(By Mani) It seems all hell is breaking loose on The Boeing Company (NYSE: BA). As the leading aerospace major is working to solve the battery issue on flagship 787 planes, it faces a potential strike from its engineering workers over their contracts.
The Society of Professional Engineering Employees in Aerospace (SPEEA) has recommended that its members reject Boeing's contract proposal, which the company has labeled "best and final", and authorize a strike.
Voting commences on Feb.5 and runs through Feb. 19. The key issue with Boeing's contract is that it scrapped the define pension plan for new workers, and their retirement benefits were also slashed by 40 percent.
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Though a potential strike won't shut down Boeing's production system overnight, but an extended walk-out would be massively disruptive to both the mature portfolio production in both commercial defense space as well as the ongoing 787 ramp. A strike would also affect the investigation of the 787 battery fiasco.
"It's unclear whether a strike will actually occur (even a vote for a strike could drive a quick compromise), but the uncertainty continues to hang over the stock (along with the grounded 787)," UBS analyst Myles Walton wrote in a note to clients.
Whatever may be the case, these issues could weigh on Boeing shares in the near-term as historically investors have shed their positions before the strike. In the last 5 strikes (2008, 2005, 2000, 1995, and 1989), shares fell 5.3 percent, on an average, over the 10 day period prior to the start of the strike, according to data from FactSet.
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The SPEEA, which represents 23,000 Boeing engineers, fears that elimination of the pension for new hires could be the first step towards freezing the pension for existing employees. A large percentage of the SPEEA membership is expected to retire during the next decade. If projections hold, it's entirely possible that the tipping point (where the majority of SPEEA members are those without the pension) could happen within two contract negotiation cycles.
Once this group with the lesser benefit attains majority status in the union, it is expected that Boeing will insert the freezing of existing pensions into its last-best-final contract offers.
On the other hand, Boeing wants to cut its pension liability, which is hovering around $68 billion and even exceeds the company's market capitalization of $56 billion. Boeing wants employees to move to a plan in which employer and employees contribute to tax-free 401(k) accounts from which workers can draw pension when they retire based on the market performance of their investments.
Meanwhile, Boeing would be hoping that the engineers and technical workers ratify the new contract quickly so that they can focus on fixing the company's troubled 787, which was recently grounded by the Federal Aviation Administration (FAA). All 50 787 planes are grounded worldwide while the probes continue in the U.S. and Japan.
Boeing asked the FAA for permission to conduct test flights of its 787 Dreamliner. The request indicates that BA is progressing towards a solution to the battery problems that grounded the entire 787 fleet last month.