and union negotiators will return to the bargaining table early next week, U.S. federal mediators said on Friday, as the two sides try to end a strike threatening the airplane maker's turnaround.
The U.S. Federal Mediation & Conciliation Service late on Friday said it was convening the parties with a federal mediator after speaking to both sides, less than a day after union members voted by a huge majority to reject Boeing's contract offer and went on strike.
"The parties will resume meetings early next week," it said in a statement.
More than 30,000 members of the International Association of Machinists and Aerospace Workers (IAM) who produce Boeing's top-selling 737 MAX and other jets in the Seattle and Portland areas voted on their first full contract in 16 years, with 94.6% rejecting Boeing's offer and 96% favoring a strike. Workers vowed to fight for a better pay offer than the company had made.
Shortly after midnight on the West Coast, striking workers started to gather outside Boeing factories in the Seattle area.
Chief Financial Officer Brian West said Boeing wants to get back to the negotiating table, saying the walkout will make it harder for the plane maker to meet the production target for the 737 MAX jet and stabilize its supply chain. The union was also eager to return to the table as quickly as possible.
"This is about fighting for our future," said Jon Holden, who headed negotiations for Boeing's largest union before announcing the strike vote result on Thursday.
Boeing declined to comment on the mediator's comments and the union was not immediately available for comment.
Workers have been protesting all week in Boeing factories in the Seattle area that assembles Boeing's MAX, 777 and 767 jets. On Friday evening, members in the union hall cheered and chanted "Strike! Strike! Strike!"
Boeing's stock fell 3.7% on Friday. It has tumbled almost 40% so far this year, slashing the company's market value by roughly $58 billion. Boeing's corporate bonds also lost value, with spreads between their yields and comparable U.S. Treasuries widening sharply.
A long strike could further damage Boeing's finances, already groaning due to a $60 billion debt pile. The planemaker needs to generate sufficient cash flow to meet payments on the debt. A strike also would weigh on airlines that fly Boeing jets and suppliers that manufacture parts.
Moody's put the planemaker's rating on review, while Fitch said a prolonged strike could increase the risk of a downgrade. On Thursday, S&P Global Ratings said an extended strike could hurt Boeing's overall rating, which is one notch above junk status. A downgrade could increase Boeing's cost to issue debt.
Boeing said it had offered workers everything it could and now must reach a deal to end the strike while planning for investments needed to replace its best-selling single-aisle models. CFO West said the company would be “laser-like focused on action to conserve cash,” adding the strike will “jeopardize our recovery.”
New CEO Kelly Ortberg was brought in just weeks ago to restore faith in the planemaker after a door panel blew off a 737 MAX jet mid-air last January. He offered a contract including a pay rise of 25% over four years, far lower than the 40% workers had demanded. Union leaders recommended approval of the contract, but angry members voted overwhelmingly to strike and fight for the original 40% wage increase demand and an annual bonus.
Item 1 of 6 Boeing factory workers gather on a picket line during the first day of a strike near the entrance of a production facility in Renton, Washington, U.S., September 13, 2024. REUTERS/Matt Mills McKnight
[1/6]Boeing factory workers gather on a picket line during the first day of a strike near the entrance of a production facility in Renton, Washington, U.S., September 13, 2024. REUTERS/Matt Mills McKnight Purchase Licensing Rights, opens new tab
Unionized workers from a range of sectors and companies including big automakers, delivery service UPS (UPS.N), opens new tab and more have won double-digit wage increases recently, capitalizing on a tight labor market and demanding paychecks to fight inflation.
Line chart showing the change in share price of Boeing and S&P500 from Jan. 2018 annotated with various safety incidents of Boeing aircrafts and spacecrafts.
BOEING'S CHALLENGES
The proposed deal included a $3,000 signing bonus and a pledge to build Boeing's next commercial jet in the Seattle area, provided the program was launched within the contract term.
Equity research firm Melius Research showed median employee compensation for the aerospace and defense firms companies it monitors grew 12% between 2018 and 2023. It fell 6% for Boeing and 19% for Spirit Aerosystems, the maker of aerostructures that Boeing has agreed to acquire.
'AS LONG AS IT TAKES'
On Friday morning, crowds of striking workers began to descend on six different entrances at the Boeing facility, horns honking and raised fists out windows. Smiles of appreciation ensued when donuts arrived.
“I’m willing to strike for two months or even longer. Let’s go as long as it takes to get what we deserve,” said James Mann, a 26-year-old who works in a wings division.
President Joe Biden's administration was in touch with both sides, urging them "to negotiate in good faith toward an agreement that gives employees the benefits they deserve and makes the company stronger," White House spokesperson Robyn Patterson said.
One Boeing supplier said companies can mitigate losses from the strike using a Washington state program to provide some compensation for workers who have their hours cut. JPMorgan said Boeing could adjust the pace at which it takes material. "At a minimum, a prolonged strike could affect supplier growth expectations," said analyst Seth M. Seifman.
