As a business owner, I have a strong bias of against unions and labor issues. In my opinion, competition should dictate all results on both sides of the capitalism coin. Companies should be free to compete with other companies and workers should be free to compete with other workers.
Unions destroy that free market mechanism and ultimately all parties are hurt by union actions. Although unions have shrunk over the last decade or so there presence is still felt by many larger industrial companies.
Over the weekend, one of our largest industrial companies, Boeing Co. (BA) was hit by a strike by its machinists bringing the issue of unions to the forefront of the news.
Certainly unions play a strong role in obtaining the highest wages for its members, but there is a fine line to walk here. If Boeing (BA) can find machinists to do the job for a lesser rate they should be free to do so.
Of course labor rules do not allow BA to fire the machinists for not working and thus they are forced to negotiate with the union. Frankly, the workers might be better off fending for themselves.
Building aircraft is no simple task. I suspect the pool of qualified workers is far and few between. As such, a worker on their own may be able to negotiate a higher compensation package for themselves when the absence of that worker is felt on the assembly line.
A Strike, High Oil Prices
Historically, a strike like this will impact BA’s market cap by 8-10%. That’s a big hit in market value and fairly destructive.
The impact on a striking worker is painful too. In this case…> if the strike last for 30 days or more, that worker begins losing benefits. There is some recourse to the strike I guess.
I last wrote about BA in May (see,”Bargain Hunters Descend on Airline Stocks“). At that time the stock was down some 20% from its highs on the disappointment of a lost military contract and delays on delivering end product. Since that time shares have fallen further to trade in the low $60’s.
High oil prices and problems for domestic carriers meant delays in aircraft purchases. BA’s backlog looked to be vulnerable and investors reacted accordingly (see also, “B/E Aerospace (BEAV) Sees Friendly Skies Ahead“).
Now we have this strike, a strike that most suspect will last 2-3 weeks (nobody thinks workers are willing to walk away from benefits). While shares of airline companies have recovered much since oil peaked at $145 per barrel, BA shares have only treaded water.
We may not see the typical 8-10% haircut due to the strike. If we do, I would suggest buying as much BA as possible. Ultimately, unions have only so much power. If BA can find better workers at cheaper prices they should be allowed to do so.
Unions understand this weakness and usually only push so far. Ultimately, these spats get resolved and BA can focus on building aircraft and selling more planes. Given the recovery in the airline industry BA may be a bargain.
Any strike discount should be viewed as an opportunity.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight likes this, go to: www.InvestorPlace.com.
