Boeing Strike Continues, Stock Down 40% This Year
The strike has hindered Boeing's recovery from multiple crises. On the local time of the 23rd, just after Boeing's Chief Executive Officer (CEO) Oetberg announced that Boeing "cannot afford to lose focus on manufacturing new aircraft," efforts to end the strike once again ended in failure.
The International Association of Machinists and Aerospace Workers (IAM), representing 33,000 striking union members, stated that Boeing workers rejected an interim agreement for a 35% pay raise over four years.
Following the news, Boeing (BA.US) fell nearly 3% in pre-market trading, reporting at $152.50. Statistics show that Boeing's stock price has dropped approximately 40% this year, marking the worst annual return since 2008.
"We are still on strike,"
For Boeing, the 23rd of this month is particularly significant as the company released its latest financial report, with both the CEO and CFO needing to explain the current predicament of Boeing.
On the same day, Boeing's workers were also voting on a previously reached interim agreement. In short, after the White House's intervention, Boeing and IAM reached a temporary agreement on a new contract, with Boeing agreeing to a 35% pay raise over four years. In addition to the pay raise, the agreement guarantees at least a 4% bonus per year, and if the workers agree, they will receive an additional $7,000 bonus.
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After the vote counting, Holden succinctly said, "We are still on strike."
Last month, striking workers overwhelmingly (94%) rejected an initial agreement proposal, and although the opposition has relatively decreased this time, it is still a significant setback for Boeing.
The work stoppage, which began on September 13th, has forced Boeing to suspend the production of 737, 767, and 777 aircraft at its manufacturing center in the Seattle area for over a month. This has put pressure on Boeing's financial situation and has led to warnings from credit rating agencies that Boeing's rating may be downgraded to junk status.
As mentioned earlier, Boeing workers remain angry about the failure to restore their defined benefit pension plans. Holden stated, "For many union members, the loss of pensions remains the core issue. We will put all our cards on the table to see what Boeing can offer as an alternative to the pension plan."This strike marks the first large-scale labor dispute at Boeing in 16 years. Boeing's technical workers are demanding a 40% pay raise and better retirement benefits, stemming from their dissatisfaction with the slow wage growth over the past decade while top executives have reaped substantial rewards.
Charles Fromong, a 59-year-old machine tool repair technician in Boeing's military aircraft division, stated, "I am willing to sign a fair contract. The strike is merely a byproduct of Boeing not paying its employees what they deserve."
Yves Doz, a professor of Global Technology and Innovation at INSEAD who has studied Boeing for years, told First Financial Daily that the cyclical nature of the civilian aircraft market has been strong for decades. Fluctuations in demand have created peaks and troughs in engineering and production requirements. Over time, as demand wanes, Boeing, which is highly cost-conscious, increasingly resorts to layoffs. "Many experienced workers and engineers were laid off, but when demand picks up, Boeing finds that they can no longer be rehired."
Boeing Still Plans to Manufacture New Aircraft
In fact, prior to the labor dispute, Boeing had experienced a surge in revenue due to an increase in jet deliveries.
Boeing's Chief Financial Officer, Brian West, stated that due to this activity coming to an almost complete halt, Boeing expects to burn through about $4 billion in cash in the fourth quarter, similar to the cash outflow earlier this year. This will bring Boeing's total cash outflow for 2024 to around $14 billion, the worst performance since the pandemic paralyzed air travel in 2020.
At the same time, it is estimated that the labor dispute is costing Boeing about $100 million in daily revenue. Oberg has implemented a series of cost-cutting measures to counter the impact of the strike, including a 10% staff reduction and other measures such as freezing hiring and banning travel. Boeing has faced a series of crises since the beginning of this year, and there have been adjustments in the senior management, with Oberg taking over as CEO in August.
Oberg has announced the latest plan, which includes rebuilding a culture of management close to operations to prevent "problems from worsening." He has also reinstated detailed business reviews, with the aim of identifying operational failures before they escalate into full-blown crises. While striving to stabilize the business, he insists that Boeing cannot lose focus on manufacturing new aircraft.
"Boeing is an aircraft company, and at the right time in the future, we need to develop new types of aircraft," Oberg stated in his remarks to investors.
Boeing's latest financial report released on the 23rd shows that the company's revenue for the third quarter decreased by 1% year-on-year to $17.84 billion, with a net loss of $6.174 billion.This level of revenue is below analysts' expectations. It is reported that Boeing's two largest divisions have encountered difficulties this quarter. Among them, the commercial aircraft division's operating loss is about 4 billion US dollars, as the company announced the production of the first 777X jetliner has been delayed again, and has formulated a plan to phase out the 767 freighter.
Boeing's defense and space business lost 2.38 billion US dollars, mainly due to cost overruns on fixed-price contracts for the KC-46 tanker, Starliner spacecraft, and other projects.
Ottenberg tried to outline a roadmap for Boeing's revival, which is full of optimism from customers and employees who hope the company will succeed. He said that Boeing also has a backlog of aircraft orders worth more than 500 billion US dollars, which will help the company recover.
Ottenberg also used a large part to explain how to change Boeing's corporate culture, calling for people to take pride in past achievements, establish a sense of common destiny, and promote cooperation. Compared with the focus on shareholder returns and cost control advocated by other leaders of Boeing over the past 20 years, there has been a shift in tone and strategy.
Vertical Research Partners analyst Rob Stallard said: "Ottenberg's evaluation is encouraging, because Boeing never admits that there are problems, let alone really solve them."
Boeing acquired McDonnell Douglas in 1997, "but the management team of McDonnell Douglas did not quietly leave. In fact, as we have seen in other mergers, tougher and more capable managers from weaker companies will squeeze out the more gentlemanly leaders of larger companies." He explained that as a result, Boeing's idealistic engineering team was eventually managed by veterans from McDonnell Douglas. These are accountants, financial directors, and other managers who are obsessed with cost savings and are accustomed to managing companies with meager budgets. They are also very sensitive to shareholder wealth.
"In order to control risks and development costs, they recruited risk-bearing partners to jointly invest in new aircraft projects, jointly develop and produce new models. Partners will share development costs and work, and then produce aircraft components. These components include non-critical parts (such as cabin furniture), as well as larger and more critical parts (such as wings, wings, and even entire fuselages)." He said that after acquiring McDonnell Douglas, Boeing hoped to minimize its own costs and investments. To this end, Boeing introduced new risk-sharing partners from Japan, the United States, Italy, South Korea, and other countries where the aviation industry has not been closely linked with its competitor Airbus. "This means that Boeing can minimize its own investments, focus on overall system integration and final assembly, and subcontract the manufacturing of aircraft structures to partners.
Ottenberg said this time that restoring the balance sheet will be a necessary condition for Boeing to consider the next commercial aircraft. Since the launch of the 787 model 20 years ago, Boeing has not conducted any new R&D projects. Considering the huge investment involved, this is a very risky bet. Boeing is six years behind schedule in certifying the first 777X model, and its commercial debut has now been postponed to 2026.
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