Boeing (BA.N) shares experienced a notable increase of 3% on Monday, fueled by optimism surrounding a potential resolution to a protracted strike that has significantly impacted production. However, analysts remain skeptical about whether the proposed labor contract will garner sufficient support from the company’s workforce.
Approximately 33,000 Boeing workers are set to vote on the new contract offer this Wednesday, following a month-long work stoppage that has halted production of key aircraft models, including the highly sought-after 737 MAX narrowbody jets. This vote coincides with Boeing’s upcoming third-quarter results, which are anticipated to reflect substantial losses due to the strike.
The contract proposal, unveiled over the weekend, includes a 35% pay increase over four years, a $7,000 ratification bonus, reinstatement of an incentive plan, and enhanced contributions to employees’ 401(k) retirement plans. The proposal also features a one-time $5,000 contribution plus up to 12% in employer contributions. While these terms represent an improvement over previous offers, they fall short of the 40% pay raise and restoration of traditional pensions sought by the International Association of Machinists and Aerospace Workers union.
Workers picketing near Boeing’s 737 factory in Seattle expressed skepticism about the proposal’s acceptance. Myles Sims, a worker at the site, remarked, “It’s a decent contract, but it’s not what we asked for. I’ve seen other jobs elsewhere that pay significantly more.” Another worker, Jeffrey Dodge, suggested that if Boeing had presented the 35% pay hike earlier in negotiations, the strike might have been avoided.
Wells Fargo analyst Matthew Akers highlighted online sentiment regarding the proposal, noting that while there is a slightly more positive outlook compared to the initial rejected offer, it may still lack enough support for ratification. “Our analysis of over 1,000 online comments implies a more constructive view but still not enough to pass,” he stated.
Analysts predict that if accepted, the wage increases could add more than $1 billion to Boeing’s costs, with Jefferies analyst Sheila Kahyaoglu estimating wage-related expenses could reach approximately $1.3 billion. The latest contract proposal follows weeks of contentious negotiations between Boeing and union representatives. Although the union did not formally endorse this latest offer, it encouraged workers to consider it seriously.
Even if workers approve the contract, Boeing faces significant challenges in ramping up production back to pre-strike levels. RBC Capital Markets analysts noted that historical data indicates it typically takes between six to twelve months for production rates to normalize after strikes. Additionally, the ongoing disruption has raised concerns about its impact on an already fragile supply chain.
Ratings agencies have warned of potential downgrades if the strike persists. Ben Tsocanos from S&P Global described the proposal as a “positive step” but emphasized that uncertainty remains.
In related news, shares of Spirit AeroSystems (SPR.N), a key supplier affected by the strike and recently announcing furloughs for 700 workers, rose by 4.3%. Meanwhile, in a separate labor development, around 5,000 workers at Textron’s (TXT.N) facilities in Wichita will return to work after accepting a five-year contract with wage increases of 31%.
In a positive turn for Boeing amid these labor challenges, Dubai’s Emirates Airlines placed an order for five Boeing 777F freighters and is expected to make further purchasing decisions later this year regarding additional aircraft from either Boeing or Airbus.
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