Boeing ‘reaches agreement with union’

Boeing has reached a tentative agreement with its biggest union that would lead to 32,000 workers being awarded pay rises of 25 per cent, averting a possible strike.

The wage increases are expected to cost Boeing roughly $900 million, according to Sheila Kahyaoglu, an analyst at Jefferies, the investment bank.

The proposed four-year contract was hailed by the union as the best it had ever negotiated. If approved by union members, it would be an early win for Kelly Ortberg, 64, the new Boeing chief executive, who is seeking to revive the struggling aircraft manufacturer.

Union members who make the company’s bestselling 737 commercial airliner and other jets will vote on the deal on Thursday and would be able to strike as early as the next day if they reject it and support a work stoppage.

As part of the agreement, Boeing has committed to building a replacement for its workhorse 737 at its facilities in America’s Pacific Northwest, if the project is started during the four-year period of the labour contract, although the company has not yet announced the new jet.

Boeing and Airbus, its rival, are in the early stages of drawing up strategies for replacements of their market-leading single-aisle models that are expected to enter service in late 2030s.

The proposed general wage increase of 25 per cent over four years is below the 40 per cent rise initially demanded by the International Association of Machinists and Aerospace Workers union, signalling its recognition of Boeing’s difficult financial position.

The wage increases had been “tiered”, with the new and senior workers getting the largest share to boost retention, Cai von Rumohr, an analyst at TD Cowen, said.

The financial terms of the labour deal seemed to be acceptable to Boeing, Seth Seifman, a JP Morgan analyst, said.

The early agreement is a boost for Boeing as it tries to restore investors’ and customers’ faith, navigate regulatory scrutiny and step up production of its 737 Max jet after a door plug on a nearly new Max blew off while in mid-air in early January. Since that incident, Boeing’s share price has fallen by 37 per cent, compared with a 7.7 per cent rise in the Dow Jones industrial average share index. However, news of the putative pay deal sent Boeing’s shares up by $6.02, or 3.8 per cent, to $163.64 in afternoon trading in New York.

Seifman noted that workers could still reject the deal. There will be two votes on Thursday: one on the contract, which requires 50 per cent to pass; and a second on whether to strike, which requires two-thirds approval. “Workers have leverage and a highly unscientific sample of views on social media suggests dissatisfaction with the contract terms among some union members.”

A strike authorisation vote in July secured 99.9 per cent approval by workers.

Last year Spirit AeroSystems, Boeing’s 737 fuselage supplier, had to temporarily suspend factory production after its workers rejected a four-year deal.

“While unlikely, if [the union] strikes, we think it’s realistic to assume the strike’s duration would be in line with the 51 days of the last four walkouts,” Von Rumohr said. He estimated the hit to cashflow from a 50-day strike as being between $3 billion and $3.5 billion, at a time Boeing when is already burning cash because of cost overruns in its defence business and lower 737 Max production.