On September 13th, Boeing faced a major setback when 33,000 of its workers in the Pacific Northwest went on strike. The International Association of Machinists and Aerospace Workers (IAM) initiated the strike in response to disagreements regarding wages, benefits, and job security.
Moody’s states a prolonged strike would fracture the recovery of the commercial airplanes business, which remains in its early stages. Production of the 737 MAX narrowbody increased to nearly 30 per month for July and August. This compares to the US Federal Aviation Administration’s (FAA) 737 production cap of 38 per month. Accurately estimating the daily cost of the strike to Boeing is challenging. The IAM members’ 57-day strike in 2008 cost Boeing around $1.5 billion per month or $50 million per day at a time when 737 production was at 34 per month, its then normal production rate. Additionally, the cost base of the commercial airplanes segment was lower compared to today’s cost base.
The strike has already cost the company and workers $572 million, according to an estimate from Anderson Economic Group. The biggest losses so far come from the near halt to Boeing’s commercial airplane production. Anderson estimates the company has lost $445 million in the strike’s first week due to its inability to complete and deliver aircraft to customers. Boeing gets most of the money from an aircraft sale only upon delivery of the plane. The strike will likely delay Boeing’s recovery, including its goal of increasing Max production to 38 planes a month by the end of the year.
In response, Boeing has started to furlough employees to help preserve cash. “We are initiating temporary furloughs over the coming days that will impact a large number of US-based executives, managers and employees,” CEO Kelly Ortberg said in an email to employees. “We are planning for selected employees to take one week of furlough every four weeks on a rolling basis for the duration of the strike.” Ortberg also said he and other Boeing leaders “will take a commensurate pay reduction for the duration of the strike.”
The Boeing strike is reminiscent of the recent United Auto Workers strike against GM, Ford, and Stellantis. The strike, which lasted almost 6 weeks and collectively lost billions in production, was the first in history to target each of the Big 3 at the same time. Ford estimated that the union’s strike had cost it $1.3 billion, while GM said the strike had cost it about $800 million. Anderson Economic Group has calculated that the 2023 UAW strike surpassed $9.3 billion in economic losses for the entire auto industry. This also led to down-tier suppliers laying off workers due to losses totaling nearly $3 billion in wages and earnings.
The longer the Boeing strike lasts, the greater the likelihood of a ripple effect on the aerospace supply chain due to pauses in production. This could lead to layoffs, shutdowns, or even bankruptcy. As metal consumption decreases due to reduced demand and excess supply, prices will likely fall. All in all, this could have immeasurable effects on the entire economy the longer it lasts. As of September 20th, federal mediators joined talks between Boeing and the IAM this week, but union officials reported that little progress was made during the first two sessions.
Picture: REUTERS/David Ryder
