Boeing Risks Major Disruption As IAM Strike Threat Looms

With the impending threat of strike action looming, the risk of damage to various airplane programs is all too real and could cripple Boeing in the same way the parts shortages ground production to a halt in the late 1990’s.

Production has only just started on the new 747-8 Freighter, the 777 Freighter is undergoing flight testing and the flagship 787 Dreamliner is slated to take to the skies in the fourth quarter of this year. Coupled with this is the ongoing saga with the US Air Force over the procurement of tankers, potentially sealing the fate of the 767 line.

Having seen the 787 delayed three times, any strike action by the IAM would jeopardise the entire schedule, both for flight testing, certification and delivery. Boeing stated earlier this year it aimed to deliver 25 787’s by the end of 2009 - any strike action would render this impossible. With a widely distributed logistics and work share on the program, 787 partners would equally be at high risk of any factory shutdown at Everett.

“They [Boeing] can kiss goodbye to that ‘09 target if the IAM strikes,” says one US-based analyst.

Image copyright/owned by FleetBuzz Editorial.com

Global Aeronautica is already perceived to be the weakest link in the 787 supply chain, despite Boeing stepping in an acquiring Vought’s share of the business. Disruption on the final assembly line will impact suppliers like Spirit, who thus far have been a shining beacon for the 787 despite the setbacks encountered by the likes of Vought.

The financial implications for missing any 787 targets from here on in would be sizeable, not least because customers are already seeking recompense for existing delays.

“With production full on the 777 line and demand on the decline for the 767, despite its better availability, the costs for Boeing would be huge - and that’s before we factor in the loss of revenue on decreased ‘08 deliveries and the cost of the strike action itself. On the “plus” side, Airbus won’t benefit at all - it has its problems to contend with,” says the analyst.

The four week strike last seen in late 2005 should serve as a reminder that the damage to Boeing’s stock price on the back of new industrial action will be enormous. Goldman Sachs has already been criticised for downgrading the stock based solely on the 787 without taking into consideration the wider business attributes of the company - concerns over a new bout of stock sell offs due to the IAM striking would cause it to plummet even further.

Image courtesy of Matt Cawby

Boeing’s cash-rich status means that it should pull out all the stops to avert any strike action. Whether this is possible is questionable, but equally taxing is why the company hadn’t positioned itself better to reward workers with a long term labour contract knowing the implications a strike would have on key programs at BCA (Boeing Commercial Airplanes).

In the tussle between the unions and the employer, one could surmise that Boeing’s production disruption is a self inflicted wound. However, the workers also need to realise that with a huge commercial backlog based on the sales successes of the 777 and 787, it is in their interest to secure a long term deal that provides security with reward based on the burgeoning backlog.

Convergence is key, but that prospect hasn’t yet arrived.

——

Aug 29, 2008 (Update)

The IAM is calling for its members to reject the best and final offer from Boeing and favours strike action.

(Updated article here. )

55 comments August 26th, 2008