The two industrial giants General Electric (NYSE:GE) and Boeing (NYSE:BA) have a lot in common. Not only are they partners in aviation, but they have both seen better days. Both stocks require investors to take a long-term outlook and have the stomach to tolerate some significant volatility ahead. Let's take a closer look at which is a better buy.

The case for buying both

The case for buying both stocks seems relatively straightforward. Both companies are heavily reliant on commercial aviation for their earnings and cash flow, and therefore both companies can be seen as "aviation recovery" plays. In other words, you can get to buy into two stocks that are being heavily discounted because of the negative near-term impact of the coronavirus pandemic on air travel.

Pilots in a cockpit.

Image source: Getty Images.

Granted, most industry observers believe that commercial air traffic won't return to 2019 levels until 2023 at the earliest, but that won't worry long-term aerospace bulls. In the case of Boeing, bullish investors will be looking at its free cash flow (FCF) generation in 2018 (before the 737 MAX was grounded) of $13.7 billion as some sort of marker. After all, it represents around 15% of the company's current market cap. Anything close to that FCF figure in the future would make Boeing look like a good value.

The case for GE is more complicated. The company is heavily reliant on commercial aviation right now, but there are hopes that management can turn around the power and renewable energy segments and get them back to generating $1 billion apiece in FCF in a few years' time.

Meanwhile, GE's healthcare business is highly likely to continue growing its FCF at a low-single-digit rate from $1.2 billion in 2019. Finally, GE Aviation generated $4.4 billion in FCF in 2019 and investors will be hoping for a slow recovery toward that sort of figure over time. Putting it all together, it's not hard to see how GE could be generating $6 billion to $7 billion in FCF by 2024.

Rocky road ahead

The numbers outlined above are wonderful in themselves, but there's no guarantee that either company will hit them. In fact, even the most optimistic aerospace investor has to acknowledge that there are a series of serious headwinds facing the aviation industry in the coming years. If it isn't the financial condition of the airlines, it's the possibility of ongoing travel restrictions. If it isn't the potential reluctance of customers to travel, it's the overcapacity in the industry creating a lack of demand for new planes.

In addition, both companies have specific exposures that could cause them major issues. GE is heavily reliant on aftermarket/services revenue for engines on older aircraft. That's something that could be severely challenged if airlines accelerate the retirement of older planes.

It gets worse. GE provides the only engine option on the troubled Boeing 737 MAX aircraft. Moreover, both companies had high hopes for Boeing's new 777X wide-body aircraft (GE also provides the only engine option).

Meanwhile, Boeing has suffered a raft of issues with its aircraft, and airlines aren't short of excuses to favor ordering the Airbus A320 NEO over the 737 MAX now that it will be easier for Airbus to meet its delivery commitments.

A pair of scales measuring risk and reward.

Image source: Getty Images.

General Electric or Boeing?

History suggests that the airline industry doesn't have a problem raising capital, and air transport remains a critical part of the global economy. Air travel isn't going to suddenly disappear, and the industry will surely recover over time.

If you are a strong bull on the industry, it makes sense to buy the stock with the larger exposure, which is Boeing. Conversely, if you are an aviation bear, both of these stocks are worth avoiding completely.

This leaves the group of investors who probably make up the vast majority of people still reading at this point -- moderate aviation bulls who want some downside protection in case the recovery takes longer than expected and the "new normal" for aviation is low-single-digit growth.

For these investors, GE is the better buy. The industrial conglomerate is obviously heavily reliant on commercial aviation for now. However, its highly regarded CEO Larry Culp is not a man to bet against in terms of making businesses run better -- his track record at Danaher proves it -- and there's definitely potential to improve operational performance at power and renewable energy. That, and ongoing growth at healthcare, might be enough to limit the downside should the aviation recovery disappoint.