• Next-stage 737 MAX target52 aircraft per month in the first half of 2027Requires the new Everett north line to contribute 5 aircraft per month; Boeing Commercial Airplanes has staffed to this capacity level.
• Everett capacity potentialUltimately 16 aircraft per monthCan support a further increase in total 737 MAX capacity to 57 and 63 aircraft per month.
• Wichita investmentUS$1 billionUsed to promote fuselage business integration and capacity ramp-up, and to avoid repeating the production mistakes seen when rising to 52 aircraft per month in 2018.
• Estimated additional engine inventory80 to 100 unitsLEAP-1B deliveries are currently on schedule, but engine supply shortages still need to be monitored after inventory is consumed.
• 787 production rateIncrease from 8 to 10 aircraft per monthPlanned for later in 2026, and expected to drive a significant improvement in cash margins in 2027.
• 2028 free cash flow forecastUS$10.936 billionThe institution maintains its view that 2028 free cash flow will exceed US$10 billion.
• Potential annual free cash flow volatilityAbout US$2 billionMainly from timing changes in inventory, customer advances, and other balance sheet items.
• 2027 financial forecastRevenue of US$115.010 billion; free cash flow of US$6.655 billion; core EPS of US$4.10Operating margin is expected to be 5.9%.

Impact & implications

Improved production stability, higher 737 and 787 output, and margin recovery are expected to help Boeing move from operational recovery to sustained cash generation and support the current positive rating. In the short term, the share price may still be affected by union negotiations, certification news, and supply chain disruptions; the key to a medium-term re-rating is whether the 52-aircraft-per-month capacity target can be delivered and whether the company can convert production improvements into verifiable free cash flow growth.

Risks

• If SPEEA engineer union negotiations evolve into a prolonged strike, they could disrupt production and cause a short-term financial impact.
• Failure to smoothly increase Wichita fuselage capacity could become a bottleneck for the 737 MAX ramp-up to 52 aircraft per month and above.
• Shortages in LEAP-1B or GEnx engine deliveries could slow 737 and 787 production.
• Execution issues in commercial aircraft and defense fixed-price programs could depress profits and cash flow.
• 737 delayed-delivery compensation is expected to continue limiting the pace of cash margin recovery over the next two years.
• 777X continues to be a drag on cash flow, and there is uncertainty around the certification timing of the 777X, 737 MAX-7, and 737 MAX-10.
• Timing changes in inventory, customer advances, and other balance sheet items may cause significant volatility in free cash flow.
• If the wing automation project is not completed by October 2027 as planned, it will affect the long-term capacity target of 63 aircraft per month.

What to watch

• Whether the actual 737 MAX rollout and delivery rates can stabilize close to 47 aircraft per month.
• Whether the new Everett north line can support the target of reaching 52 aircraft per month in the first half of 2027.
• Wichita defect rates, fuselage inventory consumption, and capacity ramp-up progress.
• 737-10 certification progress and the delivery schedule beginning in 2027.
• The extent of cash margin improvement after the 787 increases from 8 to 10 aircraft per month.
• Whether management discloses a more detailed composition of free cash flow and the timeline for reaching a level above US$10 billion.
• SPEEA voting results and potential strike risk after the current contract expires.
• LEAP-1B and GEnx engine supply conditions, and the pace of consumption of additional engine inventory.
• Whether the defense business can achieve positive operating cash flow as scheduled.