A labor dispute at Boeing threatens to jeopardize the production targets of the 737 Max and could put the company in a financial bind. Chief Financial Officer Brian West stated on Friday that the company would do everything possible to defend its investment-grade credit rating.
The rating is crucial for Boeing's business operations. A loss of the investment grade would significantly increase financing costs, especially given the debt burden of 53 billion USD. To prevent this, Boeing might consider a securities issuance to secure liquidity.
Around 33,000 workers of the International Association of Machinists District 751 went on strike at midnight after rejecting a preliminary agreement. West emphasized that the new CEO, Kelly Ortberg, was personally involved in the negotiations.
Boeing plans to increase the production of the 737 Max from 25 to 38 aircraft per month by the end of the year. However, West said that this will now "take longer." "I cannot give a forecast for 38 per month," he stated. "It greatly depends on the duration of the strike.
Boeing's shares fell by almost 4 percent to $156.77.
The corporation had already slowed down the production of the Max this year to improve the quality of its manufacturing processes. The aircraft manufacturer has been under increased scrutiny by regulatory authorities since January, after a door panel fell off during a flight due to missing bolts. The US Federal Aviation Administration (FAA) has limited the production of the Max to 38 units per month.
The strike could further impair Boeing's ability to deliver aircraft to customers, thereby putting additional strain on the already pressured free cash flow. All three major rating agencies have rated the company just above junk status with a negative outlook.
A strike of one to two weeks is unlikely to put the rating under pressure," said Dino Kritikos, an analyst at Fitch Ratings. "But a longer strike could have significant operational and financial impacts and increase the risk of a downgrade.
West emphasized that Boeing's priorities were to maintain the investment-grade rating and stabilize the supply chain and manufacturing processes. "This goal was made more difficult by the strike overnight," he said. "We are prepared to supplement our liquidity position to support these goals.
Boeing has informed suppliers to halt their deliveries to the plants in Renton, Washington, if they are not behind schedule. However, the delivery schedules for the South Carolina plant, which produces the 787, remain unaffected as it is not unionized.
West called the labor dispute "disappointing" as things were just moving in the right direction. "We are working on all possible measures to preserve cash flow," he said. "Our goal is to return to the negotiating table and reach an agreement.
