Boeing could be confronted with a significant cash headwind of nearly $7.96 billion if the ongoing labor strike extends through the end of the year, as highlighted in a recent analysis from UBS Securities. Last week, members of the International Association of Machinists and Aerospace Workers unanimously rejected a tentative labor agreement between the aerospace giant and the union.
This decision has led over 30,000 employees to initiate a walkout from Boeing's facilities located in Seattle and Portland. If the labor dispute continues for a couple of weeks, UBS analysts suggest that the company is unlikely to experience any financial repercussions or disruptions in its delivery schedule for the current year.
However, if the strike persists for one to two months, Boeing could see a 50% decrease in deliveries from September to December, leading to an estimated cash shortfall of $3.98 billion. Should the labor stoppage extend beyond two months, the projections indicate a scenario where Boeing may face "little to no" deliveries during the same period, effectively resulting in the aforementioned cash flow impact of $7.96 billion, as per UBS's note.
UBS analyst Gavin Parsons elaborated on these findings, stating, "We are not adding back the 15% direct labor that in theory wouldn't be paid in a strike. This could cushion the third scenario by roughly $1 billion." He also pointed out potential negative consequences for Boeing's defense sector, particularly if delays affect fuselage deliveries intended for military aircraft.
Despite the strike's challenges, Boeing's cash reserves are projected to remain above $8 billion even if the strike lasts up to two months. Nonetheless, this situation may necessitate a liquidity raise, considering the company's set floor of $10 billion. UBS's interactions with investors suggest a probable liquidity enhancement nearing $10 billion.
On a concerning note, Boeing's stock prices closed 0.8% lower on Monday and have seen a drastic decline of 40% in value throughout the year. Parsons remarked, "Given the immediate liquidity concerns, we anticipate pressure on the stock until an agreement is finalized. However, once an agreement is reached, the Max production will likely resume its ramp-up, allowing the company to return to generating positive cash flow." In response to the ongoing strike and its implications, Boeing has undertaken various cost-cutting measures.
These include significant cuts in spending with suppliers and suspending most orders for the 737 Max, 767, and 777 jets. Chief Financial Officer Brian West mentioned in a note to employees that the company is also weighing the challenging option of temporary furloughs for numerous employees, managers, and executives in the coming weeks.
Boeing has yet to publicly respond to inquiries about these developments. During a conference, West stated that the strike would affect production and delivery schedules and could jeopardize the company's recovery process. Compounding the company's challenges, credit ratings agency Moody's has placed Boeing's credit ratings under review for downgrade, while Fitch Ratings indicated that an extended strike could have substantial operational and financial effects on the company, increasing the likelihood of a downgrade..