Boeing Is Building 737s Faster Than It Has in Years. But Its Engineers Just Authorized an October Strike.

Boeing (NYSE:BA) is finally building 737s at a pace it has not achieved in years. The program began transitioning to a production rate of 47 aircraft per month in the second quarter, according to the company's July earnings release, and Boeing initiated initial production on a new 737 line in July. For an aerospace giant that spent early 2024 limited to 38 per month by regulators, this production ramp is notable.

But now there's something that could get in the way. On Aug. 21, the two SPEEA units representing Boeing's approximately 17,000 engineers and technical workers rejected the company's contract offers and authorized a strike by overwhelming margins. The current contracts expire at midnight on Oct. 6.

Image source: Boeing.

A faster 737 line, at last

Boeing delivered 171 commercial aircraft in the second quarter -- a 14% increase from the 150 a year earlier. And revenue rose 8% year over year to $24.6 billion.

Free cash flow (non-GAAP), meanwhile, swung to a positive $631 million from an outflow of $200 million in the same quarter a year earlier.

Of course, Boeing still does not generate positive net income. Its non-GAAP (adjusted) core loss of $0.76 per share narrowed from a loss of $1.24 a year earlier.

The balance sheet also still holds $45.9 billion in consolidated debt -- more than double the $20 billion in cash and marketable securities on hand.

Further, Boeing's order backlog hit a record $715 billion in the quarter, including over 6,200 commercial aircraft. Demand, therefore, is not the constraint. Building and delivering fast enough is. The Federal Aviation Administration limited 737 production to 38 per month in January 2024 following the door plug accident on a nearly new MAX 9. It raised the limit to 42 last October, approved the move to 47 this past spring, and Boeing began the ramp-up to that pace in the second quarter.

So what would a strike actually halt?

SPEEA members do not assemble aircraft (Boeing's factory workforce belongs to a different union). The people who just voted are engineers and technical workers, and their vote was overwhelming.

The professional unit rejected the offer with around 64% voting against it, and the technical unit with around 72%. The two units authorized a strike with approximately 88% and 90% support, according to results published by SPEEA.

But their work underpins everything the production increase needs. Engineering supports production, deliveries, and the certification work Boeing expects to finish this year. On that last front, the FAA certified the smallest MAX variant, the 737-7, on Aug. 3 -- and Boeing says the larger 737-10 is next.

And Boeing is taking the risk seriously.

"We are now implementing our strike contingency plan and diverting the dollars we had wanted to invest in our SPEEA-represented team to prepare for a potential strike," said Ben Nimmergut, Boeing's vice president and functional chief engineer for production engineering, following the vote.

However, there is a new reason for optimism. Leeham News reported on Thursday that SPEEA and Boeing will meet on Monday to restart talks, after the union spent the week surveying its members on what a better offer needs. Still, not all signs point in that direction: Boeing has posted job openings for replacement engineers and technicians, according to the same outlet.

A deadline, not a strike

No strike can occur while the current contracts remain in effect, and they expire at midnight on Oct. 6. That leaves more than five weeks, and both sides say they want a deal.

But the recent precedent is uncomfortable. In 2024, more than 32,000 Boeing machinists went on strike in September after rejecting a tentative agreement, and the strike lasted more than seven weeks before a much richer contract ended it.

And SPEEA's rejection followed a similar path. The union's negotiating teams recommended the contracts, but their bargaining unit councils had already declined to endorse them -- and members then voted against the agreements by wide margins, citing deep distrust of Boeing's leadership.

Notably, an engineers' strike would not likely directly halt the assembly lines as the machinists' strike did. But I'd say investors shouldn't find much comfort in that. A walkout would stall the engineering support the production ramp-up depends on, and likely the 737-10 certification work still outstanding, exactly when Boeing is trying to prove it can sustain a pace of 47 per month.

As for the stock, it trades at about $210 as of this writing -- around 17% below its 52-week high of $254.35 -- and has trended lower over the two weeks surrounding the vote. Even after the drop, the shares trade at about 1.74 times sales.

At that valuation, the recovery arguably has to stay on schedule. And the next five weeks at the negotiating table will decide whether it does. Until Oct. 6, the delivery increase and contract talks are the same story.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing. The Motley Fool has a disclosure policy.