Boeing's (BA.US) new contract proposal may cause wage related costs to increase by more than $1 billion over the next four years

Zhitongcaijing · 10/21 13:41
The Zhitong Finance App learned that some analysts expect that although the latest contract proposed by Boeing (BA.US) is expected to end the strike, which caused huge losses to the company, it is expected to cause the company's wage-related costs to increase by more than 1 billion US dollars over the next four years.

Boeing proposed a contract last Saturday. The new proposals include a 35% salary increase within 4 years, raising the contract bonus to 7,000 yuan, guaranteeing the minimum expenditure for the annual bonus plan, increasing 401 (k) pension contributions, and other changes. The International Association of Mechanics and Aeronautics (IAM), which represents 33,000 Boeing employees, is scheduled to vote on the proposal on October 23 (this Wednesday).

The results of Wednesday's vote will determine whether the costly strike, which has been going on for more than a month and has paralyzed production, can end. It is worth mentioning that Boeing will announce third-quarter results on the same day, and the company is expected to report huge losses.

Regarding Boeing's new contract proposal, Ben Tsocanos, head of the aerospace industry at rating agency S&P Global, said, “We think this proposal is a positive step. Resolving the strike quickly is key to improving the company's financial situation and support ratings.”

However, J.P. Morgan analyst Seth Seifman is skeptical that union members will accept the new contract proposal, “although it seems to provide almost all the conditions required by the union.” Seth Seifman estimates that rising wages could increase Boeing's associated costs by more than $1 billion. Jefferies analyst Sheila Kahyaoglu estimates it to be around $1.3 billion.

Even if the new contract proposal is accepted by union members, Boeing faces the challenge of quickly returning production to pre-strike levels. An analyst at RBC Capital Markets said, “Follow our analysis of the previous Boeing strike. After the strike ended, it took an average of 6-12 months for production to return to pre-strike levels.” “Furthermore, the impact of the strike on an already fragile supply chain is uncertain.”