It has been almost a decade since a strike at a US company created widespread industrial disruption, but Boeing and the International Association of Machinists and Aerospace Workers have created exactly that outcome. Last-minute bargaining extension and federal mediation efforts ran out at the end of September, with both sides acknowledging that their positions were too far apart to reconcile.
The strike that got now underway as of Sept 6/08 has shut down almost all of Boeing’s production lines, and some analysts believe it has cost the firm up to $100 million per day in lost revenue from deliveries. Boeing own Q3 2008 report confirmed a significant impact on revenues and profits.
While most reports have focused on the civilian angle, DID had a conversation with Boeing to clarify the strike’s impact on military production, and examine the key issues from both sides’ perspectives. That examination led to concern that this could be a long strike – and it has been. Now, a settlement has been reached, closing out a strike that ended up lasting 58 days.
Military Impact
Super Hornet line
In general Boeing has announced that all aircraft production at its plants will be shut down by the strike. The company will continue delivering airplanes that were completed prior to the strike, and will continue providing customers with spare parts, but in-process assembly work will halt.
This will be true for military projects as well, but there are exceptions. Some rare projects may be under DoD guidelines that effectively prevent strikes from affecting them, as a matter of national security. Then there are System Design and Development projects like the 737 derived P-8A Poseidon, where work is largely done by engineers who aren’t on strike. Efforts like Boeing’s KC-X tanker bid will also be unaffected by the strike; though the entire program is on hold until the next administration, Boeing is undoubtedly using the time to work through its bid and platform options.
On the other hand, assembly had begun for some P-8 aircraft. It will be halted for those planes that haven’t been completed, and the same pattern will be followed by other SDD stage programs.
Boeing’s suppliers will also be affected by the strike, in two ways. In some cases, solidarity with Boeing’s union may cause supplier unions to cease work on Boeing related projects. Boeing itself will also have to decide what to do about supplier orders, and at some point it may choose to begin issuing stop-work orders for associated parts and assemblies. Suppliers like Spirit Aerosystems will also be making their own decisions, of course, based on their assessments of business risk.
The Strike: Key Issues (September 2008)
Those intertwined sets choices actually tie into one of the most explosive and difficult issues at the heart of the strike. The IAM is seeking new outsourcing prohibitions that would remove options currently available to Boeing’s management, which has made its “global supply chain” efforts part of its business strategy for key programs like the 787 Dreamliner.
The firm believes those union demands would fundamentally limit the way it can do business, and limit its competitiveness. Its global supply chain is more than just an efficiency measure; it is also a sales approach. Military programs often require local industrial offsets, and Boeing sometimes delivers those through its civilian aircraft programs. On the civilian side, a number of carriers are still owned by the state, in part or in whole, or set up in ways that leave them subject to strong government influence. This connection to politics means that local economic benefits can also be one of the factors involved in picking aircraft for a country’s passenger fleet.
The union has received equally strong messages from its members, who voted 80% against the contract, and 87% for a strike if the package was rejected by the membership. As union spokeswoman Connie Kelliher put it: “We heard again and again from rank and file, ‘The best pay and benefits are no good if you’re not on the payroll tomorrow to collect them.'” The union’s web site also lays out the issue from their perspective:
“One need only look at the make/buy chart on the various airplane models to see how Boeing is systematically ensuring our members are making less of each new plane. Recent issues with the 787 verify what the Union has been warning the Company about for years: increased outsourcing will cause Boeing to lose control of their product and fall hostage to their supplier. The fact is if more of the 787 work was in the hands of our experienced Machinists who did this work on previous models, it would have been done right and Boeing would not be in their current situation.
Keep in mind in 1990 Boeing delivered 285 airplanes with over 43,000 IAM members. Last year, Boeing delivered 441 airplanes with less than 25,000 IAM members. While new technology and lean activities may have accounted for some efficiency improvements, a big part of why it took fewer members was increased subcontracting. This took away opportunities for young people in the community and has hurt the Company. In this round of negotiations, we have an opportunity to make gains in job security, if we remain united and focused.”
Boeing’s final contract proposal included a pay raise of 11% over the life of the contract, as well as a boosting of pensions by 14% to $80 a month for each year of service. Under the proposed contract, the average union member would earn roughly $65,000 a year before overtime, which can average $10,000 a year or more.
At present, IAM Local 751 says that a typical machinist at Boeing is 46, and earns about $27 an hour, or $54,000 a year before benefits and overtime. Overtime can exceed $10,000 per year on average, however, and is an important contributor to overall member wages. The most senior union members earn about $35 an hour, or just over $70,000 a year before benefits and overtime. The typical Seattle-area machinist starts at $12.72 – $28.22 an hour, however, which would advance $2.28 an hour under Boeing’s offer. At present, IAM 751 contends that more than 4,000 of its 27,000 machinist members make less than $30,000, which is partly a reflection of the new hires that have driven down its members’ average age.
