Boeing starts to tick off its pre-flight checklist
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Robert Cyran
NEW YORK, Oct 21 (Reuters Breakingviews) -“It is hard to overstate the challenges we face,” Boeing’s BA.N boss Kelly Ortberg said earlier this month. Indeed, since 2018 the 737 jet maker has pled guilty to fraud, seen its stock sink 50%, fallen further behind rival Airbus AIR.PA, failed to retrieve astronauts stuck in space - and, recently, suffered a paralyzing worker walkout. Yet a newly unveiled labor contract could at least get Boeing back on the runway.
The 108-year-old U.S. industrial giant’s problems fall into three buckets: financial, cultural and technical. Boeing lumbers under some $60 billion of debt and is set to burn $10 billion in cash this year, adding to $27 billion incinerated between 2019 and 2023. This results from a sick culture that bred angry workers and poor quality. Some 96% of employees voted to strike last month. Continued incidents - like a door panel blow-out in January - prove the manufacturing issues that led to a government cap on production. Then there’s the technical challenge of developing a new jet.
For Ortberg, the top priority is ending a 38-day-old strike that S&P Global estimates costs $1 billion a month. A proposed 35% pay rise unveiled Saturday could do just that, bringing enough stability to carry out a planned equity raise. Combined with a new credit agreement, this up to $35 billion of financing should help to handle $12 billion of debt maturing through 2026.
True, workers must vote on the contract on Wednesday, and the agreement could cost $1 billion in year one, Jefferies analysts reckon. But Boeing is still one of only two global suppliers; its order backlog stands at $516 billion, or over 5,400 planes. Even a slight return to normality therefore provides a cushion. Free cash flow should reach $4 billion in 2025, according to LSEG estimates, improving from there. Carefully selling defense and space assets, which the Wall Street Journal reports the company is considering, would help further.
A labor truce’s benefits extend beyond the strike. Workers resent being squeezed for shareholders’ benefit for half a century. Higher pay and bringing important work back in-house should lift the mood. Better yet, the proposed contract ties bonus pay to quality metrics.
Improvement is needed, fast: Boeing said last year it spent more hours fixing finished planes then building new ones. The ultimate goal is lifting the production cap, bolstering factory throughput and consequently profitability.
Technology is Boeing’s final checklist item. A prior focus on capital returns meant it skimped on developing new models. Market share losses inevitably resulted. A new plane might cost $30 billion, potentially requiring fresh capital. For now, Boeing is at least doing the things it needs to get ready for takeoff.
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CONTEXT NEWS
Boeing workers will vote on a new wage agreement on Oct. 23, after the aerospace company and labor leaders from the International Association of Machinists and Aerospace Workers came to terms on a new contract. The offer includes a 35% pay raise over four years, a $7,000 ratification bonus, incentive payouts based on productivity and quality metrics, and increased company contributions to workers’ retirement plans.
Over 30,000 of Boeing’s workers, mainly on the West coast, walked off the job on Sept. 13 after voting down a prior agreement which included a 30% pay hike over four years. Workers were seeking a 40% pay increase and the return of the company’s defined-benefit pension.
Approval requires a majority vote by workers.
Boeing's problems have crushed its shares https://reut.rs/3UhhMkr
Editing by Jonathan Guilford and Pranav Kiran
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