The strike has hindered Boeing's recovery from multiple crises. On the 23rd local time, efforts to end the strike once again ended in failure after Boeing CEO Otterberg announced that Boeing "cannot lose its focus on manufacturing new aircraft".
The International Association of Machinists and Aerospace Workers (IAM), representing 33000 striking union members, said that Boeing workers refused a temporary agreement to increase wages by 35% over four years.
After the news was released, Boeing (BA. US) fell nearly 3% in pre-market trading to $152.5. According to statistics, Boeing's stock price has fallen by about 40% since the beginning of this year, setting a record for the worst annual return rate since 2008.
We are still on strike
For Boeing, the 23rd of this month is particularly important. On that day, Boeing released its latest financial report, and both the CEO and CFO need to explain Boeing's current predicament.
On the same day, Boeing workers also voted on a temporary agreement previously reached between the two parties. In short, after the White House intervened, Boeing and IAM reached a temporary agreement on a new contract. Boeing promised a 35% salary increase over four years, and in addition to the increase, the agreement guarantees at least 4% bonus per year. If workers agree, they will also receive an additional $7000 bonus.
After the vote count, Holden said succinctly, "We are still on strike
Last month, striking workers overwhelmingly (94%) rejected an initial agreement proposal. Although the opposition has relatively decreased, it is still a major setback for Boeing.
The shutdown that began on September 13th has forced Boeing to suspend production of 737, 767, and 777 aircraft at its manufacturing center in the Seattle area for over a month, putting pressure on Boeing's financial situation and receiving warnings from credit rating agencies that the company's rating may be downgraded to junk.
As mentioned earlier, Boeing workers are still angry about the failure to restore their fixed benefit pension plan. Holden said, "For many union members, losing pensions remains at the core of the problem. We will put all the cards on the table and see what Boeing can offer to replace the pension plan
This strike is Boeing's first large-scale labor dispute in 16 years. Boeing's technical workers are demanding a 40% salary increase and better retirement benefits due to their dissatisfaction with slow wage growth over the past decade while senior management has received generous returns.
Charles Fromong, 59, a machine tool repairman in Boeing's military aircraft division, said, "I agree to sign a fair contract. The strike is just a byproduct of Boeing not paying its employees what they deserve
Yves Doz, a global technology and innovation professor at INSEAD who has been studying Boeing for many years, told First Financial reporters that the cyclical nature of the civil aircraft market has been strong for decades. The fluctuation of demand has caused peaks and valleys in engineering and production demand. Over time, as demand decreases, cost conscious Boeing increasingly adopts layoffs. "Many experienced workers and engineers are laid off, but when demand rebounds, Boeing finds that they can no longer be hired
Boeing says it still wants to manufacture new aircraft
In fact, prior to the labor dispute, Boeing had experienced a surge in revenue due to an increase in jet aircraft deliveries.
Boeing Chief Financial Officer Brian West stated that due to the near cessation of this activity, the company expects to consume approximately $4 billion in cash in the fourth quarter, similar to cash outflows earlier this year. This will bring Boeing's total cash outflow to around $14 billion in 2024, the worst performance since the pandemic paralyzed air travel in 2020.
Meanwhile, it is estimated that labor disputes result in Boeing losing approximately $100 million in revenue per day. Otterberg has taken a series of cost cutting measures to resist the impact of the strike, including a 10% layoff and other measures such as hiring freezes and travel bans. Boeing has experienced a series of crises since the beginning of this year, and the senior management has also made adjustments. Ultraberg took over as CEO in August.
Otterberg has announced its latest plan, which includes rebuilding a culture of management that is close to action to prevent "problem escalation". He also resumed a detailed business review with the aim of identifying operational failures before they escalate into a comprehensive crisis. While striving to stabilize the business, he insists that Boeing cannot lose its focus on manufacturing new aircraft.
Boeing is an aircraft company, and at the appropriate time in the future, we need to develop new types of aircraft, "Ultraberg said in a speech to investors.
Boeing's latest financial report released on the 23rd showed that the company's third quarter revenue decreased by 1% year-on-year to $17.84 billion, with a net loss of $6.174 billion.
This income level is lower than analysts' expectations. It is reported that Boeing's two largest departments are facing difficulties this quarter. Among them, the operating loss of the commercial aircraft division is about 4 billion US dollars, as the company announced another delay in the production of its first 777X jet airliner and formulated a shutdown plan for the 767 freighter.
Boeing's defense and space business suffered a loss of $2.38 billion, mainly due to cost overruns on fixed price contracts for KC-46 tanker, Starliner spacecraft, and other projects.
This time, Ottoberg attempted to paint a roadmap for Boeing's revival, filled with optimism from customers and employees that the company would like to achieve success. He said that Boeing still has a backlog of aircraft orders worth over $500 billion, which will help the company's recovery.
Ottoberg also extensively elaborated on how to change Boeing's corporate culture, calling on people to take pride in past achievements, establish a sense of shared destiny, and promote cooperation. This has undergone a shift in tone and strategy compared to the focus on shareholder returns and cost control advocated by other leaders of Boeing over the past 20 years.
Rob Stallard, an analyst at Vertical Research Partners, said, "Ultraberg's evaluation is encouraging because Boeing has never been willing to admit that it has problems, let alone truly solve them
Dong Si told First Financial reporters that Boeing acquired McDonnell Douglas in 1997, "but the management team of McDonnell Douglas did not quietly leave. In fact, as we have witnessed firsthand in other mergers, stronger and more capable managers in weaker companies squeezed out more gentlemanly leaders in larger companies." He explained that the result was that Boeing's idealistic engineering team was ultimately managed by McDonnell Douglas' veterans. These people are accountants, financial directors, and other management personnel who are obsessed with cost saving and accustomed to managing companies with meager budgets. They are also very sensitive to the wealth of shareholders.
For the consideration of risk control and development costs, they recruited partners who bear risks to jointly invest in new aircraft projects, develop and produce new models. The partners will share the development costs and work, and then produce the components of the aircraft. These components include non critical parts (such as cabin furniture), as well as larger and more critical parts (such as wings, wings, and even the entire fuselage). "He said that after acquiring McDonnell Douglas, Boeing hopes to minimize its own costs and investments. To this end, Boeing has introduced new risk sharing partners from Japan, the United States, Italy, South Korea, and other countries where the aviation industry has not yet had close ties with its competitor Airbus. This means that Boeing can minimize its own investment and focus on overall system integration and final assembly, subcontracting the manufacturing of aircraft structures to partners.
Ottoberg stated that restoring the balance sheet will be a necessary condition for Boeing to consider the next commercial aircraft. Since the launch of the 787 aircraft 20 years ago, Boeing has not undertaken any new research and development projects, which is a risky gamble considering the huge investment involved. Boeing is six years behind schedule in certifying the first 777X aircraft, and the commercial debut of the model has been postponed until 2026.