Kelly Ortberg came out of retirement to right the ship, but Boeing’s new CEO first needs to put out a massive fire. As more than 33,000 factory workers go on a strike that analysts say could cost the company $3.5 billion, the company announced sweeping cost cutting measures Monday, including a hiring freeze, “significant reductions” to supplier spending, and a pause on purchase orders for most of its commercial jetliners. The measures are a temporary stopgap at best, however, as rating agencies consider downgrading the company's debt to junk and the stock continues to falter.
Back in June, Fortune’s Shawn Tully called Boeing's looming dispute with its workforce “America’s most important labor negotiation in decades.” So far, it's been a disaster.
Late last week, Boeing and union representatives reached a deal that would have raised pay 25% over four years. Almost 95% of voting workers rejected the contract, the International Association of Machinists and Aerospace Workers said, with 96% agreeing to go on strike.
Boeing shares have fallen 4% since early last week, hitting a 52-week low of $154.02 on Monday before rising slightly to sit above the $155 mark at close. The stock is down 38% from the start of a year that began with a panel of one its 737 Max planes famously blowing off during an Alaska Airlines flight in January. Then it got worse, with the company's operating loss in Q2 more than tripling from last year to $1.4 billion.
Boeing workers don't forget past increases in CEO pay, BofA says
Ortberg might have been brought in to turn things around, but his last-ditch outreach to workers, which included a warning that “a strike would put our shared recovery in jeopardy,” didn’t work.
Bank of America senior Ronald Epstein credits the former Rockwell Collins CEO for trying, but two decades of well-documented missteps appear to have taken their toll.
“During [former CEO Dave Calhoun’s] tenure his total compensation increased 54.8% from 2021 to 2024,” Epstein wrote in a note last week, “while [Boeing's] share price has declined 20% vs. the S&P up 40% in the same time frame.”
Many of Boeing's workers are calling for a 40% increase in wages after years in which their pay hikes lagged well behind the rest of the industry. Boeing COO Stephanie Pope told workers the 25% hike was a big move for a company carrying roughly $60 billion in debt, Epstein noted. However, given that Calhoun’s compensation climbed to be 273 times higher than that of the median Boeing employee, he wrote, he’s not surprised that line has proved a hard sell.
“We also see [Boeing] management as out of touch with their labor base given the expectation the union should take the long-term view when management has overly focused on short-term financial targets for so long," said Epstein.
While Ortberg has made clear he wants to get back to the negotiating table as soon as possible, a deal may take significant time. Epstein found that, over the last eight decades, strikes at Boeing have lasted just short of 60 days on average.
Previously, Epstein noted, Boeing aimed to produce 42 of its 737 planes this month. The company is now in a particularly weakened position amid the strike, he said, having just pushed that monthly goal out to March.
