Why Boeing is Going to War With Its Employees

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Unlike a lot of businesses, Boeing’s commercial jet division knows what the future will bring. Its order book is stuffed like a Thanksgiving turkey, as the next version of the workhorse 737 rolls on and production of the 787 Dreamliner reaches full tilt after its wobbly start. The latest order book entries are $100 billion worth of the long distance 777x that three Middle East carriers plus Lufthansa have lined up to buy, with deliveries scheduled to begin in 2020.

What Boeing doesn’t know is where it will make the 777x. Last week, members of the International Association of Machinists (IAM) angrily voted down a new contract proposal that would have guaranteed the Triple Seven X be built in the Puget Sound region but would freeze their pension program, raise the cost of health care and create an adjusted wage scale for new hires, among other givebacks. Having to failed to lock in the lower long term labor costs that it craved, Boeing basically said it was going to take its marbles and play elsewhere. It already builds 787s in boss-friendly South Carolina, while sites such as Long Beach, California , a historic aerospace hub, Huntsville, Alabama, San Antonio and Salt Lake City have also been mentioned.  You can assume that Boeing will be shopping for a tax and incentives deal.

On the face of it, the decision by the machinists seems nuts. Boeing was offering guaranteed work for eight years and even offered a bonus to each worker to take the deal. That’s why the state of Washington coughed up $8.7 billion in tax breaks for the company to keep the work in the state.

Still, there’s been a mutual miscalculation. Given what has gone on in the steel, mining, aluminum, chemical, auto and tire industries among others in the last couple of decades, you would think the IAM would understand that labor costs have to be globally competitive. In the global economy, every job is part of a labor arbitrage. Airframe work is already being farmed out by Boeing to Japan, the Middle East and Asia, where the big customers are. Boeing’s deal includes an agreement to buy $5 billion worth of parts and components from suppliers linked to Abu Dhabi’s state investment fund. It is unlikely those workers will have a union scale. In Boeing’s view, it can’t afford to overpay for labor and probably figured that the offer of eight years of job stability would sway most workers. Consequently its bargaining team took a hard line in the negotiation. That’s what big corporations do.

But if Boeing thought a union faced with a my-way-or-the-highway offer would cave, it should have known better. The IAM has downed tools before. This is an old school union that, as the Seattle Times reported, was bitterly divided about even bringing the proposal to the membership in the first place— but uniformly angry at the terms.  Labor costs are not likely to be higher in the state of Washington than in Europe, where Airbus does most of its work. Airbus is headquartered in Toulouse, France, home of the 37 hour work week and 187 paid holidays. Okay, maybe it’s just 30. At the same time, Boeing and Airbus are a duopoly. You want a 200- to-400 seat jet? You can chose from B, or A.  As the union likes to point out, Boeing is running flat out. “Consistently strong operating performance is driving higher earnings, revenue and cash flow as we deliver on our record backlog and return increased value to shareholders,” said Boeing CEO Jim McNerney in the company’s third quarter earnings release.

Unions are not designed to give in. Even as the auto industry was crashing, some union locals preferred death to retreat, as older, more militant workers saw no point in doing more and getting less—the global economy be damned. They had worked decades to build a solid middle class existence.  For much of the same reasons the IAM, despite the threat of job loss, took to the streets of downtown Seattle to rally the troops against Boeing and the contract offer.

There will be a loss for both sides. Boeing is going to build jets in the Seattle area for a long time—its $400 billion backlog is too big, and its workforce, however militant, is an elite manufacturing force.  They are making jets, not cronuts. The current contract runs through 2016. Boeing could even build the 777x there yet, if the two sides can to get back to the negotiating table. It doesn’t seem likely, at this point. Boeing says it will decide in three months where it will build the 777x.

41 comments
smokyunderpants
smokyunderpants

"But if Boeing thought a union faced with a my-way-or-the-highway offer would cave, it should have known better."   

You don't really think Boeing miscalculated do you? The machinist allowed themselves to be manipulated. They look like greedy pigs that don't care about anyone but themselves. The Seattle media gleefully reported that the jobs of 40,000 machinists in creating airplanes support nearly half-million other jobs in the Seattle area. If the 777x isn't built here the economic outcome could be disastrous. Now other states are begging for the privilege. Boeing management won that round hands down.

Seattle Sue

MythicYoga
MythicYoga

Remember, Boeing's other business is military - such as drones that are killing US citizens without due process. Boeing profits from war, while 22 vets a day commit suicide. My Congressman won't talk about drones killing citizens, because he took campaign contributions from Boeing. Rights for one set of Americans is not justice.  @@repdesantis  @@codepink 


Onepatriot
Onepatriot

Boeing has always been delivering the best airplanes in the world.  They are the standard.  That said, their stock is at an all time high and shot up so much this year, I think it's greedy of them to not share that with the workers who deliver the goods for them.  In this industry, a good work force shouldn't be treated casually.  They should be valued, and that's part of a stockholders faith in that company, that it will keep producing a quality product for the long term.  Share the profits with your good work force.  After all, they helped you earn those profits. 

