Boeing faces new world as strike comes to end

When Boeing's biggest union voted to go on strike Sept. 3, the economy was slowing but financial markets seemed relatively calm.

But in the eight weeks that 27,000 Machinists have been walking the picket lines and huddled around burn barrels, the world has changed.

Now Boeing and union leaders are anticipating restarting the company's stalled commercial airplane production lines, but it will hardly be business as usual.

"What the strike has done is allow us to sit on the edge of our seats awaiting word on what the financial crisis means to Boeing,"’ said analyst Joe Campbell with Barclays Capital. "The trouble with this strike is the world is different now."

Boeing executives and union leaders reached a tentative agreement on a new contract late Monday, and assembly lines could restart as early as next week if union members vote to ratify the contract Saturday.

That would end the union's fourth strike against the company in two decades.

But in the meantime, the financial rug has been pulled out from underneath Boeing’s airline customers, parts suppliers and other partners worldwide. A global credit squeeze raises questions about how carriers will finance new airplane purchases, while an expected deep recession will cut into travel demand.

Amid a broad financial market downturn, Boeing’s stock hit its lowest point in more than four years this month on concerns about the market for new commercial jets.

Goldman Sachs analyst Richard Safran lowered delivery forecasts for Chicago-based Boeing to 462 aircraft in 2009 and 392 in 2010, compared with earlier estimates of 489 and 524.

"We believe that the inability to obtain financing will cause customers to defer or cancel orders," he wrote in an investor note. "As a result, we believe (Boeing) will lower production rates."

Safran wrote that 40 percent of Boeing's backlog is scheduled to be delivered to customers that have a below-investment-grade rating, based on a Goldman Sachs analysis. The revised delivery estimate "assumes nearly all customers below investment grade will be unable to obtain financing themselves," according to Safran.

Goldman Sachs cut its earnings projections to $6.45 per share from $6.80 per share for 2009 and $6.30 per share from $7.35 for 2010. It also lowered its 12-month price target for Boeing shares to $40 from $56.

Boeing shares are down about 50 percent from their 52-week high of nearly $99.

Boeing executives so far have said little about how the company is being affected by the financial crisis.

Boeing’s chief financial officer, James Bell, said earlier this month the company should be able to resume pre-strike production levels within two months. “Hopefully we can do it in a lot less time,” he said in a conference call.

Boeing has said its third-quarter net income dropped 38 percent because of the strike and other production issues.

The company also has said it might have to finance the delivery of some airplanes in 2009, because of the credit crunch — a practice Boeing has not done in several years.

But now that the strike appears to be over, investors want more details. As one industry observer put it: “Boeing’s hall pass has expired.’’

MORE FROM AVIATION

Aviation Section Front

BA, Iberia say merger a plus for passengers Boeing chooses S.C. for new 787 line Boeing posts quarterly loss, lowers forecast Continental loses $18 million in third quarter Boeing expects $1 billion charge Frontier Airlines set to emerge from bankruptcy Japan minister says JAL won’t be liquidated As fees rise, airlines test flier limits Report: Troubled JAL mulls raising $2.8 billion Airline industry lost over $6 billion in 1st half Aviation Section Front   Add Aviation headlines to your news reader: