The Wall Street Journal reported Tuesday that aircraft manufacturer Boeing Co. (BA) was forced to rework on its delivery schedule for all 3,734 jetliners in its order backlog as it recovers from the 58-day strike by the International Association of Machinists and Aerospace Workers or IAM. Boeing is said to have been looking at a 10-week delay from the original delivery date.
Since the strike was called off of November 2, Chicago, Illinois-based Boeing has being grappling to get the production schedule back on rails. According to reports, the process, which calls for careful coordination among hundreds of suppliers and tens of thousands of workers worldwide, could take several weeks.
In a similar situation in 1997, the company sought to speed up production more quickly than suppliers could make parts. The result was a month-long shutdown, a rare annual loss and $2.6 billion in charges over two years. However, later in 2005, Boeing refused to overload its factories to compensate for lost production after its machinists struck for almost a month.
Reports currently suggest that Boeing has already worked out a new delivery schedule after taking into consideration the period required to get back production to about 41 jets per month. The company has also reportedly started notifying its customers on the new delivery schedule.
Boeing faced some problems in arriving at a new delivery schedule as it had to also incorporate the time required to replace hundreds of faulty tiny parts called nutplates on 737s. A batch of these parts was found not having the required coating that inhibits corrosion.
Last week, the world's biggest-selling plane manufacturer said it would provide updated financial guidance and a post-strike assessment of the schedule for all its commercial airplane programs at a later date.
According to the Journal, Commercial Airplanes Chief Executive Officer Scott Carson is expected to address some of the issues on Wednesday during an analysts' conference hosted by Credit Suisse.
The strike that began September 6, resulting in the shut down of Boeing's commercial aircraft or BCA plants, is the third major labor disruption at BCA in the past nine years. The strike was called by one of the strongest unions in the manufacturing industry, IAM, which represents about 27 thousand workers at Boeing facilities in Washington, Oregon and Kansas.
The strike was related to issues including pay rises, retirement benefits, health-care contributions, job security, and the company's outsourcing policy. The strike, which included about 27,000 IAM members, represents about 40% of BCA's employee base or 16% of Boeing's total employee base. However, a four-year tentative deal was reached between Boeing and its Machinists union on October 28, following five days of intense negotiations with continued assistance from federal mediators.
Boeing in early October revealed that deliveries of certain models in the third quarter were affected by the labor strike. The company's delivery of commercial planes in the third quarter fell 23% to 84 commercial aircrafts from 109 in the year-ago quarter.
Last month, Boeing announced a 38% drop in third quarter profit from a year-ago, hurt by the ongoing machinists' strike and supplier production problems. Quarterly earnings per share also missed the Street expectations. Quarterly revenues were $15.3 billion, down 7%. Additionally, the company said it will provide updated guidance after the machinists' strike ends.
According to the company, the strike and supplier production challenges on customer-furnished galleys for certain wide-body airplanes reduced third-quarter commercial airplane deliveries by about 35 units and net earnings by an estimated $0.60 per share. Boeing Commercial Airplanes segment revenues also fell 16% to $6.9 billion from last year.
Pursuant to the start of the strike, Fitch said that the machinists' strike against Boeing could affect the company's ratings and/or rating outlook, if the strike extends beyond two to three months. However, there were no change to the ratings or Rating Outlook as Fitch believes that Boeing has the financial resources to withstand a strike of at least two to three months. Fitch has Boeing's Issuer Default Rating at 'A+' and the Rating Outlook at 'stable'.
Last week, Boeing announced a delay in production and delivery of the 747-8 Freighter and Intercontinental airplanes, due to supply chain delays caused by design changes to the airplane, limited availability of engineering resources within Boeing, and the machinists' strike that stopped production. The delivery of the first 747-8 Freighter is now postponed to the third quarter of 2010 from late 2009. The first 747-8 Intercontinental passenger jet will be delivered in the second quarter of 2011 instead of late 2010.
BA closed Tuesday's regular trading session at $39.56, down $1.04 on a volume of 12.21 million shares, higher than the three-month average volume of 8.83 million shares. In the past 52-week period, the stock has been trading in a range of $38.05 to $94.60.
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