DanCummings
DanCummings

My 3 bets are as follows:

1. Long Beach

2. North Charleston, South Carolina

3. Montreal, Quebec (Canada) - cheap electricity, bilingual skilled workforce, one of homes of Bombardier aircraft with whom Boeing is collaborating on other projects - big under-utilized airport north of city with plant room nearby

4. possible split between two or all three, phasing out Seattle and Wichita


dajbsandoval
dajbsandoval

Finally a union that will stand its ground! Good for them! Be Union Strong!

RichardCampbell
RichardCampbell

The problem with union is that they can't see the big picture.

so if jobs are loss in the future,they should blaim themselves.

for making such a bad decision..


Laude45
Laude45

Every job lost in the US is a customer of a US flag carrier that won't buy a ticket next year and US workers buy more tickets than any other nation. So basically Boeing is making sure that it's best customer's won't be able to afford to fly so the airlines will buy less of it's product!  Sounds like a great  business plan to me. 

NZAircraftFan
NZAircraftFan

These guys should just be happy to have guaranteed work for the next few years stop being greedy . If they don't want the work I am sure there are plenty of other people who do Boeing has to keep costs down or Airbus will just steal all there orders with what think will be a better product the A350-1000.

tomac
tomac

Unions are:

ORGANIZED INEFFICIENCY and LEGALIZED EXTORTION

c_tomlin
c_tomlin

Boeing is "going to war with its employees?"     Looks like it's the other way around.    So they turned down an offer that was as good as, or better than, what tens of millions of workers across America (never mind the rest of the world with which we compete) have?      Well fine.    There are probably millions of workers who'd happily accept that deal in states (or countries) not run by union gangsters.  It's the 21st century.  The value of labor is not what a mob can extort out of an employer.         It's what that labor is actually worth in the free market.    Boeing could spend billions building a new plant and bringing a new work force up to speed and STILL save money by relocating 777x production out of the people's republic of Washington.  ...and it probably  will.                 Thanks a lot guys. 

tomac
tomac

The recent Seattle Union contract vote was an IQ test.

66% of the Union failed the IQ test.

TanmayLololAnaisPradhan
TanmayLololAnaisPradhan

They did the right thing. Boeing is trying to be McDonalds. And why ? When its having a boom, and raking in the cash for the next 10 years, why can't they pay their workers fairly ? Like mentioned, its an elite workforce, not high school dropouts.

They want to shove more money up CEO's butts. Fine. Screw them. Let them hire dropouts to do the job or take it to China where their patents will be stolen and sold to the Chinese airlines. 

I have no sympathy for them, although the author is clearly biased and in Boeing's pay. Competitive means top notch skill set, not a race to the bottom in wages. If Boeing wants to make the quality of planes that will be desired, they have to pay fair, or get lost.

marvinlee
marvinlee

@MythicYoga@repdesantis @codepinkI am a veteran, Mythic Yoga, and veteran suicides, not typical despite the news stories, has little to do with the Boeing labor dispute.  As for drone use ethics, I agree that the topic should be discussed and reform considered.

marvinlee
marvinlee

@OnepatriotNote that AirBus is also having a banner year.  The reality is that aircraft making is a boom and bust industry and Boeing must prepare for the future.  If you review Boeing's stock prices over the past ten years, you can see that many very bright people nearly lost hope for its future.  It is one of our few surviving aircraft makers, and our only surviving large airliner maker.  Lose it, and we lose much of our aerospace future.

marvinlee
marvinlee

@dajbsandovalI am pleased that the local machinists union accepted the contract, which retains very high wages but achieves some reduction in future pension costs.  It was a prudent decision by union members.

Onepatriot
Onepatriot

@RichardCampbell This is not an industry where you should  take a chance and make a gamble on the quality of your work force which you would be doing if you move that production.

jack99
jack99

@Laude45 I somehow doubt the loss of ticket sales by laid-off Boeing employees is a good enough reason to keep jobs here.

marvinlee
marvinlee

@NZAircraftFanJapan's auto industry years ago made a great geographic shift of manufacturing to America, and has done very well, including a continuation of high product quality. 

Onepatriot
Onepatriot

@NZAircraftFan The workers are being greedy?  You'd better look at their stock.  It's at an all time high and they are making record profits.  Now is not the time for them to be asking for concessions.  Save that request for another more legitimate day.

vstillwell
vstillwell

@NZAircraftFan Yes, shoot for the stars, man. Why should anyone fight for a better life? They should just be happy with what they have! That's the spirit. It's your kind of courage that built this country!

vstillwell
vstillwell

@tomac I guess you didn't read the part about the billions in tax breaks. You just skipped to the stuff that pleases your tiny ideological mind. 

