Aerospace and defense contractor Boeing (NYSE: BA) has been an iconic representation of American innovation for over a century. When I lived in Washington, DC, I often drove past Boeing’s Crystal City headquarters on my way to work. It was hard not to be inspired by such an incredible company.
But in recent years, Boeing has been the center of one negative story after another. The company’s reputation has been tarnished, and with so much fuss surrounding the bad press, it’s starting to look like Boeing’s best days are over.
Let’s take a look at some of the issues Boeing is facing and why I think investors should avoid the airline stocks right now.
1. Whistleblower concerns
Boeing has been the target of a number of whistleblowers in recent years. Many of these whistleblowers were Boeing employees who publicly raised concerns about the company’s commitment to safety and quality assurance.
It is no coincidence that the whistleblowers came forward, as Boeing has also been the subject of government investigations following several high-profile crashes.
Of course, these kinds of events can damage a company’s reputation. But Boeing is in a unique position. Boeing’s most direct competitor in the aerospace industry is AirbusSince the two superpowers effectively represent a duopoly, it will take a lot more than some bad press to convince investors that Boeing’s prospects look bleak.
2. Replacing the CEO is unlikely to be a panacea
The bulk of Boeing’s revenue comes from three categories: commercial aircraft; defense, space and security; and global services. The commercial aircraft industry was once considered Boeing’s bread and butter. But the company’s results in the first six months of 2024 were less than inspiring.
Boeing delivered 175 commercial jets in the six months ended June 30, a 34% decline year over year. Of course, Boeing’s commercial airline revenue of $10.6 billion was also down 31% compared to the first half of 2023. While declining revenue is never a good sign, Boeing investors have been hit with an unpleasant double whammy as the company’s cash burn continues to accelerate. Boeing burned through more than $8 billion in the first half of 2024. Given that the company’s backlog is flat and Boeing is ramping up investments in safety protocols, it’s tough to see a story in which the company returns to accelerating revenue growth and consistent profits anytime soon.
About a month ago, Boeing’s board of directors named Robert K. “Kelly” Ortberg as the company’s new CEO. It’s important to note that former Boeing CEO Dave Calhoun announced his plans to resign back in March, so it wasn’t all that surprising that Ortberg would take over.
While this leadership transition looks encouraging, I think it will be a while before we see real change at Boeing. Until then, there is not much reason to think that the company’s core business, aviation, will change.
3. Will Major Musk gain control of the ground?
In June, two astronauts boarded a Boeing Starliner capsule for a space mission. This was a big step for Boeing, as the launch marked the first time that Starliner sent astronauts to the International Space Station (ISS).
The problem? The crew should have been back on planet Earth by now, but they’re stuck in space. NASA and Boeing discovered a number of mechanical issues, including helium leaks on the Starliner, that have delayed its return from space. After months of deliberation, NASA has decided to bring the astronauts back on a SpaceX Dragon spacecraft.
SpaceX is perhaps Boeing’s biggest competitor in space exploration, and is the brainchild of entrepreneur Elon Musk. If this isn’t Musk’s checkmate move on Boeing, I don’t know what is.
The heart of the matter
Boeing has some real problems in both its commercial aerospace and government defense businesses. What’s more, Boeing remains the focus of safety allegations, poor manufacturing protocols, and a questionable path forward that’s being undermined by billions of dollars in cash burn.
If you are an investor looking for exposure to the aerospace industry, government contractors, or defense contractors, there are many more opportunities. While Boeing may be top-of-mind because of its brand recognition, I see too many risks in investing in Boeing and think the stock is best avoided for now.
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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Whistleblowers, a new CEO, and astronauts stuck in space: Is there hope for Boeing? was originally published by The Motley Fool
