Boeing shares rise 3% after labor offer but analysts wary of worker pushback

Boeing shares rose 3% on Monday on hopes of an end to the crippling strike, although some analysts expressed doubt that a proposed labor agreement announced over the weekend would garner enough support from workers.

About 33,000 workers will vote on a contract proposal on Wednesday after more than a month of work stoppages that have halted production of models including its best-selling 737 MAX narrowbody jet.

The vote also coincides with Boeing’s third-quarter results, in which it is expected to report a heavy loss.

“We see the proposal as a positive step,” Ben Tsokanos, director of aerospace at ratings agency S&P Global, told Reuters. “A speedy resolution of the strike is key to improving the company’s financial position and supporting the rating.”

Moody’s declined to comment on the new proposal. Rating agencies have warned of a downgrade if the strike goes ahead.

The new contract proposal announced Saturday includes a 35% pay raise over four years, a $7,000 ratification bonus, a reinstatement incentive plan and enhanced contributions to workers’ 401(k) retirement plans, including a one-time $5,000 contribution plus up to 12. % in employer contribution.

The new wage increases and ratification bonuses are an improvement over previous offers, which were rejected by striking workers, but the wage increases still fall short of the 40% pay increase over four years sought by the machinists union.

Wells Fargo’s Matthew Akers, who has a bearish view on Boeing stock, said the offer would not be ratified.

“Our analysis of more than 1,000 online comments suggests a more constructive view but still not enough to pass,” Akers said in a note.

After reviewing comments on the IAM 751 Reddit forum he estimated 20% were constructive versus 3% on the latest offer, though he cautioned that the forum could be negatively biased.

JPMorgan’s Seth Siefman estimated that the wage hike could add more than $1 billion to Boeing’s costs, while Jefferies analyst Sheila Kahyaoglu expects wage-related costs of about $1.3 billion.

The latest proposal follows weeks of sometimes heated talks between Boeing and the International Association of Machinists and Aerospace Workers (IAM) union, whose leadership faced the fury of some members after backing Boeing’s first offer that most workers opposed.

The IAM did not explicitly endorse the latest offer but told workers on Saturday “it is worth your consideration”.

However, even if the new contract is accepted by members, the planemaker still faces the challenge of quickly restoring production to pre-strike levels after workers return.

“Based on our analysis of previous Boeing strikes, it has taken an average of 6-12 months for production rates to return to pre-strike levels after the strike ends. Additionally, the strike has impacted already fragile supplies. The chain is uncertain,” analysts at RBC Capital Markets said. said.

The work stoppage has halted production of Boeing’s cash cow 737 Max and the 767 and 777 widebodies.

Boeing shares were trading at $161. Supplier Spirit Aerosystems, which last week said it was laying off 700 workers because of the strike, rose 3.6%.

In a separate labor action, nearly 5,000 workers were set to return to work at business jet maker Textron’s facilities in Wichita, Kansas, after voting to accept a five-year contract that provided a 31% wage increase. Shares of Textron fell 1% on Monday amid broader market weakness.

“Boeing’s latest offer, especially following approval of Textron’s IAM contract, is more likely to win approval; but negative Reddit posts suggest it may not be a shoo-in,” said TD Cowen analyst Kai von Rumohr.

In a boost to Boeing, Dubai’s Emirates Airlines ordered five Boeing 777F freighters on Monday and will decide this year whether to buy more Boeing or Airbus models.