There have been many articles this week detailing the increasingly contentious, evolving situation in the contract negotiations between Boeing and the engineers union, SPEEA.
We’ve previously written that this wasn’t going to be a love-fest. And it isn’t. Jon Talton at The Seattle Times has this comment, which is a pro-union take. Boeing says it wants to control costs, notably with pension and health care costs, but that it will still have industry-leading wages. SPEEA says Boeing is asking for take-aways. This Bloomberg article neatly sums up the Boeing position.
We’re not going to weigh in on the intricacies of who’s right and who’s wrong, for this depends entirely on your point of view. We do have sympathy for the Boeing position that health care and pension costs have to be reset, but we’re not going to opine on the details of any reset.
What we going observe is the following:
- Based on our intel, Boeing is pressuring its supply chain for significant cost reductions. Cost control is nothing new, of course, but from our intel, Boeing is ratcheting up the pressure to a level the supply chain hasn’t felt for some time.
- It doesn’t matter that Boeing is now reporting solid profits and cash flow is improving with the deliveries of the 787 finally underway. Profits are and will be helped by major reductions in R&D spending now that the 787 and 747-8 programs are back to “normal.” But this cash flow is being diverted to a resumption of the stock buy-back, a practice readers know we think benefits the likes of the McDonnell family and Harry Stonecipher more than shareholders at large. This money would be better spent on product development, we think.
- Boeing still loses money on each 787 delivery (currently an estimated $100m per plane, according to the Wall Street Journal). The program currently isn’t projected to make a profit until 1,100 airplanes are sold, under “program accounting.” However, this figure is almost certainly to move to the right with the launch of the 787-10.
- With cost pressures continuing, Boeing sees SPEEA’s engineers as a place to cut costs, though we’re not convinced that this is particularly meaningful in the scheme of things.
- We think Boeing-Chicago may be completely misreading the mood of the engineers, in much the same way it misread the mood of IAM 751 membership in 2008. Chicago was then convinced that the membership was prepared to accept Boeing’s offer and that the 751 negotiating team and leadership was out-of-step with the membership. Chicago (and Longacres) were stunned when the membership rejected the contract with a vote of around 86% (as we recall) and voted for a strike by around 84% (as we recall). The membership nearly lynched the negotiating team when they announced they would try another 48 hours to reach an agreement. The effort failed and a 57-day strike ensued.
- Management is counting on the fact that SPEEA has only struck twice since the 1990s, figuring that they won’t in today’s economic environment nor by their nature.
- Chicago figures the SPEEA negotiating team and leadership is out of touch with the membership. We’re not so sure. SPEEA also represents engineers at Spirit Aerosystems in Wichita and those members rejected management’s contract offer by a vote of more than 95% last year. An agreement was ultimately reached, but the vote was stunning.
- We think Chicago could be in for a big surprise by the resoluteness of SPEEA and we think it’s entirely possible if not likely that Chicago is totally misreading the solidarity between the membership, the leadership and the negotiating team.