On the union side, its bargaining position includes pay raises of at least 13%, a larger pension amount, better health care benefits, and the ability to take back some of the work that is currently being outsourced. Options the union is exploring in that last critical area include Guaranteed Minimum Employment Levels (like minimum wages, a “floor” below which employment levels may not legally fall); contracts that require Boeing to “backfill” or recall laid-off workers into open positions as people retire; required retraining and reassignment that fills new openings with laid off workers; measures to raise the cost of layoffs such as Income Continuation Benefits and Education, Training and Re-employment Benefits, extended health coverage, et. al.; and outright Limits on Subcontracting/ Offloading.
The union is openly telling its members to prepare for a long strike, as is customary in these situations. At the same time, the situation is caught between a membership that appears very determined, and a firm that sees its long-term competitiveness threatened in key areas. If neither side believes it can afford to give, a long strike may be exactly what’s in store.
Updates & Developments
Nov 1/08: The International Association of Machinists and Aerospace Workers votes to accept the negotiated contract, by a margin of 74%. Machinists will begin returning to work as early as Nov 2/08, and have until the beginning of their shift on Monday, November 10th to return to work. Boeing adds that the contract is longer than the standard agreements it has signed, which have traditionally been for 3 years. Boeing release | IAM Executive recommendation.
Oct 27/08: A tentative 4-year agreement is reached between Boeing and the IAM, with the assistance of a federal mediator. Wage increases of 15%, increased bonuses, a minimum pay rate rise for some workers, the same health care benefits as the 2005 contract, and expanded job protection for about 5,100 workers are all part of the deal. So, too are measures that restrict vendors’ delivery locations, and ensure that all handling after delivery is taken care of by Boeing union members; 787 final assembly is the only exception. Boeing workers gain expanded subcontracting review, including the ability to compete for work that moves from one Boeing facility to another Boeing facility.
The tentative agreement has the unanimous endorsement of the IAM negotiating committee and will be presented to members for a ratification vote, which will take place on Nov 1/08. A simple majority is required to ratify the tentative agreement. Boeing | Union synopsis of agreement highlights [MS Word file] | Associated Press | Bloomberg.
Oct 24/08: Vought Aircraft Industries, Inc. provides an illustrative update re: the expected operational impacts of the ongoing Boeing/ IAM (International Association of Machinists and Aerospace Workers) strike, as well as the more recent IAM strike at Vought’s Nashville facility. Steve Davis, vice president and general manager, Commercial Aerostructures Division”
“In response to the Boeing IAM strike, we have modified our operations and reached an agreement with Boeing to minimize impacts on our operating results, working capital and liquidity… To date, we have implemented changes at these sites to decrease our production levels in response to Boeing’s schedule changes by reducing overtime, moving employees to other programs, and eliminating outside contractors working at those sites. We have also reached terms with Boeing on an agreement for most programs to mitigate the cash impact to Vought.”
The Vought corporate release adds that operational changes under consideration as next steps include shortened work weeks, partial plant shut downs, and, if necessary, temporary layoffs.
Oct 22/08: Boeing releases its Q3 2008 results [PDF release | PDF Presentation | Windows Media webcast]:
“Boeing Company’s [NYSE: BA] third-quarter net income declined 38 percent, to $695 million [from $1.114 billion], while earnings per share declined 33 percent to $0.96 per share, both reflecting an ongoing machinists’ strike and supplier production challenges on customer-furnished galleys for certain wide-body airplanes. Those items reduced third-quarter commercial airplane deliveries by approximately 35 units and net earnings by an estimated $0.60 per share. Revenues for the quarter declined 7 percent, to $15.3 billion [from $16.5 billion].”
Oct 8/08: District 751 President Tom Wroblewski and Boeing both announce that that the 2 sides have agreed to return to the bargaining table. They are working out the details and timing with the federal mediator; as of Oct 10/08, no firm date has been set. Boeing release | IAM Page.
Additional Readings
* International Association of Machinists, Local 751 – Contract 2008 site
* Flight International (Sept 15/08) – No end in sight for Boeing machinists’ strike. Boeing appears prepared for at least a 1-month delay, and the union is advising members to fill prescriptions before their health insurance runs out in early October.
* Wall Street Journal (Sept 7/08) – Boeing Union Walks Out on Strike
* Boeing (Sept 5/08) – Boeing Statement: Renegotiation Fails; Strike Called
* Aero-News Network (Sept 5/08) – Strike! Boeing Says Negotiations Have Failed
* CNN (Sept 5/08) – Union set to strike Boeing
* Bloomberg (Sept 3/08) –Boeing Union Rejects Offer, Delays Strike for Talks (Update3)
