Boeing’s new CEO, faces a mounting crisis just weeks into his tenure as the company’s largest union, the International Association of Machinists and Aerospace Workers (IAM), voted to strike.
The work stoppage adds to a growing list of challenges Ortberg must navigate, including quality issues, production slowdowns, and significant cash burn.
Strike Adds to Boeing’s Woes
On Friday, over 33,000 machinists walked off the job, rejecting a tentative labor deal that included a 25 percent wage increase over four years.
The strike threatens to deepen Boeing’s financial troubles at a time when the company is already grappling with a series of operational challenges.
Debt-rating agencies have warned that a prolonged strike could lead to Boeing’s credit rating being downgraded to junk status.
With over $45 billion in net debt, such a downgrade could significantly raise Boeing’s borrowing costs, hampering its ability to raise funds. Boeing shares dropped nearly four percent following the strike, nearing a two-year low.
Cash Flow Concerns Amid Slowed Production
Boeing has been burning through cash at a staggering rate. In the first half of 2024 alone, the company spent over $1 billion per month. It has also warned cash burn for the year could range between $5 billion and $10 billion.
This financial strain is largely attributed to production slowdowns as the company addresses quality issues, most notably after a door plug blew off midair during an Alaska Airlines flight in January.
The company is also facing challenges with its defense business and its Starliner spacecraft, all of which add to Boeing’s financial pressures.
Efforts to Avoid a Strike
Before the strike vote, Ortberg spent time visiting factories, speaking directly with employees to avoid a walkout.
While the company was initially optimistic about the proposed labor deal, the overwhelming support for the strike revealed deep-seated frustrations among workers.
Many machinists are angry about years of union concessions that have eroded benefits, while newer employees are concerned about stagnant wages amid rising living costs.
Boeing CFO Brian West indicated that the company will be working on a second offer and expects discussions with union leaders to resume with the assistance of a federal mediator.
Rating Agencies Sound the Alarm
Both Fitch and Moody’s have signaled that a prolonged strike could lead to a downgrade of Boeing’s credit rating.
A one- to two-week strike may not have a significant impact, but anything longer could prompt a review and potential downgrade to junk status.
This would further strain Boeing’s finances, adding an estimated $100 million annually in interest payments for each notch of downgrade.
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Supplier Woes
The strike is also expected to affect Boeing’s supply chain, which is still recovering from the COVID-19 pandemic and the 20-month grounding of the 737 MAX.
Boeing has refrained from cutting parts orders despite its production slowdowns, which has led the company to stockpile billions of dollars in unused inventory.
As the strike began, Boeing instructed suppliers to stop sending parts if sufficient inventory was already on hand, to manage costs during the walkout.
A Crucial Test for Ortberg’s Leadership
Ortberg, who took the reins from former CEO Dave Calhoun last month, is under immense pressure to resolve the strike quickly.
The situation is a significant test of his leadership just weeks into his new role. RBC analyst Ken Herbert suggested that Ortberg has about a week to resolve the strike without damaging his reputation.
While the strike has placed immediate pressure on Boeing leadership, many analysts believe Ortberg’s long-term plans for the company remain intact.
Looking Ahead
As Boeing navigates through one of its most challenging periods, the strike’s outcome could have far-reaching consequences for the company’s financial health and future operations.
For Ortberg, resolving the strike and restoring trust among the machinists will be critical to turning Boeing around and rebuilding its reputation in the aerospace industry.
With the threat of a credit downgrade looming, and production issues persisting, Boeing must act swiftly to avoid further setbacks.
The coming days will be crucial in determining the company’s path forward and whether it can recover from its current challenges.
