BOEING is expected to book more than US$1 billion in wage-related expenses from its proposed labour contract, analysts said.
About 33,000 workers will vote on the contract proposal on Wednesday (Oct 23), after work stopped for more than a month. Production of models, including its best-selling 737 Max narrow-body jets, has halted.
The vote also coincides with Boeing’s third-quarter results, in which it is expected to report a hefty loss.
Aerospace director at ratings agency S&P Global Ben Tsocanos said that the proposal was a positive step, as resolving the strike quickly was key to improving the company’s financial position and supporting the company’s rating.
The new contract proposal announced on Saturday includes a 35 per cent pay hike over four years, a US$7,000 ratification bonus, a reinstated incentive plan and enhanced contributions to workers’ 401(k) retirement plans, including a one-time US$5,000 contribution plus up to 12 per cent in employer contributions.
The new wage increase and the ratification bonus are an improvement over the previous offer, which was rebuffed by the striking workers.
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But the salary hikes have still fallen short of a 40 per cent pay rise over four years, which the labour union demanded.
JPMorgan analyst Seth Seifman said: “But will the members accept? We can’t say for sure, though it does seem to offer nearly all the union asked for.”
He estimated that the wage hikes might increase Boeing’s costs by more than US$1 billion, while Jefferies analyst Sheila Kahyaoglu expects wage-related expenses at about US$1.3 billion.
The agreement was reached after weeks of sometimes acrimonious discussions between Boeing and the International Association of Machinists and Aerospace Workers union, whose leadership faced fury from some members after endorsing the first offer from Boeing that most workers opposed.
Boeing announced plans to raise up to US$25 billion through stock and debt offerings and a US$10 billion credit agreement with major lenders, amid warnings of a downgrade by rating agencies and talks that made little progress.
However, even if the new contract is accepted by members, the plane manufacturer still faces the challenge of quickly restoring production to pre-strike levels once workers return.
RBC capital markets analysts said: “Based on our analysis of prior Boeing strikes, it has taken an average of six to 12 months after the conclusion of the strike for production rates to return to pre-strike levels. Moreover, the impact the strike has had on the already fragile supply chain is uncertain.”
The work stoppage has halted production of Boeing’s cash-cow 737 Max, and 767 and 777 wide-bodies.
Shares of Boeing were trading at US$161 in US premarket trading. If that level holds in regular trading, its shares would be at their highest since Sep 12, the day before the strike began. REUTERS
