Boeing shares rise 3% after job offer, but analysts fear worker reaction

boeingStocks rose 3% on Monday in hopes of ending a crippling crisis. strikealthough some analysts expressed doubt that the proposed labor contract presented over the weekend would gather 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 narrow-body jet.

The vote also coincides with Boeing’s third-quarter results, in which it is expected to post a sizable loss.

“We view the proposal as a positive step,” Ben Tsocanos, head of aerospace at rating agency S&P Global, told Reuters. “Resolving the strike quickly is key to improving the company’s financial situation and supporting the rating.”

Moody’s declined to comment on the new proposal. Rating agencies have warned of a downgrade if the strike continues.

The new contract proposal announced Saturday includes a 35% pay increase over four years, a $7,000 confirmation bonus, a reinstated incentive plan and enhanced contributions to workers’ 401(k) retirement plans, including a contribution one-time payment of $5,000 plus up to 12% in employer contributions. the new salary increase and the ratification bonus are an improvement over the previous offer, which was rejected by striking workers, but the pay increases still fall short of the 40% pay increase over four years demanded by the machinists’ union. Wells Fargo’s Matthew Akers, who has a bearish view on Boeing shares, said the offer may not be ratified.

“Our analysis of more than 1,000 online comments implies a more constructive view, but it is still not enough to pass,” Akers said in a note.

He estimated 20% was constructive with the latest offer versus 3% with the previous offer after reviewing comments on the IAM 751 Reddit forum, although he cautioned that the forum could have a negative bias.

JPMorgan’s Seth Seifman estimated the wage increases could increase Boeing’s costs by more than $1 billion, while Jefferies analyst Sheila Kahyaoglu expects wage-related expenses to be around $1.3 billion. of dollars.

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 the ire of some members after backing Boeing’s first offer it opposed. the majority of workers.

The IAM did not explicitly endorse the latest offer, but told workers Saturday that it “deserves your consideration.”

However, even if members accept the new contract, the planemaker still faces the challenge of quickly restoring production to pre-strike levels once workers return.

“Based on our analysis of previous Boeing strikes, it has taken an average of 6 to 12 months after the conclusion of the strike for production rates to return to pre-strike levels. Furthermore, the impact that the strike has had on the already fragile supply chain is uncertain,” RBC Capital Markets analysts said.

The work stoppage has halted production of the 737 MAX, Boeing’s cash cow, and the 767 and 777 wide-body jets.

Boeing shares were trading at $161. Supplier Spirit AeroSystems, which said last week it would lay off 700 workers because of the strike, rose 3.6%.

In a separate labor action, about 5,000 workers were due to return to work at commercial aircraft maker Textron’s Wichita, Kansas, facility after voting to accept a five-year contract that provided 31% pay increases. Textron shares fell 1% on Monday amid broader market weakness.

“Boeing’s latest offer is more likely to win approval, particularly after the approval of Textron’s IAM contract; but negative posts on Reddit suggest it may not be a sure bet,” said TD Cowen analyst Cai von Rumohr.

In a boost for Boeing, Dubai’s Emirates Airlines on Monday ordered five Boeing 777F freighters and will make a decision this year on whether to buy more Boeing or Airbus models.