Boeing Union Fight Hits Turbulence, Files Unfair Labor Practice

Labor strikes at Boeing's commercial jet factories are approaching the one-month mark, with no end to the paralyzing labor action. This seriously threatens Boeing's credit rating, which faces mounting downgrade risks from investment grade to junk status from multiple credit ratings agencies as cash reserves dwindle.

Quartz News reported overnight that Boeing filed unfair labor practice charges with the National Labor Relations Board (NLRB) against the International Association of Machinists and Aerospace Workers, claiming union bosses have been bargaining in bad faith on behalf of the 33,000 striking union members. 

Boeing wrote in a statement that IAM negotiators "did not seriously consider" the latest offer earlier this week, which included a 30% wage bump over four years, up from 25%, and other benefits.

"The union's public narrative is misleading and making it difficult to find a solution for our employees," Boeing said in the filing to the NLRB, adding the union had engaged in a "pattern of bad faith bargaining." The aerospace giant retracted its "best and final" offer on Tuesday. 

Boeing Commercial Airplanes President and CEO Stephanie Pope wrote in a memo earlier this week, "Unfortunately, the union didn't seriously consider our proposals. Instead, the union made non-negotiable demands far in excess of what can be accepted if we are to remain competitive as a business."

IAM leaders said the talks collapsed when Boeing negotiators refused to increase wages over the contract's lifespan or reinstate the defined benefit pension. 

As the strike eclipses one month in just a few short days, troubles keep piling up for Boeing. S&P Global Ratings placed the struggling planemaker on CreditWatch negative, citing mounting risks that its investment-grade credit rating would be slashed to junk.

"The CreditWatch listing reflects the increased likelihood of a downgrade if the strike persists toward the end of the year, further constraining the recovery in the company's cash flow generation and the company does not raise capital sufficient to meet its upcoming needs in such a way that does not increase financial leverage," S&P said. 

S&P estimated the labor action costs Boeing $1 billion per month. They expect the target of producing 38 Max jets per month will be pushed to mid-2025. 

There's also concern the planemaker will need to raise money via public equity markets (read more about dilution fears) with its cash balance dwindling: 

Boeing will likely seek incremental funding. We anticipate that Boeing will end 2024 with a cash balance below its $10 billion target if the strike continues through the fourth quarter and the company typically uses cash in the first quarter due to seasonal working capital build. Boeing also has approximately $4 billion of debt maturities due in April 2025. We believe the company will need to seek external capital to meet these demands. Based on its public comments, we assume Boeing is also open to potentially issuing additional equity. However, we believe the company remains exposed to higher-than-expected cash usage and adjusted debt for the next year or two, which could further delay the expected recovery in its credit measure to levels we view as consistent with the rating.

S&P concluded:

The CreditWatch with negative implications placement reflects our view that we could lower our ratings on Boeing if the strike continues, increasing costs and delaying the company's recovery in aircraft production and cash flow generation. We could lower ratings if the company fails to preserve its target cash balance, fund operating and working capital, and meet debt maturities without increasing leverage. We intend to resolve the CreditWatch placement by the end of the year.

Some Wall Street desks following this story are left pondering this question: Which will happen first—Boeing's credit downgrade from investment grade to junk or a deal with the IAM?