Boeing’s CEO wants to make it ‘great again’. Here’s what’s in the way.

By Claudia Assis

‘The clock is ticking for Boeing’ as the strike continues and next steps are uncertain

Boeing’s new CEO, Kelly Ortberg, convinced Wall Street with his comments about a return to greatness for the aerospace and defense giant, but ongoing labor disputes injected new uncertainty into that goal.

Shares of Boeing ( BA ) fell 2% on Thursday, a day after reporting third-quarter results and after factory workers in Washington state rejected the company’s latest offer and continued a six-week strike.

Ortberg, who took the reins at Boeing in August with a mandate to turn the tide, told investors on a conference call Wednesday that while there is “a lot of work to do, we have a plan and change is already happening.” . It’s a great ship that will take some time to turn around, but once it turns around, it has the capacity to be great again.”

“Making Boeing great again starts with an employment agreement,” BofA Securities analyst Ron Epstein said in a note Thursday.

That is “arguably the most critical” step, as the rejection of the offer “adds even more uncertainty, costs and recovery delays as the strike approaches day 40,” Epstein said. The analyst reiterated his neutral rating on the stock as “Boeing continues to overcome hurdles, but challenges remain.”

UBS analyst Gavin Parsons echoed that sentiment, adding that reaching an agreement with the striking machinists is the “most important next step for Boeing” and its suppliers.

“Provided that demand for new aircraft remains robust, we believe that once the short-term overhangs are removed, the market will begin to price in the strong long-term earnings potential of this duopoly company,” said Parsons, referring to the European Airbus SE (FR: AIR).

Boeing said Tuesday that its order book is about half a trillion dollars and, in Ortberg’s words, has a customer base “that wants us to succeed.”

Ken Herbert of RBC Capital Markets said the proposal’s rejection was “somewhat of a surprise move.”

That latest offer would have increased wages by 35% over four years, and also included a $7,000 ratification bonus, as well as a $5,000 contribution to a retirement plan, but did not include the reinstatement of the company’s pension plan, which appears to be a trickier . point.

“The next steps are uncertain,” Herbert said. Boeing likely appreciates that it’s getting closer to what the union will ultimately accept, he said.

“We continue to believe the company can reach an agreement without reintroducing a pension plan,” but pay increases would likely have to rise to about 40% over four years to reach an agreement, he said.

“The timing for the continuation of negotiations, or the next possible vote, is uncertain,” Herbert said. The union “likely understands that it has significant leverage in these negotiations, and the clock is ticking for Boeing.”

The company last week filed a $25 billion regulatory filing to offer equity or debt over the next three years and announced a new credit agreement with lenders.

The company is widely expected to tap the capital markets and issue at least $10 billion in equity in the near term as it works to maintain its investment-grade debt status and strengthen its balance sheet.

Barclays analyst David Strauss said in a note that Ortberg’s “pragmatic approach” could set the stage for a “slightly larger than expected share raise and at this point we view bigger as better.”

-Claudia Assis

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