Boeing Deal Clears Path for Production Boost

Boeing (BA) removed a key obstacle to a 40% production ramp-up after its largest union overwhelmingly ratified a new contract.

In the contract vote by the International Association of Machinists, which represents about 31,000 Boeing workers, 74% ratified the new contract which will be in effect until September 2016. Results were announced late Wednesday.

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Not only does the contract assure almost five years of labor peace, following disruptive strikes in 1995, 2005 and 2008, but it also represents "the start of a new chapter in the IAM-Boeing relationship," said the union in a message to members issued following the ratification vote.

"Over the past decade, this union and Boeing have proven that we're able to fight each other very effectively," the union said. "Today, as a result of your vote, we're committing ourselves to working together. It'll be a big shift that we both need to embrace." The first step is creation of a joint leadership committee that will meet monthly to address potential problems before they develop.

The agreement comes with Boeing on the cusp of an era when it can benefit from sales of the 787 Dreamliner and the 747-8, which began this summer after years of development.

The aircraft maker has a backlog of more than 4,000 orders for five aircraft types and plans a 40% production ramp-up, wrote Sterne Agee analyst Peter Arment in a recent report. He said increasing orders for the 737 MAX will further expand the backlog.

"We remain constructive on BA given our long-term view of the cycle," wrote Arment, who has a price target of $82. Similarly, RBC Capital Markets analyst Robert Stallard wrote that the deal "removes the risk of a damaging labor confrontation just as (Boeing) is ramping up production across its models."

Early Thursday, Boeing announced its latest deal, one which involves eight aircraft for Los Angeles-based Air Lease (AL), which ordered four 787-9 Dreamliners and exercised an option order for four 737-800s. The order, which has a list price of more than $1.2 billion, completes an agreement announced during the Paris Air Show in June.

Air Lease already has orders for 74 737-800s and five 777-300ERs. "This order will continue to diversify our portfolio of efficient airplanes for our airline customers," said Steven F. Udvar-Hazy, CEO of Air Lease.

In a September report, as Boeing prepared to deliver the first 787 to launch customer ANA three years late, BB&T analyst Carter Leake wrote: "The 787 is about to take the world by storm. Boeing is about to transition from what has been one of its darkest periods to what we believe will be its best-ever decade."

Boeing shares began 2011 at $66.15 and reached a high of $80.65 in May. Shares closed Wednesday at $70.60.

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