Thomas Black: Boeing’s frail finances give strikers all the power
While a strike by East Coast port workers is strangling the flow of goods from Maine to Texas and grabbing headlines, news of machinists at Boeing Co. about to enter their fourth week of picketing near Seattle has receded a bit into the background.
The impact from the port workers strike will increase by the day as the damage to the economy and consumers begins to bite. That’s not the case for Boeing and its workers. The effects won’t be visible to the public. Delays of plane deliveries, unfortunately, are nothing new to Boeing customers. They’ve been grappling with a dearth of new planes for years after the grounding of the 737 Max following two deadly crashes and the quality snags that had halted shipments of the 787.
The pressure on Boeing, though, is acute. The company is in a dire financial position, burning through billions of dollars of cash and teetering at the edge of having its credit rating cut to junk. The company has floated the idea of raising $10 billion or more by selling shares, which wouldn’t happen until the strike is resolved.
The approximately 33,000 machinists on strike know this. Time is on their side. In fact, many have been preparing for this moment for years, stuffing away savings to stick it to a company that coerced them into signing contract extensions that slowed wage gains and eliminated their defined-pension benefits. Gig-economy jobs also give the union members an outlet to earn money during the strike, as Bloomberg News’ Julie Johnsson and Anna Edgerton highlighted.
The workers “seem angrier than in 2008 when the strike lasted 57 days,’’ Cai von Rumohr, an analyst with TD Cowen, wrote in an Oct. 1 note in which he cut his price target on Boeing stock by $30 to $200. This strike will hurt Boeing’s revenue by more than the $100 million a day in 2008, he said.
Boeing tried to force a best and final offer last week of a 30% raise over four years, a signing bonus and a sweeter match to the employee 401(k) savings plan. It didn’t work. The machinists lost their company-paid health benefits on Oct. 1, but that hasn’t moved the needle, either. This doesn’t come as a surprise given that the first offer of a 25% pay raise was rejected by an astounding 96% of the employees who belong to the International Association of Machinists and Aerospace Workers.
Boeing needs to reach a deal with its striking workers and crank up aircraft production. The backlog of aircraft orders is piling up. This is cash and financial relief just waiting to be unlocked. No doubt a hefty pay raise will squeeze future profit margins, but it’s unlikely the company, being in such a weakened state, can outlast the determination of its workers. The machinists know they are in the strongest position ever to claw back what they felt forced to give away years ago when the company was threatening to build planes in nonunion states.
Not only are Boeing’s finances in a precarious position, the planemaker’s smaller suppliers will begin to feel the squeeze. This is a supply chain that’s only now beginning to heal from the sudden drop in volume during the pandemic and the loss of experienced workers whom they have struggled to replace. Meanwhile, airline customers are losing patience, giving more ammunition to rival Airbus SE to add to its lead as the largest commercial aircraft maker.
It’s time for new Chief Executive Officer Kelly Ortberg to settle this strike and begin to repair labor relations. Without buy-in from its workforce, the company can’t begin to change a factory-floor culture that had eroded on safety and quality to the point where the Federal Aviation Administration had to intervene. The union earlier this week urged Ortberg “to truly engage at the proposal-based level and to take the reins” of the negotiations. Ortberg should take up that offer.
Thomas Black is a Bloomberg Opinion columnist writing about the industrial and transportation sectors. He was previously a Bloomberg News reporter covering logistics, manufacturing and private aviation.