Strike by Boeing’s US factory workers suspend 737 MAX production

Boeing’s (BA.N) webpage opens a new tab. Production of the planemaker’s top-selling aircraft was halted and shares dropped by almost 2% after U.S. West Coast plant workers walked off the job on Friday after decisively rejecting a contract deal.

The first stoppage since 2008 coincides with the planemaker facing intense scrutiny from U.S. regulators and consumers following the incident in January when a door panel detached from a 737 MAX aircraft while it was in flight.

A series of escalating issues severely impacted Boeing’s shares and ignited a leadership revolution. The stock prices declined by 2.1% during the early morning trading session. To date, the stock has experienced a decline of around 38% in the current year, resulting in a market value loss of $58 billion.

The shares of Spirit Aerosystems (SPR.N), the aerospace supplier being purchased by Boeing, declined by 0.6%.

Freshly appointed CEO Kelly Ortberg was tasked with rebuilding confidence in the aircraft manufacturer and presented a proposal that included a 25% salary increase over a period of four years, which was much lower than the 40% increase that workers had requested.

In a two-part ballot, almost 30,000 members of the International Association of Machinists and Aerospace Workers (IAM) who manufacture Boeing’s best-selling 737 MAX and other aircraft in the Seattle and Portland regions voted on their first complete contract in 16 years. Among them, 94.6% rejected the deal and 96% supported a strike.

“This negotiation is about advocating for our future,” stated Jon Holden, the leader of the discussions for Boeing’s largest union, prior to announcing the outcome of the vote on Thursday evening. Holden assured reporters that the union will promptly return to the negotiating table, but he did not specify the duration of the strike or the expected timeframe for the reinstatement of talks.

Boeing indicated its willingness to resume negotiations, suggesting its potential to improve the agreement.

“The communication was unambiguous that the provisional agreement we have reached with the leadership of IAM was deemed unacceptable by the members.” In a statement, the aircraft manufacturer expressed its ongoing dedication to restoring its relationship with its work force and the labor union.

Boeing claimed that it had provided workers with all available options and necessary means to prepare for the required investments in replacing its top-selling single-aisle aircraft, while also satisfying the demands of striking workers.

A protracted strike could significantly impact Boeing’s financial situation, which is already severely strained by a $60-billion debt burden. In order to meet its debt obligations, Boeing must have sufficient cash flow.

According to Bank of America, Boeing is expected to need to align more closely with IAM’s original salary proposal.

The proposed agreement included a signing incentive of $3,000 and a commitment to construct Boeing’s next commercial aircraft in the Seattle region, on the condition that the program was initiated within the specified contract period.

A study conducted by Melius Research, an equity research organization, revealed that the median employee pay for the aerospace and defense companies it tracks increased by 12% from 2018 to 2023. Boeing experienced a 6% decline, while Spirit Aerosystems saw a 19% drop.

Despite IAM leadership’s recommendation last Sunday for its members to accept the deal, several workers vehemently opposed and insisted on the original demand and an annual incentive.

STRIKE!

Workers have been engaging in collective demonstrations throughout the week at Boeing facilities located in the Seattle region, responsible for the assembly of Boeing’s MAX, 777, and 767 aircraft.

Within the union hall on Friday, members enthusiastically applauded and vocally exclaimed “Strike! Strike! Strike!” Shortly after midnight, workers who were on strike began to assemble outside Boeing facilities in the Seattle region. There were numerous individuals displaying signs with the message: ‘On Strike Against Boeing’, while drivers sounded their horns in solidarity.

I am prepared to go on strike for a duration of two months or even more. “Let us persist for as long as necessary to achieve what we are entitled to,” stated James Mann, a 26-year-old employed in a wings division.

White House press secretary Karine Jean Pierre stated on Thursday that the Biden administration maintained communication with both factions. “We will actively promote and support both parties to engage in negotiations in a sincere manner, with the aim of achieving a robust contract,” she stated.

A protracted strike would pose a significant burden for airlines reliant on Boeing aircraft and suppliers involved in the production of parts and components.

JPMorgan noted that Boeing has the ability to modify the rate at which it acquires incoming materials. According to analyst Seth M. Seifman, a protracted strike has the potential to impact supplier growth estimates at the very least.

The most recent strike by Boeing workers in 2008 resulted in the closure of company facilities for about two months and caused a daily revenue loss of around $100 million. According to TD Cowen, a 50-day strike has the potential to result in a cash flow loss of $3 billion to $3.5 billion for Boeing.

The exclusive engine supplier for the 737 MAX, CFM, stated that there was no immediate disruption to its operations.

Southwest Airlines (LUV.N) confirms that it maintains regular communication with Boeing and has taken measures early this year to mitigate any potential disruptions in deliveries.

Cathay Pacific (0293.HK) and flydubai confirmed active communication with Boeing. A public relations representative from flydubai expressed anticipation for Boeing promptly addressing the matter.

According to S&P Global Ratings, a prolonged strike has the potential to significantly impact its overall grade. The ratings of both S&P and Moody’s place Boeing one notch above junk status.