By Abhijith Ganapavaram and Allison Lampert
(Reuters) -Boeing is expected to book more than $1 billion in wage-related expenses from its proposed labor contract, analysts said, although its shares rose 3% on Monday on hopes of an end to a crippling strike.
About 33,000 workers will vote on the contract proposal on Wednesday after a more than month-long work stoppage, which has halted production of models including its best-selling 737 MAX narrowbody jets.
The vote also coincides with Boeing (NYSE:)’s third-quarter results, in which it is expected to report a hefty loss.
“We view the proposal as a positive step,” Ben Tsocanos, aerospace director at ratings agency S&P Global, said in an email to Reuters.
“Resolving the strike quickly is key to improving the company’s financial position and supporting the rating.”
The new contract proposal announced on Saturday includes a 35% pay hike over four years, a $7,000 ratification bonus, a reinstated incentive plan and enhanced contributions to workers’ 401(k) retirement plans, including a one-time $5,000 contribution plus up to 12% in employer contributions.
The new wage increase and the ratification bonus are an improvement over the previous offer, which was rebuffed by the striking workers, but the salary hikes still fall short of a 40% pay rise over four years demanded by the Machinists’ union.
Wells Fargo’s Matthew Akers, who has a rare bearish view on Boeing stock, said the deal may not be ratified.
“Our analysis of over 1,000 online comments implies a more constructive view but still not enough to pass,” Akers wrote in a note.
He estimated 20% were constructive on the latest offer vs 3% on the prior offer after reviewing comments on IAM 751 Reddit forum, though he cautioned the forum maybe negatively biased.
J.P. Morgan’s Seth Seifman estimated the wage hikes might increase Boeing’s costs by more than $1 billion, while Jefferies analyst Sheila Kahyaoglu expects wage-related expenses at about $1.3 billion.
The agreement was reached after weeks of sometimes acrimonious discussions between Boeing and the International Association of Machinists and Aerospace Workers (IAM) union, whose leadership faced fury from some members after endorsing the first offer from Boeing that most workers opposed.
The IAM did not explicitly endorse the latest offer but told workers on Saturday “it is worthy of your consideration.”
However, even if the new contract is accepted by members, the planemaker still faces the challenge of quickly restoring production to pre-strike levels once workers return.
“Based on our analysis of prior Boeing strikes, it has taken an average of 6-12 months after the conclusion of the strike for production rates to return to pre-strike levels. Moreover, the impact the strike has had on the already fragile supply chain is uncertain,” RBC Capital Markets analysts said.
The work stoppage has halted production of Boeing’s cash-cow 737 MAX, and 767 and 777 widebodies.
Boeing shares were trading at $161 in U.S. premarket trading. If that level holds in regular trading, Boeing shares would be at their highest since Sept. 12, the day before the strike began.
In a separate labor action, about 5,000 workers were set to return to work at business jet maker Textron (NYSE:)’s facilities in Wichita, Kansas, after voting to accept a five-year contract providing wage increases of 31%.
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