Idea Of The Week: Ready to Take Off - Boeing bonds Offer you 6.2% yield!

• Boeing delivered 314 aircraft in the first half of the year, its strongest half-year performance since 2018, driving revenue up 10.7% YoY. Operating profit also surged, with the effects of fixed cost dilution beginning to emerge, finally reversing years of losses.
• Boeing repaid USD 8.4 billion in debt in the first half of the year, effectively reducing both total and net debt. Cash reserves, along with unused credit lines, approached USD 30 billion, far exceeding its USD 4.6 billion in short-term debt.
• Our platform offers six Boeing USD bonds with different maturities, with net yields to maturity ranging from 3.5% to 6.2%, suitable for investors looking to allocate to aviation industry-related bonds.

Boeing is one of the world's largest manufacturers of commercial aircraft, with its business divided into three main segments: Commercial Airplanes, Defense, Space & Security, and Global Services (providing aftermarket and digital services). In the second quarter of 2026, these three segments accounted for 48%, 30%, and 22% of revenue, respectively (see Chart 1). In recent years, Boeing has experienced safety and quality crises, labour disputes, and supply chain bottlenecks. However, with recent increases in aircraft production, progress in new aircraft certifications, and the gradual realization of its free cash flow guidance, the company's credit fundamentals are at a clear turning point for recovery.

Chart 1: Boeing's Business Segmentation

Boeing's Revenue Improves, Profitability Gradually Recovers

Boeing's revenue has been rebounding steadily since its 2024 low. In the first two quarters of 2026, revenue increased by 10.7% YoY to USD 46.78 billion; annualized revenue reached USD 94 billion, a 5.1% increase from the end of 2025, demonstrating strong momentum. In terms of profitability, Boeing's operating profit for the first half of 2026 was USD 600 million, more than doubling YoY, with an operating profit margin of 1.3% (see Chart 2). After years of operating losses due to safety controversies, Boeing has finally begun to turn a profit.

Chart 2: Boeing's Revenue and Profitability Performance

We believe the improved profitability mainly benefited from increased deliveries, a recovery in unit cash profit, improved pricing, and the dilution of fixed costs. The commercial aircraft operating profit margin was -2.7%, with losses primarily stemming from costs incurred during the production ramp-up period. The defense business dragged down profit margins due to a USD280 million impairment charge related to the Air Force One (VC-25B) project. Furthermore, Boeing will sell its navigation subsidiary Jeppesen and related assets such as ForeFlight and AerData to private equity firm Thoma Bravo at the end of 2025 for nearly USD10 billion. However, excluding these one-off gains and losses, Boeing's revenue and profit from aircraft sales will still maintain an upward trend.

Since most of Boeing's business comes from passenger and military aircraft sales, this will be analyzed below.

Boeing's passenger aircraft boast superior performance and competitiveness 

As an aircraft manufacturer with decades of experience, Boeing passenger aircraft are consistently popular with airlines due to their excellent load capacity and range. In the regional market, after several years of upgrades, Boeing launched the updated narrow-body 737 MAX to compete with Airbus's new narrow-body A320neo, offering superior maximum passenger capacity and range. For intercontinental routes, Boeing introduced the new wide-body 777X, which allows airlines to choose between a higher range and lower passenger capacity version (777-8) or a higher passenger capacity and lower range version (777-9). It is certain that thanks to the record-breaking thrust of General Electric's latest GE9X engine, the 777-8 and 777-9 have a higher maximum takeoff weight (MTOW) than the Airbus A350-1000 (see Table 1), meaning they can carry more passengers or cargo per flight.

Table1: Parameters Comparison of Boeing and Airbus major passenger aircrafts

Boeing's passenger aircraft certification progress has been successful this year

After experiencing safety controversies surrounding its passenger aircraft, Boeing's certification process for new products is gradually getting back on track. In August 2026, the Federal Aviation Administration (FAA) issued a revised type certification to Boeing for the 737 MAX short-body version (737-7), officially approving the aircraft for commercial service and ending a nearly ten-year certification process (see Table 2). The extended version, the 737-10, completed its final certification test flight in July 2026 and is now in the final stages of development assurance review and system safety assessment, with final data to be submitted to the FAA; Boeing maintains its 2026 certification target.

Boeing's flagship wide-body aircraft, the 777-9, is also progressing well in its FAA Type Inspection Authorization (TIA) process: Phase 4A (icing testing) was approved earlier; Phase 4B (the largest batch of system-level tests) was approved on June 8 and is underway; it still needs to complete Phase 5—300 flight hours of functional and reliability testing—and a Twin-Engine Extended-Range Flight Test (ETOPS, simulating the ability to reach the nearest alternate airport in the event of one engine failure) demonstration before obtaining type certification. Boeing reiterated its goal of delivering to launch customers in 2027.

Boeing's fighter jet order injects a strong boost into its defense business.

The defense business has been a drain on Boeing's profits for the past few years, with multiple fixed-price contracts being impaired, dragging down the group's overall profitability. A turning point came in March 2025: Boeing beat Lockheed Martin to win the contract for the U.S. Air Force's sixth-generation fighter jet program, designated F-47, with the contract valued at over USD20 billion in the Engineering and Manufacturing Development (EMD) phase. This is Boeing's most important bidding victory in years, not only extending the life of its St. Louis fighter jet production facility but also solidifying the group's core supplier position in the US military's aircraft system for decades to come.

The F-47 program is progressing largely as expected. It received approximately USD3.05 billion in funding in 2026, and the US Air Force has requested an additional USD5.03 billion in its 2027 fiscal year budget, representing a 65% annual increase. The first test aircraft has entered production, and the official timeline for its first flight remains unchanged at 2028. This demonstrates that in addition to its passenger aircraft business, Boeing's military aircraft business is also showing signs of improvement, and its operational foundation is becoming increasingly solid.

