Boeing's factory workers walked off the job after midnight on Friday, halting production of the company's bestselling airplanes after staff overwhelmingly rejected a new labor contract. This is a significant blow for the manufacturer that has struggled to ramp up production and restore its reputation following safety crises.

The strike, the first at the company in 16 years, will virtually stop commercial airplane production at one of America’s biggest manufacturing giants and its largest exporter, dealing a potential blow to the US economy. Depending on the length of the strike, it could cause problems for nearly 10,000 Boeing (BA) suppliers, which can be found in all 50 US states.

The company has a total of 150,000 US employees, and it estimates its own annual contribution to America’s economy at $79 billion, supporting 1.6 million jobs directly and indirectly.

Impact of the Strike

The ultimate financial impact of this strike will depend on how long it lasts. Boeing shares fell 4% in premarket trading Friday. Jefferies aerospace analyst Sheila Kahyaoglu estimated a 30-day cash impact from a strike could be a $1.5 billion hit for Boeing and said it “could destabilize suppliers and supply chains.” She forecast the tentative agreement would have had an annual impact of $900 million if passed.

Boeing has burned through about $8 billion so far this year and has mounting debt. Production has fallen short of expectations as the company works to stamp out manufacturing flaws and faces other industry-wide problems such as supply and labor shortages. A blowout of a nearly new Boeing 737 Max 9 at the start of the year has brought additional federal scrutiny of Boeing's production lines.

Production Halted

A strike would not affect consumer travel. Boeing planes that have already been delivered to airlines and those currently in use around the world will continue to fly. But, the strike would cause a delay in deliveries of jets promised to airlines, cutting off Boeing’s primary source of cash.

The Rejected Deal

The rejected deal, which leadership at the International Association of Machinist (IAM) union had described as the best it’s ever negotiated with Boeing, would have given raises of at least 25% over the life of the deal. It also increased job security for union members because Boeing promised to build its next commercial jet, which has yet to be announced, at a unionized plant. Without a contract including that provision, Boeing may decide to build the jet at a non-union factory.

But 95% of members of the IAM union voted against the deal. In a separate vote, 96% voted to authorize a strike, easily clearing the two-thirds threshold needed to approve a walkout. The strike began at 11:59 pm PT Thursday, or 2:59 am ET Friday.

“This is about fighting for our future,” Jon Holden, president of the largest IAM local at Boeing, said as he announced the vote results. “We will be back at the table whenever we can get there to drive forward on the issues our members say are important.” Boeing said it was also eager to return to the negotiating table to reach a new deal.

“The message was clear that the tentative agreement we reached with IAM leadership was not acceptable to the members,” it said in a statement. “We remain committed to resetting our relationship with our employees and the union.”

Union Concerns

Past concessions and a series of problems at Boeing, including layoffs and the shift of some work from a unionized assembly plant to the company’s one non-union factory, had sparked widespread anger at the company. So the vote against the contract was expected, despite what was included in the offer.

Holden said it’s hard to pinpoint a single reason why members voted against the contract, acknowledging workers wanted better job security, more time off and higher wages to make up for rising prices during a period of high inflation over the past several years. Referring to the loss of the traditional pension plan in recent contracts, he said: “I know that many members haven’t healed from that wound.”

“We went through a period of 10 years with stagnated wages,” Holden said. “We’ve had the same schedule for over 30 years, and our members deserve a fair work-life balance.”

A History of Issues

Despite years of problems, Boeing is still a major component of the US economy. The strike is just the latest body blow for the company. In the last five years, Boeing has suffered a myriad of problems, some tragic and many embarrassing. Most of them have proven financially devastating.

Two fatal crashes of its 737 Max, one in October 2018 and the other in March 2019, killed 346 people and led to a 20-month grounding of Boeing’s best-selling plane and a halt in deliveries to fix a design flaw tied to the crashes.

Boeing then faced a series of other questions about the quality and safety of its planes. That scrutiny grew after a door plug blew off a 737 Max operated by Alaska Airlines shortly after takeoff on January 5. Although no one was killed or seriously injured, the incident sparked numerous federal investigations, one of which revealed the plane had left a Boeing factory without the four bolts needed to hold the door plug in place.

Since then, Boeing has agreed to plead guilty to federal criminal charges of deceiving the Federal Aviation Administration during the initial investigation of the Max. As part of its agreement with the US Justice Department, the company will have to operate under the supervision of a court-appointed monitor.

Financial Struggles

But the company has not reported an annual profit since 2018, running up cumulative core operating losses of more than $33 billion through the second quarter of this year, and its credit rating has been downgraded to near “junk” status. Even before the strike, the company had not been expected to return to profitability in the immediate future due to limits on its production output. The stock was down near 4% in premarket trading.

Shares in Boeing have lost more than 60% of their value in the last five years, and more than 30% since the Alaska Air incident at the start of the year.

A New CEO's Challenge

The vote is a blow to CEO Kelly Ortberg, who has been in the top job for five weeks. A day before the vote, he had urged workers to accept the contract and not to strike, saying that it would jeopardize the company's recovery. Under the tentative agreement, Boeing had promised to build its next commercial jet in the Seattle area, a bid to win over workers after the company moved the 787 Dreamliner production to a nonunion factory in South Carolina.

The agreement, if approved, would have been the first fully negotiated contract for Boeing machinists in 16 years. Boeing workers went on strike in 2008 for nearly two months. Earlier this week, Kelly Ortberg, Boeing’s new CEO, had acknowledged that members had been upset over past contract terms, but he urged union members to move past that and vote for the deal.

“I know the reaction to our tentative agreement with the IAM has been passionate,” he wrote to employees. “I understand and respect that passion, but I ask you not to sacrifice the opportunity to secure our future together, because of the frustrations of the past.” Ortberg said in his first week on the job last month that he wanted to “reset our relationship” with the union. While Holden told CNN late last month that he had not seen any change in negotiation strategy since Ortberg assumed the top job, he said Thursday night that he didn’t necessarily blame the company’s new boss for the strike.

“It’s hard to make up for 16 years,” he said. “It’s really [about] what has happened to our members … by the leadership of the company for close to 20 years.”

A Strike Inspired by Labor Wins

The most recent strike at Boeing was in 2008 and lasted 57 days. Holden said members are prepared to “stay out” as long as it takes to get a better deal this time. America’s labor movement has been active over the past year, particularly as inflation took a bite out of workers’ pay checks. According to analysis by CNN, nearly one million union members won immediate wage increases of 10% or more from late 2022 through the end of 2023. Strikes at all three unionized US automakers began almost exactly a year ago and lasted seven weeks, the longest auto strike in 25 years. That motivated Boeing workers to take action, Holden said.

“There were a lot of awesome wins in the labor movement, and I think that momentum is something that helped us, that brought confidence to our members,” he said. “We certainly looked at that as something to aspire too as well. So we’re hoping to continue the labor movement success with our action here tonight.”

A New Chapter

The strike is a significant development in Boeing's ongoing struggle to restore trust with its employees and the public. It remains to be seen how long the strike will last and what impact it will have on the company's future.

The strike is a sign of the challenges facing Boeing and the broader aerospace industry as they navigate a difficult economic climate and heightened scrutiny. It also underscores the growing power of labor unions in the United States.