Leeham News and Analysis
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Leeham News and Analysis
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- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
Boeing Board OKs $10bn stock buyback, 50% hike in dividends in move sure to anger IAM members (Updated)
Update, 10 pm PST: IAM 751 gave us its reaction; it’s at the bottom of this post.
Original Post:
At a time where feelings are running raw with IAM 751 members, the Boeing Board of Directors authorized a new, $10bn stock buyback. This follows a $7bn stock buyback program from 2007 that was suspended from 2009 and January this year, when it was resumed. The suspension was due to the 787 and 747-8 program cost overruns, compensation and related costs.
The Board also approved a 50% hike in dividends to shareholders.
“The buyback and dividend announcement today reflects our normal cash deployment strategy – one that ensures investment in our core businesses (R&D, facilities) and workforce, returns value to shareholders, manages our pension obligations and maintains our strong balance sheet and credit rating,” Boeing spokesman Charles Bickers wrote to us in an email.
“The announced returns get us back to the levels that we have previously targeted. Boeing’s shareholders –including thousands of employees– have been very patient as the company came through the last few years. There were no share repurchases between 2009 and 2013 and there was only one dividend increase between 2009 and 2012, meaning that the average annual rate of dividend increase in that period was a little over 1 percent.”
But the actions come at a sensitive time, on the heels of a 2-1 contract rejection vote by 751 members of major contract concessions demanded by Boeing in return for committing to build the 777X and its wings in Washington State. Terminating the defined pension plans in favor of a 401(k) plan was a key element in members voting against the contract.
Drastically altering the wage page scale, extending by 10 years the time it would take to get to the top of the scale, called zoom, was another “ask” by Boeing. A third point of contention was the proposal to require employees to pay 33% more in their health care premiums.
A revised Boeing contract offer gave on zoom and the premiums but held firm on the pension. The offer was also said by the 751 leadership, to be contingent upon the leadership sending the offer to a vote with a “Yes” recommendation, which they refused to do. Talks broke off, and the leadership continues to face an open revolt among some members demanding a vote. A bevy of Washington politicians have also urged the leadership to allow a vote.
“This announcement does not alter the fact that Boeing offered marketing leading compensation and benefits associated with the contract extension. As I said above, the announcement is consistent with our prudent and balanced cash deployment strategy, which includes investment in our core business (R&D, facilities), our workforce, managing our pension obligations, returning cash to shareholders and maintaining a strong balance sheet and credit rating,” Bickers wrote.
IAM 751 as yet has not commented.
Update: IAM 751 gave us this statement:
“Boeing is looking forward to a period of long-term financial stability made possible primarily by the men and women of District 751,” said union President Tom Wroblewski.
“While other production sites have failed to hit their targets, we have delivered record numbers of airplanes at record profit margins this year, helping drive the stock price to record highs,” he said. “Given this, I feel it’s wrong for the company to try to take away pension benefits that provide our members with their own future financial stability.”
We have a better use for the bucu bucks brought in by the IAM folks working their butts off than giving them a square deal. But an increased dividend will put a few bucks more into the holdings of our senior executives as a reward for thier 7 lATE 7 FIASCO and soon to be 777X copy.
Christmas comes early comes early for some… 😉
Greed at its most, no investment in future products, just milking the cow!
Eagerly awaiting all the posts about entitlement cultures and self-destructive greed…
We already do..see first response…;)
Employees: aren’t you so glad you have been religiously buying stocks in Boeing, so you, too, can be rolling in those huge 1% dividends increases?
If all of you Boeing employees plus retirees had been buying stock as long as you have worked at Boeing, management would be listening to you a lot more than currently…..
Some price dips through the decades have sold the company stocks pretty cheaply.
Just something to ponder….
RE boeing stock in Boeing 401k plan
http://tinyurl.com/SPANO401KBA
105. The Boeing Stock Fund is an investment option in the Plan.
106. As the name suggests, The Boeing Company Stock Fund provides participants
with the opportunity to use a portion of their retirement savings to purchase stock in the company
for which they work.
