Boeing & SPEEA: As we routinely do when it comes to trying to understand rhetoric of two warring parties (usually Airbus and Boeing but in this case SPEEA and Boeing), we reach out to third parties. We asked an aerospace engineer not associated with either Boeing or SPEEA about the Bloomberg interview with Boeing’s Mike Delaney in which Delaney was quoted as saying if SPEEA doesn’t accept Boeing’s terms, it will move engineering elsewhere.
Outsourcing engineering has been a sore point with SPEEA for some time and, frankly, outsourcing on the 787 and 747-8 created a lot of problems in the development of these aircraft. So Delaney’s threat can’t be dismissed.
But as with the 787 and 747-8, outsourcing isn’t a simple matter, either. Our third-party noted that engineering tasks may be unique enough that simply shifting work from groups in Seattle to engineers in Wichita (KS), where Boeing is closing its military operation, or to Boeing’s Defense engineers in St. Louis or elsewhere may hardly be a seamless transition.
Boeing, of course, will know this. But at a time when Boeing is ramping up production by 60% and has the 737 MAX, the 787-9, the 787-10, 777X and KC-46A programs underway, we’re not sure shifting work makes a lot of sense.
Even if quality work is assured–in contrast to some of the outsourcing on the 787 and 747-8 programs–and which is by no means a certainty during the switch, transition times could well slow the work at a time Boeing could ill-afford.
But Boeing looks at the long-term. It knew the risks in creating the 787 plant in Charleston. Recall that documents revealed the Charleston move to be high risk for quality, for learning curve and for cost–and the company proceeded anyway because it was fed up with the IAM 751 strikes (or because of incentives, depending on who you believe and we firmly believe the strike theory).
We’ve no doubt that Boeing is fully capable to damning the labor torpedoes. But we firmly hope common sense will prevail for both parties.
Even if a contract is reached, we also firmly believe Boeing will relocate engineering work from Seattle. The sheer volume of growth over the next several decades will demand it. If SPEEA believes otherwise, it’s whistling Dixie. And that’s probably where a lot of the future engineering will be regardless of the outcome of current talks.
Is it possible that both parties are so wedded to their point of view that a mutual understanding of the issues become impossible. I thought the idea of these early “discussions” were to outline the issues so
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that when the contract was offered there was a full understanding of the differences thus making the final negotiations more focused.
I hope the objectivity of these two article describing clearly the larger picture with the clashing points of view gets more discussion and clarity. I think a successful negotiation is only when both parties are made to understand the needs and priorities of each other so some common ground can be found. Being tone deaf or whistling Dixie will not provide a solution.
If there is a conflict between long and short term goals, perhaps gradual adjustments can be constructed.
The purpose of collective bargaining is to reach an agreement that (ideally) advances the interests of both management and labor. At a minimum, the purpose is to reach an agreement that both management and labor can live with.
Collective bargaining often goes bad when one of the parties adopts the perspective that talks are about educating the other party. The true education comes through the discussions around the proposals and issues. Both sides get an understanding of what the interests of the other party are and more importantly, WHY the other party has those interests. One “educating” the other party while simultaneously withholding key pieces of information is doomed to failure. That “education” happens in a vacuum and not only isn’t effective but comes across as offensive.
Collective bargaining goes especially bad when one party insists upon controlling the process. This mistake is most often made by management (because they are used to controlling processes and its easy to default to this stance without any ill intent) but unions can as well.
In this particular case, Boeing made both mistakes.
Initial discussion between the parties were quite candid and SPEEA made a series of overtures designed to reach out to the company’s stated interests.
For example, when Boeing stated that their interest was a quick and quiet settlement, SPEEA offered to simply extend their existing collective bargaining agreement. From SPEEA’s perspective, this was a concessionary gesture of good will because Boeing’s financial picture had brightened considerably since the 2008 negotiations and being willing to forego seeking any increased benefits was evidence of a willingness to focus on making the company even more successful).
A second example is when Boeing stated that going out of the pension business was a strong interest. SPEEA solicited from Boeing their analysis of how much additional money would need to be put into a 401K to provide the same retirement dollars as the pension. Boeing’s figure and SPEEA’s figure were off by half a percent. SPEEA then said that it was willing to discuss helping Boeing get out of the pension business but the starting point for such discussions was that true replacement figure. From SPEEA’s perspective, this too was a concessionary good will gesture. The union was willing to discuss voluntarily giving up the pension IF the dollars would be equal for the retirees.
