Update, October 8:
Breaking News, 6:30 PM PDT, Seattle Times: Dominic Gates reports that Boeing and the IAM secretly met and are resuming talks. The story can be found here.
Update, October 7:
Update, 1:30 PM: Boeing further ratcheted up the pressure with an appearance before the Governor’s Aerospace conference today with a direct warning that strikes can drive assembly out of Washington State. The Seattle Times has this report.
We have some in-depth comment about the McNerney memo listed below on our bi-weekly update on our Corporate Website.
Seattle Post-Intelligencer: James Wallace has a lengthy story here. In it, Teal Group analyst Richard Aboulafia speculates that in 10 years there may be no airplanes built in the Seattle area. We think that’s a little too soon, but fundamentally agree that Boeing is moving in this direction, fed up with the labor strikes and threats of strikes.
McNerney’s memo isn’t just about the IAM strike, of course; it’s a not-too-subtle shot across the bow of SPEEA. Boeing’s contract information exchanged with SPEEA is very similar to that rejected by the IAM. Boeing’s can’t give in to the IAM without giving in to SPEEA, which shares many of the same issues with the IAM.
Is this year about union-busting? SPEEA thinks so. We met with SPEEA two weeks ago (we were to meet with Boeing yesterday, but this was rescheduled at Boeing’s request) and SPEEA thinks Boeing is engaged in busting SPEEA.
Clearly Boeing would rather not have to deal with unions, but the only way to achieve this will be to move to a right-to-work state. As long as Boeing is in Washington State, unions remain a fact of life. At an IAM rally held while negotiations were still underway, a labor official boasted that Washington is the fourth-most organized state in the union (or something like that). This might have been cool stuff to express at the rally, but it’s not something that would be looked upon favorably by management.
But moving to a right-to-work state won’t guarantee a non-union force. The IAM successfully organized the employees in Charleston, SC, where major portions of the 787 are built. Employees for Southwest Airlines and American Airlines are highly unionized in Texas (Continental Airlines employees are less well organized), though one might argue that as national airlines votes could overwhelm local sentiment. We don’t think this is a valid argument. (We lived in Dallas for nearly 12 years and have a pretty good feel for local union sentiment.) Boeing has an operation in San Antonio and speculation has been rife a second 787 line might emerge there. Could be and it wouldn’t be long before unionization efforts would happen–especially if Boeing succeeds in putting down the IAM here in Seattle. Payback is, as they say, a bitch, and the IAM would seek payback bigtime.
We remain concerned that outsourcing off-shore is a major threat to the viability of the US aerospace industry, as we commented last week and today on our Corporate Website. McNerney uses the threat of the rise of new competitors in his memo below, but the irony is that Boeing’s own outsourcing (along with Airbus, Bombardier and Embraer) are creating these competitors.
Update, 0935 PDT October 6:
Boeing CEO Jim McNerney issued an internal memo this morning about the IAM strike. The bottom line: Boeing doesn’t look to be budging on its positions. Here is the memo in full:
Boeing stalled by strike as competitors strengthen their positions Any settlement must balance rewarding valued employees with protecting our ability to compete and win
Chairman, President and Chief Executive Officer
Many of you responded to my column last week on the crisis in the financial markets with questions and comments about the ongoing strike in the Pacific Northwest and Kansas, which has now entered its fifth week.
I understand and share the frustration so many of you feel when we don’t have the whole team together working to meet the commitments we’ve made to our customers and competing to win the new business that will sustain and grow Boeing jobs for years to come.
There should be no doubting our intentions at this time; we want to resolve this strike. And we want to do it in a way that fairly rewards a vital group of employees while vigilantly protecting our ability to compete and win globally– today and tomorrow.
The issue of competitiveness as it relates to this strike is a big deal, and that’s the perspective I want to share with you today. As I look ahead, I see tremendous pressure coming from old competitors and new ones. And as competitive as we are today, we cannot rest on the assumption that our past success–and past ways of doing business–will ensure our future.
Here’s some more detail behind my concerns:
* New competitors are rising.
Just a few days ago, Airbus President and CEO Tom Enders reiterated a point you may have heard me make before. That is, the duopoly between Boeing and Airbus in supplying the world’s large commercial jets will come to an end–probably sooner rather than later–as other competitors enter our markets.
Case in point: China. China is accelerating rapidly in pursuit of its goal to become an aerospace leader. Late last month, China became only the third nation ever to conduct a spacewalk. It is also planning a space station and a moon landing. In commercial aviation, China expects to fly its first home-designed and -built regional jet–the 90-seat ARJ21–this year, and it has set up a company to build bigger jets that will directly compete with our products. China also has the resources and indigenous market to support its aspirations.
Other nations–including Russia, Japan, Canada and Brazil–either already produce or are developing the capability to produce airliners that approach the size of Boeing’s smallest and best-selling 737.
* Existing competitors are sharpening their edge.
EADS/Airbus is growing stronger, too. It is dramatically restructuring and cutting costs in response to the weak dollar, and it is quickly moving toward a lower-cost global production model that also reaches into key customer markets–including the United States. Just a week ago it opened an A320 final assembly line in China, and it has committed to buy $1 billion a year of Chinese-made components. Its plan to assemble U.S. Air Force tankers in Alabama is a move both to grab a larger share of the U.S. defense market and to establish a beachhead for producing commercial airplanes in the United States–and in a very low-cost location, too. EADS/Airbus is also expanding its presence in Northern Africa, Mexico, India, and Russia. And when the dollar rebalances with the Euro–as it inevitably will–Airbus will gain a big cost advantage if we are unable to match them through our own productivity gains.
