Insights

Why Boeing Shares Are Down Today

What happened

A U.S. government watchdog is going to audit the Federal Aviation Administration’s (FAA) oversight of Boeing (NYSE: BA) manufacturing, a fresh reminder that the dark clouds that have been hanging over the aerospace giant for years have not yet receded. On a down day for markets the news was enough to cause a 5% decline in Boeing’s share price Thursday morning.

So what

Boeing has been trying to rebuild its reputation and normalize plane production for nearly four years now. The company’s troubles began in late 2018 when one of its new 737 MAX planes crashed, and accelerated a few months later after a second crash led to the grounding of the plane.

The plane would remain grounded for 18 months, and the subsequent investigation led to a lot of embarrassing questions being asked about Boeing’s safety culture and the FAA’s lack of oversight. In response the FAA has increased its scrutiny, and fresh probes into other Boeing platforms have led to 787 Dreamliner delivery delays and a multiyear delay in Boeing launching a new version of its 777.

Late Wednesday, the office of the inspector general of the U.S. Transportation Department said it would audit the FAA’s oversight into Boeing, taking a close look at the FAA’s process for “identifying and resolving” issues and “addressing allegation of undo pressure within the production environment.”

The audit follows a request by lawmakers from both parties for a review of the FAA’s oversight of Boeing, according to the inspector general’s office.

Now what

Though the audit is not good news, investors have reason to hope it will mostly be a backwards-looking process. Boeing and the FAA have been forced to go through a lot of soul searching in the years since the 737 MAX was first grounded, and many of the questionable practices that have been identified in past reviews have been modified already.

But if nothing else, the review is a reminder that Boeing no longer is getting the benefit of the doubt with regulators, and the delays that have hampered production and slowed Boeing’s ability to generate cash and pay down debt taken on during the pandemic are likely to continue.

The worst is hopefully behind Boeing, but the upside from here will take a while to develop. Any fresh setback, like a potential slowdown in new plane demand should inflation push the global economy into a recession, could further delay a recovery. Even if nothing new comes out of the inspector general’s review, investors should tread cautiously if considering trying to buy Boeing on the way down.

Lou Whiteman 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.

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