Boeing (BA) stock fell more than 2% on Wednesday after negotiations with its machinist union broke down, and the aircraft maker withdrew its contract proposal.
The company also faces the threat of an S&P credit rating downgrade to junk as members of its biggest union remain on strike for a fourth week.
Following its third round of bargaining talks, including two days of negotiations this week, Boeing chief operating officer Stephanie Pope told employees in an email Tuesday evening that “further negotiations do not make sense at this point and our offer has been withdrawn.”
“Unfortunately, the union did not seriously consider our proposals. Instead, the union made non-negotiable demands far in excess of what can be accepted if we are to remain competitive as a business, said Pope.
Members of the International Association of Machinists and Aerospace Workers (IAM) have been on strike since September 13 after voting down a tentative labour contract.
The union said in a statement on Tuesday Boeing refused to propose any wage increases, vacation or sick leave accrual, and would not reinstate a benefit pension, among other items.
The labour talks breakdown occurred on the same day that credit rating agency S&P placed Boeing on CreditWatch Negative, increasing the likelihood of a downgrade should the labour dispute continue into the end of the year.
Boeing’s senior unsecured notes are currently at BBB-, the lowest investment grade level before entering junk-rated territory.
The aircraft maker has been trying to get its production back on track, with new safety and manufacturing measures in place following a door plug blowout aboard an Alaska Airlines (ALK) flight on a Boeing 737 Max 9 jet in January.
“The strike puts Boeing’s recovery at risk. The company will not reach its goal of increasing Max production to 38 planes a month by the end of 2024,” S&P said.
S&P estimates the strike is costing the company more than $1 billion per month. It expects Boeing will incur a cash outflow of approximately $10 billion in 2024.
Boeing took aggressive cost-cutting measures last month, including the temporary furlough of executives, managers, and employees.
“While this is a tough decision that impacts everybody, it is in an effort to preserve our long-term future and help us navigate through this very difficult time,” Boeing’s CEO Kelly Ortberg wrote in a note to employees on Sept 18.
Ortberg, who took over the CEO job in August, said he and his leadership team would also take a pay cut for the duration of the strike.
“I think the big picture is this is sort of a a near-term blip,” Tony Bancroft, portfolio manager for Gabelli Commercial Aerospace & Defense ETF told Yahoo Finance Wednesday morning.
“In the long run, there’s a decade-plus of backlog for commercial aircraft demand for the two OEMs [original equipment manufacturer] and Boeing is one of the two. So I think in the long term this is not going to be meaningful,” he added.
