“Earning” the right to build airplanes at Boeing

The Boeing Co. seems to be at never-ending crossroads.

The development of the 787 was to be a game-changer with an entry-into-service planned for May 2008. If this had happened on time, this innovative airplane would have set Airbus back five years and positioned Boeing to proceed with a new 737 and/or 777 years ahead of Airbus.

The 787 is a game-changing airplane, all right. But the strategic game changed in the wrong direction because of the outsourcing screw ups and mismanagement of the program. The 747-8 suffered from the trickle-down effect of diverted resources to the 787, and new airplane programs ground to a halt.

In the meantime, the messy warfare between management and the IAM 751 continues to play out in public. IAM 751, and the SPEEA engineers union, never miss a chance to say “I told you so,” pointing out that they warned management of the potential problems of outsourcing.

Management has already acknowledged this point and while it continues to believe outsourcing at some level is necessary (which the unions privately concede), more work for the 787-9 is being brought back to Puget Sound and other work is being located here. Continuing to say “I told you so” isn’t necessary and it only irritates an already testy situation. (Just ask your spouse about this, if there is any doubt.)

As for Management, the statements from Chicago–from CEO Jim McNerney specifically–that the IAM has to “earn” the right to build future airplanes is especially insulting. (Boeing Commercial Airplanes CEO Jim Albaugh puts it differently: there is no “entitlement” to build future airplanes, which we know says the same thing but which we believe has an entirely different meaning and which we think is less inflammatory.)

IAM 751 has, quite frankly, been saving Boeing’s bacon. The efficiency of the IAM workforce in producing 31.5 737s and up to seven 777s a month speaks for itself. Boeing plans to go to 38 737s and has considered (and may still be considering) taking this rate to 40-42 a month. A new, Lean production line for the 767 is in transition for an effective date in January, another IAM effort.

And it is the IAM (and SPEEA) that have found and fixed the problems on the 787 originating with the outsourcing, including the ever-lasting problems from Alenia; and on the 747-8, where outsourced engineering has been a particularly vexing issue.

To suggest that the IAM has to “earn” the right to build future airplanes is an insult of stratospheric proportions.

But Albaugh is also right: there is no “entitlement” to do so. Boeing, and its customers, cannot stand the prospect of strikes over three or four years. Production stability is paramount for a successful company.

We well know the position of the IAM: don’t ask for “take-aways” and there will be no strike. Well, sorry, the changing realities in the world competitive market and in the US and global economies means Boeing cannot afford to see costs continue to go up and up. Health care and pension costs are two particularly dangerous issues for Boeing, or any company.

We see no reason why employees should not share the health cost premium. (We foot 100% of our policy costs and are being killed by Regence Blue Shield’s annual hikes of 20%.) Boeing cannot be counted on to bear the burden of these costs.

The same is true for pensions. We see no reason why new-hires can’t go on a 401(k) program.

We know the IAM’s retort on these issues, and their pointing to how executives don’t share the pain (a point with which we believe has merit). But we think Boeing has a point on health care and pensions. And the production stability.

As for wages, Boeing from time-to-time says wages have to be carefully controlled. This is broadly true. Wages in China, India, Russia and elsewhere are a fraction of those in the US. But the IAM (and SPEEA) have amply demonstrated that quality and efficiency have a value that outweighs by far the cheap labor obtained elsewhere.

The IAM 751 and SPEEA contracts become amendable in the fall of 2012. Management and labor need to begin now to tone down the rhetoric, informally meet to repair the relationships and perhaps come to some meeting of the minds even before contract negotiations formally begin. It’s in the best interests of all parties to do so.

6 Comments on ““Earning” the right to build airplanes at Boeing

  1. hehe,

    afaics IAM ( or more precisely the shop floor personel ) is not uninvolved
    in the outsourcing problems Boeing has.
    If one read between the lines a lot of manufacturing detail added on the
    shopfloor has not found its way back into the definite documentation
    on each type. Being unaware of these silently done things is one
    reason why Boeing management ran aground with outsourcing.
    ( enough other reasons around to not make this _the_ central issues, but .. )

  2. Interesting – While there is NO question that Boeing must sharpen its pencil and consider the long term costs of labor, etc- the short term mantra re employees and benefits as a cost to be avoided have prevailed for decades. Now the demographics of the current labor force are beginning to bite them in the rear. The old days of a dedicated work force with a poor to fair chance of employment for say 20 to 30 years is gone. Younger employees realize this. While boeing did make an attempt to subtly force older employees to work past the age of 60, they did so in a crude and underhanded way. It is called the Boeing PVP ( cash balance pension plan ) While it did/does work better for the younger employees, it hosed the 20 to 30 year employees. Thus the unions rightly said NO thank you when BA converted all non union types to the Pension Value Plan in 1999-2000.

