The machinists’ strike at Boeing presents a complex challenge with broad implications for the aerospace industry. After rejecting a contract offering a 25% pay increase over four years, thousands of workers have walked out, adding further complications to Boeing’s delivery and cash flow problems:
Production Impact on Already Strained Targets:
In stark contrast to record-setting production of 52 737s per month in 2018, Boeing has been producing 737 MAX aircraft in the low to mid-20s per month. The company’s official production target is 38 MAX planes per month by the end of 2024. This was already a difficult challenge, but an extended strike will set back the production ramp-up.
Financial Strain:
Boeing has already seen substantial declines from peak revenues and has struggled with years of poor profitability and cash burn. The strike could impact about $280 million in revenue per day and dramatically increase costs during ramp-ups. Similar to the recent UAW strikes in the auto industry, where billions in revenue were lost due to halted production, Boeing now faces a similar risk. Additionally, inventory has been increasing, adding cost burdens to to Boeing and suppliers.
Supply Chain Vulnerability:
With Boeing being one of the two main sources of commercial aerospace revenue, the strike will have cascading effects on the supply base. Much like the auto industry during its strikes last year, Boeing’s Tier 1 and Tier 2 suppliers are at risk. These smaller suppliers, many still recovering from pandemic-related disruptions, could face liquidity issues if production remains halted. As seen with auto suppliers, these disruptions could lead to layoffs, factory slowdowns, or even bankruptcies, weakening the entire aerospace supply chain.
Labor Relations:
The strike signifies a shift in worker leverage as Boeing employees push for higher wages and benefits. The outcome of these negotiations could set new benchmarks for labor contracts across the aerospace sector.
Takeaway:
A short strike might be difficult yet manageable, but anything extending beyond 2-4 weeks could have severe compounding negative effects on Boeing’s financial health, supplier stability, and competitive position with Airbus.
