(Bloomberg) — The crisis engulfing Boeing Co. took a dramatic turn after negotiations to resolve the nearly month-long strike collapsed and S&P Global Ratings warned it could downgrade the planemaker’s credit rating to junk.
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Both the embattled company and the International Association of Machinists and Aerospace Workers blamed each other for the predicament. Boeing said the union made “non-negotiable demands,” while IAM said the company was “firmly determined to stand on its non-negotiable offer.”
The impasse leaves Boeing with no clear path forward to overcome the debilitating strike, which has halted production at its main commercial manufacturing base on the US West Coast. Even before the talks collapsed, S&P highlighted the urgency of a solution by pointing to an estimated $10 billion cash burn this year that will likely require additional funding to cover daily cash needs and debt maturities.
“Unfortunately, the union did not seriously consider our proposals,” Stephanie Pope, who runs Boeing’s commercial aircraft unit, said in a memo shared by the company. “Instead, the union has made non-negotiable demands that far exceed what can be accepted if we are to remain competitive as a company.”
Boeing shares were down 2.7% as of 9:42 a.m. in New York on Wednesday. The stock is down nearly 41% this year through Tuesday’s close, losing more than $60 billion in market value as the company rebounds from one crisis to the next.
Boeing, which has now been withdrawn, offered the contract, made two weeks ago in a direct approach to workers, a 30% pay rise and enhanced retirement benefits.
Boeing and IAM District 751 leaders have been in an impasse over pay and pensions since the union’s 33,000 members quit their jobs shortly after midnight on Sept. 13. The company’s first major strike in 16 years has taken a toll on its finances, costing Boeing $100 million a day in lost revenue, according to TD Coin estimates.
With liquidity dwindling rapidly while its debt load swells, Boeing Co. is considering selling at least $10 billion in new stock once it knows the full extent of the financial damage from the business shutdown, people familiar with the matter said last week.
Boeing said maintaining its investment-grade credit rating is an important goal. Companies with junk ratings typically face higher borrowing costs than their investment-grade counterparts. Boeing has $4 billion in debt due in 2025, and also $8 billion due in 2026, according to credit ratings agency Moody’s, which said last month it was considering downgrading Boeing to junk.
The company launched a savings program that includes worker furloughs, a wage freeze and a travel ban. “We do not take these impacts lightly as we take action and consider next steps,” Pope said in her note.
The two sides only resumed negotiations, supervised by a mediator, again this week after two weeks of stalemate. Throughout the strike over the past weeks, the parties made blunders that angered rank-and-file members and complicated efforts to resolve the dispute.
Local union IAM leadership has backed the company’s initial offer of a 25% pay rise over four years, far less than many members had expected as compensation for recurring annual pay increases below the rate of inflation. The offer also eliminated the annual bonus. IAM members overwhelmingly rejected the offer and voted to strike.
Boeing later misjudged the union’s decision, bypassing leaders to make a direct offer to workers via the media with an ultimatum of approval within days. The terms included a 30% wage increase over four years, reinstating bonuses and increasing the company’s contribution to workers’ 401k retirement plans.
The move backfired by bolstering support for local labor leaders and encouraging members to stick to their demands for higher wages and better retirement benefits.
In a statement after the collapse of the latest talks, IAM said Boeing had refused to propose any further pay increases or reinstatement of the defined benefit pension.
“By refusing to bargain on the offer, the company made it difficult to reach an agreement,” the union said. “Your negotiating committee attempted to address multiple priorities that could have resulted in an offer we could put to a vote, but the company was not willing to move in our direction.”
–With assistance from Olivia Raymond.
(Stock updates in fifth paragraph.)
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