    I suggested via shareholder resolutions that Boeing instead give everyone a choice at retirement as to the old or new plan. For the four years ( 2001-2004) it was on the proxy,it gained from 6 percent to 12 percent of the vote ( thats about 50 Million shares ). But Boeing of course did nothing simply because they did not have to. Even if the proposal got 80 percent of the votes, there is NO requirement for the company to change.

    After a hiatus of about 3 years, in 2007 I again submitted. But this time, the claim of ordinary business won out, and they did not have to publish. However, the SEC did NOT give them a free pass until way late, so the company had to send me the offical BOD statement against, which reads identical to all the previous statements. I’m mentioning this now because I still believe a lot of angst in coming negotiations could be avoided on the Pension issue IF both sides were to sit down and discuss this well ahead of formal negotiations.

    It should also be noted, that while the the company could have claimed I made false and misleading statements and had my most recent version dismissed, they could would have had to prove such a claim. That they did not even try such a action is significant. Its time again for BOTH sides to wake up and quit smelling the zinc chromate.

    AS submitted –
    Shareholder proposal from Donald Shuper 7 July 2007
    RESOLVED: Shareholders request the Board of Directors to adopt the following
    policy:
    Employees vested at time of the 1999 pension plan conversion to the PVP cash
    balance plan to be given a choice between their previous pension plans
    (“Heritage Plans”) or the Pension Value Plan (the “PVP”) at time of their
    termination or retirement.
    Supporting Statements:
    Boeing implemented the PVP in 1999 for over 100,000 non-represented
    employees. Since that time, Boeing has resisted giving employees a choice of plans at
    retirement or termination. We believe Boeing should allow such a choice, as other
    companies like Kodak, 3M, Motorola, Delta Airlines, and AT&T have done. Lack of
    choice negatively affects employees previously represented by a union who were
    converted to the PVP.
    The PVP adversely affects many long-term employees when compared to the
    Heritage Plan benefits. In most cases, the Heritage plans pay 100 percent of vested
    benefits at age 60, but for many, the PVP pays only 80 percent for age 60 retirements.
    1 PENSION INCREASES?
    Boeing and the unions usually claim an “X percent “ increase in retirement
    benefits in contracts, but the “Alternate benefit” formula applicable to most retirees
    has NOT changed since the early 1990’s. The claimed increases apply only to the
    ‘Basic benefit ‘ calculation e.g. $XX/month per year of credited service. The “Basic
    benefit” typically applies to the smaller group of long-term employees with average or
    below average pay during the 5 years prior to retirement or who have been on
    extended leaves of absence.
    2 CREDITED SERVICE GAINED WHILE NOT WORKING FOR BOEING.
    The unions and Boeing know the published “X percent “ pension increases
    rarely apply to the majority of the employees nearing retirement. Very few Heritage
    Boeing employees know they can take an extended leave of absence, work full time
    for the union, and continue to accrue up to 10 years additional vested credited service
    for their pensions. The “X percent “ pension increases routinely apply to the union
    staff employees, including those who have significant influence on negotiations. This
    unique policy of credited service accrual in effect since 1971 is found exclusively in
    the Heritage plan legal documents available only upon written request or to the
    unions.
    3 BOEING ACTIONS WHEN QUERIED ABOUT CREDITED SERVICE ISSUE
    A. Without notice or explanation, Boeing has totally blocked employee access
    to at least five email addresses and matching web sites which contained related ethics,
    shareholder, pension and union communications with false claims of virus or violations
    of Boeing “ malicious code policy ”

    B. From auditchair@boeing.com: “ . . .Boeing does not intend to respond to
    any further correspondence or contacts from you or (spouse) “ (April 12,2007)
    C The Corporate Counsel refused to acknowledge or respond.
    D The Pension Plan Administrator has refused to provide current plans legal
    documents despite a written request.
    EMPLOYEES DESERVE CHOICE, DISCLOSURE, AND WORKING ETHICS.
    SHAREHOLDERS SHOULD DEMAND DISCLOSURE, REAL ETHICS, AND
    ACCOUNTABILITY.
    START BY VOTING YES.