Yoshi
Yoshi

@tomac If that were the case, how does the company get 400 billion (with a "B") dollars racked up? They do it by making a superior product. Much of the credit for that superior product goes to the workers who actually make the product. Good paying jobs lead to a better economy overall. To put it another way, would YOU fly on a plane built by minimum educated workers paid minimum wage?

thedudeisback
thedudeisback

@c_tomlin 

Boeing, like many other large employers, uses its impressive political and economic power to extract gains from all of its stakeholders.

In 2003, Boeing extracted over $3.2 billion in tax incentives from the state legislature to "win" production of the new 787 airplane. Within a few years, the incentives were expanded, and modest accountability conditions disappeared from the incentive package. The win turned sour in 2007. Boeing opened a second 787 production line in South Carolina, sending a clear message that $3.2 billion buys less love than anyone thought.

In November 2013, Washington state tax incentive extended the tax incentive, reducing Boeing's taxes by $8.7 Billion, out to 2040. This is far and away the biggest state tax incentive in American history.

For the last 10 years, Boeing has paid net negative Washington state corporate taxes. Similarly, Citizens for Tax Justice reports Boeing enjoyed a net negative federal tax rate for 2007-2009,

Kansas suffered similar treatment. Boeing assured the Kansas Congressional delegation that the $35 billion Air Force tanker program would bring work and employment stability to Boeing workers in Wichita. Shortly after winning the contract, Boeing moved that work to Oklahoma City, and closed the Wichita facility.

Boeing, GE, Wal-Mart, and other major companies tell suppliers to find productivity improvements and lower costs. They extract those gains from their suppliers in advance. Suppliers bear extra risk, especially in the highly cyclical and volatile aerospace industry.

While extracting gains, Boeing also demands public commitment to transportation, education, worker training, and streamlined regulatory processes.

Boeing has exceptional bargaining power, when negotiating for state incentives. The logic is simple. "This work is critical to your future. We can move this work anywhere. You must make concessions to keep these jobs. You will be worse off if you don't." True to form, the Machinists were threatened with losing their jobs unless they accepted takeaways.

The Machinists' vote makes them the first stakeholder to stand up to that threat and say, "This is bad for me, bad for my family and bad for my community. I say NO!"

I remember a time when the point of public policy was to raise my standard of living. For the last 30 years, we've followed a different principle - make business succeed. Of course, we could get both, higher living standards AND successful businesses - if we shared the gains workers produce.

Except we don't.

An old joke comes to mind. "Why does a dog lick his [nether regions]? Because he can."

The dog, in this joke, is oblivious or indifferent to social disapproval regarding personal grooming. People know dogs do that, so no one attempts to change the dog's behavior.

When a dominant employer makes demands, some local opinion leaders fall over themselves demanding that workers accept a slow decline in living standards, rather than standing up for better living standards and better economic prospects for our children and future generations.

At each step, a large employer with dominant bargaining power extracts gains at the expense of workers and communities who have little or no bargaining power. Step by step, we give up small slices of the future. Jobs disappear in textiles, steel, wood products, furniture, home electronics, semiconductors, flat screen TVs, solar panels, software and R&D. Millions of middle class jobs are replaced by millions of low-wage jobs in the service economy.

Wal-Mart perfected this business strategy in the retail sector. Boeing is adapting the same strategy to an upscale manufacturing industry.

Because they can.

These large dominant employers are thinking and acting strategically to advance their own interests. It works for them - 93% of new wealth goes to the top 1%.

This "new normal" started in the mid-70s, with a fundamental change in business philosophy in America. Business executives turned away from whatever Social Contract we had, coming out of World War II.

This is not a pendulum that will naturally swing back. We are experiencing a steady decline toward an unstable unsustainable future.

This won't work. No society has prospered with this level of inequality and asymmetric political and economic power. If this Lesser America is our new normal, then we will be fighting over the last kernel of corn on the table.

Members of the Machinist union - a visible legitimate credible stakeholder - have said, "No!"

Their work has dignity. They create value. Design and production workers helped rescue the 787 program which was in chaos and threatened disaster for the entire company. Workers have earned a fair share of the gains they create.

The purpose of an economy is to raise living standards. I'm happy for business to succeed, as long as gains are shared. There is no legitimate policy purpose to have business succeed at the expense of workers, families and communities.

