Kelly Ortberg’s first earnings as Boeing CEO gained an element of suspense as workers vote on the same day whether to accept the plane maker’s latest proposal and end a five-week strike.
Boeing and the union representing 33,000 striking members have reached a tentative new agreement for a 35% pay increase over four years, an unprecedented pay increase.
But hourly workers have the final say with their vote on October 23, and approval is far from certain. They overwhelmingly rejected the deal that was blessed by labor leaders in September. This time, union negotiators did not support the proposal.
The outcome of the vote, which requires a simple majority, will not be known until late in the day in Seattle, Boeing’s main manufacturing hub. That means investors, employees and executives will be left hanging for hours after earnings, unsure if Boeing can finally get started on the road to recovery — or will be forced to continue to flounder with weak production and dwindling cash reserves.
The strike has become a defining episode for Ortberg, who inherited a tangle of crises when he took office in early August. He has already announced a 10% workforce cut, which will cut across all ranks of the planemaker, and has laid out the first lines of a $25 billion refinancing package aimed at stabilizing the company in the next three years.
“If there was a perception that its first couple of months were somewhat unsuccessful, this would be a great step to change that,” Richard Aboulafia, an aviation analyst at Aerodynamic Advisory LLC, said of the contract vote. “This will de-risk a very dangerous situation.”
The manufacturer faces the risk of having its credit rating downgraded to junk if the outage continues, a move that would increase borrowing costs and hinder its access to capital. The pressure extends to Boeing’s fragile supply chain, where any staff reductions could hurt efforts to get factories up to speed again after the conflict ends.
Ortberg’s efforts to reset Boeing’s culture and relationships with employees were damaged by the strike. The announcement of the job cuts, along with a wide range of other measures, threatens to drive a wedge into the already fragile relationship between senior management and workers at the company.
Boeing’s crisis of confidence doesn’t just extend to investors who have pushed the stock down 41% this year. The company has been subjected to whistleblower accounts recounting years of unauthorized work and defects alleging that management prioritized production and financial goals over diligence and proper manufacturing.
Successive crises
The new CEO, who joined out of retirement following successive crises since the start of the year following the departure of his predecessor, sought to galvanize a sense of solidarity and common destiny. He also made sure to be closer to the action, purchasing a house in the Seattle area and spending more time in the factory workshop.
Ortberg has made clear that he is considering structural changes, telling employees that resources are spread too thin. The manufacturer could make as much as $20 billion from the sale of a range of assets that are not essential to its main commercial and defense businesses, such as its Jeppesen navigation subsidiary, analyst Cai von Rumohr of TD Cowen wrote in an Oct. 1 report.
The strike exposed fault lines within the company where top executives had long been focused on returns, while mechanics saw their wages eaten up by inflation and their pension plan evaporated under a controversial contract in 2014. So many employees vowed to wait for a much better deal.
For this reason, it is not certain that the latest offer, reached with the help of an encouraging push from the White House, will succeed. Leaders of the International Association of Machinists and Aerospace Workers in District 751 did not offer recommendations on how members should vote on the tentative agreement, which does not restore pensions.
Boeing will release its earnings before markets open in the US on October 23. The company did disclose some key metrics when it announced the planned job cuts on October 11, including quarterly revenue that beat analysts’ estimates and a $5 billion charge related to various programs. .
Taking time
Boeing also said it had cash outflows of $1.3 billion in the period, adding to a drain on more than $7 billion in the previous two quarters.
With the key results already in, Ortberg will have more room to address his plans for Boeing. Turnaround efforts will be easier once key commercial plants around Seattle restart, ending a strike that has cost them about $100 million a day in lost revenue, according to some estimates.
However, restarting assembly lines will be a gradual process, given the complexity of coordinating hundreds of thousands of parts while hiccups continue to spread across the aerospace and defense supply chain.
Even a strike decision in late October would mean deliveries of newly produced aircraft would remain essentially shut down until November, said Douglas Harned, an analyst at Bernstein. He said that if strikes in the past were a measure, recovery would take time.
“Boeing is not going away,” Harned wrote in an October 17 report. “But it is not clear today what the company will look like in five years.”