Members of the Boeing Machinists union protest outside a Boeing factory on September 13, 2024 in Renton, Washington.
Stephen Brashear | Getty Images
It’s been just over a month since over 30,000 Boeing engineers walked off the job after overwhelmingly voting against a tentative contract. The costs and tensions have only increased since then.
The strike increases pressure on Boeing’s new chief executive, Kelly Ortberg, who was hired over the summer to solve the plane maker’s various problems. The strike, which S&P Global Ratings estimates is costing Boeing more than $1 billion a month, caps an already difficult year that began with a near-catastrophic explosion of a 737 Max door plug and comes six years after the first of two deadly Max’s accidents. renowned manufacturer in a constant state of crisis.
The union and the company remain deadlocked, and production of planes at factories in the Seattle area and elsewhere has ground to a halt, starving Boeing of cash. Boeing last week withdrew a sweet contract offer that the union had rejected, saying it had not been negotiated.
Boeing officials were optimistic with airline customers about reaching a deal in the weeks before the initial vote, according to people familiar with the matter.
But that optimism didn’t pan out, as workers on Sept. 13 voted 95 percent against an initial tentative labor deal.
“They should increase their offer. There’s no question about that,” said Harry Katz, a professor who studies collective bargaining at Cornell University’s School of Industrial and Labor Relations. He said one of the union’s demands, a return to the pension scheme, was unlikely, however, and estimated the strike could last two to five more weeks.
The process to end the strike has become more fraught, with federally brokered talks breaking down in the middle of the week.
Boeing announced Thursday that it filed an unfair labor practice charge with the National Labor Relations Board that accused the International Union of Mechanical and Aerospace Workers of bargaining in bad faith and falsifying the airplane manufacturer’s proposals.
Late Friday, Jon Holden, president of the striking workers’ union, IAM District 751, pushed for a return to negotiations.
“CEO Ortberg has an opportunity to do things differently instead of the same old tired threats to labor relations that are used to intimidate and crush anyone who stands up to them,” he said in a statement. “Ultimately, our involvement will determine whether any negotiated offer is accepted. They want a solution that is negotiated and meets their needs.”
Boeing’s unionized engineers are not receiving wages and lost company-sponsored health insurance at the end of September. However, unlike the last strike at the Boeing plant in 2008, more labor contracts are in place in the Seattle area to help workers fill the gaps. A union message board posts job opportunities such as driving for food delivery services and warehouse work.
Work force reduction
A Boeing 737 MAX aircraft is assembled at the Boeing Renton factory in Renton, Washington, on June 25, 2024.
Jennifer Buchanan | AFP | Getty Images
After the stock market closed on Friday, Ortberg said the company plans to reduce its global workforce by about 10% “over the next few months,” including layoffs of executives, managers and workers.
He also told staff that Boeing would stop producing commercial 767 freighters when it meets its backlog in 2027 and that delivery of its 777X would be delayed another year, to 2026.
The surprise cuts were accompanied by surprise preliminary financial results that showed deeper losses: Boeing said it expected to lose nearly $10 a share for the third quarter and would take about $5 billion in charges at its commercial and defense units. The maker hasn’t posted an annual profit since 2018. Ortberg faces investors in his first full earnings call as CEO on Oct. 23.
“The thing is, once they get 737 production on track, all their money problems are solved, but they’re not willing to compromise on that,” said Richard Aboulafia, chief executive of AeroDynamic Advisory. “They’re laying off a lot of people who could do that [stable production] happen. It seems like they’re kind of burning down their own house.”
Aboulafia estimates that labor in the final assembly of an aircraft accounts for about 5% of the plane’s cost.
Ortberg is now tasked with raising cash and stemming the bleeding as the company’s losses mount. Boeing shares are down 42% this year through Friday’s close, the biggest drop since 2008.
Boeing and S&P 500 performance
“We also need to focus our resources on performance and innovation in the areas that are core to who we are, rather than spreading ourselves across too many efforts that can often lead to underperformance and underinvestment,” Ortberg said in a note to staff on Friday. .
S&P Global Ratings last week warned the company was at risk of being downgraded to junk status, as production shutdowns of Boeing’s best-selling 737 Max and the 767 and 777 cost the company more than $1 billion a month. The estimate includes previously announced cost cuts, such as temporary furloughs, a hiring freeze and the suspension of most purchase orders for the affected aircraft.
Boeing is “facing issues with quality, labor relations, program execution and cash burn that appear to have created a continuous cycle of disaster,” Bank of America aerospace analyst Ron Epstein said in a note on Friday . He said Boeing’s early financial release on Friday likely indicated an equity raise of up to $15 billion.
A Boeing 737 coasts on railcars at the Spirit AeroSystems plant in Wichita, Kansas, U.S., Monday, July 1, 2024.
Nick Oxford | Bloomberg | Getty Images
The announced cuts come as Boeing and the rest of the aerospace supply chain scramble to hire and train new engineers and other specialists after acquisitions and layoffs of thousands of workers amid the pandemic.
Instability at Boeing could spill over to its suppliers. Boeing 737 fuselage manufacturer, Spirit AeroSystemsis considering laying off workers in its emergency cost-cutting plans, a spokesman said, adding that no decision has been made. Boeing is in the process of acquiring this company.
“They’re probably telling us a story about the cost savings that drove them,” Aboulafia said of Boeing’s latest cost cuts. “When did the things that don’t work stop them from trying again?”