If you have Boeing (NYSE: BA) Stocks, maybe you’ve been glued to the news for too long Labor strike by the Boeing Machinists Union, which is now entering its fifth week.
And you may have already heard the latest bad news: after two days of renewed talks with… Union negotiators From the International Association of Machinists (IAM) – talks that seemed to go absolutely nowhere – Boeing broke off negotiations entirely, withdrew its “best and final” offer of a 30% salary increase (spread over four years), and walked out. As Stephanie Pope, CEO of Boeing Commercial Airplanes, explained, “The union has made non-negotiable demands that go far beyond what we can accept if we want to remain competitive as a company.”
In response, IAM complained that Boeing “refused to improve wages, retirement plans, and sick leave,” according to a report by CNBC. On Thursday, Boeing filed an “unfair labor practices” complaint with the National Labor Relations Board, accusing IAM of engaging in a failure to negotiate in good faith.
What will happen next?
Now, this story supposedly does not end here. At some point, Boeing has to come back to the table. It simply cannot leave its 737, 767, and 777 production lines closed indefinitely.
Depending on who you ask, Boeing loses between $1 billion a week (he says… The Washington Post) to $1 billion per month (according to CNBC) as this strike continues. Previous estimates ranged between $100 million and $150 million each day (Which amounts to $3 billion to $4.5 billion per month).
Which guess is correct? We probably won’t know until Boeing reports its third-quarter earnings (which should include results from the first two weeks of the strike). At the same time, it is in the union’s interest to make Boeing’s losses appear as large as possible, to increase pressure on management to agree to wage increases and pension demands. Conversely, it is in Boeing’s interest to make losses appear reasonably small, to convince workers that it is perfectly content to wait for them.
So, whatever estimates you hear, be sure to take them with a pinch of salt.
However, here’s what we know for sure: according to data from Standard & Poor’s Global Market IntelligenceBoeing lost $1.8 billion during the first half of this year. It has actually been losing money for the past six years in a row — even before the pandemic. Additionally, Boeing has approximately $58 billion in debt on its balance sheet, and the interest and principal on that debt must be paid whether or not Boeing builds planes as the strike continues.
So, whatever the strike costs Boeing, it adds to the financial pressures the company was experiencing long before the strike began. In what appears to be a first of its kind, a local Seattle network — NBC affiliate King 5 — suggested Thursday that this strike could end with Boeing declaring bankruptcy.
How does Boeing survive this blow?
Admittedly, this is the worst-case scenario. When asked about the possibility of filing for bankruptcy, a Boeing spokesperson declined to comment — which doesn’t exactly inspire confidence.
However, it should be noted that even if this strike continues for five, six, seven weeks or more, Boeing has options.
For example, in a note issued on Wednesday, investment bank Wells Fargo Boeing expected to try to sell shares to raise between $10 and $15 billion to compensate for the money lost due to the strike. The company may also simply take out loans to cover its cash needs.
This certainly wouldn’t be great for Boeing’s credit rating, adding more debt on top of its already nearly $60 billion debt load. This may be one reason why Standard & Poor’s alerted Boeing of a possible downgrade to its credit rating on Thursday. Boeing’s current rating is “BBB-,” which may sound bad, but it is still considered investment grade. Now the rating agency is considering downgrading Boeing’s credit rating to BB – which sounds better, but is actually a junk bond rating.
But it is still an option.
It’s also worth noting that with Boeing’s most serious difficulties during the pandemic, when demand for airplanes nearly dried up around the world, Boeing did both of these things. The company received tens of billions of dollars in loans. and Boeing issued a lot of new stock. In 2020 alone, Boeing issued 20 million shares, and has issued an additional 33 million shares in the years since as it continues to lose money.
All of this is to say that it’s not ideal that Boeing would need to raise a lot of money, and sell a lot of stock, to survive this strike — but it has done that before, and it can do it again if it needs to. . So ultimately, I don’t think the stock represents a bankruptcy risk at this point.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Rich Smith He has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has Disclosure policy.
Boeing strike enters fifth week: How bad can it get? Originally published by The Motley Fool
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