Boeing’s 33,000 machinists seem increasingly likely to strike as soon as next Friday, a move that could bring the manufacturer’s operations in the Puget Sound region to a grinding halt.
But a strike, should it occur, could have deeper impacts: potentially throwing Boeing’s planned 737 production recovery off course, further frustrating customers, creating fresh financial pressure, and even disrupting long-term strategic goals.
“Unless Boeing caves to absolutely all the union’s demands… the union kind of has to go on strike as a show of force,” said Bloomberg Intelligence senior analyst George Ferguson during a 4 September webinar. “I see a strike. I think it’s relatively short.”
A walkout by members of the International Association of Machinists (IAM) is not unavoidable – the union and Boeing continued negotiating this week in Seattle – but time is running out.
The union’s current employment contract expires on 12 September, the day members are expected to vote on whether to approve Boeing’s last and best offer for a new deal.
“In one week, thousands of IAM machinists will gather in our union halls to cast a vote that will shape our future,” the union said on 5 September. “We are down to the wire, and the company’s final offer is coming soon.”
If members reject that offer, they will strike the following day, 13 September, says Jon Holden, president of the IAM’s local District 751.
The IAM represents workers at Boeing’s 767 and 777 production site in Everett and 737 assembly facility in Renton, plus smaller work groups in Moses Lake, Portland and California. However, the company’s 787 production site in North Charleston, South Carolina – a so-called right-to-work state – is not unionised.
Boeing has not detailed how it might respond to a strike. It declines to comment about possible impacts, reiterating a previous statement saying it continues bargaining “in good faith” and remains confident that a deal can be reached.
But analysts suspect a strike would cripple production in Renton and Everett, with work there likely grinding to a halt.
“It is not possible” for the sites to operate during a walkout, aerospace analyst Michel Merluzeau with consultancy AIR says.
Whether during a strike Boeing could deliver some 737s from its inventory of finished aircraft – perhaps those already issued airworthiness certificates by the Federal Aviation Administration – remains unclear, though some experts doubt even those shipments would be possible.
And even though it is non-unionised, they suspect the North Carolina 787 site could suffer some operational impacts due to its reliance, to a small degree, on work happening in Everett.
Boeing’s suppliers, many still recovering from recent upheaval, would also likely feel pain.
A strike might also prompt Boeing to trim its 737 “master schedule” – which dictates supply chain rates – from the current monthly target of 31 aircraft to 21-26, says Alex Krutz, managing director at aerospace and defence advisory Patriot Industrial Partners. Boeing might also temporarily – perhaps for a month – stop accepting inbound parts in an effort to preserve cash.
“There can, and probably should be, a reset for realistic expectations,” says Krutz.
He thinks most suppliers can weather an IAM strike but warns a “small segment” might face liquidity challenges if a stoppage exceeds 90 days, in which case Boeing might need to step in with financial assistance.
The union declines to comment on the state of negotiations, but says: “The company has the power to do the right thing and meet us where we need to be. Their actions will determine the outcome. We are moving in the right direction, but we’re not there yet.”
The IAM’s members previously walked out for eight weeks in 2008 before hammering out the contract that expires next week. The parties had extended that deal in 2011 and 2014, but the union says it did so under threat from Boeing to move production out of the Puget Sound region.
“We are coming off a long 10-year extension with stagnated wages and increased medical costs while experiencing the highest inflation in over 40 years,” the IAM says.
The union comes to the table this time intending to make up lost ground. It is seeking 40% pay raises, improved retirement benefits, medical plans that cost less to members, and a commitment from Boeing to produce its next commercial aircraft in the Pacific Northwest.
For comparison, last year the IAM won a 34% pay bump for workers at Spirit AeroSystems, which Boeing is now working to acquire.
Analysts see a strike as difficult to avoid because they view Boeing as unlikely to easily acquiesce to the IAM’s high demands. The airframer’s new chief executive Kelly Ortberg is generally viewed as having potential to improve the company’s relationship with the union, and perhaps to help cool the tone of negotiations, but not to fundamentally influence the outcome.
Analysts think a strike, should it happen, might last two to four weeks, although they say a longer duration stoppage cannot be ruled out.
“If the strike goes long… and the climate becomes acrimonious between the IAM and the leadership, I think the [Boeing Commercial Airplanes] leadership” will be forced out, says Merluzeau. He also envisions backlash from key customers.
In the end, analysts expect the IAM will secure notable pay gains – possibly even the 40% target – more generous healthcare terms, and an agreement by Boeing to base at least a substantial degree of future aircraft work in the Puget Sound region. However, some observers suspect the manufacturer will stop short of committing to fully assemble its future jets there, citing high costs.
Bloomberg estimates the contract could cost Boeing an additional $750 million to $1.5 billion annually.
POSTPONED RECOVERY?
Much about Boeing’s immediate recovery and its ability to execute long-term plans may rest in the balance.
Boeing had entered 2024 on a somewhat positive note, with analysts optimistic that the company’s recovery, specifically its 737 delivery pace, would accelerate as the year progressed.
But the 5 January in-flight failure of a 737 Max 9’s door-plug sent everything askew. The result of manufacturing errors in Renton, that event sparked intense backlash from lawmakers and regulators. It prompted Boeing to haul back 737 production and to embark on a plan to improve quality and safety. The company’s 787 production rate has also been depressed amid quality concerns.
Consequently, Boeing lost $1.8 billion during the first half of 2024. More bad news came in August when Boeing confirmed grounding its 777-9 test fleet due to a failed engine-related structural component.
With the first half of the year shot, analysts still hope the long-awaited recovery will take root in the second half of 2024, with Boeing ramping 737 production and deliveries, generating more cash.
A walkout would throw a spanner into the works.
“An extended strike may thwart a goal of 38 737s a month by year-end,” noted a 6 September Bloomberg report.
Lingering consequences from even a short strike could possibly disrupt 737 production into early 2025: just restarting the lines would be “a logistical mountain to climb”, says Krutz.
If Boeing continues receiving parts from suppliers during a stoppage, it would accumulate a large inventory that would be laborious to process, he adds. “There will be continued lower production while [Boeing is] sorting through and… reorganising the logistical aspects of the production system.”
Slower production would also mean fewer deliveries – and hence less cash coming in the door, possibly creating financial pressure.
Boeing’s operation burned $7.3 billion of cash during the first half, and the company ended June with $10.9 billion in cash and equivalents, which Bloomberg says is roughly the minimum the company needs to operate.
If cash reserves continue dwindling, Ferguson thinks Boeing may need to raise more money, either by selling stock, thereby diluting the value of existing shares, or by taking on new debt,which raises the risk of a credit downgrade.
“I just don’t think Boeing can afford a very long strike,” he says. “They need a really strong second-half recovery. They need to minimise the amount of cash they burn.”
Merluzeau warns the fallout from a strike could linger at the company for years.
More than anything, he thinks Boeing needs a period of stability so it and employees can re-master the art of safe and efficient high-rate production. A strike would disrupt that progress and could create conditions under which fresh quality problems might spring up, Merluzeau says.
Such factors could further prolong the very existence of the Renton facility by delaying Boeing’s ability to wrap up production there. In turn, the launch of a clean-sheet 737 replacement could be pushed back, and financial stress might influence how it designs and produces that next jet, perhaps prompting it to outsource “larger work packages and the associated integration work”.
“The strike would further deepen the organisation’s inability to time its product launch optimally,” Merluzeau says. “Boeing’s financial situation is indeed going to affect how they design and source and assemble” the next aircraft.