* Labor disputes are affecting our customer relationships.
Throughout the years, Boeing has consistently provided some of the best labor contracts in the industry–and we’re proud of that. As a result, our machinists’ pay and benefits are tops in the industry. And yet, union leadership has recommended that its members reject contract offers and go on strike four of the last five negotiations going back to 1995.
While we’ve disappointed customers for other reasons in recent years, too, we believe this track record of repeated union work stoppages is earning us a reputation as an unreliable supplier to our customers–who ultimately provide job security by buying our airplanes.
We remain committed to changing this dynamic, and I am hopeful union leadership will see the benefit of doing so, too. If our collective Boeing team–with both non-union and union-represented employees–cannot reliably supply our customers, other competitors will do so–and their respective governments will provide support because the return on investment to their economies through the high-wage, high-skilled jobs of aerospace is so significant.
* Preserving our competitiveness has never been more important–or urgent.
The ongoing turmoil in the financial markets provides a timely reminder of why it would be gravely unwise for Boeing to agree to terms in any contract that would fundamentally restrict our ability to manage our business. Markets and business conditions can change quickly and dramatically. And we need to be able to react just as fast.
U.S. auto companies, for one, all but fatally wounded themselves years ago by promising unsustainable wage and benefit levels and by agreeing to contract conditions (including job guarantees) that limited their flexibility to run their businesses in the face of intense global competition. Today, their market shares continue to fall, and their layoffs have grown by the thousands.
The unrelenting reality is this: Jobs in today’s global economy are created and sustained only through increasing productivity and customer-focused innovation. That’s been our strategy, and it has worked for everyone’s benefit. Since the 2005 negotiations, we’ve increased sales substantially and hired nearly 15,000 employees in the Puget Sound area alone, including more than 7,000 represented by the IAM and nearly 3,000 represented by SPEEA.
For their part, our IAM-represented employees have done a great job improving our productivity and helping make us more globally competitive. I value them and the role they have played–and will continue to play–in the success of our company. And I take very seriously our commitment to reward them fairly for their contributions.
That’s something I believe our contract offers have consistently reflected, and it’s the mindset we brought to the start of these negotiations.
I’ll repeat again: We want this strike to end. It’s difficult for all our employees, our customers, our suppliers, our investors and our communities. We are committed to working with union leaders and the federal mediator to reach a settlement, but we cannot sacrifice our long-term competitiveness for expedience in a short-term agreement to end the walkout. History, and every group with a stake in our future, would judge us poorly if we were to do so.
Thank you for everything you are doing for Boeing in these dynamic and challenging times. If there’s one thing we can all agree on, it is this:
Our company is strongest when all of us–union and non-union alike–are lined up together, working for our customers and against our competitors. I am hopeful those days will return again soon.
Original Post, October 6:
The strike by the IAM against Boeing began one month ago today. As the strike against The Boeing Co. by the IAM enters its fifth week, here are some items of note:
Shot across the bow?
Aviation Week has a story in its print edition entitled “Mitsubishi Eyes Final Assembly of 737 Replacement.” The Japanese “Heavy” industrial partner on the Boeing 787 program “is keen to take on final assembly of whatever aircraft builds to replace the 737,” the magazine reports. The Japanese doubt that Boeing would be willing to hand over that much work, Aviation Week also reports.
Perhaps. But Boeing’s frustration with its unions is palpable. There is a faction in Boeing that’s had it with the IAM, which has recommended rejection of four of the last five contracts, putting Boeing in the position of facing a strike every three years. While the IAM, and the engineers union SPEEA, want to reduce outsourcing (and the IAM goes one step further, seeking job guarantees), the Boeing faction asks, Why give them more work when all they want to do is strike?
We’ll have more on this in our bi-weekly update on our corporate website tomorrow.
Update, 12:50 PM PDT:
Seattle Times: Dominic Gates has this story of the McNerney memo.
Deliveries down on the strike
Third quarter deliveries are off by nearly one third. This is no surprise, since the strike began on September 6 and Boeing normally delivers about 40 airplanes a month.
A little humor
Boeing’s unions are engaged in a little underground taunting of Boeing. We find the efforts humorous.
Boeing asked SPEEA members to list what skills they have in common with the IAM, which SPEEA presumes is an effort to identify substitutions or replacement workers for the Machinists. SPEEA officers recommended that the members identify the following skills: building burn barrels and picket signs.
Boeing isn’t noted for its corporate sense of humor, but we hope they’ll get a laugh out of this You Tube clip anyway. It’s just under two minutes. It’s about the contentious issue of outsourcing.
A phony ad appeared (briefly) on Craig’s List before it was taken down. The ad was entitled, “WANTED: Boeing executives who respect the workforce.” The text included, “The Boeing Corp. is in dire need of corporate executives who respect and listen to the workforce.” The ad took some shots at outsourcing on the 787 and labor negotiations. It gave a link to Boeing’s board of directors for applicants. The ad was removed (and not by SPEEA) 12 hours after posting.