SEATTLE – Boeing Co. (BA), the largest U.S. plane maker, halted production after its machinists' union went on strike Friday, voting to reject the company's latest contract offer.
Shares of Boeing fell 2 percent on the New York Stock Exchange (search). The stock has risen more than 60 percent since April last year as the company has rebounded from Pentagon procurement scandals and management upheaval.
But if the strike were a long one, Boeing's improved prospects could be threatened as it competes against European plane maker Airbus, an industry analyst warned.
"We believe Boeing can easily weather a short strike by deferring deliveries of planes but are concerned that a long, drawn-out strike will have a negative impact on delivery schedules," said Jared Muroff, an analyst at Prudential Equity.
The machinists' last strike, a 10-week walkout in 1995, slowed deliveries of planes and depressed Boeing's earnings.
But Fulcrum Global Partners analyst Susan Donofrio said past strikes have not had any major impact on the company's stock price.
Shares were down $1.36, or 2.1 percent, at $64.63 in afternoon trade. The company is trading at about 22.7 times its 2005 earnings forecast.
Boeing spokesman Chaz Bickers said Boeing would not build any planes during the strike, for which 86 percent of the 18,500 union members voted, with health care and pension benefits remaining key issues.
Fitch Ratings said the vote to strike does not now affect its ratings on the debt issues of Boeing or its Boeing Capital Corp. (search) unit, but Fitch will monitor the length of the strike and could review its ratings if the strike extended beyond two to three months.
The production halt threatens Boeing parts suppliers such as Goodrich Corp. (GR) and BE Aerospace Inc. (BEAV). Bickers said Boeing is rescheduling deliveries from some suppliers but refused to disclose further details.
Boeing plans to deliver 320 planes in 2005, but with production halted and supply deliveries rescheduled, that number could change.
"Since we won't be building any more planes, we need to know how long the strike will last before we can make any assumptions on deliveries," Bickers said.
Fulcrum's Donofrio said the strike could result in a delay and deferral of planned aircraft deliveries but not an outright cancellation of orders. "Any type of earnings impact, would, therefore, simply be moving their revenues to a later time period," she said, referring to Boeing and its parts suppliers.
Both sides had been bracing for a strike as the union on Wednesday had urged members to reject the company's latest contract offer.
The strike comes as Boeing's commercial aircraft business is booming, with the production halt jeopardizing profits and giving ground to archrival European jetmaker Airbus, owned by EADS and BAE Systems Plc.
Strong demand for Boeing jets -- such as its single-aisle 737, favored by low-cost carriers from Dallas to Delhi -- gave the union an unusually strong hand in the talks this time around.
Boeing has said it expects airlines in India to buy 490 planes over the next two decades. India's Jet Airways Ltd. ordered 10 planes earlier this month, valued at nearly $680 million at list prices. Deliveries are scheduled to begin in July 2006.
Alaska Air Group Inc. (ALK) in June ordered 35 airplanes worth $2.3 billion at list prices.
Chile's LAN Airlines (LFL) has ordered a total of 12 Boeing planes worth about $1.73 billion at list prices.
Guggenheim Aviation Partners placed an order for six planes last month valued at $1.37 billion. Deliveries are scheduled to begin in late 2006.
United Parcel Service Inc. (UPS) ordered eight freighters from Boeing earlier this month. Several other airlines were said to be in talks with Boeing to order planes.
Boeing's final offer to machinists in Seattle, Washington, and Portland, Oregon, came after almost three months of negotiations.
The offer included a 5.5 percent wage increase and pension payments of $66 per month for each year of a retired employee's service, plus as much as $15,400 in lump-sum payments and bonuses. Boeing proposed a separate package for its Wichita, Kansas, employees.
The union wants employees in Wichita, Kansas, to get the same deal as other workers and wants better job security for all. It is pushing for higher pension payments and objects to the company's new health care plan, which it says pushes costs onto workers.