Blood in the water

I don’t have a strong opinion about unions.

On one hand, I (though not unionized) recognize I now benefit from the quality-of-life improvements gained over the years by unions. On the other hand, almost by definition (it seems) as a shareholder and owner of a business a union is my adversary. It is a party competing with me for the spoils of the business. On a third hand (back to that great Harry Truman one-armed economist joke) that competition is probably exactly why unions are needed.

Regardless where you stand, unions are part of the fabric that an investor needs to consider when putting money to work. Investors tempted by Boeing right now need to have labor on their radar screen.

The case for Boeing is pretty straightforward. It is part of a global duopoly making airplanes. Global air travel is expected to grow at a 2% to 5% clip (depending on who is estimating) for the next few decades, creating massive demand for new planes. Boeing shares still trade at about half of where they did back in 2019, prior to the pandemic and some internal issues. In theory, all Boeing has to do is show up, figure out how to turn the lights on, and print money.

Alas, nothing has come simple for Boeing in recent years. First there was the 737 MAX tragedy, that became a debacle and exposed shockingly embarrassing internal controls. Then the pandemic. And since COVID there have been a string of other engineering and quality issues with not just the MAX but the 787 Dreamliner and a refresh of the 777 that have put the brakes on growth.

Some issues have been internal. Some have been with key suppliers. But the bottom line is even with Boeing’s attempts to ramp production post-COVID the company is making a lot fewer planes than it hoped to back in 2019 and will do so for the foreseeable future.

Boeing has become the punchline to a lot of jokes. It is the new General Electric. Every time we think it couldn’t be worse, Boeing has shown us we are incorrect. Boeing’s investing calls have become the inverse to Steve Jobs famous “and one more thing…” bit at the end of his product announcements.

Add to it the fact that Boeing mortgaged everything except the staplers on execs desks to survive the pandemic (ok, exaggeration, but debt ballooned nearly 400%!), and it is safe to say Boeing doesn’t need any more negative developments.

Which brings us back to the unions…

But first, a brief (paid) endorsement:

To the extent that this content is intelligent, it is so because I use tools like Koyfin to make sure I have the best charts, data, analysis, and transcripts available. Koyfin provides a lot of the same tools you get with a Bloomberg terminal or Capital IQ at a fraction of the price.

Interested? Click the button below to get 10% off your first year using Koyfin.

It’s been a great year for labor. The United Auto Workers secured real, significant wins after strikes at the Detroit Three. The Teamsters only had to threaten a strike to extract huge wage and benefit gains from United Parcel Service. The Air Line Pilots Association did the same at Delta, United, and American. After a generation on the decline unions and their members feel empowered, and companies with major contracts up for renewal have reason to worry.

As fate would have it, the contract covering 30,000 Boeing employees is up in September 2024. Workers were largely bludgeoned by management in each of the last two negotiations, and the International Association of Machinists is ready to go to war.

I would refer you to this excellent curtain-raiser from Dominic Gates of the Seattle Times for more details. The key section, with quotes from union head Jon Holden and industry analyst Richard Aboulafia (emphasis mine):

Negotiations are set to begin after the start of the year, giving the two sides plenty of time to get a deal done. But in this climate, and with all that anger, it doesn’t seem like an easy task. Don’t expect a quick resolution: The union has already scheduled a July “prepare to strike” rally in Seattle.

This could easily turn into a huge mess. Boeing needs deliveries to generate cash and pay down that debt pile it took on during the pandemic. It is already behind due to supplier errors and internal shortfalls. The UAW did a good job targeting select assembly plants for strikes to cripple the automakers without actually sending the entire workforce out on strike. Boeing’s highly-specialized manufacturing footprint makes it ripe for similar tactics where the impact is significantly broader than the action.

The best case for Boeing has been a slow, arduous recovery. (Disclosure: That’s why I don’t own any shares.) Even a small labor action could drag out that timeline further. At worst, the entire cycle turns before Boeing gets its assembly plants running at full capacity.

This is Boeing. Recent history suggests that if it can go wrong, it will.

That’s not an investment thesis, but it is something for those interested in Boeing to keep in mind as the new year begins.

Disclaimer: Fits and Starts DOES NOT provide financial advice. All content is for informational purposes only. Stocks mentioned are as reference only, and a mention should not be interpreted as a buy or sell recommendation. The author is not a registered advisor or a broker/dealer. DO YOUR OWN HOMEWORK. The information contained within is not and should not be construed as investment advice, and does not purport to be. The red zone has always been for loading and unloading of passengers. There’s never stopping in a white zone.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.