Boeing's substantial financial predicament and its potential impacts on the general public
After approximately 33,000 members of the International Association of Machinists went on strike against the company about a month ago, Boeing might not be able to deliver all its planes as promised. This could negatively impact airlines and potentially reduce the number of seats available, particularly on domestic flights within the USA.
With fewer seats, airlines might be compelled to increase fares. However, fares are currently decreasing due to an excess of capacity within the industry compared to the demand to fly. The planes not being delivered were likely meant to replace older, less efficient planes.
Despite the strike, your ability to fly won't be affected. The planes possessed by airlines are already sold. Similarly, when automakers went on strike last year, no one took away your Chevy. Similarly, Boeing planes currently in service will continue to be in service.
Boeing's financial issues, which predate the strike, might impact the broader US economy.
Boeing's Finances in Crisis
Boeing has been recording significant losses for over five years, following two fatal crashes of the 737 Max in late 2018 and early 2019 which killed 346 individuals and led to a 20-month grounding of the plane. Since then, Boeing has reported losses exceeding $33 billion in core operations, with no end in sight to the red ink. The strike, which began on September 13, is adding $1 billion in losses to Boeing's losses every month, according to Standard & Poor's. The halt of 737 Max production has halted the primary revenue source for the company which predominantly earns cash from aircraft sales at the time of delivery.
Boeing is seeking to raise up to $25 billion to weather the current financial storm through additional borrowing, stock sales, and debt. The company is also planning to cut 10% of its global workforce, or roughly 17,000 employees, in a cost-cutting measure. Employees affected by layoffs and strikers will also be impacted, while the 33,000 strikers will receive a fraction of their regular salary in the form of strike benefits from the union.
Economic Impact
Boeing's financial troubles are detrimental for the US economy. It is the nation's largest exporter. Immediately, business in communities where layoff Boeing employees and strikers reside, predominantly in Washington State, could experience issues as people decrease their spending. Additionally, the strike's impact on suppliers could extend beyond Boeing, as Boeing has around 10,000 suppliers in all 50 US states and estimates an annual contribution of $79 billion to the US economy, supporting 1.6 million jobs directly and indirectly.
According to Anderson Economic Group, losses incurred by Boeing employees, strikers, suppliers, and the company, as well as local governments, have already surpassed $5 billion in the first month of the strike.
Boeing's credit rating is at risk of being downgraded to junk bond status, which would exacerbate financial problems by raising Boeing's borrowing costs. However, even if forced into bankruptcy, it would not necessarily mean the company's demise. Through the bankruptcy process, Boeing could shed some of its unaffordable debt and other obligations. Many successful companies, including General Motors and numerous US airlines, have gone through bankruptcy and thrived afterward.
Boeing's financial troubles might not lead to its demise, as the company, along with European rival Airbus, is essentially the only one that manufactures full-size jets that the global airline industry requires. This status within a duopoly effectively ensures its survival.
The strike-related losses at Boeing are projected to exceed $1 billion each month, putting a strain on its finances. This financial crisis at Boeing, being the nation's largest exporter, could have a ripple effect on the businesses in communities where its employees and strikers reside.
The ongoing financial issues at Boeing, despite being a potential risk for its credit rating and adding to its existing losses, are also crucial due to its status as one of the two main manufacturers of full-size jets for the global airline industry, effectively ensuring its survival within the duopoly.
