Bloomberg News

Boeing’s Largest Union Rejects Swapping Pensions for 777X (1)

November 14, 2013

Boeing Flag

A flag displaying the logo for Boeing Co. flies prior to the opening of the Paris Air Show in Paris. Photographer: Balint Porneczi/Bloomberg

Boeing Co. (BA:US)’s largest union balked at a company proposal to freeze pensions in exchange for rights to build the new 777 in Washington, casting doubt over the future of manufacturing at the planemaker’s Seattle hub.

Machinists union members voted 67 percent against a contract extension that included pension and health care benefit cuts, the union said in an e-mailed statement. Boeing was disappointed with the outcome and will open up production of its largest twin-engine jet to competitive bidding by other regions, Ray Conner, president and chief executive officer of Boeing’s commercial airplanes unit, said in a statement.

“Should this program end up outside of Everett, we expect that the Boeing footprint in the Puget Sound region would shrink dramatically over the next ten years,” Douglas Harned, a Sanford C. Bernstein & Co. analyst, wrote in a research note. The results put the union at odds with state lawmakers, who sped through $8.7 billion in tax breaks to help land 777X production at Boeing’s plant in Everett, Washington. Boeing’s demands for concessions that would have saved billions of dollars and backed by threats to move production out of state, sparked backlash among Machinists union members including “Vote No” rallies and accusations of blackmail.

While labor leaders were mindful that more than 20,000 jobs may hang in the balance with the 777X, they weren’t willing to sacrifice retirement pay to ensure the region’s continued role as the company’s commercial manufacturing base.

‘Something Sacred’

“We preserved something sacred by rejecting the Boeing proposal,” Tom Wroblewski, president of District 751, which represents about 32,000 Boeing workers, in a statement. “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.”

Despite the union rebuke and company threats to consider other locations, there’s “a very good chance that Boeing sees the virtues of compromise here and goes back to the negotiating table,” Richard Aboulafia, aerospace analyst with Teal Group, a Fairfax, Virginia-based consulting firm, said in a phone interview before results were announced. “I would hope the economics of the 777X program aren’t so brittle as to depend upon this particular contract.”

Boeing needs to lower costs in a cutthroat environment to remain competitive with Airbus SAS, its rival based in Toulouse, France, Conner wrote in a Nov. 8 letter to employees.

‘Designing our Future’

“When times are good, it’s easy to forget that continued success is not guaranteed,” Conner said. “We want to be proactive in designing our future.”

The terms of the eight-year contract extension would save Boeing about $2 billion, boosting earnings by about $2 a share annually, according to an estimate by Ken Herbert, an analyst at Canaccord Genuity Group Inc.

Keeping assembly of the 777X model in Washington would be “highly positive for Boeing” from a logistical standpoint and take advantage of the experienced workforce building the current 777 at a factory in Everett outside Seattle, Harned said. He rates Boeing a buy, as does Herbert.

Retaining 777X work in the Seattle area would spur job growth as Boeing builds more than 1.5 million square feet (139,000 square meters) of facilities to house final assembly of the jet and production of a carbon-fiber wing borrowed from the 787 Dreamliner, the Machinists’ union said in a Nov. 5 message to members.

Blackmail

About 20,000 Boeing employees currently work either directly or indirectly on the 777 jet, Boeing’s largest twin-engine aircraft. The company’s hourly workers earn an average of about $85,000 a year, Chaz Bickers, a Boeing spokesman, said in an e-mail.

Still, Boeing’s tactics engendered ill-will among some union members. A website urging District 751 members to reject the proposal likened the company’s take-it-or-leave-it rhetoric to “blackmail.”

“It’s a slap in the face,” said Mark Schnell, 52, a machinist on the 787 line who joined the aircraft maker in 1988. “If they get rid of the pension in this contract, the union is eliminated. That’s what the union is here for, for the pension and for the future.”

To contact the reporters on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net; Peter Robison in Seattle at robison@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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