Boeing workers' last strike in 2008 shuttered plants for nearly two months and hit revenue by an estimated $100 million per day. According to TD Cowen, a 50-day strike could cost Boeing $3 billion to $3.5 billion of cash flow.
The planemaker has more than 4,700 orders for the 737 MAX jet, with Southwest Airlines (LUV.N), opens new tab, United Airlines (UAL.O), opens new tab, and Lion Air being the top three customers in queue for deliveries, according to aviation data provider Cirium.
United Airlines CFO Michael Leskinen said Boeing was "doing much better", with delivery rates stabilized. "There is the risk of the strike. I'm not going to opine on that. That would certainly be a speed bump."
Southwest, Cathay Pacific (0293.HK), opens new tab and flydubai said they were in touch with Boeing.
Boeing's (BA.N), opens new tab first strike in 16 years could further compound global shortages of jetliners that have been pushing up airfares and forcing airlines to keep older jets flying longer, industry executives and analysts said.
The U.S. planemaker's West Coast workers went on strike at midnight on Friday after overwhelmingly rejecting a contract deal, halting production of Boeing's workhorse 737 MAX.
It is Boeing's first strike since 2008, and Boeing Chief Financial Officer Brian West warned a prolonged walkout could hurt output and "jeopardize our recovery".
"Boeing is a systemically important company for global aviation," Ross O'Connor, chief financial officer of Irish leasing company Avolon, told Reuters on Friday.
A strike "could have an impact on production levels, which could exacerbate some of the supply shortages that are in the market at the moment for sure," he said after Avolon announced it had acquired a large portfolio of jets from Castlelake.
Airlines have struggled to expand capacity to meet rising demand as supplies of jetliners are curtailed by parts shortages, industry-wide recruitment problems and overloaded maintenance shops.
Analysts have been warning the most promising part of the industry's all-important business cycle could run out before airlines have a chance to enjoy the full benefits of demand.
"It's going to be a significant amount of time before we see that balance. I'm starting to evolve the hypothesis that it won't be (extra) supply that corrects it, but instead a softening of demand," said Rob Morris, global head of consultancy at Cirium Ascend.
Some say high air fares - although good for airlines in the short term - could themselves accelerate that tipping point.
"My view is that (average fares) will rise; and when ticket prices go up, then all other things being equal, you have lower traffic levels," said aviation economist Adam Pilarski, senior vice-president at AVITAS consultancy.
As Boeing halts production of its most-sold jet, European rival Airbus is also struggling to meet its goals.
Airbus Chief Executive Guillaume Faury expressed optimism at a U.S. Chamber of Commerce conference this week that the European planemaker would meet a recently lowered target of 770 deliveries this year, following a profit warning and engine supply glitch in the summer.
But following a short-lived spike in deliveries in July, industry sources questioned how comfortably the world's largest planemaker would exceed last year's 735.
Dwindling numbers of planes in storage and record-high utilization of existing planes confirm the supply squeeze.
FLEET AGE RISING
For now, Boeing's lower production levels compared to Airbus may limit the incremental effect of the strike. Yet analysts said airlines have little room to maneuver.
With leasing companies also running out of available capacity, carriers need to keep existing jets flying longer.
For most of the past 15 years, the average age of the fleet declined as airlines and leasing companies took advantage of low interest rates to invest in new fuel-saving jets.
In 2010, the average age of the widely flown single-aisle jet fleet was about 10.2 years, according to Cirium data.
After dipping to 9.1 years during the pandemic as airlines grounded fleets, the age started growing again. It now stands at 11.3 years "and still heading upwards," Morris said.
That is despite efforts to reach net zero emissions by 2050, which rely partly on modernizing the planes in service.
"It must mean that we're burning more CO2 than we should be because we're using more old aircraft...so one of the things that can go wrong is sustainability," Morris said.
The airline industry says it is confident of reaching a target of net zero emissions by 2050.
Boeing CEO Kelly Ortberg closed on a house in Seattle’s Broadmoor neighborhood earlier this week, about a month after he stepped into the role and amid a labor crisis.
When Boeing announced in July that Ortberg would take over from former CEO Dave Calhoun, it said he chose to move from his home in West Palm Beach, Fla., to Seattle rather than the company’s Virginia headquarters.
King County records show Ortberg made good on his commitment to living in Washington where Boeing had 66,792 employees as of 2023. The Boeing chief purchased a 3,780-square-foot house for $4.1 million on Monday, according to a real estate excise tax affidavit.
The four-bedroom home is 96 years old, according to property records. The previous owner is a former executive for investment firm Columbia Pacific Advisors who purchased it for $1.9 million in 2008. Broadmoor is a gated residential community with a golf course near the Washington Park Arboretum.
Ortberg living in Seattle could be a big sign toward rebuilding the troubled aircraft manufacturer’s relationship with the workforce and an indication that it might relocate its headquarters back to the Puget Sound region 23 years after it left, The Seattle Times reported in July.
The move comes amid additional troubles for Boeing this week, as the company’s Machinists union representing 33,000 members voted to reject a contract offer and strike.
