The strike at Boeing entered its sixth week on Friday. With 33,000 International Association of Machinists (IAM) workers unemployed and on the picket line, Boeing (NYSE:BA) Production of the 737, 767 and 777 aircraft is halted, and according to even the most conservative estimates, Boeing is losing $1 billion a month as the strike continues. (Other estimates put it at up to $1 billion one week.)

Given IAM's rejection of Boeing's 25% pay increase offer and the union's refusal to consider a “best and final” offer from Boeing of 30%, one might think that the pressure is on Boeing to take this strike to settle becomes unbearable.

But something just changed – and now I believe the advantage is in Boeing's favor.

Headline risk

Is Boeing or is the union “the bad guy” in this debate? That depends on who you ask. But ask any of the 17,000 Boeing workers about to lose their jobs and it's likely they'll blame IAM.

On Friday last week, new Boeing CEO Kelly Ortberg circulated a memo within the company explaining that the IAM labor strike had put Boeing in a “difficult position” that was forcing management to make “difficult decisions.” . Those decisions include Boeing delaying the introduction of its new 777X airliner (which was to be built in Washington state, where the strike is taking place) by about a year to 2026.

The company will also end its 767 Freighter program effective 2027 once production of the 89 Boeing 767s under contract is complete. (Production of KC-76 aerial refueling aircraft for the Air Force based on the 767 design continues – so it is possible that the 767 will be revived in the future.)

Worst of all, Ortberg announced that Boeing “needs to adjust our workforce levels to align with our financial reality and set more targeted priorities.” And specifically, Boeing will “reduce the size of our total workforce by approximately 10 percent” – 17,000 workers.

What this means for Boeing and IAM

Admittedly, not all of this is the union's fault.

Boeing management did itself a disservice when it submitted a low bid for the KC-76 contract in 2011. The resulting losses continue to weigh on Boeing to this day – a key reason Boeing's defense and space business (BDS) is now loss-making and will continue to lose money as Boeing continues to build KC-76s for the Pentagon.

Speaking of space travel, this side of Boeing has also suffered unintentional errors. These include multiple malfunctions on the Starliner spacecraft and an overdue and over-budgeted space launch system, both of which (according to NASA) stem from “a recurring and deteriorating state of product quality control” and a “lack of adequately trained and experienced aerospace workers” at Boeing .”

The story continues

I can't imagine that laying off 17,000 aerospace workers will help solve the latter problem. But that's just another reason IAM could come under fire for exacerbating Boeing's problems at the very moment the CEO is trying to solve them.

Boeing is playing for time

With this strike now entering its sixth week with no end in sight and the potential to last longer than the 2008 strike (which lasted almost two months), pressure will increase on both sides to return to the negotiating table and… to reach agreement.

However, Boeing will soon be able to better withstand this pressure.

As I predicted last week, Boeing is returning to its “How to Survive a Crisis” guide, first written at the height of the COVID-19 pandemic. Today, as then, Boeing suffers from a lack of liquidity to remain solvent. And today, as then, Boeing has decided to replenish its cash reserves through a combination of stock sales and debt increases.

On Tuesday, Boeing announced an additional credit agreement with four major U.S. banks, giving the company access to a $10 billion credit line – enough money to keep Boeing in business for two and a half months (assuming that Boeing is estimated to lose $1 billion). one month is correct). This alone could allow Boeing to endure a strike even longer than the one in 2008 – but Boeing is preparing plans to ensure it can last even longer if necessary.

At the same time as the loan agreement, Boeing laid out plans to raise an additional $25 billion through the sale of debt, common and preferred stock and other securities. Combined with the loan agreement, this will give Boeing access to up to $35 billion in cash should it need it – enough money to survive the longest strike IAM could possibly attempt.

The conclusion for investors

Admittedly depending on how management structures its capital raising, Boeing could Additionally, the company will end up with a massive debt load of up to $93 billion – even more debt than its own market cap – which could make the stock uninvestable. (At least I I would have serious reservations about recommending Boeing stock with so much debt. The plan therefore resembles a threat of mutually assured destruction – if the IAM continues to strike, Boeing could blow up the company, which would not be good news for either side.

But that doesn't mean the threat won't work.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This labor strike cost only 10% of Boeing workers their jobs was originally published by The Motley Fool