Assessing the 777X events for Washington State, IAM, Boeing

Update, Nov. 6, 10:00am PST: A summary by IAM 751 of the contract details is here.

Original Post:

Here’s our take on the news that the IAM and Boeing reached a tentative agreement leading to the selection of Washington State as the assembly site for the 777X, contingent on contract ratification and the Legislature approving an incentive package:

  1. IAM 751 is both a winner and a loser. Members lose the defined pension plan benefits and pays more for health care benefits. But they keep jobs assembling the 777X, and the siting of the composite wing production here reinforces the expertise of composite development in the Seattle area. These wins outweigh the loss of the benefits.
  2. Washington State is a winner. This is self evident. The fact that a transportation package is a must–one has been stalled for a long time–not only benefits Boeing but it benefits the state as a whole. Let’s hope the “no new taxes under any circumstances” Republican Party finally wakes up and votes for this thing. These extremists could kill the entire deal.
  3. Boeing is a winner. It gets labor peace from the IAM through 2024. It gets an experienced, high quality workforce instead of gambling Boeing Charleston–which remains problematic–would be up to the task in five years, when assembly begins. It gets cost reductions on the pension plans and health care benefits.
  4. Customers are winners. See number 3 re: Everett vs Charleston.
  5. SPEEA is probably a winner. With the wing and airframe coming to Puget Sound, SPEEA engineers here will certainly get its share of the work, despite the recent announcement that Boeing was putting engineering everywhere but here.
  6. Boeing Charleston and South Carolina, the presumptive alternative site, are losers. No explanation required.

A big question mark:

As we previously wrote, extending the 787 tax breaks to the 777X through 2040 (with a value of $8bn, more or less) is problematic. These were ruled illegal by the World Trade Organization in the US (Boeing) vs Europe (Airbus) trade dispute claims and counter-claims. The finding is under appeal, but what happens if the finding is upheld? Then what?

Lots to do:

The IAM membership has to approve the tentative contract; a vote is planned next week. Members will have to get past the benefit reductions, offset to some degree by a generous signing bonus and additional benefits for early retirees.

The Legislature has a lot of moving parts to look at in the next week. The challenges are daunting.

Recommendation:

IAM: Although perhaps painful and anathema, ratify the contract.

Legislature: Approve the package, including the new transportation taxes.

17 Comments on “Assessing the 777X events for Washington State, IAM, Boeing

  1. I don’t think that we share the same definition of winner.
    The employee are loosing big time in this deal and so is the state of Washington.

    Time will say…

  2. If I recall rightly last time Europe imposed punitive duties on US because of Boeing, Lockheed and MacDonald-Douglas subsidies they were imposed on agriculture. If they impose duties on aircraft the biggest losers would be Lufthansa, AF/KLM, British Airways etc. No reason why subsidising Washington State would suffer if action is taken against Boeing subsidies. Not sure that NC or Washington DC would agree though. Islay’s actions are only good local politics, but not so good for the national interest.

    One thing that gets overlooked when you subsidise an aircraft, you loose your ability to stop the Chinese and everybody else doing the same, and they are willing to spend limitless amounts of money to take the business of the US and the EU. It is in the US and EU’s best interest to stamp out subsidies and join up to bring a case to the WTO against COMAC and SUKHOI. Trouble is western politicians are scared of the Chinese because companies like A+B think that they will be a big market forever. That is NOT the Chinese way, China only looks after China and the moment they have a domestic OEM it will be doors closed. Remember, all the financing and all control of the aviation industry in China is in government hands.

    • I am not thrilled by the un-embarrassed shakedown culture prevalent in U.S. corporate culture, but feel it is a real misreading of this deal to call it U.S. subsidy of Boeing (at least in the sense that it supports competitiveness with foreign companies) .

      If Volkswagen, Airbus, or the Peoples Liberation Army, for that matter, wanted to site a similar level of economic activity in the U.S., there would be a queue of U.S. states lining up to similarly give away the farm to attract them. This did happen for Airbus in Alabama – although I will leave it to more knowledgeable folks to quantify the comparative value of both the work siting and the giveaways between those two arrangements.

