Boeing is constantly in trouble, with a major strike affecting production and credit ratings facing the risk of being downgraded to "junk" level

Boeing is facing its first large-scale strike in 16 years, leading to the forced halt of production of its best-selling 737, 777, and 767 jetliners, further hitting the already struggling Boeing.

The strike began on Friday, September 13th, at midnight Eastern Time, when thousands of mechanics stopped working after rejecting a labor agreement proposed by the union leaders and Boeing executives.

The agreement proposed a total 25% wage increase for workers over four years. However, the agreement failed to meet the union members' expectation of a 40% wage increase over four years, leading to the first rejection of a contract recommended by union leaders in 16 years.

Their dissatisfaction with the new contract mainly focuses on starting wages and benefits. Many employees believe that considering the stagnant wage growth over the past decade and the rising cost of living, the proposed wage increase in the contract is far from sufficient.

One employee pointed out that the proposed starting wage in the new contract is $21 per hour, which is equivalent to the starting wage at the local hamburger chain Dick's Drive-In, which also provides health insurance and a 401(k) retirement matching plan for employees. The employee sarcastically remarked, "You could make more flipping burgers."

Boeing Faces Cash Flow Deterioration, Risk of Credit Rating Downgrade

The strike undoubtedly adds insult to injury for Boeing.

Firstly, Boeing will face production delays. Seattle is Boeing's historical birthplace and its largest production center. In addition to producing 737 aircraft, Boeing also manufactures 777 and 767 aircraft at the Everett factory in the north of Seattle. The strike may disrupt the production plans at these factories and affect a broader supply chain, leading to disruptions in the finely tuned production system and exacerbating the aircraft shortage issue.

Secondly, the strike will worsen Boeing's cash flow deterioration. The last time union workers signed a labor agreement was in 2008, which resulted in a 57-day strike, causing Boeing approximately $100 million in losses per day. According to TD Cowen analyst Cai von Rumohr's estimate, if this strike lasts 50 days, similar to the previous strike, Boeing's cash flow could lose $3 billion to $3.5 billion. Following the Alaska Airlines incident in January this year, Boeing has already been facing cash flow constraints and increased debt, with a massive $45 billion debt burden.

Thirdly, Boeing faces the risk of a credit rating downgrade. Moody's has placed Boeing under review for a downgrade, and the strike may lead to a downgrade of Boeing's credit rating to junk status. Moody's stated on Friday that it is evaluating whether Boeing's rating will be downgraded, considering the duration of the strike, its impact on cash flow, and the fundraising measures Boeing may take to enhance liquidity. Previously, Boeing's unsecured debt rating has been at Moody's Baa3 since April.

Boeing has been striving to maintain its investment-grade rating, and if Boeing's credit rating is downgraded to junk status, its borrowing costs will rise, which is undoubtedly another blow to Boeing, which is currently working to turn around its commercial and defense businesses. Boeing is also losing money on some defense contracts, and its space business is also facing setbacks due to delays and cost overruns. According to Moody's data, Boeing has $4 billion in debt due in 2025 and another $8 billion due in 2026 If Boeing's credit rating is downgraded to "junk status," it will have other financial implications, such as a reduction in investors willing to buy Boeing's debt. Normally, two rating agencies need to downgrade a company's rating to speculative grade ("junk status") for its debt to be removed from investment-grade indices and no longer considered high-quality debt.

However, credit rating agency Fitch stated on Friday that Boeing's investment-grade rating faces "limited cushion" due to labor issues. Like Moody's, Fitch also maintains Boeing's rating one notch above speculative grade. The same situation applies to Standard & Poor's (S&P), which rates Boeing as BBB-, the lowest level of investment grade.

Boeing's CFO Brian West told analysts at a Morgan Stanley conference that the company is considering taking necessary steps to strengthen its financial position. He mentioned that Boeing is evaluating its capital structure to ensure it can repay maturing debt over the next 18 months.

West also stated: "We remain committed to prudently managing our balance sheet, with our top priority being to maintain our investment-grade credit rating." This means that Boeing will take actions to preserve its investment-grade rating to avoid higher borrowing costs.

As a result, Boeing's stock price fell over 4.1% during Friday's trading.

Employees Express Dissatisfaction with Salaries and Benefits

Union leaders stated that 94% of members of the International Association of Machinists and Aerospace Workers (IAMAW) voted against the contract, with 96% supporting a strike. Union officials also mentioned that they will seek to renegotiate with the company.

Boeing quality inspector Marcus Amador, after leaving the Boeing 737 manufacturing plant in Renton, Washington, said: "We don't think what we're asking for is unreasonable, it's been 16 years since the last labor agreement."

Boeing's CFO Brian West mentioned at an investor conference that the company is developing new contract proposals to address the union's concerns. He warned that a strike could "jeopardize our recovery" and revealed that the company is currently focused on conserving cash as much as possible. CEO Kelly Ortberg visited the factory last week to listen to employee feedback and emphasized that rebuilding trust with employees and the union is a top priority for the company