Boeing Machinist Go On Strike

According to the Wall Street Journal, Boeing’s machinists have hit the picket lines after Boeing and International Machinists and Aerospace Workers could not reach an agreement. As a Boeing (BA) shareholder I am very interested on how this plays out as the machinist has some leverage as Boeing could not afford any more delays. On the other hand, Boeing’s management is very fastidious about expenses and profit margins.

Some numbers

With Boeing’s factories running at peak capacity to keep up with strong demand for new jetliners from airlines seeking fuel-efficient planes, a strike is expected to cost the company roughly $100 million a day in lost revenue - Wall Street Journal

I disagree with the WSJ journal as the revenue will not be lost unless the contract to build an airplane is canceled, otherwise the revenue is deferred.

The company’s final contract proposal included a pay raise of 11% over the life of the contract, as well as a boosting of pensions by 14% to $80 a month for each year of service. Under the proposed contract, the average union member would earn roughly $65,000 a year before overtime that averages $10,000 a year or more.

Interested in how much an experienced machinist makes, I gave our own machinist a call about machinist wages. A kid coming out of “school” can expect to make anywhere between $15-$20/hr (sounds good eh?).  A more experienced machinsist can easily earn somewhere between $30-$40/hr. Basically, Boeing is offering  union workers, assuming overtime pay, the higher end of what a machinist would earn otherwise.

Leverage

The machinist have a ton of leverage as Boeing could not afford any more delays. Boeing expects to start delivering its 787 Dreamliner (2 years behind schedule) in 2009. At the same time, its customers are getting a bit impatient as emerging market countries like China and UAE need new airplanes to keep up with demand. Other customers who are looking for more fuel efficient fleets also cannot wait for their airplanes to get delivered. Thus, I expect the union to get what they want as the longer the strike goes, the more impatient Boeing’s customers and shareholders get.

Wild Card

There’s a wild card in this novella. Washington State’s Governor Christine Gregoire who was responsible for the 48 hr extension. As the governor of Washington, its very important for the governor to finalize a deal as Boeing is a major player in Washington’s economy. According to this video,for every Boeing job, there are 4 jobs associated indirectly with it such as suppliers.

ederal mediators and Gov. Chris Gregoire, D-WA are trying to delay a possible Boeing employee strike, with CNBC\’s Phil Lebeau

Be prepared

The story for Boeing is simple and thus time to map out a plan. The stock price will be hit short term, but should be fine once this novella is finished and Boeing actually starts delivering some airplanes. With my original purchase price of $64, I plan to average down every 15%. Cash will be raised through the sale of non-magic formula stocks such as Proctor and Gamble (PG)

Disclaimer: I own BA and PG

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Tagged as: BA, Boeing, Boeing Strike