SEPTEMBER 25, 2005
Boeing: An End to Strike Turbulence
The planemaker has reached a tentative pact with the machinists'
union for work to resume, clearing the way for the company's rebound
Mulally, CEO of Boeing's commercial airplane unit, flew to Washington, D.C., on
Friday to meet secretly with top leaders of the machinists' union. The result: A
tentative agreement to resolve contract differences and end the potentially
debilitating 25-day strike at the world's largest aerospace company.
Boeing (BA ) and the International
Association of Machinists' officials are expected to officially announce the
labor accord on Monday morning, according to people familiar with the matter.
About 18,400 Boeing assembly workers in the Seattle area, Gresham, Ore., and
Wichita, Kan., hit the picket lines Sept. 2 after talks broke down over a new
three-year contract, shutting down all large commercial airplane production in
PENSION SKIRMISH. Among the
crucial issues that sank Boeing's final contract offer -- differences over the
amount of the company's monthly pension contribution, changes in health-care
plans that require more employee contributions, and efforts to eliminate retiree
health care (see BW, 9/26/05, "Boeing's
Strike: Go Figure").
The tentative agreement represents a victory
for both sides, as it appears that rational economic thinking overcame earlier
tensions, strategic miscalculations, and heightened emotions. On the big issues
that had splintered the two sides, it appears that Boeing and the IAM has
Boeing officials agreed to boost the monthly
pension multiplier to $70 a month for every year served, up from the
planemaker's final offer of $66, say people familiar with the negotiations. The
union had wanted $80 a month. The company also agreed to continue retiree
health-care coverage for new employees as well as drop its demand that IAM
workers contribute more to their medical benefits.
WORK-RULES AGREEMENT. What's more, IAM workers will
receive a bonus of 8% of last year's wage, which works out to about a $5,000
cash bonus for the average employee in the first year. They also will receive a
$3,000 cash bonus each in years two and three of the new contract. That comes to
a total of $11,000 in cash bonuses, compared with $9,000 in Boeing's final
offer, say people familiar with the negotiations.
Still, machinists will
not receive a matching contribution to the Boeing's VIP 401(k) savings plan,
which had been part of the company's final contract offer. Workers will receive
no general wage increase, compared with a 2.5% wage boost management had
included in the third year of its earlier offer.
It also appears both
sides were able to iron out differences over crucial working rules and aircraft
assembly integration. Boeing withdrew its proposal to require machinists to
operate multiple machines. The union would be willing to work with the
planemaker on that proposal if management would bring the advance machining
capabilities back to Seattle and revive opportunities for skilled machinists,
say people familiar with the matter.
DELAYS. On job security, management dropped its effort to have
vendors install their parts on airplanes. As for Boeing's controversial
team-leader concept, management still retains this structure but now has to
consider seniority in selecting team leaders from the shop floor -- a big
internal work issue among the company's airplane assemblers. Finally, Boeing had
wanted a four- or five-year labor pact, but machinists stuck to a three-year
Differences over pension and health-care issues had the
potential to derail what is shaping into a lucrative commercial airplane
recovery for Boeing. The Chicago-based aerospace goliath has booked more than
620 commercial airplane orders in 2005 -- the most since 1998. What's more, the
company has been raising the number of aircraft deliveries and has won
widespread acceptance for its innovative and fuel-efficient new 787 Dreamliner
-- a 200- to 250-seat, twin-engine, long-range jetliner.
But the strike
had been clouding the good news, and a lengthy walkout could have made things
worse. The strike is already costing the company in dollars, if not in
reputation. At the very least, it will delay the delivery of up to 30 jetliners
in September, which could cost Boeing roughly $90 million in the third quarter,
or about 12 cents a share, say analysts.
STRATEGY. If the agreement holds, it appears that saner heads have
prevailed. The relatively short strike will have a minimum impact on Boeing's
bottom line and its airline customers. Some carriers, such as All Nippon
Airways, Southwest Airlines (LUV ), and Cargolux, had begun to
state publicly last week that the strike would force them to curtail new routes,
change schedules, and possibly lay off employees.
The negotiations on
Friday took place at the D.C. law offices of Piper Rudnick and involved former
House Minority leader Richard Gephardt. He was hired by the aerospace giant on
Thursday to be a mediator between the two sides. The talks included Boeing's
Mulally, who took the rare step of directly leading the negotiations for the
company, chief labor negotiator Jerry Calhoun, and two other Boeing execs, say
people familiar with the meeting. The machinists were represented by IAM's
District 751 President Mark Blondin, chief aerospace negotiator Dick Schneider,
and international Machinists President Thomas Buffenbarger.
In the days
before Boeing's machinists walked off the job, management thought it had devised
a smart strategy for avoiding a strike. The company offered up to $9,000 in cash
bonuses, including a generous new match to the 401(k) that IAM members receive
along with their defined pension plan.
GAIN. Management had hoped that the allure of cash would tempt the
roughly 4,000 mostly younger workers who been recalled recently as airplane
orders picked up. The strategy was modeled on the company's 2002 contract offer,
when the IAM rejected the deal but failed to muster the two-thirds majority
needed to sanction a strike.
This time, Boeing's effort misfired badly.
The machinists rejected the company's offer, with 86% of the workers voting to
approve a strike. Boeing officials deny the company attempted to divide the
The planemaker's management had accused the machinists
of being "miles apart" and barely budged off their original position, saying
union negotiators were demanding more than $1 billion over what was in the
company's best and final offer. Management contended that IAM demands did not
reflect the current market for pay and benefits and far exceeded any recent
contract settlements in the industry.
But a close reading of
management's offer by BusinessWeek found that Boeing could meet the IAM's
request for a monthly pension multiplier of $80 for just $90 million more over
the three-year life of the labor contract. Since that comes to about 2.3% of the
nearly $4 billion the aerospace goliath would spend on the union's total
wage-and-benefit expense over the period, it was difficult to see what the
company had hoped to gain by a lengthy showdown.
With the agreement
resolving differences and ending the strike, Boeing's management and machinists
can get back to selling and building airplanes in what looks to be one of the
most prosperous commercial airplane recoveries in decades.