Boeing rejected extending the contract without much effort at all. It simply asserted that SPEEA members were lucky to have jobs in this economy and since other companies were cutting pay and benefits, that was the “market” and Boeing was going to move in that direction.
Boeing then rejected an equal benefit discussion around the pension by unilaterally dropping a proposal to kill the pension for new hires and replace it with a 401K that provides 40% less dollars to the retiree (calculated using the agreed upon number for a true replacement cited above). Since SPEEA and Boeing had talked about this particular item for a year, Boeing knew that SPEEA could never voluntarily accept such terms.
At that moment, negotiations effectively ended because Boeing was now insisting upon a term that it knew SPEEA couldn’t accept. See the first paragraph of this post. Collective bargaining is about reaching an AGREEMENT. If one party insists upon a term that the other party can never accept, there is no possibility of an agreement. The only possibility left is for one party to use raw power impose an agreement upon the other party.
Boeing comforted itself in the belief that SPEEA was out of touch with the workforce and became openly dismissive of the SPEEA negotiating team at the table…and eventually the media. Boeing then started an aggressive outreach campaign directly to the union members in an effort to bypass the SPEEA negotiating team.
SPEEA has requested for months that Boeing simply put forth an offer and explain it so that both parties could explore whether an agreement was possible. Boeing has explicitly refused to do so arguing that they need to “educate” the SPEEA team first. In other words, Boeing explicitly refused to bargain with SPEEA but instead sought to persuade SPEEA to accept the positions that Boeing had already decided to adopt.
That’s not an especially subtle distinction to experienced negotiators but it may be lost of the layman. Said differently, trying to talk the other party into agreeing with you ISN’T bargaining. Bargaining requires give and take to find positions that both sides can agree to.
At this moment, conflict seems inevitable. Boeing has an offer that they insist SPEEA agree to. SPEEA insists upon engaging in actual collective bargaining (which would allow the union to achieve some of its goals). The two sides aren’t even playing the same game despite being in the same room.
I have no special insight about the process and only wish to understand the issues better or promote a clearer discussion.
It certainly makes sense to me that an extension of the present contract was not insulting since the important issues were not being addressed.
The Pension reset is a complicated subject to understand so I pass on it. Municipal governments and businesses all over the country are trying to reset these benefits.
What was not mentioned in your posting was the topic of outsourcing and contracted engineering. I suspect that those issues are very central to this negotiation and is an area where some tradeoffs or compromise on both parts can help move towards a contract agreement.
At this stage before a contract is offered, it seems that lines are being drawn and until all the lines are understood there can be no true negotiation. I suspect as time draws closer, productive exchanges and proposals will start to occur
Well said, BA Investor.
Correction: should be ” why the REJECTION of an extension of the present contract…”
To SPEEAInsider: Could you clarify why offering a 401K to new hires is such an obstacle for SPEEA membership. It does not interfere with the security of present workers and new hires are competing in the marketplace and have a choice of competitive offerings.
SPEEAInsider;
“For example, when Boeing stated that their interest was a quick and quiet settlement, SPEEA offered to simply extend their existing collective bargaining agreement. From SPEEA’s perspective, this was a concessionary gesture of good will because Boeing’s financial picture had brightened considerably since the 2008 negotiations and being willing to forego seeking any increased benefits was evidence of a willingness to focus on making the company even more successful).
A second example is when Boeing stated that going out of the pension business was a strong interest. SPEEA solicited from Boeing their analysis of how much additional money would need to be put into a 401K to provide the same retirement dollars as the pension. Boeing’s figure and SPEEA’s figure were off by half a percent. SPEEA then said that it was willing to discuss helping Boeing get out of the pension business but the starting point for such discussions was that true replacement figure. From SPEEA’s perspective, this too was a concessionary good will gesture. The union was willing to discuss voluntarily giving up the pension IF the dollars would be equal for the retirees.”
