Boeing Faces Turbulent Times: Temporary Furloughs and Strikes Disrupt Production
By David Shepardson
(Multibagger) - Boeing Temporarily Furloughs Tens of Thousands Amidst Machinist Strike, Halts 737 MAX Production
Boeing (NYSE: BA) announced on Wednesday that it will temporarily furlough tens of thousands of employees following a strike by approximately 30,000 machinists. This strike, which began last Friday, has brought the production of Boeing's 737 MAX and other aircraft to a grinding halt.
CEO’s Statement on Furloughs
In an email sent to employees, Boeing CEO Kelly Ortberg stated, "We are initiating temporary furloughs over the coming days that will impact a large number of US-based executives, managers, and employees. We are planning for selected employees to take one week of furlough every four weeks on a rolling basis for the duration of the strike." Ortberg also revealed that he and other Boeing leaders would take a corresponding pay reduction during this period.
Impact and Negotiations
A spokesperson for Boeing confirmed that these furloughs would affect tens of thousands of employees. The company and the International Association of Machinists and Aerospace Workers were scheduled to resume contract negotiations on Wednesday, with federal mediators present. The union is demanding a 40% wage increase over four years, significantly higher than Boeing's 25% offer, which was overwhelmingly rejected.
Financial Implications
A prolonged strike could potentially cost Boeing billions of dollars, exacerbating its existing financial strain and posing a risk of credit rating downgrades, analysts have warned. This strike, now entering its sixth day, is Boeing's first since 2008 and follows a tumultuous year for the company, beginning with a January incident where a door panel detached from a new 737 MAX jet mid-air.
Ortberg reassured that Boeing would not take any actions that would inhibit its ability to fully recover in the future. "All activities critical to our safety, quality, customer support, and key certification programs will be prioritized and continue, including 787 production," he said.
Production and Financial Status
The strike has halted the production of Boeing's best-selling 737 MAX jets and its 777 and 767 widebody aircraft, delaying deliveries to airlines. On Monday, Boeing announced a freeze on hiring to cut costs, as its balance sheet is already burdened with $60 billion of debt. Prolonged strikes could further damage the company's financial health.
In a move to manage costs, Boeing has also ceased placing most orders for parts for all its jet programs, except the 787 Dreamliner, a decision that will negatively impact its suppliers. Boeing shares have plummeted about 40% this year but saw a slight uptick of 0.3%, reaching $156.86 on Wednesday afternoon.
Analysis for the Everyday Investor
Let's break this down so even those new to investing can understand:
- Temporary Furloughs: Boeing is asking many employees to take unpaid leave. This means less income for those employees and potential delays in aircraft production.
- Machinist Strike: About 30,000 workers are on strike, demanding higher wages. This strike has stopped the production of some of Boeing's most important airplanes.
- Financial Impact: The strike could cost Boeing billions, making it harder for the company to pay off its $60 billion debt. This financial strain might lower Boeing's credit rating, making borrowing more expensive.
- Stock Performance: Boeing's stock has dropped significantly this year, although it saw a minor rise recently. If the strike continues, the stock could fall further.
For everyday investors, this situation means Boeing might face more financial troubles ahead, which could affect its stock price and overall market performance. If you own Boeing stock or are considering buying it, keep a close eye on these developments as they will significantly impact the company's future financial health.