Boeing's order backlog continues to increase, and delivery speed guarantees future revenue

With certification issues resolved, Boeing's next step is to ensure smooth aircraft delivery. As of the end of the second quarter, the Group's total backlog reached a record high of USD 715.3 billion, a 4.8% increase compared to the end of 2025 (see Chart 3). Commercial aircraft accounted for USD 596.7 billion (approximately 83.4%), encompassing over 6,200 aircraft. The Defense, Space & Security and Global Services segments accounted for USD 85.3 billion and USD 32.8 billion respectively, believed to be due to the continued tight supply of core engine components globally.

Chart 3: Boeing backlog

According to Boeing's 2Q26 earnings report, the Group delivered 171 commercial aircraft, bringing the total to 143 delivered in the first quarter, marking the strongest first half of the year since 2018. A closer look at the order structure reveals 246 net orders in the second quarter, with customers including giants such as Korean Air and Delta Air Lines. Furthermore, management expects approximately 62% of the backlog of orders to be converted into revenue by 2030, with the remaining orders having even longer delivery periods, meaning the visibility of these orders spans nearly a decade. We believe that even if global aviation demand experiences a cyclical downturn in the next two to three years, Boeing's production plans will not immediately lose support, and the group has essentially escaped the demand-side risks brought about by the pandemic.

Boeing's credit quality continues to improve, providing protection for its bonds.

Entering 2026, Boeing's credit is more robust, and the group's cash flow has shifted from consumption to generation for many years. The group's operating cash flow reached USD 1.4 billion in the first half of the year, mainly benefiting from increased deliveries and favourable working capital changes (increased customer advance payments), as well as USD 4.66 billion in deferred revenue. We believe key drivers include the 737 production ramping up to 52 aircraft per month and the 787 moving towards 10 aircraft per month, effectively diluting fixed costs. Although a net cash outflow of USD 820 million was recorded in the first two quarters of 2026, this was because Boeing is actively repaying debt and fulfilling management's debt reduction commitments, resulting in a significant outflow of financial cash flow.

Regarding deleveraging, Boeing's net debt decreased significantly by 15.2% from USD 54.1 billion at the end of 2025 to USD 45.9 billion in the second quarter of 2026 (see Table 2); the net gearing decreased from 4.5 times to 4.2 times. With more products obtaining certification and delivery accelerating in the future, the group's leverage is expected to continue to improve. In terms of liquidity, as of the second quarter of 2026, Boeing held USD 19.3 billion in cash reserves, a decrease of nearly 33% from the end of last year. However, the group also has USD 10 billion in unused revolving credit facilities, totalling nearly USD 30 billion in liquidity buffer, far exceeding its approximately USD 4.6 billion in short-term debt. Coupled with the group's ability to refinance through the capital markets, Boeing's liquidity remains ample even during the transition period when free cash flow has not fully recovered.

Table 2: Boeing Credit Metrics

In summary, while Boeing’s overall debt levels remain high, the current leverage is still under control. With improving operating cash flow, an expected gradual turnaround in free cash flow, and substantial cash inflows from the sale of non-core assets like Jeppesen, the company is likely to steadily reduce its leverage. This should also contribute to stabilizing its credit risk over time.

Bond Investments

Currently, our platform offers six Boeing USD bonds with different maturities, ranging from 3.5% to 6.2% net ask yield to maturity (see Table 3). Considering its solid market position, clear deleveraging path, and potential for rating upgrades, Boeing's issuer and bond credit ratings are both BBB-/BBB- (Standard & Poor's/Fitch), still considered investment grade. Investors seeking stable returns can consider shorter-term bonds, while those expecting higher yields can consider longer-term bonds to capture potential gains from Boeing's positive business outlook.

Table 3: Boeing USD bonds

It's worth noting that Boeing's USD bonds all have a coupon adjustment mechanism linked to their credit rating. If Boeing's credit rating is downgraded by Moody's or Standard & Poor's, for example, by one notch to Ba1 or BB+, the coupon rate will increase by 0.25%. Further downgrades will result in even larger coupon rate increases.

Related Risks

The 777-9 is still in the final certification stage, with Boeing and the FAA giving conflicting figures on completion timelines. Boeing indicated test flights would be completed by the end of the year, while the FAA suggested it might slide into early 2027. Delays will simultaneously postpone the 2027 delivery target and cash flow inflection point. Boeing has already faced strong criticism from supply chain downstream buyers such as Emirates.

Any increase in production of Boeing's existing aircraft requires FAA approval. Engine supply remains a bottleneck for 787 production increases; any delay in any link will simultaneously hinder delivery schedules and the amortization of fixed costs.

Air Force One (VC-25B) saw another USD 280 million impairment charge this quarter, reflecting unresolved cost overruns in fixed-price contracts. The F-47, still in the development phase, has historically been a major area for Boeing impairment charges and is unlikely to make a substantial contribution to cash flow in the short term.

Conclusion

Boeing delivered 314 aircraft in the first half of the year, its strongest half-year performance since 2018, driving revenue up 10.7% YoY. Operating profit also surged, with the effects of fixed cost dilution beginning to emerge, finally reversing years of losses.

Boeing repaid USD 8.4 billion in debt in the first half of the year, effectively reducing both total and net debt. Cash reserves, along with unused credit lines, approached USD 30 billion, far exceeding its USD 4.6 billion in short-term debt.

Our platform offers six Boeing USD bonds with different maturities, with net yields to maturity ranging from 3.5% to 6.2%, suitable for investors looking to allocate to aviation industry-related bonds.