That is an oversimplifcation of the problem. Boeing’s financial future is not as bright as SPEEA thinks it is. Boeing is looking at huge write-offs due to the B-787, B-747-8, and KC-46A. There may be some built in losses in the B-737MAX program, too. Boeing stock has been around the $70-$72 mark for a long time, in other words it is flat. Now, I do not believe Boeing is going out of business anytime soon, but they will have a huge cash flow problem later in this decade, esspecially if the BoD gives the green light to the B-787-10 and 3 B-777X models.
Your defination of collective barganing is also one sided, from your union’s prospective. The talks between Boeing and SPEEA are not dead, they are at best ‘at an impass’. SPEEA is trying to set up a situation where they want a federal mediator to come in and make a binding decision, in the union’s favor, of course. They are doing this by the typical way unions do it, by claiming the talks between the company and the union have failed. This is the real failure of collective barganing, and has been a tool used by unions all over the country, mostly successfully, for years.
Finally, there is nothing wrong with a 401k retirement plan. They have been used successfully since the early 1980s. A company funded retirement plan, on the other hand, is not so secure. Just ask the workers of GM, Polaroid, Enron, Braniff Airlines, Eastern Airlines, and others who were left with nothing after their employer failed. All of them, if they got anything are at the mercy of the EBSA. Those that got some type of retirement only got pennies on the dollar.
I guess I would agree that there is nothing wrong in the absolute sense with a 401K. The idea of individually controlled accounts appears to make sense in an economy that features heavy “churn” across the average worker’s entire career, but as implemented in the U.S. these accounts don’t appear to be working out very well for people who actually have to live off of them in retirement (see http://tinyurl.com/96fuy7l). In part, this may be due to the unsurprising fact that people who are employed full-time doing something else, don’t tend to perform very well as investment bankers, on the side.
KC, presumably you have a government pension, so I guess I understand your being a little sanguine on this point.
If Boeing is not willing to fund the 401K in a way that is equivalent to the existing pension, then the lost value needs to either be offset or counted as a takeaway, and that is something that the union owes it to their membership to resist, to the extent that they have the leverage do so, and within the constraints of not harming the overall viability of the enterprise that employs them.
To your point about Boeing’s needing to extract concessions due to their looming cash crunch, and Scott’s suspicion that Boeing is driven by the lingering burns of previous strikes, I have to ask, how much of Boeing’s current predicament actually springs from the effects of previous work stoppages, either actual or threatened? How much even springs from high labor (unit) costs?
I’m certainly not positioned to offer a complete answer, but it looks like more of these problems spring from the militant steps management has taken against it’s workforce (e.g. overdoing it on the outsourcing of the 787 and underdoing it on the dilligence in executing that move, introducing extra risk into an already troubled program by granting the second line to a site that had recently needed to be hurriedly taken over due to its poor performance on the program) than from the militant steps of the workforce itself.
As to the unit cost of labor, at least on the 787 program, the problem of the the huge overrun in the number of labor units needed per plane resulting from mistakes in program management, appears to me to dwarf any possible problem with the per-hour costs of those employed in the program. Of course, bringing down the unit cost of labor still might seem like an attractive way to address the problem, but if it comes at a cost in the quality of work, it may only aggravate the already much bigger problem of overall program efficiency.
“Your defination of collective barganing is also one sided, from your union’s prospective. The talks between Boeing and SPEEA are not dead, they are at best ‘at an impass’. SPEEA is trying to set up a situation where they want a federal mediator to come in and make a binding decision, in the union’s favor, of course. They are doing this by the typical way unions do it, by claiming the talks between the company and the union have failed. This is the real failure of collective barganing, and has been a tool used by unions all over the country, mostly successfully, for years.”
With respect, you don’t have a clue what you are talking about. The federal government has mediators but they have ZERO power to make any decisions let along binding decisions. FMCS.GOV
You don’t have to agree with anything I say but you should refrain from making pronouncements based upon rumor or speculation.
Two factors:
One, its not the delivery vehicle for the retirement benefit (pension, 401k and IRA) all have their pros and cons. It’s the value of the retirement benefit. Boeing isn’t just changing delivery vehicle, it’s cutting the value by 40%. It makes no sense to SPEEA that a fabulously profitable company would gut the compensation to the professionals generating those profits.