107. By its nature, The Boeing Company Stock Fund is undiversified and risky,
especially when it represents a disproportionately high percentage of a participant’s retirement
savings.
108. While The Boeing Company Stock Fund benefits Boeing by providing a steady
market for the Company’s stock and more than $3.3 billion dollars (as of 2004) in working
capital from their employees’ salaries, the Fund causes participants to embrace the risks inherent
in undiversified investing.
109. For the typical participant, the risk that The Boeing Company Stock Fund
imposes is greater than that of other undiversified investments.
110. The typical participant, before placing any retirement savings in The Boeing
Company Stock Fund, relies on the stability and financial viability of his or her employer as the
basis of maintaining a standard of living. The employer provides the participant’s salary,
healthcare and other benefits, as well a pension (if any), and other retirement benefits, which all
depend upon the employer’s continued solvency and viability.
111. Thus, the same risk that could impair the participant’s investment in The Boeing
Company Stock Fund (Boeing’s failure or insolvency) would also cause the loss of current
income and benefits and future non-401(k) retirement benefits. The risks are correlated and, if
realized, would financially devastate most participants.
112. Recent, high-profile corporate scandals highlight the risks inherent in 401(k)
participants’ investment in Employer Stock Funds.
113. Regardless of the risks and benefits inherent in The Boeing Company Stock Fund,
from a fee and expense standpoint, it should be an investment option that assesses minimal, if
any, fees against Plan participants’ accounts.
114. The Boeing Company Stock Fund does not need to pay for investment
management, which constitutes the largest portion of most Funds’ fees and expenses and thus the
largest portion of Funds’ expense ratios.
115. By its very nature, The Boeing Company Stock Fund forgoes such investment
management and holds an undiversified portfolio containing employer stock. Thus, The Boeing
Company Stock Fund should not assess investment management charges against participants’ accounts.116. It is pivotal to participants’ returns that such fees are not assessed against
participants’ savings in The Boeing Company Stock Fund or, if charged, are minimal.
117. Further, it is crucial to participants’ returns that The Boeing Company Stock Fund
does not hold cash on a continuous basis.
118. Nonetheless, The Boeing Company Stock Fund charges fees against Plan
participants’ accounts and holds substantial cash.
119. Plan participants invest in The Boeing Company Stock Fund with the goal of
sharing in their employer’s financial success through the receipt of dividends and the increase in
the value of the employer’s stock.
120. However, The Boeing Company Stock Fund’s fees and expenses, and its cash
holdings, undermine the extent to which participants can do so. This is especially true when The
Boeing Company Stock Fund’s performance is compared to that of investors who purchase
Boeing stock directly, instead of through the Plan.
121. Participants who invest in The Boeing Company Stock Fund do not own shares of
Boeing stock. They own units of The Boeing Company Stock Fund.
122. Each unit of The Boeing Company Stock Fund represents a portion of the shares
of Boeing stock in The Boeing Company Stock Fund and a portion of the cash held by The
Boeing Company Stock Fund.
123. The value of each unit of The Boeing Company Stock Fund is based upon a
combination of the Boeing stock value and the value of the cash (typically in money market
investments and thus static) at any given time.
124. As a result of the fees charged, and the cash held, in The Boeing Company Stock
Fund, the return that a participant receives in The Boeing Company Stock Fund is lower than
of a non-Plan investor – a complete stranger to the Company who invests in Boeing stock
for the same period.
125. The amount of cash that The Boeing Company Stock Fund holds reduces the
extent to which participants in The Boeing Company Stock Fund share in their employers’
financial success.
126. If the value of Boeing stock is rising, or if it is paying dividends, participants who
place their retirement savings in The Boeing Company Stock Fund naturally want every dollar
they save to earn such investment gains.
127. But the portion of the participant’s savings that remains in cash, and is not used to
purchase Boeing stock, does not generate such investment gains. Instead, its value remains
essentially the same.
128. For example, if a non-Plan investor purchases 100 shares of Boeing stock at $100
per share, and the share value thereafter rises by 10%, he or she has reaped a $1,000 gain on the
initial $10,000 investment.
