Boeing Strike: How the Long-Awaited Resolution Could Impact the Market
Early Friday morning, workers at Boeing's West Coast plant began a strike after an overwhelming majority rejected the proposed contract deal. This strike, the first since 2008, comes amid severe production delays and massive debts, exacerbating the aircraft manufacturer's problems.
Since the beginning of 2024, Boeing's (NYSE: BA) stock has fallen by 38%, resulting in a $58 billion loss in market value. This decline has occurred against a backdrop of increasing scrutiny from regulators and clients following an incident involving a door panel on a 737 MAX aircraft in January. Shares of Spirit Aerosystems, a key Boeing supplier, also dropped by 1%.
New CEO Kelly Ortberg, appointed only a few weeks ago, offered workers a 25% wage increase over four years. However, this offer proved insufficient as workers demanded a 40% raise. The issue is compounded by the fact that the average wage in the aerospace and defense sector has risen by 12% from 2018 to 2023, while Boeing's wage has fallen by 6%, and Spirit Aerosystems' by 19%.
A prolonged strike could have a significant impact on Boeing's financial condition. The previous strike in 2008 led to nearly two months of factory closures and losses of approximately $100 million per day. According to TD Cowen, a 50-day strike could cost the company between $3 to $3.5 billion in cash flow. In response, Boeing offered workers a $3,000 bonus and a promise to build the next commercial aircraft in the Seattle area if the program is launched within the contract term.
The Biden administration, through press secretary Karine Jean-Pierre, has already begun urging both sides to engage in constructive negotiations. Meanwhile, delays in deliveries may affect airlines reliant on Boeing, as well as suppliers like CFM, which has stated that the strike has not yet impacted its operations.
Statements from CEOs of airlines such as Air India and Cathay Pacific indicate that they are already experiencing delivery delays, highlighting the potential global market consequences of the strike.
According to S&P Global Ratings and Moody’s, a prolonged strike could hinder Boeing's recovery and negatively impact its credit rating, which is already one notch above junk status. This could complicate the company's financial situation amid existing economic challenges.
