During the last strike in 2008, the stock continued to trend down until a deal was reached
Shares of Boeing Co. slumped Friday, after the aerospace giant’s machinists union rejected a tentative deal and voted to go on strike.
Adding to the gloom, Moody’s Ratings placed all of the aerospace giant’s credit ratings on review for a possible downgrade, on concerns about the impact of the strike on Boeing’s BA-3.69% cash flow.
Based on how the stock performed during the last strike, Boeing investors should probably brace for even further declines until another deal is reached.
Boeing suppliers are also at risk as the strike would impact aircraft deliveries, but shares of suppliers were trading mostly higher.
Boeing’s stock slumped nearly 4% in afternoon trading, to put them on track to close at the lowest price seen since November 2022.
The stock was the Dow Jones Industrial Average’s DJIA 0.72% biggest decliner, with the $5.89 price drop cutting about 39 points off the Dow’s price while the Dow rallied 374 points, or 0.9%.
Moody’s rates Boeing credit Baa3, the lowest investment-grade rating, so a downgrade would knock the rating into speculative-grade, or “junk,” territory.
The strike, which started at 3:01 a.m. Eastern, came even after union leaders had recommended member approve the tentative deal, which was reached early Sunday.
Since that deal was reached, the stock had been up 3.3% on the week through Thursday, after it had tumbled 12.4% over the past three weeks.
But as Vertical Research Partners analyst Robert Stallard noted, with all that has been going on with Boeing, such as continued concerns over 737 MAX production, worries about the need to raise a lot of cash by selling equity and even troubles with the Starliner spacecraft, it’s uncertain whether the stock had already been pricing in a work stoppage.
The stock’s gains leading up to the vote, and Friday’s selloff after the strike took effect, suggests investors had started to take a strike off the table.
And based on this reaction, and what happened to the stock during the last strike in 2008, Stallard believes the stock “could remain weak until a deal is reached.”
One thing to keep in mind is that the earlier strike took effect as the broader market was suffering from the 2008 financial crisis.
Between the time the strike took effect and the tentative deal was reached, the stock had tumbled 33%, but the S&P 500 index SPX 0.54% fell 32% over the same time.
Stallard said there could be a bright side to the strike. He believes that given the current issues and uncertainties with 737 Max deliveries, the program is likely burdened with “considerable excess inventory” of materials and the strike will have an “obvious” impact on deliveries.
“The strike could be a good opportunity for Boeing to reset, and either pause supplier deliveries or take them down to a more realistic level,” Stallard wrote in his note to clients.
Meanwhile, shares of supplier Spirit AeroSystems Holdings Inc. SPR -1.28% fell 1.5% in morning trading Friday. That might be more a result of Boeing’s stock’s weakness, since Spirit had recently agreed to be acquired by Boeing.
Among other suppliers, shares of GE Aerospace GE5.06% rose 1%, Honeywell International Inc.’s stock HON-0.25% ticked up 0.1%, RTX Corp. shares RTX-0.82% eased 0.1%, Howmet Aerospace Inc.’s stock HWM1.11% edged up 0.2% and shares of Parker-Hannifin Corp. PH0.64% tacked on 0.6%.