Boeing Will Be Much Less Profitable After the Strike

Core Viewpoint - Boeing is facing rising labor costs and declining earnings due to a prolonged labor strike, which has entered its eighth week, although there is optimism that it may soon conclude [1]. Group 1: Labor Negotiations - Boeing negotiators have proposed a 38% wage increase for machinists over the next four years, with the potential for an average wage increase of 44%, surpassing the union's initial demand of 40% [2]. - A one-time ratification bonus of $12,000 is included in the new offer, which will be voted on by union members, potentially ending the strike [3]. Group 2: Financial Strategies - Boeing plans to issue up to 129.4 million shares of new common stock at an offer price of $143 per share, potentially raising $18.5 billion [4]. - Additionally, Boeing aims to issue up to 115 million depositary shares, which could generate approximately $5.8 billion in cash [4]. - In total, these actions could raise about $24.3 billion, aligning with Boeing's goal to raise up to $25 billion over the next three years [5]. Group 3: Impact on Shareholders - The issuance of new shares will dilute existing shareholders' ownership by approximately 21%, increasing the total share count from 618.2 million to 747.6 million [7]. - If preferred shares are converted into common stock, the fully diluted share count could rise to 788.2 million, resulting in a 27.5% dilution [8]. Group 4: Financial Projections - Analysts predict that Boeing will achieve a net income of $6 billion by 2027, but a 38% wage increase could reduce this profit by about $1.3 billion, bringing it down to $4.7 billion [9]. - On a share count of 788.2 million, the per-share profit would drop to $5.96, leading to a higher P/E ratio of approximately 26 times, indicating a more expensive valuation [10]. Group 5: Long-term Outlook - Despite potential variations in share conversion and debt management, the overall outlook suggests that Boeing will be less profitable in the future than many investors currently expect due to the labor strike and share dilution [12].