Boeing's Labor Dispute Escalates, Files Unfair Labor Practice

Strike at Boeing Factories Continues

The labor strike at Boeing's commercial jet factories is nearing its one-month mark with no resolution in sight. This ongoing labor dispute is posing a serious threat to Boeing's credit rating, which is at risk of being downgraded from investment grade to junk status by multiple credit rating agencies due to dwindling cash reserves.

Boeing Files Unfair Labor Practice Charges

Quartz News has reported that Boeing has filed unfair labor practice charges with the National Labor Relations Board (NLRB) against the International Association of Machinists and Aerospace Workers. Boeing alleges that union bosses have not been negotiating in good faith on behalf of the 33,000 striking union members.

Boeing's Statement

In a statement, Boeing claimed that the IAM negotiators did not seriously consider their latest offer, which included a 30% wage increase over four years, an increase from the previous 25%, along with other benefits. Boeing further stated that the union's public narrative is misleading and is hindering the process of finding a solution for their employees. The company accused the union of engaging in a pattern of bad faith bargaining and retracted its "best and final" offer on Tuesday.

Response from Boeing and IAM Leaders

Stephanie Pope, the President and CEO of Boeing Commercial Airplanes, stated in a memo that the union did not seriously consider their proposals and instead made non-negotiable demands that far exceeded what the company could accept while remaining competitive. IAM leaders, on the other hand, stated that the negotiations broke down when Boeing refused to increase wages over the contract's lifespan or reinstate the defined benefit pension.

Impact of the Strike on Boeing

As the strike approaches its one-month mark, Boeing continues to face challenges. S&P Global Ratings placed the struggling planemaker on CreditWatch negative, citing increasing risks of its investment-grade credit rating being downgraded to junk. S&P estimates that the strike is costing Boeing $1 billion per month and expects the target of producing 38 Max jets per month will be delayed until mid-2025.

Boeing's Financial Struggles

There are concerns that Boeing will need to raise money through public equity markets as its cash balance dwindles. S&P anticipates that Boeing will end 2024 with a cash balance below its $10 billion target if the strike continues through the fourth quarter. Boeing also has approximately $4 billion of debt maturities due in April 2025. S&P believes the company will need to seek external capital to meet these demands and that the company remains exposed to higher-than-expected cash usage and adjusted debt for the next year or two, which could further delay the expected recovery in its credit measure to levels consistent with the rating.

S&P's Conclusion

S&P concluded that the placement of Boeing on CreditWatch with negative implications reflects their view that they could lower their ratings on Boeing if the strike continues, increasing costs and delaying the company's recovery in aircraft production and cash flow generation. They could lower ratings if the company fails to preserve its target cash balance, fund operating and working capital, and meet debt maturities without increasing leverage. S&P intends to resolve the CreditWatch placement by the end of the year.

Wall Street's Speculation

Wall Street desks following this story are left with a question: Which will happen first—Boeing's credit downgrade from investment grade to junk or a deal with the IAM?

Bottom Line

The ongoing labor dispute at Boeing is not only affecting the company's operations but also its financial stability. With the strike nearing its one-month mark and no resolution in sight, the company's credit rating is at risk of being downgraded. The situation poses an interesting question: Will Boeing's credit rating be downgraded first, or will they reach an agreement with the IAM? What are your thoughts on this matter? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.