Boeing’s shares rose 4% on Monday on hopes of an end to a crippling strike, although analysts expressed doubts that the proposed labor contract unveiled over the weekend would muster enough support from workers.
About 33,000 workers will vote on the contract proposal on Wednesday after a more than month-long work stoppage, which has halted production of models including its best-selling 737 MAX narrowbody jets.
The vote also coincides with Boeing’s third-quarter results, in which it is expected to report a hefty loss.
โWe view the proposal as a positive step,โ Ben Tsocanos, aerospace director at ratings agency S&P Global, told Reuters. โResolving the strike quickly is key to improving the company’s financial position and supporting the rating.โ
Moodyโs declined to comment on the new proposal. Ratings agencies have warned of a downgrade if the strike drags on.
The new contract proposal announced on Saturday includes a 35% pay hike over four years, a $7,000 ratification bonus, a reinstated incentive plan and enhanced contributions to workersโ 401(k) retirement plans, including a one-time $5,000 contribution plus up to 12% in employer contributions.
The new wage increase and the ratification bonus are an improvement over the previous offer, which was rebuffed by the striking workers, but the salary hikes still fall short of a 40% pay rise over four years demanded by the Machinistsโ union.
Wells Fargoโs Matthew Akers, who has a bearish view on Boeing stock, said the offer may not be ratified.
โOur analysis of over 1,000 online comments implies a more constructive view but still not enough to pass,โ Akers said in a note.
He estimated 20% were constructive on the latest offer vs 3% on the prior offer after reviewing comments on IAM 751 Reddit forum, though he cautioned the forum may be negatively biased.
J.P.Morganโs Seth Seifman estimated the wage hikes might increase Boeingโs costs by more than $1 billion, while Jefferies analyst Sheila Kahyaoglu expects wage-related expenses at about $1.3 billion.
The latest proposal follows weeks of sometimes acrimonious discussions between Boeing and the International Association of Machinists and Aerospace Workers (IAM) union, whose leadership faced fury from some members after endorsing the first offer from Boeing that most workers opposed.
The IAM did not explicitly endorse the latest offer but told workers on Saturday โit is worthy of your consideration.โ
However, even if the new contract is accepted by members, the planemaker still faces the challenge of quickly restoring production to pre-strike levels once workers return.
โBased on our analysis of prior Boeing strikes, it has taken an average of 6-12 months after the conclusion of the strike for production rates to return to pre-strike levels. Moreover, the impact the strike has had on the already fragile supply chain is uncertain,โ RBC Capital Markets analysts said.
The work stoppage has halted production of Boeingโs cash-cow 737 MAX, and 767 and 777 widebodies.
Boeing shares were trading at $161.
In a separate labor action, about 5,000 workers were set to return to work at business jet maker Textronโs facilities in Wichita, Kansas, after voting to accept a five-year contract providing wage increases of 31%.
โBoeing’s latest offer is more likely to win approval, particularly following Textronโs IAM contract approval; but negative Reddit posts suggest it may not be a shoo-in,โ TD Cowen analyst Cai von Rumohr said.
In a boost to Boeing, Dubaiโs Emirates Airlines ordered five Boeing 777F freighters on Monday and will make a decision this year on a purchase of further Boeing or Airbus models.
(Reporting By Allison Lampert in Montreal and Abhijith Ganapavaram in Bengaluru; Editing by Anil D’Silva and Shounak Dasgupta)
