(Bloomberg) — Kelly Ortberg’s earnings debut as CEO of Boeing Co. has taken on an element of tension as workers vote on the same day whether to accept the plane maker’s latest proposal and end a five-week strike.
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Boeing and the union, which represents 33,000 striking members, have reached a tentative new agreement that will increase wages by 35% over four years, an unprecedented wage increase.
But hourly workers will have the final say with their vote on Oct. 23, and approval is far from certain. They overwhelmingly rejected an agreement in September that had the blessing of union leaders. This time, union negotiators do not support the proposal.
The outcome of the vote, which requires a simple majority, will not be known until late in the day in Seattle, Boeing’s main production center. That means investors, employees and executives will be left unsure for hours after the earnings report whether Boeing can finally start on the road to recovery — or be forced to muddle through with anemic production and dwindling cash reserves.
The strike has become a defining episode for Ortberg, who inherited a series of interlocking crises when he took over in early August. He has already announced a 10% workforce reduction that will span all ranks of the aircraft maker, and laid out the first outlines of a $25 billion refinancing package that aims to keep the company stable over the next three years.
“If there’s a perception that his first few months have been somewhat smooth due to success, this would be a great step to reverse that,” Richard Aboulafia, an aerospace analyst at Aerodynamic Advisory LLC, said of the contract vote . “It would alleviate an incredibly dangerous situation.”
The manufacturer faces the risk of having its credit rating downgraded to junk if the work stoppage continues, a move that would increase financing costs and hamper access to capital. The pressure extends to Boeing’s fragile supply chain, where any workforce cuts could hurt efforts to speed up factories again after the battle is over.
Ortberg’s efforts to reset Boeing’s culture and employee relations have been damaged by the strike. The announcement of job cuts, among a host of other measures, threatens to drive a wedge into the already fragile relationship between senior management and the workplace.
Boeing’s crisis of confidence doesn’t just extend to investors who have pushed the stock down 41% this year. The company has been the subject of whistleblower reports alleging years of unauthorized work and defects, alleging that management prioritized production goals and financial targets over care and good workmanship.
Consecutive crises
The new CEO, who retired after successive crises since the beginning of the year led to the departure of his predecessor, has tried to appeal to a sense of solidarity and a common destiny. He’s also made it a point to be closer to the action, buying a house in the Seattle area and spending more time on the job.
Ortberg has made it clear he is considering structural changes, telling employees that resources are spread too thinly. The manufacturer could make as much as $20 billion by selling off a range of assets that aren’t essential to its core commercial and defense businesses, such as its navigation subsidiary Jeppesen, TD Cowen analyst Cai von Rumohr wrote in an Oct. 1 report.
The strike has exposed fault lines within a company where top executives have long focused on returns, while machinists have seen their wages soared by inflation and their pension plans evaporate under a controversial 2014 contract. Many workers have therefore vowed to get a significantly better deal to be expected.
Therefore, it is not certain that the latest rapprochement, which came with the help of an encouraging push from the White House, will succeed. Leaders of the International Association of Machinists and Aerospace Workers District 751 have not made a recommendation on how members should vote on the tentative agreement, which does not restore pensions.
Boeing will report earnings before US markets open on October 23. The company already disclosed some key numbers when it announced the planned job cuts on Oct. 11, including quarterly revenue that missed analyst estimates and $5 billion in costs related to various programs. .
Take time
Boeing also said it had cash outflows of $1.3 billion in the period, adding to the more than $7 billion flowed in the previous two quarters.
Now that the most important results are already known, Ortberg will have more leeway to implement his plans for Boeing. The turnaround will be easier once major commercial factories around Seattle restart, ending a strike that by some estimates has cost about $100 million a day in lost revenue.
Still, restarting assembly lines will be a gradual process given the complexity of coordinating hundreds of thousands of parts while challenges remain in the aerospace and defense sector’s supply chain.
Douglas Harned, an analyst at Bernstein, said even a strike resolution at the end of October would mean deliveries of newly produced aircraft would essentially remain at a standstill until November. If past strikes are a measure, recovery will take time, he said.
“Boeing is not going away,” Harned wrote in an Oct. 17 report. “But it is not yet clear what the company will look like in five years.”
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