787 Line 2 Update, Oct. 28

Update, 11:30 AM PDT: The Boeing Board of Directors is to make the decision on siting Line 2 today or tomorrow–we have somewhat conflicting information. We’re trying for some clarification.

Original Post:

A flurry of activity erupted last night that reported talks between the IAM and Boeing broke down again, this time for the last time, and it appears Boeing will announce as early as today that Line 2 for the 787 assembly will be in Charleston (SC):

Here’s what happened yesterday:

  • At 321pm, we did a 20 minute radio interview with a Tacoma (WA) station about the prospect of Line 2 going to Charleston.
  • At 4pm, IAM 751, the local unit in Puget Sound (Seattle), posted a statement that had all the look and feel that it was a statement reflecting talks were over. This is reproduced at the end of this column.
  • At 630pm, KING5 TV (NBC-Seattle) had this report that talks were done and an announcement was imminent, with Charleston the likely choice.
  • At 7:15pm we received the first notice that talks were over and Charleston was the choice.
  • At 7:47pm we received the first spin from one of the interested parties about what happened and who was to blame.
  • At 8:18pm, The Seattle Times posted a story that talks were done and Charleston was the choice.
  • From then on media picked up The Times piece, phones were ringing between reporters and sources and between interested parties, including Washington politicians. It was a busy evening.

As today begins, Puget Sound and Charleston are waiting for Boeing’s announcement.

Our take:

  • What happened? The obvious–no agreement was reached between the IAM and Boeing for a no-strike guarantee; quid-pro-quos could not be reached.
  • Who’s to blame? We believe both sides. We already have some spin on the subject, but we’re withholding further details until we hear more from Boeing and the IAM. One thing for sure: each side is going to blame the other.
  • Did the incentives voted on by South Carolina this week make a difference? Politically for Boeing, they better not have had anything to do with it. Boeing repeatedly told Washington State politicians this was all about labor, and the politicians took Being at its word. If SC incentives made the difference, Washington politicians are going to feel betrayed and lied to.
  • Should Washington have offered up its own incentives anyway? This will be a matter of partisan debate into the 2010 mid-term elections and the 2012 gubernatorial election, with Gov. Gregoire and the Democrats being accused by Republicans of “losing” Line 2. But we think that if you believe what Boeing said that Line 2 hinged on labor and not incentives, there was no need for Gregoire to call the Legislature into special session now to offer incentives; January, when the regular session resumed, was early enough to deal with Boeing’s legislative agenda.
  • What will happen then? Last night, the immediate political reaction was that Boeing’s agenda is dead for the next two years.
  • What about labor’s legislative agenda? Also dead.
  • What’s going to happen between the IAM and Boeing now? War, especially if the IAM leadership successfully convinces its membership Boeing is to blame.
  • Will the leadership succeed? You betcha. This will be an easy sell; the membership already distrusts management, to put it mildly.
  • Is management right to put Line 2 in Charleston? We don’t think so; we think the enmity created with IAM 751 will have a huge negative impact on current production of all 7-Series airplanes. It will take years for Line 2 to work. Even Boeing some key suppliers on the 787 program believe putting Line 2 in Charleston will be a near- to mid-term disaster.
  • Then why do it? Boeing CEO Jim McNerney is so pissed with the IAM that he wanted to do it.
  • What about his key management? We’ve been told that fundamentally they wanted to put the line in Everett because of the risk factor.
  • What other fall-out will there be? Support for Boeing’s KC-X tanker proposal could well be hurt. SPEEA is already pissed with Boeing over this program and the IAM/AFL-CIO (the IAM parent) might go cold in its support. So might Washington State politicians.
  • Why is SPEEA pissed, and won’t the unions shoot themselves in the foot if they withhold support? SPEEA is upset that Boeing won’t guarantee tanker work in Wichita (KS). During contract negotiations there, SPEEA repeatedly asked Boeing about the tanker work and claims Boeing refused to provide guarantees. Since then the director and program manager, Rick Lemaster, said tanker work may well not be in Wichita, in favor of a lower-cost location. The word at a recent conference in Spokane (WA) was that Charleston will get the tanker work, too. And yes, the unions will shoot themselves in the foot if they withhold support for Boeing’s KC-X bid.
  • What has Wichita got to do with it? Won’t the tanker be built in Everett? Yes, but Wichita normally would do the finishing work and final installation of the military equipment.
  • Isn’t it irrational for the unions–and the politicians–to potentially withhold their support for Boeing’s bid? Of course. When does being rational have anything to do with it?
  • Is this the beginning of the end of Boeing in Washington State? Probably, but not for a long time. No current production line will likely move, but new airplane programs will be elsewhere.

