Assessing the settlement

Update, October 30:

Seattle post-Intelligencer: Bill Virgin, an astute business columnist, opines on who won and who lost in the strike settlement.

Update, 5:00 PM: Here is a 17 minute podcast about the settlement with Richard Aboulafia, Scott Hamilton and Addison Schonland.

Update, 1:00 PM: The IAM set the vote to ratify the new contract offer for Saturday, Nov. 1. Voting will be until 6 PM PDT, with results announced later that evening.

Original Post:

Now that the dust has settled a bit and the details of the settlement between the IAM and Boeing are emerging, it’s time to assess the outcome. Inevitably, the question is asked, Who won?

On balance, it looks like the IAM did, but Boeing came away with important victories as well.

From Boeing’s perspective, spokesmen as well as the official Boeing statement hammered home the retention of outsourcing flexibility, the key stumbling block in pre- and post-strike negotiations. The only change in the contract over this issue, Boeing told us, is that the IAM gets consulted and a chance to bid on any work proposed to be shifted from the Puget Sound (Seattle area) to any other Boeing facility. None of the five strategic reasons for outsourcing was eliminated or altered. On balance, we think Boeing prevailed on this issue.

Another point of contention was Boeing’s plan to revise health care benefits for workers and institute an employee contribution plan whereby IAM members would have to pay some share of the premium costs and other costs. The IAM called this a take-away. The parties agreed to keep the present coverage in place, with no employee contribution. It’s hard to call who “won” this one; the employees don’t have to co-pay, but the coverage isn’t quite as good (according to Boeing), and we don’t know whether Boeing is saving any money or not for less coverage but no employee cost-sharing.

A four year contract was crafted in place of the standard three year deal. Both sides “win” on this one; Boeing gets longer labor stability and the union gets an additional 4% raise in the fourth year, for a total of 15% over the life of the contract. Boeing originally offered 11% over three years and the union wanted 13%. Though we dislike the over-used term, “win-win,” this one fits the description.

Boeing slightly sweetened the pension retirement payments, for a “win” for the union.

The question is when does production get back up to pre-strike levels. We addressed this in our post on the tentative settlement, citing Boeing CFO James Bell’s earnings call statement that it could take as long as two months. A Boeing spokesman we spoke with thought Bell said there would be a day-for-day delay (actually that was Boeing CEO Jim McNerney talking about the 787 development and first flight delay). We returned to the transcript of the earnings call and reproduce the relevant conversation below:

JB Groh – D.A. Davidson

But, well let’s say theoretically if it ended after 60 days, can you get up to that rate in two months’ time or –?

James Bell

I don’t know. I really don’t know and I don’t want to speculate but I think that two months is a long period of time, so I would suspect that we could get close to it, if not there, in the two-months period. Hopefully, we can do it in a lot less time.

Boeing, its employees, the customers and the suppliers can breath a sigh of relief…for the moment. With SPEEA negotiations starting tomorrow, we could be in for this all over again. The SPEEA contract expires December 1. If no agreement is reached, look for a strike for; if successful, look for a return to the bargaining table with SPEEA’s hand strengthened, armed then with a walkout planned for January or February.

JP Morgan had this to say: The end of the Boeing strike should provide a short-term boost to the commercial aerospace stocks. We also find the stocks attractive on a long-term basis. However, the plethora of bad news likely to come on the cycle, the aftermarket, margins, and further 787 delays make us more cautious on the intermediate outlook.

2 Comments on “Assessing the settlement

  1. Am I missing something? I can’t find a link to the Aboulafia/Hamilton/Schonland podcast on this web site.

Leave a Reply

Your email address will not be published.