Boeing Co and its largest union said they had hammered out a landmark deal to potentially avoid a strike that would risk crippling the already troubled US aircraft manufacturer. 

The offer includes a 25% wage increase over four years and a commitment to build Boeing’s next plane in the Seattle area, the two sides said in separate statements. There are financial sweeteners if workers accept the accord, including an immediate 11% pay bump, along with a US$3,000 bonus to be paid at the end of the month.

The breakthrough emerged after a marathon bargaining session, with a strike vote looming after the current contract expires at midnight on Sept 12. The accord promises to be a significant victory for new Boeing chief executive officer Kelly Ortberg and his pledge to reset long-contentious labour relations. But it’s too soon to know if workers will go along or buck their leadership, with anti-management sentiment still running high on the factory floor.

“Labour had a lot of leverage here, and Boeing had limited leverage,” said Robert Spingarn, an analyst with Melius Research. “Boeing has some mountains to climb, and the last thing they need is an uncooperative union.”

Boeing’s agreement to build the next new airplane in the Pacific Northwest has far-reaching ramifications, even if that model isn’t launched during the four-year term of the agreement, Spingarn said in an interview. Doing so strips the planemaker of leverage in future contract talks. A decade ago, Boeing used threats to shift the 777X to convince workers to forgo pensions.

Boeing Commercial Airplanes president and CEO Stephanie Pope touted the contract as providing the “largest-ever general wage increase” in a video message to employees. The deal includes concessions on healthcare benefits, retirement benefits and mandatory overtime.

“Just as important, this contract deepens our commitment to the Pacific Northwest,” said Pope, who is also Boeing’s chief operating officer. “Boeing’s roots are here in Washington.”

Officials from Boeing and the International Association of Machinists and Aerospace Workers (IAM) have been holed up in a Seattle hotel for almost a month trying to find middle ground on issues spanning wages, retirement benefits, job security, and healthcare. The talks are the first full-scale negotiations in 16 years between the company and the union local representing 33,000 mechanics and factory workers in Washington and Oregon.

Boeing’s wage offer would work out to an average 33% pay boost when including “progression”, the pay bumps that occur at regular intervals the longer workers stay on the job. Still, it’s less than the 40% raise that union leaders had sought at the outset of talks in March.

“Financially, the company finds itself in a tough position due to many self-inflicted missteps,” Jon Holden, the president of IAM District 751, and Brandon Bryant, the president of district W24, said in a joint statement to members. “It is IAM members who will bring this company back on track.”

If ratified by members, the new contract would eliminate a major concern for investors that’s weighed on Boeing’s stock, according to Ken Herbert, an analyst at RBC Capital Markets. The deal would also pave the way for the planemaker to sell equity, should it choose to, to help address its US$45 billion net debt burden, he said.

“We were not expecting a prolonged work stoppage, and we believe new BA CEO Ortberg will continue to enjoy an extended honeymoon period as he continues to settle into the CEO role,” Herbert wrote in a note to clients, referring to Boeing by its stock ticker symbol.

Sheila Kahyaoglu, an aviation analyst at Jefferies, estimates the annual gross headwind from the accord to be US$900 million, less than her US$1.1 billion estimate, according to a note to clients. 

If workers balk at the company’s offer, Boeing faces a walkout that could shut down its Puget Sound factories, jeopardising efforts to boost jetliner output. The planemaker is contending with a cash squeeze after burning through more than US$8 billion in cash during the first six months, following a near-catastrophic accident in early January on a 737 that exposed manufacturing shortfalls at the company at set of a cascade of sweeping measures, including a change of leadership. 

While Boeing is wary about preserving fiscal discipline, the costs of a work stoppage far outweigh those of maintaining labour peace. The company’s credit rating is on the edge of being cut below investment grade, and output of the 737 model has been capped by regulators until Boeing can get production back in order. The company hasn’t reported an annual profit since 2019.

“Even though this is going to increase the cost of building airplanes for Boeing, everyone knew that would happen,” Spingarn said. “Net-net, this is good news.”

Still, it’s far from certain that union members will agree to the accord. Last year, IAM members at Spirit AeroSystems Holdings Inc rejected an initial contract recommended by their union leadership, demanding higher wages. The strike lasted for about a week.

Some workers took to online forums to voice their discontent at the proposal. Many postings on a Reddit page said they would vote to strike, and that workers hadn’t sufficiently used their leverage at a time when Boeing was suffering and in need of a deal. 

Boeing Machinists last month voted overwhelmingly to authorise a strike alongside a rally that attracted 25,000 workers and their families to Seattle’s T-Mobile Park. Factory work across the region has since been interrupted by raucous daily marches, punctuated by chants and horns in a display of union solidarity.

Union members are slated to vote twice on Sept 12 on the company’s best and final offer: whether to accept the company’s best and final offer, and whether to strike.

If the deal is rejected and two-thirds support a walkout, Boeing mechanics will head to picket lines at 12.01am on Sept 13.

Boeing has a strong incentive to swiftly resolve any unrest with the IAM units stretching from Northern California to Montana. Doing so would help set a precedent for other negotiations with Boeing’s main unions over the next two years.

Looming are negotiations with the IAM union representing mechanics who build and repair military aircraft for Boeing’s defence division. Their contract expires on July 27, 2025. The company also faces contract talks with SPEEA, the union representing its engineers, for a labour agreement that expires in 2026. 

  - Bloomberg