Boeing Sweats On IAM Strike Vote
In rejecting the best and final offer contract from Boeing, the IAM is now counting down towards the vote that it hopes will swing in its favour for strike action.
Feelings on both sides are running high and yet the divide between employer and employee remains.
A spokesman at one Middle East airline had this to say:
“We’re already seeing our 777 deliveries slip because installation of galley and cabin equipment is delayed by our chosen suppliers who cant keep up pace with production. We need extra capacity to boost services to the US and other key gateways. Any factory shut down at Boeing will mean we are going to have to endure more delays until we get our hands on these jets,”.
Critically, this potential industrial action will be a “stake through the heart” of the already delayed 787 Dreamliner, which races towards completion in preparation for ground tests prior to its first flight. Having battled for over a year to iron out the travelled work, launch customer All Nippon Airways will likely lead a chorus of complaints if the 787 is delayed for a fourth time.
In the absence of any other suitable substitute, it is unlikely Boeing will see defections or cancellations for the 787. That said, the likelihood of more 777’s or 767’s at discounted prices will feature more prominently. However, that too would be dependant on production rates and slot availability.
Images courtesy of Boeing
First tier suppliers like Spirit Aerosystems, Alenia, Global Aeronautica and Mitsubishi Heavy Industries would have to be compensated if they are forced to slow or even temporarily production as the Everett factory won’t be doing any assembly work. Further, these suppliers only have finite factory floor space to continue fabricating major sections of the 787 – at some point, they’d have to be shipped to Boeing for final assembly, and Boeing already has the first 4 787’s in the factory now.
Parts for the fifth flight test 787, such as wings, horizontal and vertical stabilisers have already started to arrive in Everett and now run the risk of laying idle for weeks unless a strike is averted or concluded quickly.
Other airplanes too are at risk.
The 747-8F has already been pushed back three months for a February 2009 debut, with delivery scheduled the fourth quarter of 2009. The key focus on flight tests will mean that Boeing will want it flying sooner rather than later and will rely on the airplane being on target for both assembly and certification to ensure it meets its service entry date. Much of the flight test information and data will be critical as without it, the 747-8I due to enter service in 2010 could also slip. With only Lufthansa as its key customer, Boeing can ill afford to risk a cancellation threat by the German airline.
Equally, the ongoing flight tests of the 777F run the risk of a late delivery if strike action is, as widely expected to be of a prolonged nature.
After three years of record orders and an impending outlook based on a lower order intake, the biggest impact is going to be recovery of the delivery regime. Boeing has been rumoured to be examining an increase in 777 production to around 7 a month and continues to study ramping up the 737 line. With the 737, the industry-wide consensus that narrowbody jets run the risk of cancellation and deferrals, Boeing may yet elect to hold off on raising production of the 737 family.
Penalties will vary, and more likely than not, on the 787, these will be substantial and will damage EPS for 2009 earnings considerably, although its hard to quantify just what that precise figure could be given Boeing is offering compensation by way of discounted 777’s (like British Airways recent 777-300ER order).
Macquarie Bank analysts estimate that a 30-day strike would result in an EPS loss of around $0.30 per share, based on first half revenues of $16.7bn.
The IAM has strike action within its sights. For Boeing, damage limitation is what it will now have to battle with coupled with an unhappy workforce. All customers can do is watch, wait and hope that the two sides meet on common ground to ensure the company presses forward and does what it’s renowned for - building airplanes.
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Update: September 4, 2008
IAM votes to strike. Boeing and the IAM union are holding further talks for 48 hours, delaying strike action.
“It virtually guarantees that Boeing is going to have to pay more, and feel some pain,” says analyst Richard Aboulafia.
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20 comments September 1st, 2008
