What happened

Shares of Boeing (NYSE:BA) fell more than 5% on Monday morning following a series of analyst downgrades and speculation about potential cuts. The aerospace giant is still struggling to get out from under a crisis stemming from issues with its 737 MAX, which deepened last week after reports surfaced suggesting company employees misled the Federal Aviation Administration.

So what

Boeing's hot-selling 737 MAX was grounded back in March after the plane was involved in a second fatal crash, and in the months since, the company has been working with regulators to refine the plane's flight control systems that were blamed for the incidents. The company was dealt a fresh blow last Friday after Reuters reported Boeing had turned over instant-message exchanges from 2016 that implied the company was not totally forthcoming with the FAA in regard to the system now being scrutinized.

A 737 MAX in flight.

Image source: Boeing.

Friday's report led to at least three Wall Street downgrades and additional price target reductions as analysts attempt to digest the damage to Boeing's business. Credit Suisse analyst Robert Spingarn, in moving Boeing to neutral from outperform, wrote, "We can no longer defend the shares in light of the latest discoveries," adding that the reports "significantly increase the risk profile for investors."

Similarly, Myles Walton of UBS and Peter Arment of Baird also downgraded Boeing to neutral from buy, with both analysts worried that the messages could make it more difficult for Boeing to win recertification of the aircraft from the FAA and foreign regulators.

Boeing has continued to manufacture the 737 MAX through the grounding, but costs related to storing the jets are mounting. The company also is likely to face penalties from key customers including American Airlines Group, Southwest Airlines, and United Airlines Holdings, which have all disrupted their schedules into 2020 due to the groundings.

Boeing's board is scheduled to meet on Monday, leading to speculation that the company could cut its production rate or overhaul management in response to the latest developments.

Now what

It's worth noting that not everyone on Wall Street is throwing in the towel due to what Baird's Arment is calling Textgate. Morgan Stanley's Rajeev Lalwani said in a note that the idea this is a cover-up is a "false alarm," noting that Boeing disclosed the text exchanges to Department of Justice investigators earlier this year.

Boeing said in a statement that the IM exchange refers to glitches in the still-under-development 737 MAX simulator and not the plane but said it understands the concerns. "It is unfortunate that this document, which was provided early this year to government investigators, could not be released in a manner that would have allowed for meaningful explanation," Boeing said.

Boeing is likely to eventually get past the 737 MAX controversy, but these latest headlines continue a pattern of management missteps and bungled public relations by the company that is hard to ignore. Until Boeing can prove it is able to fly straight, there are better options when looking to invest in aerospace and defense stocks.