Second, you have to look at the demographics of the workforce. At least (maybe higher) 25% of the workforce will retire in the next five years, That means that in a relatively short period of time, SPEEA would have a large segment of its membership with a 40% smaller retirement benefit than the rest. This will cause resentment and tension within the union membership. Looking forward, two contract negotiation cycles from now, those new hires with lesser benefits will be the majority in the union. At that point, history shows employers come to bargaining and propose to freeze the pension for those that still have it. Given that the older workers sold-out the younger workers previously, the younger workers agree to freeze the pension for the older workers in exchange for some bauble like a signing bonus.
Changing the retirement benefit system is complex because there are a lot of stakeholders. SPEEA was willing to enter into such discussions but Boeing wasn’t interested in a negotiated solution that both parties could live with. Boeing is attempting to dictate its solution and that is the source of the conflict.
I have already noted my confusion as to how a group of professionals generally versed in math could have allowed such a travesty requesting the 3 year average basic benefit increase for each year, and then publishing phony curves that supposedly justify the request in addition to calling the Boeing proposed rate increase of about 2- 2.5 percent each year a cut. The BA proposal is identical to that in the IAM contract.
And in even more simple terms going from $ 83/month/year to $89/month/year in a three year time frame is 89-83 = 6 6/83 = .0722 or 7.22% which is GREATER than the 6.5 percent 3 year average over the last few decades. No wonder BA insists they need to educate SPEEA !
So how did this happen. I don’t know, but I will speculate a bit as to who, how and why this happened.
A- Who made the curves and SOLD the arguments to the Negotiation Teams ?
I’ll bet it was one or two Staff who pushed the issue to the N teams.
B- How – with persuasive arguments and a few power point presentations given under the guise of WE (STAFF) have done the research and these are the FACTS, and OUR
EXPERTISE concludes the following . . .
C- Why ? I believe the answer is best explained in two parts plus a subtle FACTOID
C-1 The rate increase only applies to the Techs and some few Engineers who are
in the salary range the straddles the Basic Benefit which is to say the traditional PR and methods used by SPEEA for decades. The upper salary level of Engineers get squat! But it allows the company and SPEEA to claim an XX percent increase in Pension. BA wins, SPEEA wins, and the Engineers continue to lose due to the Covered Compensation games in the Alternate benefit formula that few pay attention to.
C-2 The VERY real possibility that the prime driver cheerleaders for the Basic Benefit Rate increase are those STAFF members who used to be Boeing Employees. They will always benefit from a rate increase.
How so ?
FACTOIDS
The majority of the members do NOT know that those Boeing Employees who go to work full time for SPEEA can and do get up to 10 years of credited service ADDED to their credited service while at Boeing, payable under the BA plan when they reach retirement age .
Of course many of those are Contract Administrators who also get a bit extra pension from SPEEA and the Teamsters.
Lets look at the Boeing bit first – the following is NOT in the SPD you can get anytime online. Why not ? Well the BA Plan administrator says it does NOT need to be disclosed in that document. But in the LEGAL Plan document the following has been there for decades. And it is legal due to a specific exception in federal law to cover the problem of shop stewards working on behalf of the members while being paid by the company. Although SPEEA and Unions reimburse the company for such union business time, they do NOT cover the resulting benefits.
The exception relating to credited service while on LEAVE OF ABSENCE over XX days reads as follows ;
Quote:
(B) the aggregate of any leaves of absence on or after January 1, 1971
for service performed for a collective bargaining representative
certified under the Labor Management Relations Act whose
members are Eligible Employees will be treated as Credited
Service in computing Basic Benefits under Section 4.1 (a) and for
determining vesting. Under no circumstances, however, will an
Employee receive more than ten years of Credited Service for
service with a collective bargaining representative.
QUESTIONS
This then brings up an interesting question. Why have IAM members long been aware of this statement while SPEEA members have been kept in the dark?
Now add another question. How many STAFF members ( ex Boeing ) will be reaching the 10 year limit between 2013 and 2015?
MORE FACTOIDS.
At least be aware that those same STAFF members ( ex Boeing ) get a generous defined contribution pension of 7 1/2 percent plus at least 4 percent matching contributions to the SPEEA 401K
And For MANY – they also get probably 2K to 4K deferred compensation into the Teamsters Plan.
