Boeing Averts Deeper Pain by Settling Strike, Analysts Say

Boeing Co. faces extra costs after yielding to some union demands to end a strike, but the plane maker could have faced an even higher tab if the walkout had dragged on, analysts said Monday.

The world’s No. 2 commercial jet manufacturer surprised investors over the weekend by settling a strike by about 18,000 machinists after three weeks, giving ground on pensions and healthcare.

Boeing commercial aircraft Chief Executive Alan Mulally had warned this month that the two sides were “miles apart” and called the union’s demands “extreme.”

But Friday, he intervened personally in the talks, helping move them toward a deal. Mulally’s participation was the latest olive branch extended by Boeing, which also hired pro-labor former Rep. Richard Gephardt as a consultant on the talks.

“It was certainly empowering for labor,” said Myles Walton, an analyst at CIBC. He said the company’s flexibility could steel the resolve of Boeing engineers due to negotiate a new contract this year.

“Clearly, labor is in a better bargaining position than they were three years ago,” he added.

The strike by machinists in Seattle, Oregon and Kansas coincided with a boom in aircraft orders bolstered by strong demand from Asia and the Middle East.

Chicago-based Boeing is on track to beat European archrival Airbus in orders for the first time since 2001, although it will still lag behind the maker of the double-decker A380 super jumbo in plane deliveries.

“Versus the positions as we went into the strike, Boeing certainly looks like they did give more,” said Cai Von Rumohr, an analyst with SG Cowen & Co. But he added that a prolonged strike “would cost both sides more, so getting it settled earlier is definitely better.”

In one potential drawback, Boeing’s third- and fourth-quarter margins will probably be squeezed as the company pays overtime to catch up on aircraft deliveries that were delayed because of the strike, said JB Groh, an analyst at D.A. Davidson & Co. But he also raised his 2006 earnings estimate.

Boeing shares rose $1.47 to $64.67.

For the year, Boeing shares are up 26%, compared with a 9.8% rise in the Amex defense index.

Previous machinists’ strikes in 1995 and 1989 lasted 69 days and 48 days, respectively.

The union is scheduled to vote on the contract Thursday and could return to work later that day if members ratify it.