Boeing’s recent proposal to its workers has sparked a notable increase in the company’s stock prices, reflecting investor optimism. However, analysts are cautioning that the move may not be as straightforward as it appears, with concerns about potential pushback from employees according to a detailed report by Reuters.
About 33,000 workers will vote on the offer on Wednesday after a more than month-long work stoppage that has halted production of models including Boeing’s best-selling 737 MAX narrowbody jets.
The contract proposal announced on Saturday includes a 35 per cent pay hike over four years, a $7,000 ratification bonus, a reinstated incentive plan and enhanced contributions to workers’ 401(k) retirement plans, including a one-time $5,000 contribution plus up to 12 per cent in employer contributions.
The wage increase and ratification bonus are higher than in the previous offer, which was rebuffed by workers. But the salary hikes fall short of a 40 per cent pay rise over four years and the restoration of the traditional pension lost in 2014 demanded by the International Association of Machinists and Aerospace Workers union.
JPMorgan analyst Seth Seifman estimated the wage hikes might increase Boeing’s costs by more than $1 billion, while Jefferies analyst Sheila Kahyaoglu expects wage-related expenses at about $1.3 billion the Reuters report detailed further.
Positive reaction by the stock market
The stock market reacted positively to the news, with Boeing shares rising by approximately 5 per cent following the announcement. Investors are hopeful that this new proposal could lead to improved relations between the company and its workforce, ultimately benefiting Boeing’s operational efficiency and financial performance.
Despite the initial surge in share prices, analysts are expressing caution regarding the long-term implications of the proposal. Many believe that while the offer may appease some workers, it could also lead to dissatisfaction among others who feel their needs are not being adequately addressed.
The potential for unrest among employees is a significant concern, especially given the current climate of heightened expectations for fair compensation and working conditions across various industries. Still, the current offer is seen as a better offer in comparison with the last one.
Prominent ratings agencies have warned of a downgrade if the strike drags on. Still, the current offer is seen as a step in the right direction by several market participants. “We view the proposal as a positive step,” Ben Tsocanos, aerospace director at ratings agency S&P Global, told Reuters.
The work stoppage has halted production of Boeing’s cash-cow 737 MAX, and 767 and 777 widebodies. Shares of supplier Spirit AeroSystems, which said last week it was furloughing 700 workers due to the strike, rose 4.3 per cent.
In a separate labor action, 5,000 workers were set to return to work at business jet maker Textron’s facilities in Wichita, Kansas, after voting to accept a five-year contract providing wage increases of 31 per cent. In a boost to Boeing, Dubai’s Emirates Airlines ordered five Boeing 777F freighters on Monday and will make a decision this year on a purchase of further Boeing or Airbus models. How things evolve for Boeing and its employees is now to be seen. Market watchers will keenly follow the developments for more insights.
