This is the third segment of our interview with Jim Albaugh, CEO of Boeing Commercial Airplanes, during the Farnborough Air Show.
Union issues remain contentious. The rhetoric between the International Association of Machinists, both at its Washington headquarters and at the Puget Sound Local 751, and Boeing’s CEO Jim McNerney, is already testy. Messages are also sometimes conflicting, even within Boeing. While Boeing Commercial CEO Jim Albaugh seems predisposed toward keeping work in Puget Sound if a long-term union agreement can be reached, McNerney takes the clearly more chest-thumping approach that unions here must “earn” the work—despite the facts that labor is pumping out 737s at record rates and may be asked to boost production by 50%; that Boeing relies on labor’s support for the KC-X tanker competition; and labor is fixing all the problems on the 787 originating at overseas and non-union shops.
At the same time, the 2008 strike by IAM 751 cost the company billions of dollars. The 58 day strike disrupted production and deliveries, causing some customers—notably Richard Branson—to throw public fits over the strike. IAM 751 struck in 2005 and nearly did so in 2002. Management is tired of having these strikes every three years (or, potentially, in 2012 with a four year contract this time).
When Boeing decided to create a second assembly line for the 787, management demanded a long-term contract from 751. In what to this day remains hotly disputed and diametrically opposing views over what happened, Boeing decided to put the second line in the plant at Charleston (SC), where quality control continues to be an issue. At the same time, a “surge” line will be established in Everett to assure deliveries while Charleston becomes efficient, a process that will take years. So while management grouses about 751, it is also relying on 751 to save its bacon, so-to-speak.
Here is our interview with Jim Albaugh about labor.
Let’s talk about labor.
Since coming to BCA you have made some conciliatory comments about the quality of the labor force. In fact, these preceded your coming to BCA, when you were still at IDS, for the Poseidon roll-out. At the same time you talk about the need to control wage costs. IAM 751 takes a little bit of umbrage to that because they point out they took a wage freeze from 2004 to 2008.
You now have Tom Buffenbarger in Washington saying Boeing is inciting a strike in 2012. You have Tom Wroblewski criticizing the IAM 837 contract in St. Louis. How do you tone down the rhetoric? How do you get past the past?
Albaugh: I think it is all about having a common view about what we need to get done. I’ve always been somebody that cared about the employees. I feel like I have a responsibility to keep those employees employed; to keep selling airplanes; to come up with new airplanes. But I think they’ve got to have a commitment to help make us successful. We are entering a much more competitive world. We’re not just competing against the Europeans. We’re competing against a lot of other countries. There’s going to be a lot more work done in lower cost areas.
We have customers that depend on us delivering our product on time to support their needs and their business cases. If we can’t deliver a competitive airplane, if our customers see we aren’t a reliable supplier because of labor stoppages, then that puts us in a very difficult position.
I have always taken the view that if you do the right thing for the customer and the company, it’s the right thing for the employees. If you do the wrong thing for the company, which means you take a labor contract that doesn’t make sense, it prices you out of the marketplace and you’re not going to have a company. I think our first job is to make sure that we do [have a company].
I think we can get with the union. I think we can work on what we need to do together. They are very well paid. They deserve to be very well paid, but we deserve…to be able to promise our customers that we’ll deliver on time.
I don’t want a strike, but I will do what I have to do to make sure we are a competitive and reliable supplier.
The other part of that equation is the cost of doing business in Washington vs. some other state. The Pacific Northwest is more expensive.
Albaugh: It is, but if you look at the cost of what we do in the state of Washington, especially on the 787, it’s not a huge fraction of the cost of the airplane. The bigger issue is the work stoppage, because that just paralyzes us. The cost of the labor stoppage that we had in 2008…was in the ballpark [of several billion dollars].
Spirit Aerosystems and the IAM entered into a long-term contract. What do you think of it?
Albaugh: I think what Spirit got was very, very good in terms of they are not going to have work stoppages for a long period of time [10years]. That was good. What I really haven’t had time to digest was how much they had to give to get that. We tried to get a no-strike clause in exchange for the second assembly line [in Everett] on the 787 and we were unable to do that. Clearly to get a good contract, and when I am talking about a good contract, I am not talking about a freeze in wages, I am not talking about no increases for employees, when I say a good contract, I am talking about a contract that allows us flexibility to move people around and it also means guarantees that we are not going to have work stoppages. That’s a good contract, and we’ll give to get that.