Analyst adjusts Boeing stock price target based on strike impact

Kelly Ortberg doesn’t have much time on her hands.

The aerospace industry veteran took over as Boeing’s chief executive last month (nay) at a critical moment in the aircraft carrier’s history.

Related: Boeing sends hard-nosed message to workers amid strike

The company faced a series of problems that severely damaged Boeing’s reputation.

“While we clearly have a lot of work to do to restore trust, I am confident that by working together we will make the company the industry leader we all expect,” Ortberg said in a letter to staff.

Ortberg’s latest challenge comes in the form of a strike by 33,000 machinists, who walked off the job on September 13.

The International Association of Machinists and Aeronautical Workers said 94.6 percent of voting workers rejected the contract, which would have raised wages by 25 percent over four years. About 96% approved the strike.

Analysts at Northcoast Research estimate the strike may cost Boeing about $100 million in daily revenue.

Kelly Ortberg has been chosen as the new CEO of Boeing.

Getty/TheStreet

Expert: Boeing CEO ‘has a short window’

“As a newcomer not responsible for past problems, Boeing’s new CEO has a short window to build trust and meet expectations to set a new direction so that stakeholders see him as an agent of change , rather than another part of the organization trying to maintain the status quo,” said Ashley Fulmer, assistant professor of management sciences at Georgia State University’s Robinson College of Business.

Fulmer said rebuilding trust in Boeing is prompted by the emotional fallout from past failures “as people typically experience emotions such as anger, fear and anxiety after breaches of trust.”

Related: Analyst revises price target on Boeing stock as cash woes persist

“The new CEO must respond to these emotions and the vulnerability felt by the stakeholder groups affected by Boeing’s actions,” she said.

On Sept. 23, Boeing made what it called its “best and final contract offer,” including raising pay and restoring annual bonuses. It also increased a bonus that was to be paid upon ratification of the contract.

Boeing’s new offer would increase overall wages by 30 percent over four years, up from the previously proposed 25 percent. It also doubled the ratification bonus to $6,000 and restored an annual bonus.

In a statement, IAM International President Brian Bryant said Boeing’s latest proposal is under review. Some of the union’s top priorities remain ensuring “fair pay and respect, recognition of the sacrifices these workers have made, along with progress on retirement security and other key issues,” he wrote.

“Employees knew Boeing executives could do better, and this shows the workers were right all along,” Bryant said. “The proposal will be scrutinized to see if it is up to the task of helping workers gain adequate ground on previous sacrifices.”

Boeing warns attackers

Boeing Chief Financial Officer Brian West warned employees in a memo that “the strike puts our recovery at significant risk and we must take the necessary steps to preserve cash and protect our shared future.”

The company also began laying off workers and taking other steps to preserve cash during the strike, such as eliminating all first-class and business travel for workers, including executives, asking suppliers to stop deliveries of parts for some planes and shutting down all non-customer related ones. catering services at its offices,

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Boeing faced significant financial challenges even before the strike.

The Federal Aviation Administration has launched an investigation into a January 5 incident in which an Alaska Airlines flight was forced to make an emergency landing after a door stopper blew off the Boeing 737 Max 9 aircraft mid-flight.

Analyst: ‘Boeing needs to reset expectations’

Boeing burned through more than $1 billion a month in cash in the first half of this year as it slowed production of commercial jets to address quality deficiencies that were exposed after the near-disaster in January, according to Bloomberg.

Before that, a design flaw in the best-selling 737 Max led to fatal crashes in 2018 and 2019, followed by a 20-month grounding of the plane.

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Last month, the US Department of Justice signed a plea agreement between Boeing and the families of the crash victims. The settlement would require the company to plead guilty to one count of conspiracy to commit criminal fraud and pay a maximum fine of about $487 million.

The head of the FAA plans to tell Congress that the agency will hold Boeing accountable for making sure the planemaker builds safe planes and revamp its own safety management program, Reuters reported.

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“As a result of systemic manufacturing quality issues, Boeing must make significant changes to transform its quality system and ensure the right layers of safety are in place,” FAA Administrator Mike Whitaker said in a statement. to the US House subcommittee on aviation.

“I am prepared to use the full range of my authority to ensure accountability, whether it is from a manufacturer, an air carrier or the FAA’s own operations,” he added.

Separately, Boeing said last week that Ted Colbert, president and CEO of its defense, space and security unit, is leaving the company effective immediately.

Steve Parker, the facility’s chief operating officer, will assume Colbert’s responsibilities until a successor is appointed.

In July, Boeing’s Defense, Space and Security unit reported a loss of $913 million for the second quarter, up from a loss of $527 million a year earlier, after posting a narrow profit in the first quarter. The division reported an annual loss of $1.8 billion for 2023.

Jefferies analyst Sheila Kahyaoglu lowered the investment firm’s price target for Boeing to $240 from $270 on Sept. 23, while maintaining a buy rating on the stock, according to The Fly.

The length of the IAM strike is “unpredictable”, but Kahyaoglu’s baseline calls for a four-week strike and an early October end. So the firm reset its expectations to account for a slower 737 ramp-up probability and “continued defense pressures that Boeing can’t shake,” the analyst said.

Related: Veteran fund manager sees world of pain coming for stocks