Thats a triple dip folks. Its not a secret- other than the Teamsters pension numbers NEVER being shown in the Audit until this year.
If you are an engine-ear – you should be concerned as to who is looking out for YOU.
Great analysis by SPEEA insider. I wish that people would read that twice before talking about it, particularly when they obviously have no knowledge of what this is about.
I hope that Boeing will come up with a better management concept soon before it is too late for the company.
So if Boeing is threatening to move engineering work away from Seattle, is there enough engineering resources out there to draw upon? You have a great deal of engineers and techs at Boeing who are at retirement age now. There is also a shortage of engineers in this country so where the numbers of engineers Boeing will need is a mystery to me. Also I’ve been looking at open engineering positions inside Boeing, they are very highly specfic in the skills and experience they require. I think it is madness on both sides. SPEEA members need to realize that the pension will one day go away for new hires. It’s not an if, it’s a when. As for Boeing I don’t know if the threat makes a lot of sense. Both sides seem pretty entrenched, I guess all we can do is wait for the offer and see who flinches first.
There are not enough engineers “out there.” That’s one reason why Boeing (and Airbus, for that matter) are out-sourcing to Russia, India, etc.
Approximately 8% of the engineering/technical workforce are contractors. This is a far higher number then Boeing wants and certainly higher than SPEEA wants.
There have been some discussions around this in the bargaining but its not as central as you suspect. The workforce is expanding so contracting is a long term issue rather than an immediate job-for-job concern. The real issues are the loss of training opportunities for real staff (everything a contractor learns walks out the door when they leave) and the generational knowledge transfer required as baby-boomers seek to leave the workforce.
Boeing and SPEEA largely share the same concerns about the contractors. However, Boeing’s position boils down to “there’s not much we can do, we need these people for our development programs (especially stress and structures engineers) and they like being contractors.
In response to this position put forth by Boeing, SPEEA conducted a survey of the contractors asking them what terms it would take to agree to come onto full-time employment with Boeing. The survey was revealing in that it turned out only about 10% liked the contractor lifestyle and couldn’t be lured into regular employment (these were mostly people who had retired already and contracted for the intellectual challenge, socializing with like minded colleagues, and an extra paycheck). The vast majority of the rest of the contractors WANTED to work for Boeing but said that when they applied for regular jobs Boeing offered them 40-50% pay cuts versus their contractor salaries. Most said theyd be willing to take a 25% pay cut in exchange for health benefits etc. but that they would be fools to take a 40% paycut when they just just buy their own benefits and still make more salary than Boeing was offering them.
When SPEEA presented the survey results at the bargaining table, Boeing’s response was REMARKABLE. Boeing sent SPEEA a letter threatening to sue SPEEA if the union talked to the contractors again (essentially making a tortious interference with business allegation).
Boeing had a story (contractors like being contractors) and they didn’t want any information being cmpiled that would contradict their story. SPEEA invited them to conduct their own survey if they didn’t trust SPEEA’s and Boeing declined.
As to the contracted out work elsewhere….that’s different. The Moscow Design Center is essentially a way for Boeing to bribe important people in Russia. Boeing keeps about 1000 engineers employed in Russia and that gives them access to important people. It doesn’t matter that the work product from the Moscow Design Center is often crap (they designed smoke detectors for the 787 that didn’t have power to them). SPEEA understands that Boeing has to play by the rules in place in other countries and that offsets (be they real or Potemkin) are part of international commerce.
Given the complexity of the issues provided by the last few posts especially the demographic issues described by SPEEAinsider, it is clear that this is not just a simple pension and salary wrestle. SPEEA is feeling threatened by member retirement prospects as well as intergenerational conflicts over pension inequalities. This seems to be the crux of the problem. It touches all the areas of discussion and hardens SPEEA’s resolve. Boeing also faces deep seeded concerns regarding costs and competition and made such bad management choices over outsourcing the 787 that they are impacted in resources and funding. SPEEA feels that they should be rewarded for saving the problem and does not feel thay have been adequately compensated.
I hope mutual understanding and respect can overcome these conflicts
I’m curious as to whether Airbus has started recruiting for engineers in Mobile yet — and if they have, how their compensation compares to either Boeing’s current or proposed compensation levels. Will Airbus offer a real choice for disgruntled Boeing engineers, or will they take advantage of the state they selected and try to hire at low compensation levels?
