A spate of misfortune has hit Boeing, ever since the fatal crash of Lion Air B737MAX on October 29, 2018 Boeing is dealing with one major crisis followed by the next back-to-back. In the latest, thousands of Boeing workers went on strike on September 13, 2024, after rejecting a union contract. Experts feel that this strike is a warning/wake-up call for Boeing to pull up its socks if it has to remain in the race, or it might be one of the nails in its coffin.
Interestingly, the workers have gone on strike for the first time in last 16 years, bringing the complete process of aircraft production and manufacturing to a stand-still in Seattle. Realising wide-spread global implications of the strike, the White House has decided to intervene. “We are in touch with Boeing and the union, the International Association of Machinists and Aerospace Workers,” the White House said in a statement.
Let’s look at some of the important highlights of this strike
- About 30,000 workers in Seattle and Portland areas on strike
- Boeing struggling with output delays, high debt
- Strike poses a challenge for new CEO Kelly Ortberg
- Boeing shares see a down-fall
Meanwhile the Boeing management and union will enter a fresh set of negotiations this week.
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.
What has Stirred the Strike?
As Boeing’s employee strike drags into its fourth month, the dispute is not just a corporate issue but a reflection of broader political and social movements. Years of pent-up resentment over the company’s mismanagement, combined with pandemic-era inflation and a resurgent labor movement, stirred up the strike.
In 2023, David Calhoun took over as the chief executive of Boeing, Calhoun got a 45% pay bump, to nearly $33 million, whereas wages for Boeing’s 33,000 unionized employees have been stagnant. This disparity between the high earnings of executives and the relatively modest wages of frontline workers is fuelling broader debates about economic justice and income distribution.
On, September 13, 2024, the union representing more than 33000 workers went on strike, after the tentative agreement reached between the union and the company that included a 25% pay increase over four years. 95% of workers rejected the contract and voted in favor of a strike.
At the heart of the dispute are demands for a 40% raise in wages, improvements to health care, retirement benefits, and enhanced job security. Workers argue that despite the company’s robust financial performance and growing order books, their wages have not kept pace with inflation and the cost of living.
Financial Strain on Boeing
The strike has put Boeing in a precarious financial position. Investment banking company TD Cowen said a 50-day labor action could cost Boeing an estimated $3bn to $3.5 billion of cash flow bringing more strain on a company that has already lost $8 billion this year. West acknowledged that a prolonged strike could jeopardize recovery, and impact production and deliveries at the company.
With production lines stalled and key deliveries delayed, Boeing is facing substantial financial losses. The company’s stock has experienced volatility, reflecting investor concerns about the prolonged disruption. Boing faced the last strike in 2008 for eight-week the company costing the company about $ 100 million daily in deferred revenue.
Impact of the strike on the aerospace industry
Production at Boeing’s facilities has come to a standstill, with key models such as the 737 MAX and 787 Dreamliner facing significant delays. The halt in assembly lines not only affects Boeing’s output but also has a cascading effect on its delivery schedules.
This disruption has led to postponed deliveries for airlines and other customers, which impacts their operational planning and financial forecasting.
Boeing’s goal of ramping up production to 38 aircraft per month by the end of the year may face delays, according to West. Although the company has a backlog of over 5,500 airplane orders, its production is falling short of expectations due to manufacturing challenges and labor shortages. Currently, about 70 aircraft are in Boeing’s inventory. West warned that extended work disruptions could have significant repercussions across the industry.
Next move of boeing
Kelly Ortberg, who took the helm as Boeing’s CEO just five weeks ago, is facing a significant early challenge with the ongoing employee strike and the company’s production issues. Ortberg’s leadership is being tested as he navigates the complex situation of labor disputes, manufacturing delays, and a substantial backlog of orders.
Ortberg’s immediate focus is on resolving the strike to stabilize production and address the manufacturing issues that have led to lower-than-expected output. The strike has already delayed Boeing’s goal of ramping up production to 38 aircraft per month by year-end, and the company’s inventory of approximately 70 aircraft highlights the urgency of getting operations back on track.
Boeing needs to resolve the strike swiftly to restore its production capabilities, as the company has more at stake than just its financials can’t afford any further damage to its reputation.
This situation also presents Ortberg with an opportunity to demonstrate his strategic and leadership capabilities. Successfully managing this crisis could not only restore production levels but also strengthen his position as CEO. It offers him a chance to set a new course for Boeing, address systemic issues, and potentially reshape the company’s approach to labor relations and operational efficiency.
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Ortberg’s handling of this challenge will be closely watched by industry analysts, investors, and employees alike, making it a pivotal moment in his early tenure as CEO.
Conclusion
Boeing plays a substantial role in the US economy employing over 150,000 people across the country nearly half of them in Washington State. The company, which also makes military jets, rockets, spacecraft and Air Force One, is a global symbol of America’s manufacturing strength. Hence the implications of this strike can be damaging not just to Boeing’s but also to America’s reputation as a country. Besides Moody has put Boeing’s rating on review while Fitch has hinted that a prolonged strike could raise the chance of a downgrade. 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.
