Boeing shares closed about 1.5 per cent lower in market trading on October 24 after workers voted to extend a nearly six-week-old strike, throwing fresh uncertainty over the company’s efforts to stabilize finances and restore its battered image according to a detailed report by Reuters.
The Reuters report further stated that some 64 per cent of West Coast factory workers on Wednesday rejected the company’s latest contract offer, leaving assembly lines idle for nearly all the planemaker’s commercial jets including the 737 MAX, the backbone of its balance sheet.
Basic details about the offer
The offer included a 35 per cent general wage increase over four years but no defined benefit pension plan, which was one of the striking machinists’ main demands. The rejection is a blow for new CEO Kelly Ortberg, who took the top job in August on a pledge to work more closely with factory workers than his predecessors.
Deadlock over the pension plan, which was withdrawn following a deal to keep jobs in Washington state a decade ago, raised immediate concerns over a longer strike as rating agencies monitor Boeing for a possible downgrade to junk status.
“A longer strike delays Boeing’s recovery and increases financial pressure on the company and its (credit) rating,” said Ben Tsocanos, aerospace director at S&P Global Ratings. “The rejection raises the risk of a protracted strike if the obstacle is reinstatement of a pension. We believe the company is not likely to agree to a pension because of the cost.”
Challenges for the company mount
While others said the continued stoppage leaves the plane-maker with dwindling options as it continues to bleed cash. “Boeing is going to have to settle it and just make a higher offer, because they are just not in a position to duke it out,” said Agency Partners analyst Nick Cunningham.
Wells Fargo analyst Matthew Akers said raising the wage offer to meet the union’s demand of 40 per cent could end the dispute, noting that online comments suggested members were divided on the pension issue. Some machinists vowed to fight on after the vote, with many still angry about the last pension deal signed a decade ago.
Cash burn continues for Boeing
Analysts said the vote could complicate efforts to carry out a refinancing needed to stabilize Boeing’s operations after the strike hampered its recovery from a string of previous crises. Many suppliers are also facing financial difficulties.
Boeing last week filed papers giving itself a window to raise as much as $25 billion to avoid losing its investment grade rating and separately secured a $10 billion credit line. Still, although many analysts say it would prefer to wait for the end of the strike and start generating more cash through deliveries before going to the markets, the labor power struggle has placed it under mounting pressure to clear the air.
“We wouldn’t rule out a capital raise before the strike ends … depending on market conditions,” JP Morgan analyst Seth Seifman said in a note after the vote.
Coming on top of back-to-back crises over safety, quality, and an industry-wide shortage of parts and labor, the vote on Boeing’s first major strike in 16 years overshadowed a $6 billion loss for the third quarter also announced on October 24.
Ortberg laid out plans to restore Boeing’s fortunes after it lost significant share to European rival Airbus but told staff and investors the turnaround would take some time. Market participants and investors will closely follow these developments and take informed investment calls on the airline major.