Boeing Weathers Serious Turbulence Amid Worker Strike

Days after industrial workers in its Pacific Northwest plants voted to approve a labor strike, Boeing instituted a hiring freeze.

Photo of a 777F Boeing plane
Photo by Luca Cavallin via Unsplash

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

Murphy’s law, the adage stating what can go wrong will go wrong, is named after an aerospace engineer. It’s as good an explanation for what’s going on at Boeing lately as any other. 

Days after industrial workers in its Pacific Northwest plants voted overwhelmingly to approve a labor strike, the beleaguered plane-maker on Monday instituted a hiring freeze elsewhere across its massive business. It’s an emergency maneuver to avoid a potentially devastating credit downgrade. 

Skyfall

The good times, they don’t last. Especially if you’re in the midst of one of the worst corporate crises of the 21st century. Two Sundays ago, Boeing struck a deal for a new labor contract with union leaders at the International Association of Machinists and Aerospace Workers chapter, representing the 33,000 workers in its Puget Sound industrial hub. The tentative agreement was seen, initially, as a victory for a company desperate to avoid a work stoppage, with union leaders enthusiastically recommending its approval. Union members, however, disagreed. Enthusiastically.

Last Thursday, nearly 95% of union members voted to reject the contract — which would’ve brought a 25% pay raise over four years, below the union’s initial 40% demand — while 96% voted to authorize their first strike since 2008. The contract did also include an olive branch to workers in the form of a guarantee that production of the company’s next commercial jet would be built in the region, though details in the fine print included a stipulation that the promise would only be honored over the next four years, making it far from ironclad. Still, executives were blindsided by the rejection, sources told Reuters. “They probably didn’t think that we had enough people for the strike,” Boeing mechanic Kushal Varma told Reuters. “But this is a movement of people who are willing to put their livelihoods on the line to get what’s fair.”

Now, the company is moving quickly to avoid what could be a costly tailspin:

  • In a memo seen by Bloomberg, Chief Financial Officer Brian West detailed several major cost-cutting measures to be implemented, including an immediate hiring freeze, the pausing of pay bumps tied to promotions, the halting of non-essential travel, and, crucially, a major cutback in supplier expenditures.
  • Looming over his head is a possible downgrade on the company’s investment-grade debt into junk territory from Moody’s, as detailed in a memo from the ratings agency on Friday. Boeing has $45 billion in net debt, including $4 billion of debt due next year and $8 billion in 2026, according to Moody’s.

Indefinite Delay: Boeing and union leadership are set to return to the negotiating table this week. In the meantime, the strike could cost the company up to $500 million in cash each week, RBC Capital Markets analyst Ken Herbert told Bloomberg. When will Murphy’s law stop picking on Boeing?