(Bloomberg) -- Boeing Co. Chief Executive Officer Kelly Ortberg’s quest to stabilize the struggling US planemaker suffered a stinging setback after factory workers rejected a new labor contract that would have increased their wages by 35% over four years.
Some 64% of the union members who cast ballots on Wednesday voted against the tentative agreement, according to the International Association of Machinists and Aerospace Workers district representing the 33,000 striking workers.
While the opposition this time was smaller than the overwhelming 94% vote to reject the company’s initial offer in September, the result is a setback to Boeing’s efforts to get operations back on track. The planemaker has been forced to suspend work on its 737 and larger 767 and 777 airliner models at its Seattle-area manufacturing hub for more than a month, weighing on its finances and putting credit-rating companies on alert for a possible downgrade to junk status.
“Basically October is wiped out, some of November is now wiped out, and it’s going to cascade through the entire supply chain,” Sheila Kahyaoglu, an analyst at Jefferies, said on Bloomberg TV.
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Boeing fell 2.4% as of 9:35 a.m. in New York on Thursday. The stock had declined about 40% this year through Wednesday’s close, the second-worst performance in the Dow Jones Industrial Average.
The vote will send Boeing and the union back to the negotiating table following six weeks of stop-start talks that eventually led to the White House dispatching Acting Secretary of Labor Julie Su to Seattle to help break the stalemate. While Boeing’s latest pay offer was a bump from its initial 25% increase, workers are still angered by the failure to reinstate their defined-benefit pension plan.
“Our members deserve more and have spoken loudly,” IAM District 751 President Jon Holden said after the vote count. “The loss of the pension is still right at the heart of this for many” union members.
The strike has derailed the planemaker’s financial recovery, and its after-effects will linger deep into 2025. Boeing expects to burn cash next year, one reason the company is preparing a potential equity sale to bolster its reserves, executives said during an earnings call Wednesday.
The manufacturer was on track to generate a surge of revenue from rising jet deliveries prior to the labor strife. With that activity all but halted, Boeing expects to burn around $4 billion in cash during the fourth quarter, similar to its outflow earlier this year, according to Chief Financial Officer Brian West. The would bring the company’s total free cash outflow to around $14 billion for 2024, its worst performance since the Covid pandemic flattened air travel in 2020.
Investors had seen the vote as a possible positive catalyst to help the planemaker turn a corner on a year of cascading crises. The labor strife is costing the company about $100 million a day in lost revenue by some estimates, and the stoppage has shut down Boeing plants in Washington, Oregon and California.
“This rejection adds further uncertainty, costs, and recovery delays as the strike approaches day 40,” said Ronald Epstein, an analyst at BofA Securities Inc. “We anticipate further concessions of wages will be required for a deal to pass.
Ortberg has already instituted a range of cost cuts to weather the fallout from the strike, including a 10% reduction in the workforce alongside other measures that include hiring freezes and travel bans. Ortberg took over in August following a shakeup of senior management in the wake of cascading crises since the start of the year at Boeing.”
The fallout is also rippling through Boeing’s suppliers. Spirit AeroSystems Holdings Inc. has said that it will furlough 700 workers, and that it might need to resort to layoffs if the strike continues into next month.
Some airlines, meanwhile, have had to revise their growth targets because they’re not likely to get the aircraft they had planned for next year. Boeing had previously sought to return its 737 Max model to a production rate of 38 a month by year-end, with analysts now saying that it’s unlikely to reach that target until well into 2025.
The strike by IAM District 751 is the first major labor strife at Boeing in 16 years. As hourly workers are pushing for 40% pay increases and better retirement benefits, they’re driven by resentment over receiving paltry wage increases over the past decade while senior executives were richly rewarded.
“I’m in favor of a fair contract,” said Charles Fromong, 59, a machine tool repair mechanic working for Boeing’s military aircraft division. “The strike is just a byproduct of Boeing not paying people what they are worth.”
--With assistance from Danny Lee, Zoe Ma, Michael Sin, Jonathan Ferro and Annmarie Hordern.
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