Analysts are calling a recent agreement between the International Association of Machinists and Aerospace Workers union and Boeing Co. (NYSE:BA) a “watershed event,” according to StreetInsider.com. Over the weekend, IAM voted to extend it’s contract with Boeing by 8 years to 2024. In exchange, Boeing will make the 777X airplane in the Puget Sound area. Boeing’s shares closed up slightly by 0.7 percent on Monday as a result.
Boeing CEO Ray Conner said in a statement that, “Thanks to the vote by our employees, the future of Boeing in the Puget Sound region has never looked brighter. We’re proud to say that together, we’ll build the world’s next great airplane — the 777X and its new wing — right here. This will put our workforce on the cutting edge of composite technology, while sustaining thousands of local jobs for years to come,” per StreetInsider.com.
Boeing has made aircraft in the Seattle area for the past 90 years, and the recent union vote assures the airplanes will continue to be built there for at least another 8. Had the IAM voted to the contrary, Boeing has said is would have made the wings, and possibly the whole plane elsewhere, in what would have been a huge economic blow for Washington state, reported Reuters. The vote passed by a slim margin Friday; 51 percent to 49 percent. There was significant controversy over the deal, due to both wage and retirement concessions required on the part of the workers. The IAM rejected an earlier version of the deal as many workers were outraged by a section of the contract that would have shifted their retirement plans from pensions towards a 401K style plan.
The current deal has provisions in place to help alleviate any concerns of a strike; strikes in the past have cost the company at least $1 billion per strike. Boeing currently has 80,000 employees working in the facilities around the Puget Sound region. Washington state officials estimated that the 777X line was worth about 20,000 jobs and more than $20 billion in economic activity.
Howard Rubel, and analyst at Jefferies believes that the deal boosts Boeing’s competitive position long-term by cutting costs significantly, possibly by as much as $250-500 million: “the lower future cost of doing business creates an incentive for the company to hire and train new employees and expand its technology base,” per StreetInsider.com. Jefferies maintains a Buy rating and $165 price target on shares of Boeing; shares closed at $137.62 yesterday, with a 52 week range of $72.68-$142.00.