Boeing’s Albaugh talks about labor

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.

3 Comments on “Boeing’s Albaugh talks about labor

  1. If Boeing opened another 787 assembly line to S. Carolina,
    because they could not get an agreement on either the wages
    in WA State and or a no-strke clause with the unions here,
    than why didn’t Boeing open a second assembly line in China?
    That is what Airbus did with the A320 several years ago and
    they have already produced a dozen or so top quality A320s,
    which have gone into service flawlessly!
    After all, there is no technology transfer involved during
    assembly of aircraft!
    Had they done so, Boeing would not only have avoided any of
    the above labor problems with a very skilled but much lower
    cost labor force in China, they would at least have matched
    the enormous amount of goodwill Airbus has established, with
    all it’s consequences for aircraft sales in the vast Chinese
    market!

    Airbus has to deal with much tougher labor unions than we
    have here in the US and they managed to establish them-
    selves in China. Why couldn’t Boeing have done so?

    Knowing the Chinese, having grown up with them, I am afraid
    that the decision by Boeing not to match the Airbus move
    by also establishing an assembly line in Chine, but doing
    so in another location in the US, will not go unnoticed by
    the Chinese!

    • The Chinese market is going to be flooded with C919s in a few years. Neither Boeing or Airbus will win customers due to Chinese plants in the long-term, since chauvinistic customers, with government support, will turn to the local design when it arrives. The rest of the airline customers in China will buy whatever’s cheapest or the best fit for their needs. Does it really matter to an airline executive, absent some form of subsidy or compulsion from his or her government, where an aircraft is built?

  2. I am in the beginning stages of understanding the US unionised workforce mechanisms.
    What in an european company comprises the department for workforce management
    seems to be outsourced already in the unionised way of US manufacture.

    Which leads me to why Boeing probably will have some problems in setting
    up shop elsewhere and why select US management types run into ?insurmountable?
    issues in Europe.
    No partner to manage workforce in a meaningfull way.
    No understanding in management on these issues.

    Does this to some part explain the success of foreign manufacturers in “right to work” states?

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