By Al Root

Boeing and the defense industry caught some shrapnel from Baron Capital founder and long-term Tesla and SpaceX shareholder Ron Baron.

Baron, who turned a roughly $400 million investment into some $4 billion by being patient and betting on Elon Musk, spoke at the Economic Club of New York on Tuesday. He is still bullish on Musk and Tesla, saying he expects to make 10 times his money -- again. He says that self-driving technology can help send Tesla profits "through the roof," he said.

As a long-term holder of SpaceX, Baron also offered thoughts about the defense industry. He didn't hold back. "The whole aerospace industry, defense, is corrupt," he said. "The amount they charge is cost-plus, and so many people working there, and they don't get enough done."

Baron Capital didn't immediately respond to a request for clarification.

Cost-plus contracting, and its ability to inflate prices, has come under fire in recent months from the new administration, SpaceX, and others. SpaceX, for its part, prefers hard-bid contracts where the government's price is guaranteed. That makes a lot of sense for the firm, which is the lowest-cost provider of launch services by far.

Saving money and contract reform aren't bad by any means, but the Pentagon doesn't exclusively use cost-plus contracting. Boeing's defense business, for instance, lost money in 2022, 2023, and 2024, failing to offset inflation in its fixed-price contracts.

Baron had thoughts about Boeing's new F-47 fighter jet as well. "There was a contract award to Boeing, fairly recently; it was $50 billion, and I think it was sort of a lifeline to Boeing," he said. "That's not a $50 billion contract; it's a trillion dollars." He went on to add that unmanned fighters are a better investment.

Boeing didn't immediately respond to a request for comment.

Baron's views echo Musk's. In November, Musk tweeted a video of drones flying in various formations, commenting, "Meanwhile, some idiots are still building manned fighter jets like the F-35."

The U.S. military invests heavily in unmanned technology, but manned fighters are still important. "Elon Musk shows a bunch of RadioShack quadcopters and says, 'Why do you need manned aircraft?'" says AeroDynamic Advisory managing director Richard Aboulafia, adding it isn't a very nuanced opinion. Drones, as the Russian-Ukraine conflict illustrates, aren't air power, he adds: "They are [battlefield] reconnaissance and [a] form of artillery."

Sophisticated fighter jets are still an advantage. What's more, the new F-47 will be designed to fly with unmanned fighter jets, lowering total costs and improving operational capability.

As for the trillion-dollar figure, Baron might be referring to lifetime costs. The F-35 program is estimated to cost some $2 trillion, but that stretches over many decades and many thousands of planes. An F-35 can cost upwards of $100 million, but sophisticated unmanned collaborative fighter jets can cost tens of millions and must be maintained and upgraded, too.

There is no question that autonomous systems will be the future of military technology. The U.S. military will need to move fast to maintain its lead, but that doesn't necessarily mean abandoning what's working now.

Boeing stock didn't appear to be impacted on Tuesday. Share rose 2.5% on Tuesday, closing at $203.42, while the S&P 500 gained 0.7% and the Dow Jones Industrial Average fell 0.6%.

Boeing shares trade more on commercial aerospace news, and reduced trade tensions between the U.S. and China have eased investors' fears. While Boeing hasn't made a full-year profit since the worldwide grounding of the 737 MAX from March 2019 to November 2020 following a second deadly crash, it's still an investment-grade-rated company with a backlog of roughly half a trillion dollars.

No one military contract can replace the importance of commercial jets or save the company if it cannot boost the production of its commercial jets.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 13, 2025 16:27 ET (20:27 GMT)

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