DanCummings
DanCummings

@TanmayLololAnaisPradhan - They're paid well. Union-lovers have this term called "fair" which they can't define. I've worked in union shops and the union stewards acted like the high school quarterback, strutting around and doing no work. We're in a tough economy because Bill Clinton destabilized the banking and housing industries in 1999 and 2000. And then when things went wonky in 2007 the Democrat-controlled Congress wouldn't do anything because they wanted the economy to tank in the election year. So now these union guys, whose union funds put in Clinton and Obama, won't accept responsibility and take guaranteed work while the rest of the world suffers. There are few CEOs who can run huge companies. Your pension plan probably has money invested in Boeing stock, most do. Do pensions want Boeing to fail?

Duffman
Duffman

Fair pay, a limit to CEO compensation, your starting to sound a little red there pinkoe! Will you guys just go back to being serfs already!

marvinlee
marvinlee

@vstillwell@NZAircraftFan I agree with NZAircraftFan.  AirBus is also having a great year, and Boeing faces rising competition going forward.  Labor cost control must improve if Boeing is to stay in business, long term.

jack99
jack99

@vstillwell @NZAircraftFan It's called being realistic. Work a few years in management and you'll understand how cost multipliers work. Boeing's profit margins on their jets us 2-3% by some accounts. 

marvinlee
marvinlee

@thedudeisbackWe have no choice but to live in the world as it is, not as we would like it.  Costs matter, and our national manufacturing base has already been deeply eroded, to the point that our national defense ability now rests on the willingness of other nations to sell us certain parts.  Keeping Boeing healthy is in the national interest.  Raising living standards is not a more important purpose.

DanCummings
DanCummings

@thedudeisback - The argument works if there's only one place the plane can be built and there's no competitors. education and skill levels rise around the world on a daily basis. The auto business left Detroit in the dust when they couldn''t compete with extortion-level wages. Ontario, across the Detroit River, now builds more vehicles than Michigan, and more than any other state or province in the world. Low taxes, high education and union wages. But when a union in London, Ontario tried to extort Caterpillar, they closed the plant and loved production to the U.S. (the plant had been in London, building locomotives and other heavy equipment, since the 1930s). Companies now have options. Planes, especially, which have to have to fly to customers anyway, can be built literally anywhere. Yes, they create value, but they are competing against airplane manufacturers in Canada, France and Brazil, as well as U.S. Cost per plane is a critical selling feature. Tax breaks are quick returns on investment for states and cities. Jobs are what matters. My sister lives in a town that had an electric motor-making plant and a milk processing plant both shut down with 8 months following strikes. She knew many of the workers. They were broken by their loss of work, most never found re-employment. Neither employer wanted to cut wages, just limit increase to 2% for 2 years (this was in early 1990s recession). The unions wanted increases of 10 and 12%. Instead, a total of 350 lost their jobs.

We have no right to jobs. The responsibility of companies is to stay in business. Margins are tight, engineering expensive and each plane is a huge investment. Each crash can potentially sink the company. Don't like the world we live in? Start a competing aircraft company.

jondo
jondo

Thank you for your post.  Nobody can argue with this. You back your arguement and no immature name calling. 

Onepatriot
Onepatriot

@DanCummings @TanmayLololAnaisPradhan Sorry but in my book, you need to give your workers some love.  Now is not the time to be asking your workers for concessions when your company is raking in big time profits and your officers are living the high life.  The US government has helped you become the biggest and best established aircraft company in this country and you need to treat your workers fairly.  They work hard for the money and work overtime when asked.  Give them their due and save your demands for when they're really necessary.

marvinlee
marvinlee

@TanmayLololAnaisPradhan@DanCummingsYour question contains its own answer:  The airliner business will go to China in some future year if labor costs are not better controlled by the current market leaders: AirBus and Boeing.

TanmayLololAnaisPradhan
TanmayLololAnaisPradhan

@DanCummings We have no right to jobs. But we do have rights to fair pay for work we do. 

If what you say is true, let them go. Where will they go ? China ? India ? 

Europe has 10x more unionisation and living standards, yet Audi, BMW, Mercedes, Airbus, Siemens, Bosch, etc are doing just fine, thankyouverymuch.

Amazon tried to pull this little sh*t tactic in Germany. They got their asses handed to them.

Companies are based on greed. If you let them do whatever they want, they will rob you of every penny you deserve.

CEOs don't build the damn planes. Its the engineers and machinists who do. So they can take their toys and f*** off. Lets see how long Boeing will last without its workers.

marvinlee
marvinlee

@TanmayLololAnaisPradhan@DanCummingsThe workers, in the aggregate should, and do, get paid more.  On an individual employee basis, the CEO gets paid more, much more, because he has a vastly more difficult and risky job.  One bad CEO can sometimes cause a corporation to fail and go out of business.  In Ford's case, one great CEO, Mulally, very possibly saved the company.