The quest by Boeing's new CEO to revive the aviation giant's fortunes suffered a serious blow when striking machinists voted down the latest contract proposal, prolonging a nearly six-week stoppage.
Almost two-thirds (64 percent) of the members of the International Association of Machinists and Aerospace Workers District 751 rejected the preliminary agreement late Wednesday, extending a walkout of some 33,000 Seattle-region employees.
The strike has shuttered two major assembly plants, further dimming the company's near-term financial picture.
The vote came just hours after new Boeing CEO Kelly Ortberg laid out steps aimed at restoring Boeing's reputation after a series of safety problems and problematic defense and space projects dented the company's reputation.
Ortberg told analysts that "the sky's the limit" for Boeing if it can get past some "big rocks" that are stressing the company's finances. On Wednesday, the aviation giant reported a $6.2 billion loss.
Analysts at Bank of America offered measured praise for Ortberg's presentation, noting that he was careful to emphasize that a plan to cut 10 percent Boeing's workforce targets overhead and not engineering or manufacturing employees.
But the "muted" stock market reaction Wednesday reflects worries that there are "plenty more skeletons in the closet" that will surface, Bank of America said.
The union's rejection of the contract "adds further uncertainty, costs, and recovery delays," said the note.
"We anticipate further concessions of wages will be required for a deal to pass."
While the union vote was a clear setback for Boeing, it was much closer than last month's referendum on a previous proposal, when 96 percent of members voted to strike, triggering a walkout on September 13.
The latest Boeing contract offer included a 35 percent pay rise over four years and a one-time signing bonus of $7,000. However, the deal did not restore a company pension, a major sticking point for older workers.
Many union members view the negotiations as a payback after concessions in earlier rounds, including a 2014 agreement that eliminated the pension.
"This contract struggle began over 10 years ago when the company overreached and created a wound that may never heal for many members," IAM District 751 President Jon Holden said in a statement after Wednesday's vote.
"We have made tremendous gains in this agreement," he added. "However, we have not achieved enough to meet our members' demand."
But Boeing, which has yet to comment on next steps after Wednesday's vote, views restoring the pension as a non-starter because of the cost burden involved.
Ratings agencies have warned the company could be downgraded to "junk" status.
The strike has cost an estimated $7.6 billion in direct losses -- including at least $4.35 billion for Boeing and almost $2 billion for its suppliers, according to the Anderson Economic Group consultancy.
The tenor of the talks between the IAM and Boeing has been frayed at times. The latest proposal came after acting US Labor Secretary Julie Su visited Seattle to meet with both sides.
"Both parties will need to determine the best way forward," a Department of Labor spokesman said Thursday. "Acting Secretary Su has been in touch with the union and the company, and is available to support them."
Veteran aerospace expert Richard Aboulafia, a sharp critic of Boeing's prior leaders, said he was "baffled" by the company's handling of the talks given the importance of quickly settling the strike.
"They need to greatly ramp up the pace of the talks and at a very high level," said Aboulafia, who has been encouraged by some of Ortberg's moves.
In August, Ortberg, who has relocated to the Seattle area to be closer to operations, met with Holden and other union leaders as part of what he has called a needed "reset" of labor relations.
But while the new CEO has closely monitored the talks, he has not been at the negotiating table.
Analyst Peter McNally of Third Bridge said Boeing "needs to raise money" given how the strike has exacerbated the company's cash burn.
"While the most recent vote was at least closer than the previous one, the two sides still have a ways to go in negotiations," McNally said in a note.
"Third Bridge experts expect an agreement to be reached in the coming weeks, but the impact of the work stoppage on Boeing will linger through the fourth quarter."
