Kelly Ortberg’s debut as CEO of Boeing Co. is marked by suspense as the company’s employees cast their votes on whether to accept Boeing’s latest proposal and put an end to a five-week strike. On the same day, Boeing will release its earnings, adding to the day’s uncertainty.
Boeing has reached a tentative agreement with the union representing 33,000 striking workers, proposing a 35% pay increase over four years—an unprecedented wage hike. However, the final decision rests with the employees, whose acceptance is not guaranteed. In September, workers rejected a deal endorsed by labor leaders, and this time union negotiators have not backed Boeing’s proposal.
Votes need a simple majority to pass, and the outcome will be revealed late in the day in Seattle, Boeing’s primary manufacturing location. Investors, employees, and executives will thus be left in suspense post-earnings announcement, unsure if Boeing can start recovering or if it will continue facing sluggish production and depleted cash reserves.
The strike poses a significant challenge for Ortberg, who took over amidst several intertwined crises in early August. He has already announced a reduction of the workforce by 10% and has developed a $25 billion refinancing strategy aimed at stabilizing the company over the next three years.
Aerospace analyst Richard Aboulafia mentioned that a positive contract vote would be a decisive step for Ortberg, potentially mitigating the dangerous situation the company faces. The strike threatens Boeing’s credit rating, with a downgrade to junk likely increasing borrowing costs and limiting capital access. The crisis also affects Boeing’s delicate supply chain, with possible staffing cuts hampering efforts to accelerate factory operations post-strike.
Efforts by Ortberg to reshape Boeing’s internal culture and relationships with staff have been impacted by the strike. The announcement of job reductions and other measures risks further straining relationships between management and the workforce.
Boeing’s crisis of confidence extends beyond just investors, as the company’s stock has dropped 41% this year. Whistleblower reports have emerged, detailing unauthorized work and defects, suggesting management has prioritized production and financial targets over quality and diligence.
Ortberg, who was called out of retirement following a series of crises that led to the departure of his predecessor, aims to foster a sense of solidarity and shared destiny within the company. He has also become more involved in day-to-day operations by relocating to the Seattle area and spending more time on-site at the factories.
He has considered significant structural changes, indicating that the company’s resources are overstretched. Analysts suggest that Boeing could raise up to $20 billion by selling non-core assets such as its Jeppesen navigation subsidiary, as noted by Cai von Rumohr from TD Cowen on October 1.
The strike has revealed internal divisions within Boeing, where executive focus on returns has contrasted with workers whose wages have been eroded by inflation and whose pension plans were disrupted by a contentious 2014 contract. This backdrop has led many employees to demand a considerably improved deal.
There is uncertainty about whether the latest offer will succeed, despite encouragement from the White House. Leaders of the International Association of Machinists and Aerospace Workers District 751 have abstained from advising members on how to vote on the agreement, which does not restore pensions.
Boeing will announce its earnings before the US markets open on October 23. Previously, when the job cuts were disclosed on October 11, Boeing also revealed key metrics including quarterly revenue misses and $5 billion in charges related to various programs.
Additionally, Boeing reported a cash outflow of $1.3 billion for the period, contributing to over $7 billion drained in the previous two quarters. With primary results already disclosed, Ortberg is expected to have more freedom to discuss his plans moving forward.
Restarting main commercial factories around Seattle would ease Boeing’s recovery efforts, ending a strike that, by some estimates, has been losing them around $100 million in daily revenue. However, the process of rebooting the assembly lines will be gradual, given the complexities involved in managing an extensive parts supply chain, especially amidst current disruptions.
Douglas Harned, an analyst at Bernstein, suggested that even with a late October strike resolution, deliveries of newly produced aircraft would remain stalled into November. Drawing from past strike experiences, Harned believes recovery will require time. “Boeing is not going away,” he stated in an October 17 report, but it remains unclear what the company will look like in five years.
