Citigroup analyst George Shapiro thinks that Boeing’s current dispute with the International Association of Machinists (IAM) will not be easily resolved. Because the strike concerns Boeing’s right to outsource contracts, which management regards as a crucial ability, Shapiro thinks that the disagreement will last at least a month (especially because it’s hunting season):
From an economic standpoint, we viewed Boeing’s offer as attractive to union members as it provided for an 11% increase over 3 years (5%,3%,3% and effectively about an additional 10% bonus the first year). However, it appears that the main holdup between the two sides is the union’s desire to prevent future outsourcing. If indeed this is the real issue and can’t be solved by additional wages, the strike could be longer as we don’t believe that Boeing will cede any ground on this issue.
As for the cost of the strike, Shapiro estimates that for each month that it continues, Boeing loses $0.50 in EPS and $2.5 billion in revenue:
We maintain that a month long strike would cause a revenue and EPS loss of about $2.5 bil. and
$0.50, respectively. We estimate the decremental margin at about 23%, similar to what it was in the 2005 strike, but the revenues greater because production rates are higher.
Shapiro maintain his SELL rating and $62 price target, citing macro headwinds.
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