In the event you personal Boeing (NYSE: BA) inventory, you’ve got most likely been glued to information of the protracted labor strike by Boeing’s machinists union, now coming into its fifth week.
And you’ve got most likely already heard the newest unhealthy information: After two days of renewed talks with union negotiators from the Worldwide Affiliation of Machinists (IAM) — talks that apparently went completely nowhere — Boeing minimize off negotiations completely, withdrew its “greatest and remaining” provide of a 30% pay elevate (unfold over 4 years), and walked away. As Boeing Business Plane CEO Stephanie Pope defined, “The union made non-negotiable calls for far in extra of what might be accepted if we’re to stay aggressive as a enterprise.”
In response, IAM complained Boeing “refused to enhance wages, retirement plans and trip or sick depart,” in keeping with a report by CNBC. On Thursday, Boeing filed an “unfair labor practices” grievance with the Nationwide Labor Relations Board, accusing IAM of partaking in not negotiating in good religion.
What occurs subsequent?
Now, presumably, this story does not finish right here. Sooner or later, Boeing should return to the desk. It merely can’t afford to go away its 737, 767, and 777 manufacturing traces shut down indefinitely.
Relying on whom you ask, Boeing is dropping wherever from $1 billion per week (says The Washington Publish) to $1 billion per 30 days (says CNBC) as this strike drags on. Prior guesses have ranged as excessive as $100 million to $150 million per day (which works out to $3 billion to $4.5 billion per 30 days).
Which guess is true? We’ll most likely not know till Boeing studies its Q3 earnings (which ought to embody outcomes for the primary two weeks of the strike). In the meantime, it is within the union’s pursuits to make Boeing’s losses sound as massive as potential, to extend stress on administration to comply with its pay hike and pension calls for. Conversely, it is in Boeing’s curiosity to make the losses appear as small as plausible, to persuade employees that it’s completely content material to attend them out.
So whichever estimates you hear, be certain to take them with a couple of grains of salt.
That mentioned, here is what we all know for positive: In accordance with information from S&P International Market Intelligence, Boeing misplaced $1.8 billion by way of the primary half of this 12 months. It is really been dropping cash for the previous six straight years — since even earlier than the pandemic. Plus, Boeing has practically $58 billion in debt on its stability sheet, and curiosity and principal on these money owed should be paid whether or not or not Boeing’s constructing airplanes because the strike stretches on.
So nonetheless a lot the strike is costing Boeing, it is including to the monetary pressure this firm was underneath nicely earlier than the strike started. In what seems to be a primary, one native Seattle community — NBC’s King 5 affiliate — steered on Thursday that this strike may even finish in a chapter submitting for Boeing.
How does Boeing survive this strike?
Admittedly, that is a worst-case state of affairs. Requested concerning the potential for a chapter submitting, although, a Boeing spokesperson merely declined to remark — which does not precisely encourage confidence.
Nonetheless, it is price mentioning: Even when this strike lasts 5, six, seven weeks, or extra, Boeing has choices.
For instance, in a word launched Wednesday, funding financial institution Wells Fargo predicted Boeing will attempt to promote inventory to lift $10 billion to $15 billion to interchange cash misplaced to the strike. The corporate may also merely take out loans to cowl its money wants.
Granted, that would not be nice for Boeing’s credit standing, including extra debt on prime of a near-$60 billion debt load already. That is most likely one purpose S&P put Boeing on discover for a possible downgrade to its credit standing Thursday. Boeing’s present ranking is “BBB-,” which sounds unhealthy, however continues to be thought of funding grade. Now the scores company is considering chopping Boeing’s credit standing to BB — which sounds higher, however is actually a junk bond ranking.
But it surely’s nonetheless an choice.
It is also price remembering that within the a lot direr straits Boeing confronted throughout the pandemic, when demand for airplanes practically dried up worldwide, Boeing did each these items. The corporate took out tens of billions of {dollars} in loans. And Boeing issued a variety of new inventory. In 2020 alone, Boeing issued 20 million shares, and it is issued 33 million extra within the years since because it continued dropping cash.
All of which is to say, it is not excellent that Boeing would possibly want to lift a variety of money, and promote a variety of inventory, to outlive this strike — however it’s accomplished this earlier than, and it could possibly do it once more if it must. So in the end, I do not consider the inventory is a chapter danger at this level.
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Boeing’s Labor Strike Enters Week 5: How Unhealthy Might This Get? was initially printed by The Motley Idiot
