Boeing Contract Debate Divides Union Leadership
“We need every member to stand with us in solidarity, and just say no to this takeaway offer. We are under a great deal of pressure to give up our pension, pay dramatically more in healthcare costs, and stagnate wage growth so we have less take-home pay going forward. We are asked to accept less when Boeing has record profits, record backlogs and approved a $10 billion stock buy back. Machinists stand ready to build the 777X. We are the key to a successful 777X future. Rejecting this concessionary offer, does not diminish all the advantages of building the plane here. Our current wages and benefits are less than 5 percent of airplane costs without these concessions. Vote no and tell Boeing to focus on building the 777X here because analysts, customers and shareholders agree — that is the right choice!”
Those words appeared on poster announcing a solidarity rally ahead of the January 3 union vote on the latest Boeing (NYSE:BA) contract, showing that a significant opposition to the latest offer exists among District 751 members of the 31,000-strong International Association of Machinists and Aerospace Workers. If members of Boeing’s largest union reject the eight-year contract extension, the jet manufacturer will not build the wing of its newest aircraft — the redesigned 777X — in Washington state, company executives told government officials in the Seattle area on Monday.
However, as Reuters reported, Boeing has not ruled out setting up the final assembly of the plane or construction of its fuselage in the Puget Sound area if local union members turn down the proposal. “They made it very clear that if there is a ‘no’ vote on the contract, they will not build the composite wing here,” Kent, Washington mayor Suzette Cooke told the publication. “It left the other parts of the plane in question.” She is confident that union workers will approve the latest proposal. “It is such a sweet deal,” Cooke added, explaining that Boeing workers would secure better pay and benefits than most other American workers if they vote yes.
In early November, a strong majority of Boeing machinists rejected an eight-year labor contract extension that would have ensured production of key components for the company’s 777X would have remained in Washington state, the jet manufacturer’s traditional manufacturing base. The agreement would have given local members of the International Association of Machinists an estimated 20 years of work building the 777X, the latest iteration of Boeing’s highly-profitable, wide-body series.
Given the sweeping ramifications the contract rejection will have on Boeing’s Washington machinists, the last vote drew a strong turnout. The 777X — which boasts the largest engines ever put on a plane and key costs-saving technologies that could change trends in modern aircraft design — is considered a pivotal to Boeing’s future profitability and a crucial component in the company’s fight against European Aeronautic Defence and Space Company (EADSY.PK)-owned Airbus for dominance in the long-range, twin engine market. “The airplane will build on the market-leading 777 and will provide superior operating economics,” as Raymond L. Conner, the chief executive of Boeing’s commercial aircraft division, described the jet in a press release. “The airplane will be 12 percent more fuel efficient than any competing airplane, necessary in today’s competitive environment.”
More importantly for machinists is the fact that the new version of the popular long-haul get, due for delivery in 2020, will likely be the last major new jet constructed by Boeing for fifteen years. Not only would the contract have brought job security to the labors building the plane, but its construction would have had a huge ripple effect for the state where the production line is located, giving a boost to the local economy. Last year, Washington’s aerospace industry generated $76 billion in economic activity last year, with the 777 injecting $20 billion into the economy and contributing 56,000 jobs. Also important for the state of Washington is the fact that the construction of the 777X wing will employ technology that will be key to future Boeing aircraft production. “The composite wing is the wave of the future,” Renton Mayor Denis Law told Reuters. “It is one of the ways that aerospace can grow in this state.”
But because the contract would have terminated union’s pension plans and increased healthcare costs, the machinists deemed those giveaways too harsh to to accept. Sixty-seven percent of all votes cast were no votes. “Today, the democratic process worked and our members made the decision to not accept the company’s proposal. It is my belief that we represent the best aerospace workforce in the world and hope that as a result of this vote Boeing will not discard our skills when looking to place the 777X,” said the union’s District 751 President Tom Wroblewski in a statement issued after the vote. “We preserved something sacred by rejecting the Boeing proposal. We’ve held on to our pensions and that’s big. At a time when financial planners are talking about a ‘retirement crisis’ in America, we have preserved a tool that will help our members retire with more comfort and dignity.”
Wroblewski’s statement suggested that there was a belief among Boeing’s union workers that the company would reformulate the agreement, addressing the machinists’ chief concerns. Boeing did; the jet manufacturer backed away from its attempts to slow the pay scale rate of machinists and added an additional $5,000 bonus, and better dental coverage.
However, the company has also inspected manufacturing locations throughout the United States, receiving bids from 22 states. Japan, where the composite wings for Boeing’s 787 jet are built, has expressed interest in the 777X program as well. As company spokesperson Doug Alder told Reuters, the January 3 vote will be the last opportunity workers to have a say on the Boeing offer before the jet manufacturer decides where to locate production.
Debate ahead of the second vote on the Boeing proposal shows a rift between local and national leaders of the machinists union. In a letter dated December 26, the union’s international president, R. Thomas Buffenbarger, cautioned members, urging them to be aware that Boeing’s solicitation of bids from other states was not a “fake” play. “Your union, based upon information that indicates otherwise, must take the threat seriously,” he said. As his words suggest, the negotiations over the 777X are fundamentally different than previous contract discussion; Boeing knows that labor expenses would be lower in those states under consideration.
But the local union has scheduled a solidarity rally for the day before the vote. “We are faced then with a choice to destroy everything that we have built over 78 years in order to save Boeing from making a decision that puts the future of the company, all its employees (union and non-union alike) and the stockholders at risk,” Wroblewski wrote in a letter to members. Similarly, a message on the District 751 website read: “Because of the massive takeaways, the Union is adamantly recommending members reject this offer.”
The difference in opinion between local and national leaders is unusual, but it likely arose because the national union is more concerned with keeping dues-paying members than it is evaluating the contract’s terms, as experts in union politics have indicated. “The theory that this is a way to preserve IAM jobs (and therefore membership) of IAM’s largest District certainly seems plausible, as Leeham Co. aviation analyst told Bloomberg via email. “I certainly can’t think of another reason, and I’m sure International is hardly altruistic.”
More From Wall St. Cheat Sheet:
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