Week 5, Boeing-IAM strike

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.

The Seattle Post-Intelligencer has a catch-up piece here. The P-I’s James Wallace has this story about the impact on suppliers from the strike, posted this evening.

Bloomberg News: The IAM responds to Boeing’s management pressure tactics. You don’t scare us.

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

Jim McNerney
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.
Thanks.
Jim

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.

9 comments on “Week 5, Boeing-IAM strike

  1. The economic news of late is rather grim. I hope that all the IAM members have jobs to return to when this thing (finally) ends and aren’t summarily handed layoff notices. :-(

  2. why do so many people want to dump the blame on the union for this strike? the managers continue to exploit everyone ! they get there fat checks and pensions and want the rest to live on just get by
    money and very low pension.this strike would not have happened if they would share the wealth with
    some of the family’s that made them rich! i am so sick of all the people that would take whatever
    they where thrown and bless the co .

  3. Want to avoid strikes?
    Boeing needs to start treating their “valued” employees like human beings instead of just numbered heads! My husband busts his rump for this company, usually 7 days a week, he missed precious time in his children lives, put off things that needed to be taken care of at home, all to meet deadlines at Boeing and try to keep his managers happy. Boeing has thanked him twice (so far) by laying him off when his number, aka what I call his cattle tag came up!
    Time to go to the slaughter house again…. And if this stupid strike doesn’t end soon, guess what? He can look forward to his layoff again!

    Both Boeing and the union need to wake up before it is too late for everyone! Each side needs to give a little and get back to building airplanes! Why not offer a 5 year contract, no outsourcing, no new increases either! Knowing you were safe in your job for at least that long, probably longer would be worth it to most!
    With the backlog of orders this would be good for Boeing too!

    Time for everyone to wake up, grow up and be fair!

  4. I dont think it is just Boeing!
    The Wall Street syndrome has seen demands for investment returns that have only ever been achievable by what some have termed dishonesty in some cases like the sub-prime disaster, and in others we see things like the “Boeing disease” of sending work overseas, when it could be done at home.

    If you consider for a moment that sub-contracting work to other corporations that in their own right have overheads and profit expectations at least similar to Boeing, one must ask then why is it not possible for Boeing to achieve their stockholders demands “in-house” at similar pricing levels to those produced by the double dipping methods of the 787?

    The lamentable sin has been to hand over to Japan the technology to build jetliner wings.

    At least Airbus only gave the Chinese a bit of assembly technology.

  5. Fascinating analysis.

    It seems to me that Boeing decided some time back that they were going be a marketing company, and no longer an aircraft manufacturer. They set the overall parameters of the new aircraft, project manage the design and delivery, and then look after the customer relationship. The actual construction and detailed design of the aircraft is outsourced to other companies.

    Unless Boeing have changed their minds, the unions won’t get anywhere in opposing outsourcing in the longer term. Their better strategy is cutting a deal with the outsourcers. Union members will have expertise that is very desirable to companies taking on this new work.

    Outsourcing to potential competitors is perhaps less of a risk to Boeing and Airbus. Anyone can make sticky brown liquids, but only Coca Cola and Pepsi dominate the market. Customers have good reasons for sticking with Boeing and Airbus for reasons of commonality, resale values, statutory compliance, support service, marketing etc. All Boeing and Airbus have to do is sell aircraft that is as good as the competition at the same ballpark price.

    Companies like Mitsubishi then get to choose between taking on the big boys or working with them as outsourcers. The second choice is far more comfortable.

  6. One other major concern I have with this strike is with the union leadership in the Seattle area. What type of qualifications do they have to lead this strike? Their questionable negotiating skills make me wonder and should be serious cause for concern for the members! After reading the daily union updates and articles in the local Everett, WA newspaper The Herald. I really believe the union is causing this strike stalemate and leading the members into a Jim Jones like demise of their jobs! I urge members to start asking questions and possibly even hire a experienced contract attorney to sort out this mess! Do it before its too late!

  7. Dear Scott

    I was provided your article dated 7 October by a SPEEA representative.
    Here’s some feedback.

    Even though Mr. McNerney is an experienced corporate executive he does not know the leverageable skills of his workforce and thus rely on junior executives from St. Louis that just as clueless as well as the assmotic management types in Seattle. Since they do not know how to leverage the in-house skills and capabilities they use business excuse to trade aircraft sales for offloaded production.

    Today’s Wall Street focused executives (Jack Welch wannabe’s) do not know how to leverage the internal skill sets of their corporations and blindly follow the Welch mantra. Find someone with lower initial production costs and ignore all of the other costs to support and rework the deficient products and services. Ignore the cost of poor quality and needed rework.

    The 787 program is a commercial aircraft program disaster with the same leadership and vision used on typical military big ticket programs. The program executives blew it from day one.

    Please name one large military program, by any large “integrator” that has been integrated such that it met the original schedule, cost, and requirements? Bet you can’t.

    Little history:
    When was the last time Boeing (original) won a large military aircraft program? KC-35 airframe for tankers and special tasks. They lost the C-5 competition and delivered the 747. They lost the C-17 competition. They lost the F-22 and did not make the first cut. They lost the JSF as well.

