Sept 9 (Askume) – Boeing Co (BA.N) shares rose 3.7% on Monday after the company reached a tentative agreement with its largest union covering more than 32,000 workers , averting a potential strike.
They are the first major negotiations for new Chief Executive Kelly Ortberg, who took over a month ago to get the troubled plane maker back on track.
The proposed four-year deal was praised by unions as the best ever negotiated and cheered by investors.
However, this is far from being achieved.
Workers who build the company’s best-selling 737 commercial jet and other aircraft will vote on Sept. 12 and could go on strike as early as Sept. 13 if they reject the contract and support a work stoppage.
The tentative agreement with the union is a boost for Boeing as it tries to restore investor and customer confidence through regulatory scrutiny and increase production of its 737 Max after a door jammed on a nearly new 737 Max airliner in the middle of the year.
Since that incident, Boeing shares have fallen 37%, while the blue-chip Dow Jones Industrial Average (.DJI) has risen 7.7%.
As part of the tentative agreement, Boeing has pledged to build a replacement for its flagship 737 at its plant in the US Pacific Northwest if the program is launched within the four-year labor contract period, though the company has yet to announce a new model.
Boeing and rival Airbus AIR.PA are in the early stages of developing strategies to replace their best-selling single-aisle aircraft, which are expected to enter service in the late 2030s.
The contract terms included an overall 25% wage increase over four years, which was lower than the 40% pay increase requested by the International Association of Machinists and Aerospace Workers (IAM) union and reflected a recognition of Boeing’s difficult financial situation.
TD Cowen analyst Cai von Rumohr said in a note that salary increases are graded, with new hires and experienced employees getting the bulk of the raise to improve retention.
Jefferies analyst Sheila Kahyaoglu estimated the proposed hike would lead to a cash burn of about $900 million.
The transaction has not been completed yet
JPMorgan analyst Seth Seifman said workers could still reject the deal. There will be two votes on Thursday, one on the contract, which requires a 50% vote, and another on whether to strike, which requires a two-thirds vote.
“Laborers have influence and the views expressed on social media are highly unscientific and suggest some union members are unhappy with the terms of the contract,” Sefman said.
The strike authorization vote in July was supported by 99.9% of workers.
Last year, Boeing 737 fuselage supplier Spirit AeroSystems (SPR.N) was shut down after workers rejected a four-year dealThe factory’s production had to be stopped temporarily .
TD Cowen’s von Rumohr said: “Although unlikely, if IAM does attack, we think it is realistic to assume a strike duration consistent with the 51 days of the previous four attacks.”
He believes the 50-day strike has a cash flow impact of between $3 billion and $3.5 billion, at a time when Boeing is already burning cash because of rising costs in its defense business and a drop in 737 Max production.
