Arizona strike could squeeze Raytheon profit

A strike by 1,500 workers has stretched into its fourth week at Raytheon Co.'s missile business, and analysts warn it could slow deliveries and pinch fourth-quarter profits for the Waltham company.

Unionized hourly workers set up picket lines at the Missile Systems division in Tucson just after midnight Nov. 5, when their previous three-year contract expired. Two days earlier, negotiators for Raytheon and Local 933 of the International Association of Machinists broke off contract talks after failing to bridge differences on issues ranging from healthcare to pensions. Union members voted overwhelmingly to reject Raytheon's offer.

Both sides say they haven't talked since Nov. 3, and there are currently no plans to return to the bargaining table.

The strike, the first since Raytheon acquired the missile operation from Hughes Aircraft in 1997, "is getting more entrenched," said Paul Nisbet , aerospace and defense analyst for JSA Research in Newport, R.I. "It's getting to the point now where there could be delays in Raytheon's deliveries. And it could get worse before it gets better."

Raytheon's shares edged up 44 cents, or 0.9 percent, to $50.80 on the New York Stock Exchange yesterday.

Cai von Rumohr , analyst with Cowen & Co. in Boston, recalled a six-week strike last winter at Sikorsky Aircraft, the Stratford, Conn., helicopter builder, that squeezed profit margins in the second and third quarters for the United Technologies Corp. unit. He warned the Tucson strike could similarly take a toll at the Raytheon missile division.

"At some point, a strike starts to bite," he said. "It's a question of how long it goes on and when it starts to impact deliveries. If they don't get it settled by Dec. 20, don't expect to have it settled until past New Year's. And you could have workers coming back with bad morale."

Thus far, company officials insist, the machinists strike hasn't slowed production or delayed deliveries to US military services of weapons, like Javelin antitank missiles and TOW bunker-buster missiles, deployed in Iraq and Afghanistan. "We are not leaving the war fighters empty-handed," said Raytheon spokeswoman Sara Hammond .

Supervisors, along with other salaried employees and "hundreds" of hourly employees who've returned to work, have picked up the slack in manufacturing the division's line of products, which also include Tomahawk cruise missiles and Exoatmospheric Kill Vehicles that intercept incoming ballistic missiles , Hammond said.

"We have an offer on the table, and it still stands," Hammond said. "It's a fair offer. And until we hear from the union, we're going to continue on. We're continuing to meet our customers' needs."

There are almost 9,000 salaried workers at the missile systems division, mostly in Tucson, compared to about 1,900 hourly workers.

Bobby Martinez , directing business representative for Machinists Local 933 in Tucson, said only a small number of union members have crossed the picket line. Other hourly workers inside the plants are nonunion workers represented by the local, he said. Martinez said union leaders have been told of delays since the strike began.

"People we know inside who have been in contact with our members say they are not meeting their delivery goals," Martinez said.

Martinez said the union is open to resuming contract talks but wants concessions from Raytheon on proposals to pass on the bulk of healthcare cost increases to hourly workers and change the rules of a pension plan. "Their mantra is that they want everyone to pay the same on healthcare," he noted. "But the average salaried worker makes $75,000 a year compared to $40,000 for the average hourly worker."

Other unions at Raytheon plants across the country, including Local 1505 of the International Brotherhood of Electrical Workers in Massachusetts, which approved a three-year contract in 2004, have issued calls of support for the strikers, Martinez said. And last Friday, newly elected Arizona Democratic congresswoman Gabriella Giffords joined striking workers on the picket line in Tucson.

Analysts said the ongoing strike isn't likely to cost the Raytheon division business since it is one of the nation's only contractors that can handle advanced missile production. They said late delivery fees and overtime pay to salaried workers could reduce profits, however, though the company might recoup a share of its lost profits after the strike.

Nisbet said both sides will be under pressure to settle in the coming weeks. "It's a financial problem for Raytheon, but it's more of a financial problem for the workers," he said. "They don't particularly like not receiving pay, especially during the holiday season."

Robert Weisman can be reached at weisman@globe.com.