Boeing faced its first large-scale strike in 16 years, which forced production of its best-selling 737, 777, and 767 jets to stop production, further damaging the already troubled Boeing.

The strike began at midnight on Friday September 13 EST. Thousands of mechanics stopped working after rejecting a labor agreement reached between union leaders and Boeing executives.

The agreement proposed a total of 25% wage increases for workers over four years. However, the agreement failed to meet union members' expectations of 40% salary increases within four years, so Boeing union members rejected the contract recommended by union leaders for the first time in 16 years.

Their dissatisfaction with the new contract mainly focused on starting pay and benefits. Many employees believe that the salary increase proposed in the contract is far from sufficient, considering that wage growth has stagnated over the past decade while the cost of living has continued to rise.

An employee pointed out that the new contract proposes a starting salary of $21 per hour, which is comparable to the starting salary of local burger chain Dick's Drive-In, which also provides employees with health insurance and 401 (k) pension matching plans. The employee sarcastically said, “You can make more money by flipping hamburgers.”

Boeing faces the risk of deteriorating cash flow and downgrading credit ratings

The strike certainly made matters worse for Boeing.

First, Boeing will face the problem of delayed production. Seattle is the historic birthplace of Boeing and its largest production center. In addition to producing 737 aircraft, Boeing also manufactures 777 and 767 models at its Everett plant in northern Seattle. The strike could disrupt the production plans of these factories and affect the broader supply chain, leading to chaos in the already finely operated production system and exacerbating the shortage of aircraft.

Second, the strike worsened Boeing's cash flow. The last time a trade union employee signed a labor agreement was in 2008. The negotiations led to a 57-day strike, causing losses of about 0.1 billion US dollars to Boeing every day. According to estimates by TD Cowen analyst Cai von Rumohr, if this strike continues for 50 days, similar to the previous strike, Boeing's cash flow will lose 3 billion to 3.5 billion dollars. After the Alaska air crash in January of this year, Boeing has already fallen into a difficult situation of tight cash flow and increased debt. Boeing is also burdened with a huge debt of 45 billion US dollars.

Third, Boeing faces the risk of a downgrade in its credit rating. Moody's placed Boeing on a downgrade watch list, and the strike could downgrade Boeing's credit rating to junk. Moody's said in a statement on Friday that it is evaluating whether Boeing's rating will be downgraded and will consider the duration of the strike, the impact on cash flow, and possible fund-raising measures Boeing may take to enhance liquidity. Previously, Boeing's unsecured debt rating had remained at Baa3 of Moody's ratings since April.

Boeing has been working hard to maintain its investment grade rating. If Boeing's credit rating is downgraded to a “junk grade,” its borrowing costs will rise. This will undoubtedly make matters worse for Boeing, which is currently trying to reverse its commercial and defense business. Boeing also lost money on some defense contracts, and the space business also suffered setbacks due to delays and cost overruns. According to Moody's data, Boeing has 4 billion US dollars of debt due in 2025, and 8 billion US dollars due in 2026.

If Boeing's credit rating is downgraded to a “junk grade,” it will also have other financial effects, such as fewer investors willing to buy Boeing debt. Generally, two rating agencies are required to downgrade a company's rating to speculative (junk) before its debts are removed from the investment grade index and are no longer considered high-quality debts.

However, credit rating agency Fitch (Fitch) said on Friday that Boeing's investment rating faces “limited buffer space” due to the strike. Like Moody's, Fitch maintained Boeing's rating at a level higher than speculative (junk). The same applies to Standard & Poor's (S&P), which rated Boeing as BBB-, which is the lowest level of investment.

Boeing's chief financial officer Brian West told analysts at the Morgan Stanley conference that the company is considering taking necessary measures to strengthen its financial position. He said that Boeing is evaluating the capital structure to ensure that maturing debts can be repaid within the next 18 months.

West also stated, “We remain committed to carefully managing our balance sheet, and our priority is maintaining an investment-grade credit rating.” This means that Boeing will do its best to maintain its investment-grade rating to avoid higher borrowing costs.

Affected by this, Boeing's stock price fell more than 4.1% during the intraday session on Friday.

Employees are dissatisfied with starting pay and benefits

Union leaders said 94% of the members of the International Association of Mechanics and Aeronautical Workers (IAMAW) voted against the contract and 96% voted for the strike. Union officials also said they would seek to renegotiate with the company.

After leaving the Boeing 737 manufacturing plant in Renton, Washington, Boeing Quality Inspector Marcus Amador said, “We don't think our demands are excessive. It's been 16 years since the last labor agreement.”

Boeing's financial director Brian West said at the investor conference that the company is developing new contract proposals to address union concerns. He warned that the strike could “jeopardize our recovery,” and revealed that the company is currently saving as much cash as possible. CEO Kelly Ortberg visited the factory last week to listen to employee feedback and emphasized that rebuilding trusting relationships with employees and unions is a top priority for the company.