Boeing Shares Drop Following Workers' Rejection of Latest Contract Offer

Boeing shares dropped on Thursday following the rejection of the company’s latest contract offer by striking workers, raising concerns over the planemaker’s financial stability and its ability to restore its reputation. Approximately 64% of Boeing’s West Coast factory workers turned down the deal, halting production for most of the company’s commercial aircraft, including the crucial 737 MAX model.

The rejection caused Boeing shares to fall by more than 2%, while key suppliers like Spirit AeroSystems saw a nearly 4% drop amid warnings of possible layoffs and furloughs. Honeywell CEO Vimal Kapur called the situation “challenging” and unfortunate, as the strike's impact ripples across the aerospace sector.

The rejected contract proposal included a 35% wage increase over four years but lacked a defined pension plan, which has been a significant demand from the striking workers. The dispute over pension benefits, which were removed a decade ago to preserve jobs in Washington state, has cast doubt on how long the strike could last, with rating agencies like S&P Global watching closely for a potential credit downgrade for Boeing.

Ben Tsocanos, aerospace director at S&P Global Ratings, warned that an extended strike could intensify Boeing’s financial woes and increase the likelihood of a downgrade. Analysts believe Boeing is unlikely to reinstate the pension plan due to its high cost. However, others argue the company will need to offer a better deal to avoid further delays and expenses.

Nick Cunningham, an analyst at Agency Partners, suggested Boeing will have to make a higher offer, as it’s not in a strong position to prolong the standoff. Bank of America analyst Ron Epstein echoed this, predicting further wage concessions will be necessary to end the strike, which has now stretched into its 40th day.

As the strike continues, Boeing’s first major labor stoppage in 16 years has led Wall Street analysts to speculate on how the dispute over pensions and wages will unfold. Some believe that increasing the wage offer to meet the union’s 40% demand could resolve the issue. However, online discussions show workers remain divided, with some machinists determined to press on, citing long-standing grievances over the pension deal made a decade ago.

Boeing’s ongoing cash burn, compounded by the strike, is muddying efforts to secure refinancing to stabilize operations. The company recently filed paperwork to raise as much as $25 billion to avoid a credit downgrade and also secured a $10 billion credit line. While some analysts believe Boeing would prefer to wait until after the strike to tap the market, the pressure to resolve the labor dispute is mounting.

JPMorgan analyst Seth Seifman noted that a capital raise before the strike’s resolution can’t be ruled out, depending on market conditions. Boeing’s struggles come on the heels of multiple crises, including safety issues, quality concerns, and industry-wide shortages of parts and labor, overshadowing a reported $6 billion loss for the third quarter.

Boeing leadership, led by Chief Financial Officer Brian West, has acknowledged that the company is likely to continue bleeding cash into 2025. As Boeing works to regain its competitive edge against European rival Airbus, executives have outlined a recovery plan but warned that the turnaround will take time.