Strike could cost Boeing billions

Boeing’s troubled year just got worse. The aerospace company, already battered by delays on its 787 Dreamliner program and a stunning loss of a $35 billion aerial tanker program, now faces billions of dollars in lost revenues from a strike by its largest union.

Production of Boeing’s commercial airplanes came to a halt Saturday after last-ditch contract talks failed and members of Machinists union Local 751 walked off the job.

The union's previous three-year contract, which covered 27,000 Boeing workers in Washington, Oregon and Wichita, Kan., expired Sept. 1, and union members overwhelmingly rejected the company's latest offer in a vote Wednesday. More than 80 percent backed the union leadership by rejecting the contract and supporting a strike.

The walkout was delayed 48 hours at the request of Washington Gov. Christine Gregoire and a federal madiator, but union officials said Friday that contract talks were fruitless and pickets went up shortly after midnight Saturday.

While the strike is yet another setback for Boeing, the company will be able to survive relatively unscathed if the walkout lasts for only a few days. But if union members strike for a month, as they did in 2005, the financial impact could be devastating, and it will further strain a difficult relationship between management and the union.

Aviation analyst Scott Hamilton with Leeham Co. LLC. in Seattle, estimates Boeing could lose $2 billion to $2.8 billion for every month the union is on strike.

The ripple effect could amount to about $100 million per day in deferred revenues. Airline customers typically pay for airplanes upon delivery. So the longer the strike lasts, the longer it takes airlines to get their airplanes and the longer it takes Boeing to receive payment.

Boeing most likely will not have to pay penalties to airlines as a result of delivery delays because the company’s sales contracts are said to have a clause that excludes penalties due to strike.

The strike’s impact on Boeing will be mainly to its bottom line and its customer relations, leaving its credibility in the aerospace community intact, Hamilton said.

Most airlines have had labor disputes and strikes of their own, so they will understand the nature of Boeing’s labor negotiations. “But the longer the strike goes on, the more unhappy the airlines are going to be because they can’t get their airplanes.”

The effect of the strike will depend on its duration, particularly for Boeing's 737 and 777 production lines, which are running at capacity, with 31 of the 737s and seven 777s produced monthly, Hamilton said.

In 2005, the Machinists strike delayed the delivery of 30 jets, costing the company an estimated $1 billion. Today, Boeing’s airplane production rates are at peak levels because of a record backlog.

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