On September 17th, analysts said that Boeing could be losing over $100 million in revenue per day before reaching a settlement with the union. The company saw over 30,000 employees go on strike starting from September 13th.
Investment research firm Northcoast Research estimated that the total impact of the strike could reach $3 billion or more. Analyst Chris Olin stated that Boeing might cut production by 33 to 35 planes per day, resulting in a daily revenue loss of $102 million.
This is the first strike by Boeing employees since 2008. Workers in the Seattle area rejected a new contract proposal from Boeing last week, marking their first entirely new contract in sixteen years.
The striking workers are responsible for producing Boeing’s popular 737 MAX and other planes at factories on the U.S. West Coast. The strike will delay the delivery of new aircraft, which are crucial for the company’s cash flow.
If the strike continues, it could lead to losses of billions of dollars, further straining Boeing’s already tense financial situation and potentially causing a downgrade in its credit rating.
Boeing has been experiencing a turbulent year. Earlier this year, a new 737 MAX plane experienced a cabin door detachment incident. As of now, Boeing’s stock price has dropped by about 40%.
In late July, Kelly Ortberg was appointed as Boeing’s CEO to restore confidence in the aircraft manufacturer, but he faced a labor dispute shortly after taking office.
Boeing has also faced strict scrutiny from U.S. regulatory authorities for its safety practices.
Last week, all three major rating agencies warned that continued strikes could lead to Boeing losing its investment-grade rating. This would increase Boeing’s borrowing costs, with the company already carrying $60 billion in debt.
Analysts at investment bank TD Cowen estimate that this strike could lead to sales reductions even surpassing the strike in 2008, as the company’s output is higher now than it was then. The 2008 strike resulted in Boeing losing nearly $100 million per day.
With negative free cash flow and lower profit margins, Boeing’s financial situation has been under pressure, requiring sufficient cash flow to meet its debt obligations.
TD Cowen stated that a daily revenue drop exceeding $100 million would reduce cash flow by $60 million, as the aircraft manufacturer receives 60% of the plane’s price upon delivery.
On Monday, Boeing announced plans to halt hiring, reduce business travel, and consider placing employees on unpaid leave during the strike.
The company stated that these measures, including reduced spending on suppliers, are necessary because “our business is facing challenging times”.
CFO Brian West detailed ten immediate cost-cutting measures in a memo to employees. These measures include stopping all levels of hiring, freezing salary increases for managers and executives, and halting all non-essential travel.
West said, “We are also considering the difficult measure of placing many employees, managers, and executives on temporary unpaid leave in the coming weeks.”
Company and union representatives are scheduled to meet with federal mediators on Tuesday, September 17th. The union has begun polling its members to understand what they most want in the new contract.
Representing workers, the International Association of Machinists and Aerospace Workers (IAM) had previously reached a four-year agreement with Boeing, including a significant 25% overall salary increase for all employees, reduced healthcare costs, 12 weeks of paid parental leave, improved job security, and increased funding for Boeing’s worker retirement plans.
However, employees rejected this agreement. The union initially demanded a 40% pay raise and sought to reinstate the traditional pension plan that was canceled a decade ago, but ultimately agreed to pay $4,160 annually into employees’ retirement accounts.
(This article referenced reports from Reuters and the Associated Press)