Our thoughts on the Boeing-SPEEA “Best and Final” offers

For a few short moments we thought there were offers close enough to be reasonable middle ground to head off a strike between Boeing and its engineers’ union, SPEEA.

We’re looking at this from afar, figuratively and literally–we’re 5,000 miles from Seattle on our European, multi-stop trip. We don’t have access to the so-called “red line” contract proposals and, frankly, don’t have the time to read them even if we did. So to a large degree we’re reacting to press releases.

With these caveats, here’s our take:

Boeing conceded to SPEEA’s proposal on all but the pension fund, something we heard suggested to us in a telephone conversation we had a couple of days ago, even before we left Seattle for our trip. Boeing is determined to reduce pension costs. It’s stuck to its demand of ending the defined pension plan for new employees and transitioning them to a defined contribution plan.

We’ve always found this concept reasonable, with the devil in the details about the level of contribution. Defined benefit plans, in our view, are outdated approaches that have ROI assumptions that are ridiculous in the “new economy,” placing huge liabilities on companies.

Unions, of course, point out (and not without reason) that 401(k)-based pension plans are subject to the whims of the stock market and corporate executives get fully funded pension plans. There is, indeed, a certain inequity to executive treatment vs the rank-and-file and we’re not unsympathetic to the allegations of corporate management greed. The policy-making is stacked against labor with corporate boards packed by CEOs with hand-picked executives, and Boeing is no different in this regard.

But the defined pension plans structures now produce  liabilities based on unrealistic ROI assumptions. SPEEA says Boeing’s pension fund is fully funded. Boeing counters that SPEEA is referring to ERISA calculations but under GAAP (Generally Accepted Account Practices), Boeing has billions in liabilities. It’s GAAP that shows up on the balance sheet and GAAP that Wall Street analysts focus on.

As we’ve watched the negotiations between Boeing and SPEEA progress over the last year, we agree with SPEEA that Boeing’s position has been dismissive. Mike Delaney, Boeing’s management front-man to the press, took an astounding (and we think, sophomoric) position that, in essence, said SPEEA members aren’t needed in the FAA review of the entire 787 development program. It’s been our observation that Delaney sometimes gets out ahead of himself and we think this is probably another example, but the damage was done with SPEEA over this silly statement.

But we also believe that both sides have been guilty of hyperbole and SPEEA’s press release today in response to the Boeing Best and Final is an extreme example. We certainly understand the need to fire up its membership and, to be honest, we firmly believe the negotiating team believes in its own rhetoric. (We also believe, and have said repeatedly, that Boeing has consistently misread the mood of its labor force, from IAM to SPEEA).

Bearing in mind that we haven’t seen the Red Line, here’s our Best and Final take:

Our view is that Boeing conceded everything SPEEA sought in its Best and Final offer, except Pensions. This is a big win for SPEEA. We don’t have any issue with new employees going to a 401(k) plan, if the defined contribution is reasonable.

SPEEA, with shadow support from IAM, is firm in wanting to protect the defined pension plan. We understand their reasoning but don’t agree with it.

We would have had less issue with the SPEEA press release rhetoric (even though we understand why it’s there) had SPEEA simply focused on the disagreement over the approach to pensions rather than engage in the hyperbole it did.

Assuming the Boeing Best and Final is what it’s press release says it is, we believe this to be a reasonable compromise, with both sides getting wins.

3 comments on “Our thoughts on the Boeing-SPEEA “Best and Final” offers

  1. The Hyperbole and misleading rhetoric from both sides- do both sides harm and serve to drive a bigger wedge between parties.

    Having done ‘ verbal’ and shareholder battle with Boeing ( and SPEEA ) over the pension issues for over a decade, I sort of find it ironic.

    A thumbnail re Boeing and GAAP rhetoric.

