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Why Boeing Stock Is Up Today

By Lou Whiteman - May 27, 2021 at 1:14PM

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The company has settled a regulatory probe into the 737 MAX.

What happened

It sounds counterintuitive for Boeing (BA 1.26%) shares to trade up on news that the aerospace giant will face a federal fine due to its 737 MAX production woes. But investors were worried the punishment would be far worse, and are glad to have the issue resolved. For that reason, the stock climbed as much as 5% higher on the news.

So what

It's been a tough couple of years for Boeing. The 737 MAX was grounded in March 2019 after a pair of fatal accidents, and the investigation into what went wrong painted an unflattering picture of Boeing's internal controls. The issues have led to criticism of the company by some of its most important customers, and increased regulatory scrutiny.

Boeing's 737 MAX in flight.

Image source: Boeing.

The Federal Aviation Administration (FAA) has been probing Boeing's processes, and investors have been bracing for the results. On Thursday the government announced a settlement that requires Boeing to pay at least $17 million in fines and to undertake steps to improve its internal quality checks.

"Keeping the flying public safe is our primary responsibility," FAA Administrator Steve Dickson said in a statement. "That is not negotiable, and the FAA will hold Boeing and the aviation industry accountable to keep our skies safe."

Boeing could face up to $10.1 million in additional deferred fines if it doesn't follow through on the terms of the settlement.

Now what

The fines aren't good news, but investors are by now fully aware of the issues Boeing has faced in recent years. The priority now is to get this era in Boeing's history into the past, and hope the company has learned from its mistakes.

Boeing still faces challenges ahead. The company burned through nearly $20 billion in cash in 2020 and is trying to ramp up deliveries and boost cash flow at a time when airlines are struggling to stabilize and return to growth mode after a difficult 2020 due to the pandemic. The FAA settlement is one small step in the right direction for Boeing, and the shares are higher as a result.

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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