Boeing could lose $100M per day of strike: Portfolio manager

As 33,000 Boeing (BA) union workers take to the picket line and go on strike, rating agencies warn that a prolonged strike could result in a downgrade for the company.

Gabelli Funds portfolio manager Tony Bancroft joins Market Domination hosts Julie Hyman and Josh Lipton to discuss what the strike means for the company and its investors.

“We continue to believe in the secular thesis of the growth story of commercial aerospace and Boeing being, you know, a large participant in that,” Bancroft says.

“In the near term, there's a lot of volatility going on right now,” since “this strike has made it unclear of the timeline to get the production rates back,” but in Bancroft’s view, the portfolio manager tells Yahoo Finance this event will be "more of a blip."

While it’s difficult to measure the exact financial impact of the strike, Bancroft estimates the work stoppage will result in a loss of around $100 million for the company per day of the strike. “The best thing they can do right now is get the production in line and start that growing again.”

The “Machinist Union makes great planes, Boeing makes great planes,” and “the airlines in the commercial aerospace industry need these planes," Bancroft lays out. The Boeing workers are represented by the International Association of Machinists (IAM) union, Districts 751 and W24.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Naomi Buchanan.

Video transcript

Boeing has hit yet another snag and it's come back with 33,000 factory workers overwhelmingly voting to strike after they rejected the company's latest contract offer, the work stoppage will not disrupt com commercial flights immediately, but it was expected to shut down production of Boeing's best selling airliners.

Ratings agencies have warned that a prolonged strike could lead to a ratings downgrade for the company and joining us now with more is Tony Bancroft Gabelli Funds portfolio manager, Tony.

It's great to see you as always.

Um you guys have a big holding in, in uh in Boeing uh relative to your portfolio.

So how do you view this news and how much of a risk it could be for Boeing?

Yeah, thanks Julia.

It's great to be back.

I I, you know, with our uh GC ad ETF um commercial aerospace and defense ETF we're, you know, we continue to believe in the secular uh uh thesis um uh of the of a gross story of, of commercial aerospace and Boeing being, you know, a large participant in that I think in the near term, this is definitely, um you know, there's a lot of volatility going on right now.

This strike is uh made, made it unclear of the timeline to get the production rates back to 38 by the end of the year.

Um But, but I think in the long term, I think this is gonna be more of a blip.

I, I think that Ceo Orford realizes the, um, you know, the severity of this situation and, and knows that he wants to get this, uh put behind, put behind the company and, you know, get back to um uh you know, improving the, the uh uh the production, the production line and, and improving the supply chain and the quality of the Jets.

Have you, have you tried though Tony um to sort of, you know, even roughly game out estimate what the financial impact could, could possibly be for, for Boeing and all this, you know, I think it's hard to say Josh, I think, um you know, there, there, there's some expectations that it's, you know, it's about about 100 it's about $100 million a day for Boeing.

So, you know, and, and just based on previous previous strikes and the economic impact on the loss of, of, of production uh over the, over the tenure of that uh you know, II I think the bigger picture is, I think that if, if this production, the, the, the, the story for Boeing right now is getting the production uh for the 737 production line back, uh, stabilized and, and growing.

And I think overall that's by far the most important, uh, thing that needs to happen and, and I, I think he's fully aware of it and I think he's going to be going to the negotiating table right away and hopefully they'll come to an agreement very soon.

Tony.

In the meantime, the ratings agencies, as we mentioned are threatening downgrades here.

The company has about $45 billion in net debt.

If it gets downgraded.

What are the ramifications of that?

Yeah, you know, and then I, you know, this, this uh morning, um, uh the CFO uh uh Brian West talked about the implications of, of, you know, of stabilizing, um sort of production rates and then when we get to that point, uh, you know, looking and seeing what it needs to be an investment grade.

So I think that, you know, that Bogey is out there that, uh there's, there's uh uh a scenario where they would have to, uh, you know, that potentially could happen.

I, I don't think obviously they want that.

I don't, I don't think the market particularly wants that, but it, it might, that might need to happen.

Um, but I think in the long term, you know, getting the, the balance sheet healthy and not, you know, essentially walking a thin, a thin line, uh with the balance sheet and working capital.

Uh I think that will be beneficial to Boeing and the, the best thing they can do right now is, is get the uh production, you know, uh uh production uh in line and, and start that growing again and getting it towards 38.

And then hopefully the FAA will, will lift this 38 cap and we'll go from there.

Can I ask you to do any thoughts on what a potential deal between Boeing and these machinists could look like any thoughts, you know, what could they agree on?

What could get, you could get the two sides to shake hands on and move on.

Uh, you know, I think the, the biggest sticking point was, uh, by far from, from all that was, uh, you know, essentially the feedback was what, uh, that was, has been speculated with, it was the, was the wage increase.

Uh, you know, that, that, that 25% was not the right number obviously.

And I think that's where, uh, where the, the, the rubber will meet the road is, is getting, getting that wage increase.

I'm not sure if they'll get the 40% but there's probably gonna be, you know, I think in the reality, I think that 25% was sort of the starting point.

That's, that's where negotiations began.

And now there, there is opportunity for, you know, to arbitrage this and, and, and, and go with the, and, you know, go from there and come to an agreement if it was approaching 40%.

Would that be a problem for Boeing's already stretched profitability here, Tony.

So, you know, there, there's, uh, again, it's, it's, it's, it's sort of, it's, I think it's estimated that it's about, you know, uh, the, the, the touch labor is about 5% or so of, of, uh, of a commercial businesses, uh, you know, cost structure.

So overall it's not a large, uh, you know, a large piece of, uh, of their cost.

And I think that, um you know, some number inside of that 25 to 40% is, is probably gonna get it over the uh over the finish line and, and you know, listen, the, these, the, the worker, the, the, the, the union uh machines union makes great, make straight planes.

Boeing makes great planes and they, you know, the, the secular story is that there's, you know, essentially 10 plus years of backlog.

Uh you know, Boeing itself, the commercial business has almost a half a trillion dollars of, of backlog on its uh you know, on his, on his books and the, the airlines uh in the commercial aerospace industry need these planes Tony.

Good to have you on the show.

Thanks for joining us.

Have a good weekend.

Thanks.