    When was the last time McDonnell Douglas won a military program? The F-15 in 1972. The AV-8 was given to them and they got less than _ the airframe because it was a British design. The F-18 is a Northrop design that competed with the F-16 but NG did not have carrier design experience so the Navy made MDC the prime. C-17 (Douglas – Long Beach) but that program had management as screwed up as 787. T-45 is a copy of the AV-8 because it was a BAE product. They lost the F-22. They did not make the first cut on the JSF.

    The IDS Team and the Boeing executives that wanted to maximize the profits with the cheapest incomplete option lost the tanker bid. Again another great example of Boeing integration skills.

    Why do you think Alan and Walt left?

    A Brand New program
    1) New materials (unproven for longterm exposure and usage)
    2) New business plan with Partners
    a) Partners had never done “all” of the structure and systems.
    3) New certification requirements
    4) All electric airplane
    5) New high pressure hydraulic system

    Even after 2 years of preliminary composite aircraft development with the Sonic Cruiser the management were not even prepared to tackle all of the R&D that was required to move forward or how to handle the new requirements. Experienced engineers knew in 2004 the plane would not get off the ground as scheduled and guessed it would not be airborne till 2009.

    The US use to have the most advanced wing design capability for large aircraft. That design team and computing stuff resided in St Louis. That technology was “given” to MHI at the start of the program. MHI will continue to have growing pains on this program and well into the next on a number aspects of aircraft programs.

    One would think that after15+ years of working with the Japanese on the 777 the executives would understand the requirements, social and technical, that would be necessary for this type of program. Wrong! The management team wasn’t capable of mentoring the Partners to help them understand the design requirements and philosophy necessary. That lack of understanding and preparation is still obstacles today.

    The CAD system and the processes were not ready and still are not complete as of today. It is a ‘task in process’ today will all of the little internal Boeing empires battling for their piece of the glory.

    These are the executives that say they must “offload” the leverageable and knowledgeable skills of their professionals to unskilled developing countries. Unfortunately, the company trained executives do not know how to do that job either.

    When everything goes south because of their lack of vision and capabilities, they run for cover and throw bodies an $$$$’s. That’s all they know. Gues who bails them out in Seattle, IAM and SPEEA

    The unfortunate aspect for any US corporation today is the US leadership and their lack of dynamics and understanding of the basic aspects of product development and production. For if they understood all aspects of both they would understand that the best skills and capabilities are here in front of them. They take the easy way out to appease Wall Street. The real problem with Boeing is the executive leadership and their lack of skills and capabilities. If they really could do what they believe they are capable of they have the best and lowest cost production system.

    The Boeing executives allow the existence of individual empires and do not have the experience or system understanding to correct all of the pitfalls in their cloud. Like other US corporations, the workers are being short changed by inexperienced MBA’s, Wall Street and the over inflated egos of the CEO’s. McNerney is no different and Boeing will continue to fall with his leadership because he is a short term thinker with no real total product oriented vision.

    Greg

  8. Boeing CEO Jim McNerney’s internal memo posted October 6 hangs like a dark cloud over labor-management negotiations and threatens to lengthen the current strike. He attacks us for “repeated work stoppages” and vows to “change this dynamic.” We hope he’s referring to the dynamic of offering fair contracts that won’t force a strike. To be truthful, we are not holding our breath.
    McNerney’s idea of a “best” contract includes accelerating the subcontracting of jobs to low-wage manufacturers. All this has lowered the “market rate” for aerospace salaries. He then pulls a neat trick: saying that the current offer is the “best” in aerospace. If it is better, it is only better than all the super-exploitation the company has created with its current subcontracting regime!
    Under the proposed contract, new hires will start at $15/hour on average. Admittedly, this is a few dollars more than the starvation wages of those workers making Boeing parts and sub-assemblies in many subcontractors. One L.A. subcontractor machinist, who is working seven-day weeks to catch up on fastener production, described how he is about to lose his home. That’s what happens when you make less than $12/hour.
    …And it is getting worse! Another of Boeing’s subcontractors, Vought Industries in Nashville, Tenn., just went on strike when management threatened to take away employee defined pensions. Within days, cops were escorting busloads of scabs into the plants.
    McNerney has no intention of using the any of the $12 billion the company made in profits to relieve this misery. Rather, he intends to spread the misery to older union plants where we work. New hires haven’t had a raise in 15 years. The company offered a $2.28/hour raise in the latest contract. Even minimum wage has gone up $3.82 during this period.
    He goes on to blame our strikes for causing “a reputation as an unreliable supplier to our customers.” What nerve after the 787 fiasco! It was management’s lust for enormous, obscene profits that begat the new super-exploitive manufacturing scheme and led to the nearly two-year delay in bringing the Dreamliner to market.
    …And let’s not forget the profit gouging mindset that led to the collaboration of an Air Force procurement officer and a Boeing vice-president to rig the original tanker contract and, eventually led to jail time.
    Eli Berniker, professor of business art Pacific Lutheran University, recently described Boeing in The Tacoma News Tribune (9/17) as a company with massive overhead.
    “What is overhead? …It is the cost of distrust,” he says. He goes on to argue that this waste of resources is all about “control” over production employees. If we became the “controlled,” weak and compliant workforce that McNerney dreams of it would not only result in increased economic hardship for us Boeing workers, but for aerospace workers in general—union and non-union alike.

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