Airbus already has an Engineering center in Mobile, has for several years now. You can look on the web and find compensation averages, but specifics will be extraordinarily hard to find, if at all.
As was mentioned in the Bloomberg article Seattle, Washington D.C. and Southern Calif. are the highest engineering labor cost areas in the US. Why would they offer to bring Mobile into that high cost category? Look what high cost labor has done for So. Cal aerospace industry. There are less that half the aerospace engineers there today than just 15 years ago. Airbus and Boeing will pay the prevailing/competitive wage for engineers that exists in the location of the facility. The factors that enter into wage levels are the cost of living and availability of talent. The cost of living in Mobile is no where near the cost in Seattle. Housing is cheaper, taxes are much lower and the weather more moderate. Did anyone really expect Airbus to open an FAL in the high cost labor market of Seattle?
Scott, I wonder if you or your outside sources would expand on the difficulties of having Boeing Company engineering “center/departments” located in different cities i.e. Witicha which would nontheless be tied into and communicating with the “main engineering” office in Seattle. In essence, all the “centers/departments” are in touch and with communications improving so rapidly, become one geographically separate but unified organization.
Obviously, certain work may have to be located where the wind tunnels, etc are but other more future planning work can be initiated at one location and then brought into the Seattle office. Work on the Max family and the 787 family stays in Seattle while the work on the future 777x and the Tanker can be done at other locations.
Decentralizing the engineering work within the Company seems to be one way to lower costs and enable competition and perhaps reduce foreign engineering contracting. In addition, it enables Boeing to oversee and manage all the work. Teleconferencing makes distances irrelevant.
This is not good news for SPEEA especially when some work would be done in right to work locations. But, the realities of the market and foreign competition requires adjustments. However, this alternative does not have to be done immediately. Gradual changes will be required and that may accomodate to the needs of the Union…that is, say they are guaranteed the Max and 787 work in Seattle.
The issue of how the Pensions are adjusted is another subject and is not unrelated to decentralization, but I think this concept opens up possibilities for compromize and accomodation.
This may all be too simple an approach but it contains elements that are worth understanding better.
I hope other people can contribute some more developed thoughts than I am capable of.
I saw a rumour that the Moscow Boeing engineering is a part of the overweight design, different cultures in engineering. I know Russians are masters at over engineering things, maybe it worked when energy effciency was no problem?
I’m a bit surprised that SPEEA has not challenged Boeing on the BA mantra regarding true pension costs. It is not the same as the public or government pension stuff in the news.
In very simple terms that can be verified by a close examination of annual reports, and a grasp of pension accounting under ERISA, the following applies.
1) Funding of the pension is by withholding 6 to 8 percent of employees salary AKA deferred compensation
2) Funding limits eg 100 percent is figured ( simple version ) on the basis of ( on paper ) close the company on dec 31 of any year, and discharge ALL workers, and buy annuities to pay all existing pensioners, and all those others who are VESTED.
3) Funding by the company is tax deductible
4) Surplus funding is limited to about 150 percent- then no more tax deductions
5) IF there is a suplus as counted under the rules, it can be folded in to OPERATING EARNINGS FOR THE YEAR. ( AKA known as VAPOR PROFITS )
6) Some very elaborate smoothing functions allow funding to predicated on an estimate of investment returns such as 6 to 10 percent or higher, and over a period of years – typically 3 to 5 years to catch up for less than predicted.
How does this apply to Boeing ?
For many years, ,Boeing has taken the “surplus ” dollars in the Pension Plan(s) and put them into EARNINGS- which of course helps the executive bonus game.
Boeing BOD is VERY sensitive regarding this issue- when I used the word ” pump up earnings ” in my shareholder proposal on the issue several years ago, they complained to the SEC and I had to remove such a pejorative term !!
Now if SPEEA were to round up all the numbers from the Annual reports for say the last decade, and relate them to the executive bonus game versus ‘ employee costs’ it would be a very powerful media issue.
But few SPEEA really understand, and the Staff is virtually clueless, and have their own personal axes to grind – ben there- done that- got the t shirt and rotten tomatoes ..