Boeing machinists reject new labor contract, extending more than 5-week strike

Boeing machinists voted against a new labor deal that included 35% wage increases over four years, their union said Wednesday, extending a more than five-week strike that has halted most of the company’s aircraft production, which is centered in the Seattle area.

The contract’s rejection by 64% of the voters is another major setback for the company, which warned earlier Wednesday that it would continue to burn cash through 2025 and reported a $6 billion quarterly loss, its largest since 2020. A simple majority was needed for the contract to pass.

The strike is costing the company about $1 billion a month, according to S&P Global Ratings, and it has put Boeing’s investment-grade credit rating at risk, which could drive up its borrowing costs just as it seeks to raise cash.

New CEO Kelly Ortberg had said reaching a deal with machinists was a priority in order to get the company back on track after years of safety and quality problems.

“My focus is getting everybody looking forward, get them back to work, improve that relationship,” Ortberg told CNBC’s “Squawk on the Street” earlier in the day, when asked about the strike.

Ortberg’s laid out his vision for Boeing’s future, which could include slimming down the company to focus on core businesses. Earlier this month, he announced Boeing will cut 10% of its global workforce of 170,000 people.

The Biden administration has gotten involved during the stoppage, and acting Labor Secretary Julie Su met with Boeing and the union before the latest offer last week.

“Both parties will need to determine the best way forward,” a Labor Department spokesperson said Thursday. “Acting Secretary Su has been in touch with the union and the company and is available to support them.”

Boeing’s more than 32,000 machinists in the Puget Sound area, in Oregon and in other locations walked off the job on Sept. 13 after overwhelmingly voting down a previous tentative agreement that proposed raises of 25%. The International Association of Machinists and Aerospace Workers union had originally sought wage increases of 40%. It is the machinists’ first strike since 2008.

The strike is further delaying deliveries for many Boeing customers who are dealing with production delays not just from Boeing but also from rival Airbus.

“I look forward to the day when they’re not just a distraction,” American Airlines CEO Robert Isom told CNBC’s “Squawk Box” on Thursday. “We’ve been struggling with them over the last five years.”

Ortberg met with Isom and other major airline CEOs early into his tenure, which began in August.

“We need them to deliver quality aircraft on time,” Isom said, adding that American expects to meet its capacity plans for next year. “I’ll be welcoming that phone call when Boeing says they’re going to do that.”

Boeing’s most recent proposal, announced last Saturday, included 35% raises over four years, increased 401(k) contributions, a $7,000 bonus and other improvements.

Workers had pushed for higher pay amid a surge in living costs in the Puget Sound area. Some machinists were upset about losing their pension plan in a previous contract that they signed in 2014, but the latest proposal didn’t offer a pension.

“The rejection raises the risk of a protracted strike if the obstacle is reinstatement of a pension,” said Ben Tsocanos, aerospace director at S&P Global Ratings, in a statement, adding that the company isn’t likely to agree to a pension because of its cost.

Boeing had also agreed in the new contract to build its next aircraft in the Pacific Northwest, which had also been a sticking point with unionized workers after Boeing moved all of its 787 Dreamliner production to a nonunion factory in South Carolina.

“We have made tremendous gains in this agreement. However, we have not achieved enough to meet our members’ demands,” said Jon Holden, president of IAM District 751, at a news conference Wednesday night. He said the union will push to go back to the negotiating table.

Boeing declined to comment on the voting results.

The labor strife is the latest in a long list of problems at Boeing, which started the year when a door plug blew out midair from a packed Boeing 737 Max 9, its bestselling plane, reigniting regulator scrutiny of the company.

The strike began as Boeing was working to ramp up production of the 737 and other aircraft.

The extended stoppage is also a challenge for the aerospace supply chain, which is fragile coming out of the pandemic, as the company’s web of suppliers had to train new workers quickly.

Spirit AeroSystems, which Boeing is in the process of acquiring, last week said that it will temporarily furlough about 700 workers and that layoffs or other furloughs are possible if Boeing machinists’ strike continues.