129. However, a Plan participant placing the same $10,000 in The Boeing Company
Stock Fund does not receive 100 shares of Boeing stock. He or she receives The Boeing
Company Stock Fund units representing an interest in the shares of employer stock held in the
Fund and an interest in The Boeing Company Stock Fund’s cash.
130. If The Boeing Company Stock Fund holds 3 percent cash and 97 percent stock,
the 10 percent increase in the value of the employer stock will translate into a $970 gain for the
participant, while the value of the cash remains static.
131. To make matters worse, the Plan participant investing $10,000 in The Boeing
Company Stock Fund will also have to pay fees and expenses. These fees and expenses will
further reduce the participant’s return.
132. While this difference may seem modest, The Boeing Company Stock Fund is the
largest of all Plan investment alternatives, containing more than $3.3 billion participant dollars.
133. Boeing has violated, and is violating, its fiduciary obligations under ERISA by:
(A) charging, and or allowing to be charged, excess and unreasonable fees and expenses to
participants’ retirement savings in The Boeing Company Stock Fund; and (B) maintaining and
holding, causing to be maintained or held, or allowing to be maintained or held, excess cash in
The Boeing Company Stock Fund and thereby impairing participants’ returns.
+++
The case is still going on re class action determination
Treat yo self!
Sure, why not throw down $10 billion. They’re going to be getting it back soon from the taxpayers of some lucky, lucky state anyway. Ugh.
Classy statement from Wroblewski. He refused the bait. Boeing would no doubt have enjoyed it if he had had a gigantic ideological ranting meltdown about ‘justice’ and the ‘working man’. Chicago will be much disappointed in the morning.
It’s probably killed off what little support the ‘demand a vote’ crowd had.
When I first saw the announcement, I did not think of the Union. I thought about the the state just having handed Boeing an 8.7 Billion dollar package, to ‘ help Boeing be competitive’.
I was somewhat taken aback. Yes, even I, who am a veteran observer and bit player at experiencing this sort of stunning arrogance was left momentarily slack-jawed at the utter gall. The exquisitely ego-maniacal timing.
Machiavelli would be proud.
But I did not feel bad for the union. I felt bad for my state. I felt bad for the taxpayer. I felt bad for an economy, doomed forever to have a gun to it’s head. Especially since the State now participates even more in the same sort of risk that can damage it heavily in an aerospace market downturn as Boeing. Especially given the gigantic aircraft order bubble being inflated by Airbus and Boeing as we speak. One big negative world event, and it’s over. And if Boeing places 777x in Everett, and gets the state money, it will be manifestly worse for Washington when the inevitable occurs.
I am not changing my stance on the contract terms offered. I reject it. I reject the idea of a vote on it. But after today, my reason for that position has changed I think.
I may well have decided that Boeing needs to be shown the door. Our Boeing-crack addicted state legislature and governor need to form a task force on economic diversification. Anybody and everybody who wants to come here, build a business, and industry, and create jobs should get exactly what was offered Boeing. Perhaps more.
Maybe it’s time to put down the pipe, throw away the needle, and pour out the bottle.
Boeing is a bad habit, and it’s killing us.
…well said Steve!
Keep going IAM you are bound to get Boeing out of Washington and then your union can pay the high wages and benefits you make. Just like the Kaiser union in Spokane
Two things:
From a financial point of view, despite how difficult the 787 Dreamliner birthing has been, Boeing has surely rewarded the investment community for that insane bet they took all those years back when Boeing seem out of business in commercial jet transportation. I think, Boeing stock on the NYSE was trading at about $133.00 yesterday December 18, 2013 — it has performed very well.
Second, there’s all kind of ethical issues here, no doubt – and depending from which side you’re looking, such is the case with these things. There’s is some sort of war being fought between long-term sustainability from the company’s management point of view, against the company’s labors’ livelihoods, and against living standards and general prosperity the stakeholders (the State of Washington) are managing. Shareholders are backing the company’s management and are being rewarded. There is an incredibly messy disintegration of aviation industry occurring in the Puget Sound area of Washington, per Piepenbrock’s #RedBlue.
I do wonder how much of an influence Detroit & Cupertino have been having on all this.