International Association of Machinists District 751 President Jon Holden announced late Thursday that members had voted 94.6% to reject the contract and 96% voted to strike.
The company’s machinists walked off the job at 12:01 a.m. Friday and will stay out indefinitely. Workers interviewed by The Seattle Times said inadequate wage increases were the main reason they rejected the contract.
Boeing management was offering a 25% wage increase that some members felt was deceiving as they lost their annual bonuses in the contract, which could be worth around 4% each year.
Boeing CFO Brian West said Friday morning Ortberg is personally engaged in the effort to return to the table and “hammer out a deal.”
Ortberg, 64, was a unique choice for Boeing. The company’s board waived its mandatory retirement age of 65 for the retired man living in Florida.
He retired from aerospace and defense conglomerate RTX in 2021 from a role that started as president and CEO of former Iowa-based avionics supplier Rockwell Collins in 2013. Five years into his tenure, the company integrated with United Technologies which merged with Raytheon to become RTX in 2020.
Boeing Co. took another blow Friday, when Moody’s Ratings placed all of the aerospace giant’s credit ratings on review for a possible downgrade, on concerns about the impact of a strike by machinists on the company’s cash flow.
The rating of Baa3 is already the lowest rung of investment grade, meaning a downgrade would immediately lower it into speculative-grade, or “junk” territory.
That would in turn hamper Boeing’s ability to borrow money at a time it is trying to turn itself around following a series of production missteps. It would also shut the bonds out from a much bigger pool of investors, including pension funds, that can only own investment-grade debt.
Moody’s said it would assess the strike’s duration and impact on cash flow and the potential equity raising Boeing
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-3.69%
will need to do to bolster its liquidity.
“We will also assess the extent to which the strike and ongoing challenges in increasing production of the 737 and 787 aircraft models affect the timing of growth in production rates and the pace and scale of improvements in Boeing’s operating cash flow,” the rating agency said in a statement.
It will also review the costs for the company to complete the fixed-price contracts in the defense business, which will continue to be a drain on earnings and operating cash flow.
Separately, Fitch Ratings said the company’s rating “has limited headroom for a strike.
“If the current strike lasts a week or two, it is unlikely to pressure the rating,” said Fitch. ”However, an extended strike could have a meaningful operational and financial impact, increasing the risk of a downgrade.”
Fitch and S&P Global Ratings also have Boeing at the lowest rung of investment grade. The company has $45 billion in debt.
At an analyst conference on Friday, Boeing Chief Financial Officer Brian West was quoted as saying that the company is committed to supporting its balance sheet and is evaluating its capital structure to make sure it can make coming debt payments over the next few months.
“We remain committed to managing the balance sheet prudently,” West said, according to Bloomberg. “We want to prioritize the investment grade credit rating.”
Moody’s said a prolonged strike would disrupt the recovery of the commercial airplanes business, which is still in the early stages.
“We believe production of the 737 MAX narrow-body increased to nearly 30 a month for July and August. This compares to the U.S. Federal Aviation Administration’s (FAA) 737 production cap of 38 a month (cap),” said the statement.
Calculating the daily cost of the strike to Boeing is complicated, said Moody’s. It noted the IAM member 57-day strike in 2008 cost the company about $1.5 billion a month, or $50 million a day, at a time when 737 production was at its then normal production rate of about 34 a month.
“Additionally, the cost base of the commercial airplanes segment was lower compared to today’s cost base,” said Moody’s.
The news came on a day when Boeing stock was lower, but bondholders were taking the opposite tack early in the session, snapping up the outstanding notes in strong volume.
Spreads were unchanged from Thursday amid net buying of the bonds, as the following charts from data-solutions provider BondCliQ Media Services show.
Boeing Co. bonds: Intraday net customer flow.Photo: BondCliQ Media Services
By early afternoon, some sellers had emerged, as the yellow arrow illustrates, although spreads barely budged given thin trading volumes on a Friday afternoon.
The Boeing Co. bonds: Intraday net customer flow.Photo: BondCliQ Media Services
Investors were again taking a defensive position by selling certain longer-dated notes and buying more recently issued bonds that will pay more if the aerospace company’s credit is downgraded.
GimmeCredit analyst Carol Levenson wrote earlier this week that Boeing is “bleeding cash, clinging to investment grade ratings by a fingernail, and struggling to increase production after [a Federal Aviation Administration] mandated slowdown to improve its quality processes (after the exploding door plug embarrassment).”
Bonds that were issued in May came with built-in coupon step-up features that add 25 basis points to the coupon for each notch of a potential downgrade. If Moody’s and S&P Global Ratings downgrade the credit, holders of those bonds would receive an extra 50 basis points of coupon.
Select Boeing Co. bonds: One-week spread performance.Photo: BondCliQ Media Services
Boeing’s maturity stack shows the bulk of its bonds come due in 2026, although it also has $4.3 billion to refinance in 2025.
Boeing Co.: Outstanding bonds by maturity bucket.Photo: BondCliQ Media Services
The stock, meanwhile, is down 40% in the year to date, while the S&P 500