    What Boeing does NOT say is that under ERISA accounting rules ( which are NOT like your checkbook and home budget ) Boeing has been able for over a decade to get a major tax- earnings break. It is convoluted but goes like this

    1) If under ERISA, the Pension Plan shows a Surplus ( more than ” 100 percent ” but less than 150 % ) then excess funds ON PAPER can be transferred to operating earnings.

    2)For several years in the early 200o’s, BA OPERATING EARNINGS as shown in the Annual Report got a significant boost in the double digit range as a result of the ” vapor profits” or ‘ vapor earnings.

    3) The downside is that for funding less than 80 percent under ERISA, the amount less is considered a liability- to be made up over several years.

    4) Few realize for example that when BA gave a special deal to retirees in 1995, despite the press releases as to ‘ costs” BA actually was able to show a GAIN in overall pension funding versus costs.

    5) the BA rhetoric via ” increase” in pensions by XX% has applied to a minority of retirees for about a decade ( for IAM and SPEEA ). That issue re BCERP (Boeing Plan under discussion) does need fixing.

    6) IMO- the costs to BA of a strike over that issue will be MUCH more than the COST of continuing the current plan. But the Mensas on both sides still haven’t figured that out.

    • Don,
      I love the Mensa line, I figured more of a Mexican Standoff.

      A good deal of SPEEA members will not want to let the pension go for new hires because they believe that Boeing will be coming for theirs next.
      But can’t a company freeze a pension at anytime?

      I would have thought Boeing would have thrown something else in of a sweetener to get rid of the pension. Something that at least 51% of the SPEEA membership would like.

      If you can’t negotiate it away, buy it.

      Great points Scott, I agree with your assessment, if only both sides had reasonable people.

  2. zrhohero :
    Don,
    I love the Mensa line, I figured more of a Mexican Standoff.
    A good deal of SPEEA members will not want to let the pension go for new hires because they believe that Boeing will be coming for theirs next.
    But can’t a company freeze a pension at anytime?
    I would have thought Boeing would have thrown something else in of a sweetener to get rid of the pension. Something that at least 51% of the SPEEA membership would like.
    If you can’t negotiate it away, buy it.
    Great points Scott, I agree with your assessment, if only both sides had reasonable people.

    Yes – Companies can and have Frozen Pensions as to further gains/contributions/ etc- a tedious process. But all who are vested will get the amounts earned/credited up to the date of the freeze.

    However – For those employees who are under contract ( eg Unions and executives ), it takes two to tango!

    see if you find any similarities – below is a matter of record ( 2003 Annual meeting- My shareholder proposal as published – but rearranged- extracts below )

    In their February 23, 1998 message to shareholders, Boeing said “A company, any company, is nothing more or less than the people who make it up.”
    We believe Boeing should “walk their talk” in pension issues.
    Boeing implemented the Pension Value Plan (PVP) in 1999 for over 100,000 non-represented employees. Although
    the PVP is primarily one of benefit formula change, Boeing has previously claimed it could not comply with eligibility, vesting, benefit and funding requirements by giving employees a choice at retirement or termination. We believe, however, that the Company can allow such a choice, as other companies like Kodak, 3M, Motorola, Delta Airlines, and AT&T have done.

    And the Boeing response was ( extracts )

    he PVP preserves all benefits earned under the former plans, and allows these benefits to continue growing in proportion to the employee’s salary.
    Employees began earning new benefits under the PVP formula immediately upon the PVP’s implementation rather than having a “wear-away” transition period before they could accrue any new benefits under the cashbalance plan.
    The PVP increases the percentage of pay that is credited to the employee’s cash-balance “account” as the employee’s age increases. Thus, the PVP gives the Company’s oldest employees nearly four times more benefit credits each year than their youngest counterparts receive.
    +++
    What the company did NOT say was that the PVP plan required age 65 to get 100 percent benefits. Whereas the old plan ( Which SPEEA and IAM and some executives still have )
    allows 100 percent benefits at age 60 !

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