Boeing CEO Ortberg Working Directly To End IAM Strike

Boeing CEO Kelly Ortberg will have direct input on a new offer to striking International Association of Machinists and Aerospace Workers’ (IAM) members in an effort to end the work stoppage and address an apparent “disconnect” between union members and their leadership, CFO Brian West said.

“We had an unprecedented temporary agreement that was unanimously endorsed by union leadership, and over the last few days, it became ... loud and clear with our union members that that offer didn’t meet the mark,” West said at a Morgan Stanley investor conference Sept. 13. “It was not acceptable. So, there was a disconnect.”

West, in the first comments by a Boeing executive since IAM workers overwhelmingly rejected a four-year contract offer Sept. 12, suggested Ortberg will play a leading role in ending the impasse.

“Our CEO went right to the factory floor” once front-line worker concerns over the tentative deal began to surface, West said. “He’s been out there all week, listening firsthand to the feedback of our employees, and he’s digesting. Kelly’s already at work to get an agreement that meets and addresses their concerns.

“Kelly is personally engaged and focused on restoring our trust with our people and the union, and that’s a priority, resetting that relationship,” West added. “We want to get back to the table.”

While Boeing works to bridge the gap with the IAM, it will focus on conserving cash, West said.

“From a financial perspective, any impact is going to be dictated by the duration of the work stoppage,” West said. “A strike will impact production and deliveries and operations and will jeopardize our recovery. So, our immediate focus is to be laser-like focused on action to conserve cash, and we will.”

One key metric is that the strike will likely affect Boeing’s timeline for getting back to producing 38 737s per month. The company had targeted sometime around the end of the year, but ongoing quality and supply-chain challenges made that unlikely even before the strike. It was rolling out between 25 and 30 in recent months.

“The calendar year 2024 and moving into 2025 is so dependent on the duration of that work stoppage,” West said. “I won’t try to predict it.”

Despite endorsement from IAM District 751 and District W24 leadership, workers overwhelmingly rejected the tentative agreement (TA). The final tally showed 94.6% voted no to the contract, and 96% voted to strike.

“This has been a long time coming, our members spoke loud and clear tonight,” said IAM District 751 President Jon Holden. “Clearly there were aspects of this agreement that weren’t good enough.”

Boeing leadership touted the tentative agreement (TA) in the days leading up to the vote. The TA addressed several issues seen as fundamental contributors to Boeing’s eroded safety culture and quality standards, such as giving front-line workers more say in shop-floor processes and priorities.

The TA also called for keeping production of any new airplane launched during the proposed deal’s four-year length in the Puget Sound region. Boeing used the threat of moving 777X production as leverage to secure an agreement on a contract extension in January 2014.

While the work stoppage introduces significant short-term uncertainty, a long-term impasse is seen as unlikely. Given Boeing’s lack of leverage as it struggles to stabilize its Commercial Airplanes division, the company’s options are limited if it wants to avoid an even deeper financial hole and yet more disruption within its core business.

“Timing of the strike is difficult to predict, but we continue to believe the company has less bargaining power than in prior negotiations ... and that this strike will be relatively short,” wrote RBC Capital Markets analyst Ken Herbert in a Sept. 13 note. “The near-term impact to suppliers is limited,” he added.

Union leadership plans to survey its 33,000 members to better understand what they want when the two sides return to the table, but the workers’ primary concern appears to be wages. Boeing offered what it said is a 25% boost over the life of the deal, while the union wanted 40%.

“We see it likely Boeing would have to make further concessions and move closer to the IAM’s initial proposal of 40% wage gains,” Bank of America analysts Ron Epstein wrote in a Sept. 13 note.

West emphasized that Boeing’s leadership is working directly with front-line employees to understand what they want to see in a revised offer and present one as quickly as possible.

“Kelly has been in Seattle all week getting firsthand information about the situation on the ground, and his priorities are to reset, reengage and rebuild,” West said. “Our expectation, as noted from some of the messaging from the company, is to want to get back to the table and hammer out a deal.”

While the strike will disrupt Ortberg’s early days as CEO, it likely won’t derail his efforts to lead fundamental change. Ortberg, who did not participate in the TA talks that started in March, inherited the problems that led to the strike--notably a chasm between leadership and front-line employees.

He has demonstrated willingness to address the lingering issues. Ortberg met informally with Holden and District W24 President Brandon Bryant soon after starting four weeks ago and has stated that unifying the workforce is a key plank in his platform to solidify the company.

Ortberg “is likely hoping to bridge the gap in negotiations and allow the 33,000 workers to get back to building airplanes, in our view,” Herbert wrote. “We believe Boeing, under new leadership, sought to meet the union’s demands and put focus back on execution of aircraft production and deliveries.”

If the strike drags on, however, Ortberg could face a lasting backlash.

“[We] do not expect the strike to impact the opportunity for Ortberg to drive the type of change at [Boeing] he hopes to,” Herbert wrote. “But it will be important for the strike to be relatively short in duration (under a week) for it not to risk tarnishing his reputation.”

The work stoppage is the eighth by IAM-represented workers against Boeing and the fifth in the last 35 years. The most recent occurred in 2008 and lasted 57 days. The longest-duration strike took place in 1948, lasting 145 days.