Roy J. Riley 
This morning Boeing and the International Association of Machinists District 751 and Aerospace Workers District 24 (IAM) reached a tentative agreement for a future contract. Boeing’s website highlighted the tentative contract agreement and highlights, while the IAMs website shared a summary of the proposed contract with a IAM Union leadership recommending acceptance for its members. Boeing and the IAM have been operating under a current 16-year contract for Boeings Puget Sound factories that is due to expire September 12, 2024. The IAM has 36,000 members as a part of Boeings 173,000 workforce representing approximately 21% of Boeing’s total workforce.
Robert Spingarn, an Analyst at Melius Research recently published all the IAM strikes total duration in days at Boeing. For relevancy to more recent times utilizing strike data points in 1996, 2005 and 2008 lead to 69, 24 and 58 days of missed production respectively. These three most recent strikes averaged 50 days of missed production and deliveries to airline customers.
A tentative labor agreement between Boeing and the IAM is good news for the industry because a strike would have had significant negative effects on Boeing and the supply chain. Michael Bruno, Executive Editor for Business at Aviation Week recently said that “Past strikes at Boeing came as workers fought for relevancy – now they come as Boeing fights for survival long-term.”
To further the point of negative effects on Boeing, George Ferguson, Bloomberg Intelligence Aerospace Analyst shared his perspectives this past week on a Bloomberg webinar that I was also a contributing panelist. Ferguson shared that Boeings cash balance at the end of second quarter was $11 Billion and Boeing might need to tap capital markets to raise cash, and a strike would have accelerated this activity. Ferguson further added that if there was a work stoppage at Boeing that their currently high inventory levels of more than $80 Billion would be at risk of increasing further increase cash usage.
The aerospace and defense industry has had a challenging couple of years but has remained resilient in the face of problematic quality system issues, human health, geopolitical and financial challenges. The industry has experienced a pandemic that crippled air travel, a production line stop of a high volume narrowbody aircraft, global supply chain instability, scorching inflationary conditions and high interest rates. These exogenous impacts have created dynamic situations both at airframers Airbus and Boeing as well as cost challenges throughout their supply chains.
Ken Herbert, an Equity Analyst from RBC Capital Markets recently highlighted that the International Air Transport Association (IATA) released its July global passenger traffic data stating that passenger kilometers (RPKs) were up 8% with domestic and int’l RPKs up 4.8% and 10.1%, respectively. Total industry passenger load factors (PLFs) reached 86%, the highest reading since at least 2011.
To meet the surge in travel, airframers production is increasing to satisfy airline demand for new aircraft deliveries. Aviation Week 2024 Fleet Forecast projects total narrow body, widebody, regional and turboprop aircraft deliveries for 2024 to be at 1,796. This is right on par with 2018 before all the industry impacts in which total aircraft deliveries totaled 1,793. The industry has recovered in aircraft deliveries to airlines to pre pandemic levels.
The industry is heading into the next super cycle with Airbus and Boeing projecting the highest ever rates of monthly production of new commercial aircraft by 2026. Aviation Week Fleet Forecast project forward projected growth from 1,796 in 2024 to 2,353 aircraft deliveries in 2033, which is a 26% growth from already elevated projected industry total deliveries. A strike at Boeing would impact the Narrowbody segment primarily which accounts for nearly 77% of Aviation Weeks Fleet Forecasted deliveries of which Airbus and Boeing both contribute towards.
A strike could have had significant ramifications financially for Boeing. Michel Merluzeau, Director, Aerospace & Defense Market Analysis at AIR Intelligence & Research estimates that a strike could cost Boeing as much as $1 Billion per month. He further suggested that the impact could impact the goodwill that has been established by Boeing’s new CEO Kelly Ortberg, it would affect current production and rate recovery.
Continued production at Boeing is very important for the local economy and Boeing’s supply chain. The Aerospace Industries Association (AIA) published in 2023 their annual Facts and Figures report summary of 2022, that the U.S. Aerospace and Defense 2022 data highlighting that the industry total revenue generation reached $952 Billion.
The Seattle Metropolitan Chamber of Commerce published recently in July, their Aerospace and Regional and Local Economics Impacts report. The report for 2023 highlights that the State of Washington generated $57 Billion in statewide aerospace business revenues in 2023. Although the reports were from 2022 and 2023 respectively, the percentage of directional contribution of Washington State revenues to the broader industry was approximately 6%. A strike would have had an impact on the local Boeing suppliers.
The impact could have been exponentially worse for the broader industry supply chain. The AIA report also highlighted that the total supply chain for the aerospace and defense industry contributed 56% of the industry revenues at $537 Billion. Slowing down Boeing commercial production or a halt in production due to a strike could have a significant negative impact on supplier revenues.
The workforce deserved this agreement after a 16-year contract period. The Boeing website highlighted that the Tentative Agreement provides the largest-ever general wage increase of 25% for all employees over the life of the contract. Enhanced retirement benefits and lower cost share on health care and work-life balance improvements were also highlighted. Also committed by Boeing was to build the next new airplane in Puget Sound.
Boeing’s CEO Kelly Ortberg recently met with the IAM and shared a commitment to reset the relationship and reach a new contract. It appears that Ortberg is doing just that with Boeing’s tentative agreement with the IAM Union leadership. The final step of this negotiation is for full alignment between the Union Leadership and its IAM members for a confirmation vote of contract acceptance this week. Ratification of this agreement by the IAM membership will be a big win for Boeing, the workforce and the supply chain.
