Boeing's Latest Tailspin

Murphy's law, the adage stating what can go wrong will go wrong, is named after an aerospace engineer. It's as good an explanation for what's going on at Boeing lately as any other.

Days after industrial workers in its Pacific Northwest plants voted overwhelmingly to approve a labor strike, the beleaguered plane-maker on Monday instituted a hiring freeze elsewhere across its massive business. It's an emergency maneuver to avoid a potentially devastating credit downgrade.

Skyfall

The good times, they don't last. Especially if you're in the midst of one of the worst corporate crises of the 21st century. Two Sundays ago, Boeing struck a deal for a new labor contract with union leaders at the International Association of Machinists and Aerospace Workers chapter, representing the 33,000 workers in its Puget Sound industrial hub. The tentative agreement was seen, initially, as a victory for a company desperate to avoid a work stoppage, with union leaders enthusiastically recommending its approval. Union members, however, disagreed. Enthusiastically.

Last Thursday, nearly 95% of union members voted to reject the contract — which would've brought a 25% pay raise over four years, below the union's initial 40% demand — while 96% voted to authorize their first strike since 2008. The contract did also include an olive branch to workers in the form of a guarantee that production of the company's next commercial jet would be built in the region, though details in the fine print included a stipulation that the promise would only be honored over the next four years, making it far from ironclad. Still, executives were blindsided by the rejection, sources told Reuters. "They probably didn't think that we had enough people for the strike," Boeing mechanic Kushal Varma told Reuters. "But this is a movement of people who are willing to put their livelihoods on the line to get what's fair."

Now, the company is moving quickly to avoid what could be a costly tailspin:

• In a memo seen by Bloomberg, Chief Financial Officer Brian West detailed several major cost-cutting measures to be implemented, including an immediate hiring freeze, the pausing of pay bumps tied to promotions, the halting of non-essential travel, and, crucially, a major cutback in supplier expenditures.
• Looming over his head is a possible downgrade on the company's investment-grade debt into junk territory from Moody's, as detailed in a memo from the ratings agency on Friday. Boeing has $45 billion in net debt, including $4 billion of debt due next year and $8 billion in 2026, according to Moody's.

Indefinite Delay: Boeing and union leadership are set to return to the negotiating table this week. In the meantime, the strike could cost the company up to $500 million in cash each week, RBC Capital Markets analyst Ken Herbert told Bloomberg. When will Murphy's law stop picking on Boeing?

Turns out Washington and Westminster can both be royal pains.

This week, a UK Labour Party official told the Financial Times he'd like to see legislation modeled on the US' Uyghur Forced Labor Prevention Act, which heavily impacts imports of Chinese textiles — i.e., a potential problem for Shein, which uses majority China-based manufacturers for its clothing. This comes one week after the Biden administration announced it's planning to close a tax loophole that has been of enormous benefit to Shein's business model.

London Calling

Shein and its rival fast-fashion e-commerce parvenu Temu have become subjects of intensifying US scrutiny over the past year or so. They are both China-founded, although Shein is now headquartered in Singapore, and both have followed a business model of shipping extremely cheap items to international consumers, partly by using a tax loophole called de minimis that exempts directly-shipped packages under $800 in value from import tax. The Biden administration said last week that over the last 10 years, the number of packages flowing into the US under de minimis has gone up from 140 million per year to 1 billion.

Shein was clearly sensing shifting winds in the US as it switched its IPO plans from New York to London, but now a one-two from both US and UK officials could rain on that parade:

• Shein's decision to list in London brought the UK's financial regulator under elevated scrutiny, and now a Labour politician who's head of a parliamentary business committee said he wants to see legislation for combatting forced labor in Chinese supply chains.
• Shein has historically been accused of benefiting from forced labor, especially from the suppressed Uyghur population. In a statement to the FT, Shein said it has a "zero-tolerance policy" for forced labor, though its 2023 sustainability report published last month did find two cases of child labor in its supply chain.

The Clock is Ticking: In other geopolitical football news, TikTok's court battle against its US ban from President Biden started yesterday, and is due to run for a long time. If only the prosecution could break their arguments down into neat, bite-sized videos.

A key part of BP's renewable ambitions is gone with the wind.

On Monday, the energy giant announced that it will put its US onshore wind power business, estimated to be worth about $2 billion, on the market. Shareholder sentiment and an uncertain US wind sector seemingly left too many factors up in the air.

Wind-Win Situation

In June, new BP CEO Murray Auchincloss implemented a hiring freeze and paused new offshore wind projects — not a big fan, one might say — in order to placate value-interested shareholders who worried his company's renewables plans weren't maximizing growth from oil and gas, which boomed after Russia's invasion of Ukraine.

His predecessor rolled out an ambitious "net zero" plan to cut oil production by 40% by 2030, while rivals announced plans to hike their production; BP's shares underperformed the competition as a result, even resulting in takeover rumors. Auchincloss, who took over in January after a brief stint as interim CEO, has already rowed that back to 25%, and shareholders think he could unwind previous climate targets even more. Monday's announcement seemed to confirm as much, though it also happened because investors haven't been blown away by the US wind market in general either:

• BP Wind Energy's assets, with a 1.3 gigawatt generating capacity, are "likely to be of greater value for another owner" and are "not aligned with our plans for growth," the company said. It flagged solar firm Lightsource BP, which it agreed to acquire in full last year, as better suited for its plans.
• Despite major tax breaks introduced in 2022, new US wind projects — onshore and offshore — have declined, and last year was the first year since the 1990s that the amount of power generated by wind in the US fell, according to the US Energy Information Administration. A USA Today analysis earlier this year found hundreds of local governments are banning new onshore wind and solar power faster than what's being built, making the sector increasingly undesirable for investment.