Boeing's (BA.US) new contract proposal could lead to more than $1 billion in wage-related costs over the next four years.
1min read Analysts expect Boeing's proposed new contract, which is expected to end the costly strike that has hurt the company, to result in more than $1bn in wage-related costs over the next four years.Boeing on Saturday proposed a new contract that includes a 35% pay raise over four years, a $7,000 signing bonus, guaranteed minimum spending on its annual bonus plan, higher 401(k) pension contributions and other changes. The International Association of Machinists and Aerospace Workers, which represents 33,000 Boeing employees, is scheduled to vote on the proposal on October 23 (this Wednesday).The outcome of Wednesday's vote will determine whether the costly strike, which has crippled production, will end. Notably, Boeing is due to report a massive loss for the third quarter on the same day.For the new contract proposal, Ben Tsocanos, aerospace industry head at S&P Global Ratings, said: "We view this as a positive step. A swift resolution of the strike is key to improving the company's financial position and supporting the rating."However, Morgan Stanley analyst Seth Seifman expressed scepticism about whether union members would accept the new contract proposal, "despite the fact that it seems to offer almost all of the conditions that the union has demanded". He estimated that the pay raise could add more than $1bn in related costs for Boeing, while Jefferies analyst Sheila Kahyaoglu estimated about $1.3bn.Even if the new contract proposal is accepted by union members, Boeing still faces the challenge of quickly restoring production to pre-strike levels. "As we analysed in our previous Boeing strike, it typically takes 6-12 months to restore production to pre-strike levels after the strike ends," said RBC Capital Markets analysts. "Moreover, the impact of the strike on the already fragile supply chain is uncertain."