    ++++

  3. Here is the Offical response from the Boeing BOD in Feb 08, sent because of time constraints pending a ‘ free pass ” e g a NO action letter by the SEC is they did not publish. Such a letter was sent a few days later, thus it never appeared in the 2007 ( annual year ) proxy statement for the 2008 meeting. The following is an OCR copy of what was sent, and is also on file as a public record with the SEC. Spelling and format errors is any are due to my OCR ..

    +++

    Board of Directors’ Response
    The company adopted the Pension Value Plan, or PVP, in 1999 to provide a single plan for the company’s tens of
    thousands of nonunion salaried employees. Before the PVP was implemented, these employees earned benefits
    under more than 20 different plans and formulas (the “Heritage Plans”) that were sponsored by the “pre-merger”
    companies: Boeing, McDonnell Douglas and Rockwell. The PVP was designed to provide benefits comparable to
    the benefits provided to current employees under the Heritage Plans and allow employees to earn future benefits
    under a single benefit formula. The company did not adopt the PVP to reduce pension-related costs. On the
    contrary, the PVP increased the company’s pension liability substantially, as was disclosed in the 1998 Annual
    Report.
    The board of directors opposes (his proposal to permit employees vested at the time of the 1999 pension plan
    conversion a choice between the Heritage Plans and the PVP at termination or retirement because such a choice
    would undermine a primary purpose of the PVP: to create a single, simplified plan for all nonunion salaried
    employees. The proposal would also interfere with the company’s ability to determine appropriate pension benefits
    as part of its total compensation and benefits package. In addition, maintaining numerous plans and benefit
    formulas, meeting the myriad federal regulations that apply to each plan, and implementing employees’ choices
    would result in higher costs and significant administrative difficulties. Those include complex actuarial and legal
    analyses to determine what impact the proposed choice would have on plan funding and whether it would violate
    provisions of tax and pension law.
    Management believes that the PVP better reflects the reality of today’s marketplace for current employees both in
    terms of employee career expectations and the competitiveness of the company’s total compensation programs.
    Management also believes that the PVP’s generous transition measures have protected (he transition-date workforce
    ‘ both by protecting all of the Heritage Plans’ accrued benefits and providing for the future growth of those benefits in
    proportion to employees’ future salary growth, rather than merely freezing the prior accrued benefits. Recently
    enacted legislation, specifically the Pension Protection Act of 2006 (the “Act”), makes it clear that cash balance
    plans and the conversion of traditional defined benefit plans to cash balance plans are legally permitted. Even
    though the Act applies only prospectively, Boeing’s method of transitioning to the PVP met the requirements
    prescribed by the Act, and the PVP has successfully withstood an earlier court challenge.
    This is the fifth year that the proponents have submitted this proposal (or a similar variation thereof) for inclusion in
    the company’s proxy statement. On each prior occasion, shareholders have rejected the proposal by over 87% of the
    votes cast. The board of directors believes that these votes reflect the shareholders’ understanding of the company’s
    commitment to provide its employees with a total compensation and benefits package that is competitive and that
    helps the company attract and retain the best people and talent. Management believes that the PVP meets these
    criteria.
    The company continually reviews its benefit plans, making changes when appropriate. The hoard is convinced that
    the measures recommended by this proposal would be detrimental to the company’s current pension and
    compensation programs and unanimously recommends a vote against the proposal.
    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
    A VOTE AGAINST PROPOSAL 10.

    ++++

  4. How come nobody ever talks about outsourcing upper management? Surely the company can find someone good in China who would manage the company for much less than McNerney.

  5. Well the bored of Directionless is up for election. except that it is virtually impossible to vote anyone off. Even John McDummy, who should have been tossed off a decade ago. He was caught lieing under oath in a federal case involving closing the Tulsa facility in the 90’s.

    , , WSJ: Judge Hands Boeing Defeat in Lawsuit Brought Over Loss of Retiree Benefits

    September 6, 2001

    Judge Hands Boeing Defeat in Lawsuit Brought Over Loss of Retiree Benefits

    A U.S. District Court Judge in Tulsa, Okla., handed Boeing Co. a surprising defeat
    Wednesday in a class-action lawsuit filed in 1994 by more than 1,000 older McDonnell
    Douglas Corp. workers.

    The workers alleged that the company closed their plant in order to avoid paying pension,
    health and retiree medical benefits.

    Judge Sven Erik Holmes issued a 90-page opinion that found among other things, the
    company “engaged in a course of obstruction, inconsistent representations and outright
    falsehoods” during the course of the lawsuit to keep the truth from coming out about the 1993
    closure of a McDonnell Douglas plant in Tulsa. . .

  6. Pingback: Boeing lean production rate ramps | The Sixth Sigma

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