Striking Boeing workers make earnings a cliffhanger for CEO

(Bloomberg) — Kelly Ortberg's earnings debut as Boeing Co. chief executive gained an element of suspense as workers on the same day debated whether to accept the planemaker's latest offer and end a five-week strike.

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Boeing and the union representing 33,000 striking members have reached a tentative new contract that increases pay by 35% over four years, an unprecedented wage increase.

But hourly workers have had their final say in the Oct. 23 vote, and approval is far from assured. They rejected a deal with the blessing of labor leaders in September. This time around, union negotiators are not backing the proposal.

The outcome of the vote, which requires a simple majority to pass, won't be known until later in the day in Seattle, Boeing's main manufacturing hub. That means investors, employees and executives will be left hanging for hours after earnings, uncertain whether Boeing can finally start on the road to recovery — or be forced to muddle through with anemic production and dwindling cash reserves.

Investors are also optimistic that the tentative deal will receive support from unions, sending shares up 4.5% in premarket trading on Monday.

The strike became a defining episode for Ortberg, who inherited a set of interlocking crises when he took over in early August. He has already announced 10% layoffs that will spread across the planemaker's ranks, and he has put together the first form of a $25 billion refinancing package aimed at stabilizing the company over the next three years.

“If there's a perception that his first few months have been somewhat tarnished by success, it would be a great step to turn that around,” Richard Aboulafia, an aerospace analyst at Aerodynamic Advisory LLC, said of the deal vote. “It would de-escalate an incredibly dangerous situation.”

The manufacturer faces the threat of downgrading its credit rating to junk if operations stop, a move that would raise borrowing costs and hinder access to capital. The pressure extends to Boeing's fragile supply chain, where any layoffs could hurt efforts to get the factory up and running again after the dispute ends.

Ortberg's efforts to restore Boeing's culture and relations with workers have been hampered by the strike. The announcement of job cuts, along with a wide range of other measures, threatens to drive a wedge into the already fragile relationship between senior management and the shop floor.

Boeing's crisis of confidence doesn't just extend to investors who have driven the stock down 41% this year. The company has been subject to whistleblower accounts for years of unauthorized work and complaints that management prioritized production goals and financial goals over diligence and good workmanship.

Cascading Crisis

The new CEO, who joined out of retirement after the cascading crisis since the beginning of the year led to the departure of his predecessor, has tried to appeal for solidarity and common fate. He made a point of staying closer to the action, buying a home in the Seattle area and spending more time on the factory shop floor.

Ortberg has made it clear that he is considering structural changes, telling staff that resources are spread too thin. The maker could net as much as $20 billion by selling an array of assets not essential to its core commercial and defense businesses, such as its Jeppesen navigation subsidiary, TD Cowen analyst Cai von Rumohr wrote in an Oct. 1 report.

The strike exposed fault lines inside a company where senior executives had long focused on returns, while machinists saw their wages eaten away by inflation and their pension plans evaporated under a controversial 2014 contract. Many employees have therefore vowed to hold out for a significantly better deal.

That's why it's far from certain that the latest overture, reached with an encouraging nudge from the White House, will succeed. Leaders of International Association of Machinists and Aerospace Workers District 751 did not offer a recommendation on how members should vote on the tentative agreement, which does not restore pensions.

Boeing will release earnings before the U.S. market opens on Oct. 23. The company had already released some key metrics when it announced the planned job cuts on Oct. 11, including quarterly revenue that missed analyst estimates and a $5 billion charge related to various programs. .

taking time

Boeing also said it had a cash outflow of $1.3 billion in the period, adding to a drain of more than $7 billion in the previous two quarters.

With key results already out, Ortberg will have more opportunities to address his plans for Boeing. The turnaround effort will be easier after major commercial factories around Seattle reopen, according to some estimates, to end a walkout that has cost about $100 million a day in lost revenue.

Still, rebooting assembly lines will be a slow process due to the complexity of coordinating tens of thousands of parts, even as they hiccup across the aerospace and defense supply chain.

Douglas Hernand, an analyst at Bernstein, said that even a strike resolution by the end of October would mean that deliveries of newly produced aircraft would essentially be cut off in November. If past strikes are any measure, recovery will take time, he said.

“Boeing is not going away,” Harned wrote in an Oct. 17 report. “However, it is not clear today what the company will look like in five years.”

(Update on premarket trading in fifth paragraph.)

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