The Dow Jones Industrial Average is supposed to represent the 30 companies that are cornerstones of the US economy, those whose success makes them stand out from their peers on the New York Stock Exchange and Nasdaq. For most of the last five years, that has not described Boeing (BA).
And so it’s a legitimate question if the aircraft maker still belongs in the blue-chip index. And it’s a question with only one correct answer: No.
“If you want bellwether, strong balance sheet companies, they don’t check those boxes any longer,” said Ron Epstein, aerospace analyst for Bank of America. “I don’t think Boeing has to be there.”
The name “industrial” that makes up the Dow’s full name is something of an anachronism, left over from when the Dow was created at the end of the 19th century, as the industrial revolution was changing the US and world economy. The United States is no longer primarily an industrial economy, and the changes in the index over the last 126 years reflect that evolution. Iconic US Steel was replaced by Disney in 1991, an indication of the shift in the US economy from manufacturing to information and services.
Since then, representatives from a number of key manufacturing sectors — including autos, steel and other primary metals — have also been shown the door as banks, tech companies and pharmaceuticals have taken their place. So, if there were no aircraft manufacturer left in the Dow, it wouldn’t be shocking.
A myriad of problems
There are many problems at Boeing that make its continued presence in the index perplexing.
It hasn’t reported an annual profit since 2018 and only a few narrowly profitable quarters since then, running up core operating losses of $33.3 billion, with more losses likely to come in the quarters ahead.
Since a door plug blew off an Alaska Airlines jet in January, the company has become the subject of numerous federal investigations, as more than a dozen whistleblowers have come forward to warn of a company culture that put a failed attempt at profitability ahead of the quality and safety of its planes. That has kept production of its best-selling 737 Max to just 32 deliveries a month. That’s not enough to return to profitability.
Beyond that, there are two other major issues indicating that Boeing no longer belongs in the Dow. Its credit rating has fallen to the lowest rung of what is considered “investment grade” debt, and indications are that sometime relatively soon it will fall into junk bond status, which indicates a heightened risk of default. No other Dow component has such a dire credit outlook. And, in July, Boeing agreed to plead guilty to charges it deceived the Federal Aviation Administration when it was seeking initial approval for the 737 Max to carry passengers, a deception that led to a design flaw tied to two fatal crashes. It will soon be operating under the oversight of a court-appointed monitor.
Those problems have sent Boeing shares down more than 60% since the second fatal crash of the Max in 2019, and down 35% since the Alaska Airlines incident. If Boeing shares had simply remained at the level where they were the day before the second crash in 2019, not climbing one cent, the Dow would be more than 1,600 points, or about 4%, higher than the 40,737 level it closed Tuesday.
“If not an albatross, it’s at least an anchor,” said Sam Stovall, chief investment strategist for CFRA Research.
Trying to stay relevant
Boeing obviously wasn’t an early component of the Dow — the index started seven years before the first plane flew at Kitty Hawk, and 20 years before Boeing was incorporated. It has been in the index for 37 years, joining in 1987.
But longevity in the index hasn’t been enough to protect a company’s place there. General Electric, one of the original components and a mainstay of the Dow since 1908, got the boot in 2018 after years of trouble.
“The Dow tries to be as relevant as possible,” Stovall said.
Stovall said there are other aerospace companies with profits and larger market caps, such as Lockheed and GE successor company GE Aerospace, that would be better choices. And he said more of the folks at S&P Dow Jones Indices — who pick the components — have shown a desire to be more tech focused. In 2020, the Dow dropped ExxonMobil, then struggling with low oil prices during the pandemic, and added tech company Salesforce, then on a tear.
“Boeing is not going away as a company,” said Stovall. “But I would not be surprised if I saw tomorrow that the Dow is getting rid of Boeing and adding Tesla.”
ExxonMobil has done just fine outside of the Dow, reporting record earnings in January 2023 as oil prices soared after the start of the war in Ukraine. Boeing, despite its problems, has the advantage of being part of a duopoly in the manufacture of full-size commercial jets, and its rival, Europe’s Airbus, isn’t eligible to join the all-American Dow.
Boeing declined to comment when asked about its membership in the Dow. The company still plays a major role in the US economy. It is the largest exporter. It has nearly 150,000 US employees. The company estimates its economic impact at $79 billion, supporting 1.6 million direct and indirect jobs at more than 9,900 suppliers spread across all 50 states. And it’s crucial to the operations of the nation’s airline industry, which is vital to the US economy.
But this isn’t a question about whether Boeing will survive. It likely will. It’s a question of whether it is one of the 30 companies that make up one of America’s most closely watched stock indexes, one taken as a proxy for the health of the overall economy by many people.
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