Reham News Editorial
January 29, 2024 © Leeham News:If Boeing is to come through the latest crisis unscathed, it will need to commit to a change in its corporate culture. That’s the consensus of industry watchers, and one that we wholeheartedly support.
CEO Dave Calhoun will have a chance to demonstrate his commitment to change starting in March, when Boeing Commercial Airplanes’ top executives meet with the bargaining team of IAM District 751, the company’s largest touch union. Become.
For 20 years, Boeing has waged an all-out battle against labor unions in the name of cutting costs. We outsource work all over the world. BCA built an entirely new campus in union-hostile South Carolina, primarily to escape the “hostage” situation it faced previously, and all of BCA’s deliveries are unionized. They were at the mercy of the workers there.
But while Boeing won every battle in this long labor war, the result was not a strategic victory. In fact, by 2024 the airline will be far behind Airbus in both orders and deliveries, with little chance of catching up in the short term. This is largely due to a series of high-profile, self-inflicted failures, with the near-disaster on Alaska Airlines Flight 1282 on January 5 being the most recent.
Boeing needs to change its culture from top to bottom, and it can start by rebuilding its relationship with the Touch union.
- This year’s meeting will be the first in 10 years.
- Boeing’s influence is zero.
- It may be an exaggeration to say that trade union hostility will be eliminated.
First meeting in 10 years
Discussions between the company and IAM 751 will begin on March 8th. Talks were scheduled to begin in late February, but both sides agreed to postpone in the wake of the AS 1282 incident and subsequent FAA and NTSB investigations.
The contract expires at midnight on September 12th. If negotiations follow historical norms, negotiators are expected to meet intermittently throughout the spring and early summer to discuss non-economic contract provisions. Heavy items are usually worked on last. After two weeks of intensive face-to-face negotiations (usually at hotels at Seattle-Tacoma International Airport), Boeing plans to present its “best and final” offer to the union around September 5. Union members will consider it for several days before voting.
A vote on the contract is likely to take place on September 11, and if approved by a simple majority, it would go into effect immediately. If the bill is rejected by an overwhelming two-thirds majority, the IAM will go on strike. (And if rejected by less than two-thirds of voters, the contract would be approved by default.)
The 10-year IAM contract, which expires this year, is the result of an ugly dispute in 2013-2014, with Boeing saying that unless the union agreed to a large concession package that included waivers of provisions, Puget threatened to remove the 777X program from the bay. Benefit pensions were provided, as were significant restrictions on wage increases over the past decade.
Ten years later, as we still await delivery of the first 777X, Boeing’s hourly labor wages are no longer competitive in the Puget Sound market. In fact, in 2019, Boeing paid IAM employees after reports that more people were leaving entry-level jobs at Boeing for higher-paying jobs, such as baristas and auto mechanics. He called for consultation on the increase.
The 10-year contract gave Boeing 10 years of labor peace. But it is about to expire at a time when the union is being revived, and it is doubtful that the union will settle for the terms of the previous recent contract, or anything close to it.
Boeing has zero leverage.
Bank of America analyst Ron Epstein said last week that he believes the AS1282 disaster has stripped Boeing of leverage in negotiations with Machinist. We think he’s absolutely right.
As of last week aviation week At a supplier conference in Universal City, Calif., Epstein announced that 751 will build the next generation of Boeing aircraft in the Seattle metropolitan area, offering 40% wage increases, improved pensions and job security over three years. He said he would seek.
Union negotiations are all about raw power. That is, which side has the most influence and the greatest ability to cause pain to the other side. Unlike any time in the past 20 years, Boeing has no real leverage.
- No new aircraft programs are dangling, promising thousands of jobs in exchange for wage and benefit concessions.
- There aren’t many jobs left that it can threaten to take away, especially now that the FAA is holding back Boeing’s plans to increase production rates until it’s satisfied with changes to the manufacturing process.
Boeing’s continued outsourcing of parts and subassemblies backfired. If Boeing’s whistleblower is correct, it may have been Boeing mechanics who failed to reinstall the bolts that held the door plugs in place, but the source of the problem was supplier Spirit Aero Systems ( Wichita), where the plug was located. A factory in Malaysia where the fuselage or door plugs were manufactured.
