Should Boeing's Safety and Quality Issues Scare Away Investors?

Investors who are well-versed in aerospace stocks know that backlogs, commercial aircraft orders, and government contracts are important. But so is safety.

Just one safety incident, particularly when it results in tragedy, can undo years of goodwill built by a company. In the case of Boeing (NYSE: BA), multiple negative episodes have tarnished the company's image. Once upon a time, Boeing was considered a bellwether, must-own industrial stock. Still, that reputation vanished in October 2018 when Lion Air Flight 610, flying a new Boeing 737 MAX, crashed, killing all 189 people aboard.

Boeing's safety record must be accounted prior to investing in the stock. Image source: Boeing.

Six months later, Ethiopian Airlines Flight 302, flying an older version of the 737 MAX, also crashed, resulting in 157 deaths. In January 2024, an Alaska Air flight operating a Boeing 737-9 was climbing when an MED plug came loose, causing cabin depressurization. And don't forget the problems with Boeing's Starliner that resulted in astronauts being stuck in space for nine months before a rescue by Elon Musk's SpaceX.

Boeing investors are looking for friendlier skies

Boeing's safety woes and reputational damage ruined its status as one of the top stocks to buy and hold for the long term. For the 10 years ending April 1, the shares tumbled 18.7% while the S&P 500 gained more than 65% over the same span.

That period included Boeing borrowing $50 billion from Uncle Sam and suspending shareholder dividends in 2020. Today, it's one of just three members of the Dow Jones Industrial Average that don't pay dividends. The other two, Amazon and Salesforce, can be somewhat forgiven for not paying dividends because they're tech companies using proceeds to continue growing their operations. As an old-guard industrial company, Boeing ought to be a dependable dividend name.

All of that is in the past, but investors cannot afford to simply gloss over the stock's performance over the past decade. For those considering the stock today, some due diligence on corporate culture must be performed because critics claim it was lapses in that culture that led to shortcuts, which may be another way of saying profits, not safety, were the priority.

Indeed, Boeing has some skeletons in its corporate culture closet, including allegations of lax governance and failure to listen to whistleblowers. Those are the kind of claims that rightfully give investors pause.

Boeing may be getting it right

"Things can't get any worse" isn't actionable investing advice, but there are signs Boeing is turning a much-needed corner on the safety front. One analyst points out that investors should expect "incremental failures" related to the design and production of the 737 MAX and 787 commercial aircraft, and that's important because those jets account for a substantial portion of Boeing's projected long-term revenue.

Boeing's financial picture is not entirely gloomy. There's a belief that the industrial company can generate cash flow and grow earnings before interest, taxes, depreciation, and amortization (EBITDA) while trimming debt.

Boeing must walk a fine line between debt reduction and reinvestment in its business. Still, the good news is that 737 MAX production is meeting the right consistency metrics, and deliveries are gaining momentum.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Boeing, and Salesforce. The Motley Fool has a disclosure policy.