Boeing, striking workers face divisive gulf in labor contract
Boeing (NYSE:BA) and more than 33,000 striking workers don’t appear any closer to resolving their differences over their first negotiated contract in 16 years. The aviation giant on Monday made a new offer in its effort to end a walkout that’s estimated to cost hundreds of millions of dollars every week.
Union officials on Monday said they weren’t counseled on the latest offer and slammed the company for giving it to union members and news outlets.
“This proposal does not go far enough to address your concerns, and Boeing has missed the mark with this proposal,” the union said in a note to members. “They are trying to drive a wedge between our members and weaken our solidarity with this divisive strategy.”
The newest offer from Boeing (BA) would increase pay by 30% over four years, up from the 25% offered in the initial deal. It also would double a ratification bonus to $6,000, restore yearly bonuses the company initially proposed to eliminate and raises company contributions to worker 401(k) plans. Boeing (BA) also is committed to building its next new airplane to replace the 737 in the Pacific Northwest, a union stronghold.
Representatives from District 751 of the International Association of Machinists and Aerospace Workers had sought a pay raise of 40%, a seat on Boeing’s (BA) 13-member board of directors and the reinstatement of its defined-benefit pension plan.
Boeing’s (BA) chief negotiator scoffed at the idea of bringing back a traditional retirement plan.
“There is no scenario where the company reactivates a defined-benefit pension for this or any other population,” Michael Fitzsimmons, vice president of labor relations and global human resources policy at Boeing (BA), said. “They’re prohibitively expensive, and, really, that’s why virtually all private employers have transitioned away from them to defined-contribution plans.”
Boeing (BA) gave union members until Friday to vote on the offer, a provision that the union has rejected as unfeasible. A federal mediator has been present for negotiations between Boeing (BA) and union leaders.
Analysts Weigh In
The new offer reflects management’s concern about its mounting losses, according to analysts at financial-services firm Morgan Stanley.
“The proposed wage increase of 30% remains about 33% below the union’s ask for a 40% pay increase,” Kristine Liwag, analyst at Morgan Stanley, said in a Sept. 23 report. “We see the potential for this to be a sticking point as Boeing’s (BA) chief negotiator seems to have firmly shut the door on a reinstatement of a traditional pension plan.”
Analysts at financial-services firm Wells Fargo estimated Boeing’s (BA) latest offer would raise labor costs by about $800 million a year by 2028, instead of about $300 million using 3% inflation as a baseline. The bank hasn’t incorporated the estimates in its financial models for Boeing (BA), according to a report on Tuesday.
“Boeing (BA) burns about $500 million a week as the strike continues, and is on the verge of a debt downgrade with little ability to reduce cash burn near term,” Matthew Akers, analyst at Wells Fargo, said in a Sept. 24 report. “Union members on the other hand have yet to miss a paycheck. We think morale remains high within IAM, and its public comments appear to grasp the strength of its bargaining position. A capital raise by Boeing (BA) could give the company more room to negotiate.”
Credit-ratings companies said they may downgrade Boeing (BA) if the strike is prolonged. Ratings firms Moody’s and Fitch both rate Boeing (BA) one grade above junk status.
The work-stoppage halted production of Boeing’s (BA) 737 Max narrowbody jets, and of its 767 and 777 widebody planes. The company last week announced temporary layoffs for some U.S. executives and other employees to help conserve cash.
The strike has left Boeing (BA) shareholders to speculate about how the strike will affect its stock value and suppliers of plane components. Several analysts said the 2008 strike by machinists that lasted eight weeks may offer some idea of what to expect.
The strike is seen as a key test for new Chief Executive Kelly Ortberg as Boeing (BA) grapples with product-quality issues. The company is working to overcome concerns about the safety of its planes after a door panel fell off a new 737 Max jet mid-air in January.