Boeing strike a ‘near-term blip’: Portfolio manager

Shares of Boeing (BA) are under pressure as negotiations between the aircraft manufacturer and its striking factory workers broke down this week. Gabelli Funds portfolio manager Tony Bancroft joins Morning Brief to discuss how the International Association of Machinists and Aerospace Workers (IAM) union strike is weighing on the aerospace giant.

On Tuesday, Boeing said in a statement, “Unfortunately, the union did not seriously consider our proposals. Instead, the union made non-negotiable demands far in excess of what can be accepted if we are to remain competitive as a business. Given that position, further negotiations do not make sense at this point and our offer has been withdrawn.”

The Machinists Union responded, “The company was hell-bent on standing on the non-negotiated offer that was sent directly to the media on September 23, 2024. They refused to propose any wage increases, vacation/sick leave accrual, progression, ratification bonus, or the 401(k) Match/SCRC Contribution. They also would not reinstate the defined benefit pension. By refusing to bargain the offer sent to the media, the company made it harder to reach an agreement.”

As the future of these negotiations remains uncertain, Bancroft believes the strike will not last long. “I don’t think it’s going to be much more of a meaningful amount of time. Obviously, historically, the last strike lasted almost two months. Obviously, that wouldn’t be great for Boeing, but last week, the employees missed their first paycheck. And obviously, we’re off of healthcare. So we’ll see where this goes. And I think the big picture is sort of a near-term blip,” he tells Yahoo Finance.

Gabelli previously told Yahoo Finance that the machinists’ strike could cost Boeing nearly $100 million per day following the initial walkout in late September. Gabelli Funds owns a very minor stake in Boeing, which is a leading component in its Gabelli Commercial Aerospace and Defense ETF (GCAD) that Bancroft manages.

He believes that the strike will not be “meaningful” in the long-term, explaining that “there’s just a lot of secular tailwinds for the industry.” Bancroft sees Boeing and the union eventually coming to “reasonable” terms. However, he notes that negotiations around the defined benefit program may be “difficult to overcome.”

Bancroft adds that Boeing is on track to be a profitable, competitive company: “If Boeing is producing at rate for the 737, getting back to essentially around 50 jets a month, which it was doing pre-mishap, that’s almost about $10 billion or so of EBITDA (earnings before interest, taxes, depreciation, and amortization) on a run rate. So that turns into a pretty profitable cash flow engine. And, of course, there’s half a trillion [dollars] of backlog in Boeing’s commercial books. So I think there’s a lot a lot of runway to go for Boeing.”

As new CEO Kelly Ortberg seeks to turn around the company, Bancroft argues that his top priority should be getting the strike settled. Once that’s sorted, he believes that Ortberg should work with the Federal Aviation Administration (FAA) on its 737 MAX safety issues. Ortberg should also focus on straightening out Boeing’s supply chain and making its defense business more profitable, Bancroft says.

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