We will update as necessary, and there will certainly be plenty of updates in the coming days.

IAM 751 Statement posted at 4pm Tuesday:

Machinists Union Statement on South Carolina’s Proposed Incentives

October 27, 2009 – We firmly believe Washington State is the smart business decision for a second 787 line with the experienced workers, tax incentives, and other obvious advantages.

Instead of spending another $750 million to collect the incentives the South Carolina legislature proposed today (on top of the $1 billion Boeing already spent to purchase that plant earlier this year), we would all be better off if Boeing made the rational decision, with the least amount of risk and best chance of success by simply continuing to work with us.

South Carolina’s incentives demand that Boeing spend another three-quarters of a billion dollars (which they can ill afford) and guarantee that state more than three times as many jobs (3800) as they predicted would be needed for a second line here in Puget Sound. Yet to date this Company has not guaranteed ANY jobs for this state (within the Machinists ranks or in any other Boeing payroll).

Boeing faces a lot of challenges right now, and its only chance for success is to form partnerships with the people who can help it. We are those partners. We can – and should be – the force that drives Boeing forward in the 21st century.

We still believe that Boeing’s primary focus should be getting the 787 flying and certified.

As Boeing CEO Jim McNerney said in the earnings report last week “the fundamental operating engine of this company is running well.” He was talking about our members who built and delivered 113 airplanes worth nearly $7.9 billion in July, August and September. The accountants in Chicago didn’t do that, and neither did anybody in South Carolina. We are a proven commodity and have been building and delivering jet airplanes since the 707 and generating enormous revenue for this company on a daily basis.

The facts speak for themselves: Boeing’s fundamental operating engine is indeed running well and it’s running right here in Puget Sound. Instead of ripping that profit engine apart, Boeing needs to work with us to fine-tune it, so it keeps running smoothly and profitably for decades to come.

5 Comments on “787 Line 2 Update, Oct. 28

  1. I still disagree that any substantive talks took place, and maintain that this was all McNerny’s grand plan to smite the union.

    I do agree however, that this decision is all Mcnerney, all the time. Where I was all wet was thinking it was Albaugh’s.

    Now you James M is going to saddle Albaugh and his executive/managerial subordinates with the fruits of a horrible call, making an already bad situation desperate. That should make them happy no?

    As to the IAM gumming up the works in retaliation, Iv’e chatted with a few, and yes, they could do it. Very easily, very effectively, and fully within the bounds of their contractual obligations.

    But I still think they are unlikely to do it.

    Why? Well the never have in modern history, and thier group psychology seems to be that once a contract is signed, even if there is a strike, when it’s over, it’s over. And it’s over for the duration of the contract. They just tend to get over it and get on with the job. Interesting how a bunch of blue collar types can be more level headed and mature at times that the CEO of a major corperation. Anyway, my McNerneycaptain Ahab metaphore is still very much operative.

    But in 2012? Boeing, especially if McNerney is still in charge, is going to catch all kinds of hell from the IAM.

    But still they could be provoked into a response if McNerney’s “Everybody hate the IAM” campaign is effective. Local media and especially talk radio are spewing anti IAM bile and bilgewater that would do in the Howard Hanson dam.

    Meanwhile, as an investor, I’m screwed. There is no way BA will turn a profit next year, and in my estimation it will be at least two to three years before 787 is no longer is in a loss position (Don’t tell me it isn’t now, I can’t be fooled by one time charges and writedowns to R+D).

    Time to decide wheter to take the loss now for taxes or wait untill next year when it will be a bigger loss.

    But I’m feelin’ pretty spiffy about the nice fat put spread i’ve laid on BA. I might surpass breakeven based on that.

    Never has any P+G and dumped the IBM already.

  2. To go off on a tangent here, how will those SC incentives that are very specifically for Boeing, even if the company is not named, hurt the WTO case against Airbus?

  3. As I stated earlier on another thread on sthis site

    The decision was made some time ago, and BA played the local media like a fiddle.

    The local IAM leaders had little say in the issue- as did the local members.

    True – in SC the IAM screwed the pooch with their last minute agreement on a contract by only a dozen members given the chance to vote – AGAIN the direct fault of the TOP national IAM leaders.

    Boeing ‘ won’ this round. They may lose the ‘war’

    HAD BA been serious and dealt with integrity, they would have laid out its demands a lot earlier, and delt with the LOCAL leaders.

    Of course – Frank Chopp a few years ago in Spokane and televised on local publoic TV bragged that ” WE (union) elected OUR governor ( Chrissie ) . You reap what you sow..

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