The FAA is examining Boeing’s manufacturing process with a microscope and a hammer. With that in mind, the threat of further outsourcing seems somewhat hollow.
Boeing is short on allies
Boeing is also rapidly losing allies. For years, Washington state politicians have counted on labor unions to keep them aligned, and in some cases pro-business Democrats from the “alternative Washington” have also intervened. . The company has spent tens of millions of dollars on lobbyists and campaign contributions to ensure this.
But support is drying up. Outgoing Washington Governor Jay Inslee complained in 2014 that he was “robbed” by Boeing. It is striking that the senators most vocal in urging the FAA to punish Boeing in the current crisis are Maria Cantwell of Washington and Tammy Duckworth of Illinois. Democrats from two states where Boeing was once headquartered.
Taking it a step further, former South Carolina Gov. Nikki Haley, who once served on Boeing’s board of directors, is unlikely to spend her scarce political capital on the toxic aircraft manufacturer’s issues. Her opponent, former President Donald Trump, continued to criticize Calhoun after she publicly complained about the Air Force One contract, which Trump privately negotiated with former Boeing Co. President Dennis Muilenburg. He won’t come to help.
Meanwhile, President Biden is keen to expand support among working-class voters. If the mechanists go on strike, I wouldn’t be surprised to see Biden visit the UAW again this summer and be on the IAM picket line.
It may be an exaggeration to say that trade union hostility will be eliminated.
Calhoun himself is unlikely to be directly involved. Since Boeing’s headquarters moved to Chicago, CEOs have delegated the task of negotiating contracts with the largest workforce to junior executives at BCA. But there’s no doubt he’ll sign the big checks the mechanics will demand.
I don’t know much about the union’s initial demands (but see Epstein’s comments above), but it’s likely a combination of contract wins won by the Wichita union brothers in the UAW and Seattle Machinists last year. . As with the UAW, a 40% raise over three to four years is likely the starting point. Eliminating weekend overtime requirements, as the Wichita machinists did with Spirit, is another challenge. The UAW convinced the Big Three to shorten the time it takes for recruits to reach the top of the pay scale to three years. Boeing currently has six people.
And given history, it’s pretty certain that IAM 751 will aim to reinstate some sort of defined benefit pension for its members.
Boeing will probably have to acquiesce to much of this. After the coronavirus grounded the MAX-8, delayed the 777X, delayed the KC-46, intermittent production suspension of the 787 in Charleston, and ended the 747, the company is simply building and delivering planes. Now all you have to do is do it. For a while – just before the door plug flew off his AS 1282, as we reported in our 2024 preview.
Boeing’s sophistication
The problem is, we’re talking about a senior management team steeped in Jack Welch’s GE management style. This management style focuses on cost containment, generating free cash flow and boosting stock prices at the expense of all other factors.
Calhoun is an old Welch protégé who was brought onto Boeing’s board by another person (Jim McNerney) just before IAM’s disciplinary decision to move the second 787 line to Charleston.
Their leaders’ strategies rely on threats to pit one set of stakeholders against another and extract concessions from all. It may be too much to ask Mr. Calhoun to reach a settlement with unionized workers.
But it remains to be seen how Boeing will be able to survive the 2024 strike.
Boeing has overcome existential crises in the past. A great example of this was his 747 program. The 747, introduced shortly after the collapse of the supersonic transport program, was a Hail Mary that required an entirely new aircraft to be built in the factories where the first planes were being assembled.
Boeing’s success and the 747 changed aviation history largely because of the herculean efforts of its employees to sleep in cars in muddy areas to squeeze in a few extra hours of work each day. Because I did.
After two decades of continuous outsourcing, contract concessions and headquarters relocations, Boeing no longer inspires such loyalty. To get anywhere near this, Calhoun and his team will need to make fundamental changes from the ground up, in order to ensure that the path they have charted for Boeing for more than 20 years is ultimately the wrong one. We need to acknowledge what happened and we need a new path.
If that happens, we’ll see the first signs with IAM negotiations starting in March.
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