By Joe Brock and David Shepardson
SEATTLE (Reuters) – Workers at Boeing's West Coast factories walked off the job on Friday morning after overwhelmingly rejecting a contract agreement, halting production of the planemaker's best-selling jet as it struggles with severe production delays and heavy debt.
The first attack since 2008 comes as the planemaker is under intense scrutiny from U.S. regulators and customers after a door panel on a 737 MAX jet exploded in mid-air in January.
The growing crisis has weighed on Boeing (NYSE:) stock and triggered a leadership change. The shares fell 2.8% in premarket trading in the U.S. on Friday, paring some earlier losses. The stock has lost nearly 38% so far this year, which is a loss of $58 billion in market value.
Shares of Spirit Aerosystems, the supplier Boeing is buying, fell 1%.
New CEO Kelly Ortberg arrived just weeks ago to restore confidence in the planemaker and proposed a deal that included a 25% pay increase over four years, far less than the 40% workers had demanded.
About 30,000 members of the International Association of Machinists and Aerospace Workers (IAM), which produces Boeing's 737 MAX and other top-selling aircraft in the Seattle and Portland areas, voted on their first full contract in 16 years, with 94.6% rejecting it and 96% in favor of a strike in a two-part vote.
“This is about respect, addressing the past and fighting for our future,” said Jon Holden, who led negotiations for Boeing’s largest union, before announcing the vote result Thursday night. The union was going to get back to the bargaining table as quickly as possible, Holden told reporters, without saying how long he thought the strike would last or when talks would resume.
Boeing said in a statement it was ready to return to the negotiating table, a sign it was willing to sweeten the deal.
“The message was clear: the tentative agreement we reached with IAM management was not acceptable to members. We remain committed to resetting our relationship with our employees and the union, and we are ready to return to the bargaining table to reach a new agreement,” the aircraft manufacturer said in a statement.
A prolonged strike could severely affect Boeing's finances, which are already suffering from a $60 billion debt.
Boeing had said it had offered workers everything it could and needed to plan the investments needed to replace its best-selling single-aisle models, while placating striking workers with a better offer.
BOEING'S CHALLENGES
The proposed deal included a $3,000 signing bonus and a commitment to build Boeing's next commercial airplane in the Seattle area, provided the program was launched within the contract timeframe.
Data from equity research firm Melius Research showed that median employee compensation at the aerospace and defense companies it tracks grew 12% between 2018 and 2023. It fell 6% for Boeing and 19% for Spirit Aerosystems.
“The key question now is the length of the strike given the gap between the proposed wage increase and union members' request,” Jefferies analyst Chloe Lemarie said in a note, adding that a prolonged strike represents a key risk to 737 MAX production.
Although IAM management recommended last Sunday that its members accept the contract, many workers responded angrily, defending the original demand and lamenting the loss of an annual bonus.
Workers have been protesting all week at Boeing factories in the Seattle area that assemble Boeing's MAX, 777 and 767 aircraft.
On Friday, union members cheered and chanted “Strike! Strike! Strike!” and shortly after midnight, striking workers began gathering outside Boeing factories in the Seattle area. Many waved signs reading “On Strike Boeing,” and passing drivers honked their horns in support.
“I'm prepared to strike for two months or even longer. We'll continue as long as it takes to get what we deserve,” said James Mann, a 26-year-old who works in a Boeing wing division.
The Biden administration has reached out to both sides, White House press secretary Karine Jean Pierre said Thursday. “We're going to encourage both sides to negotiate that way, in good faith and reaching a solid contract,” she said.
STRIKE!
If prolonged, a strike would also affect airlines that rely on the planemaker's planes and suppliers that make parts and components for its aircraft.
Boeing's last strike, in 2008, shut down plants for nearly two months and hit revenue by about $100 million a day. According to a pre-vote note from TD Cowen, a 50-day strike could cost Boeing between $3 billion and $3.5 billion in cash.
CFM, the sole supplier of engines for the 737 MAX, said there was no immediate impact on its operations.
Air India Chief Executive Campbell Wilson said on Friday that deliveries of Boeing's 737 MAX to his airline appeared to be “a little delayed” even before the strike announcement due to regulatory scrutiny after the Alaska Airlines gate incident and supply chain issues.
Cathay Pacific and flydubai said they were in contact with Boeing. A flydubai spokesman said the airline hoped Boeing would quickly resolve the issue and was talking to the aircraft manufacturer about the delivery schedule.
S&P Global Ratings said a prolonged strike could delay Boeing's recovery and hurt its overall rating. Both S&P and Moody's (NYSE:) rate Boeing one notch above junk status.
!function(f,b,e,v,n,t,s){if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)};if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;n.queue=();t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e)(0);s.parentNode.insertBefore(t,s)}(window, document,’script’,’https://connect.facebook.net/en_US/fbevents.js’);