      In my view this is not (national) protectionism, but rather a serious flaw in our system of governance that compels state and local governments to shift most or all public financial responsibility away from economic actors of sufficient size and importance.

  3. ps, if Chinese government didn’t control everything “by order,” would anybody have ordered the C919??

  4. Boeing is flying the wings off the 747 LCF’s as is. It was going to be a logistical nightmare to try to add 777’s to Charleston. They played this well.

  5. IMO- it makes no sense that BA would start a new 777x line elsewhere, given the cost and training. The wing spars are so long that shipping them other than locally ( everett area) is impractical. Body parts are already shipped, so those could be up for grabs.

    Boeing is trying to stampede everyone- and doing a good job.
    As the 747 series winds down- the workers could transition to 777x in the everett area.

    Just my .000001 cents

  6. good deal for everyone ,including the workers ;Boeing handled this well ,I think, keeping the 777X in Washington, the logical choice and getting peace hopefully from the Union in the process.
    The Unions have to accept this good deal , i think this will be ratified. Hope 777X will turn out to be as good as 300 ER- volume and market share wise for the sake of the workers and Boeing shareholders.

  7. At least this may stop the perpetual whining by Boeing and its senators on the issue of ‘unfair state subsidies’ for Airbus.. As for winners and losers – the only winner here appears to be the senior management of Boeing who, somehow appear to have not lost any of their defined benefits in the deal.

  8. Who pays Airbus workers health insurance? Washington state pays a good portion of health and dental for WalMart and agricultural workers. If they want to keep Boeing, the state should start paying all medical and dental for Boeing employees. The state should subsidize worker benefits equally across all valued business and industry.

    • I agree that retirement and medical costs are a real competitive problem for U.S. companies, but it is hard to find too much sympathy for Boeing on this concern, when McNerney is regularly appearing at the U.S. Chamber of Commerce — an organization that has vociferously devoted itself to preventing any solution to these problems from being realized.

      • “… that retirement and medical costs are a real competitive problem for U.S. companies, ..”

        riddle me that!

      • Uwe, is that a question, a criticism, or something in between?

        I’ll happily consider myself disabused if I am wrong, but my impression is that in the post war era the U.S. has charted a distinct path from its European peers in stubbornly relying on employers to provide health coverage — even in retirement. I’ve always supposed that U.S. employers liked the dependency and immobility that this arrangement created for tenured employees. I’m sure there may be other reasons the policies developed the way they did.

        Whatever the reasoning, with the uncontrolled rise in U.S. medical expenses and the aging of the baby boom generation, the retirement medical responsibilities have been a time bomb for large U.S. employers — especially industrial employers where automation and outsourcing have driven headcounts down dramatically, but where legions of retirees rely on pension funds for medical care long after retirement.

        Obviously, many of the demographic factors that make this problematic for U.S. companies will also apply in other countries, but the private medical and pension systems in this country greatly magnify the cost burden of these factors on older U.S. industrial companies, like Boeing.

      • Matt, your answer fits my question perfectly 😉
        On the Euro side pensions aka “Rente”, healthcare, unemployment insurance, workplace rules ( hiring, _firing_ ), workforce representation in company decissions and some other items present direct cost and are not open to per company negotiation.
        So my guess is that Boeing is ( to their detriment ) more flexible in workforce “breathing”, has less cost than forex Airbus and is able to fudge that lesser cost to their liking. Together with designed for fraud bookkeeping rules ..
        Still they are not able to trounce Airbus which imho delineates the systemic shortcomings of the system philosophy.

  9. I think that Boeing has put off long enough what other companies have been going through for YEARS, and that they are JUST now having to make major changes to pay and benefits… So for all you Boeing workers…. Stop complaing and be THANKFUL that you still have work and benefits! Last time I looked, you didnt get pay raises and benefits while on unemployment….Just sayin….

  10. @ Matt B

    You got it partly right, the Eurpean employers have to contribute a prescribed amount to the contributions of their employees. The reason why universal healthcare works so well in the advanced countries in Europe is the fact that everybody employed young and old has to contribute to their health insurance. The difference in the US is that each individual has the “inalienable right” to say yes, or no, never mind how much this freedom ultimately costs in expensive health care and quality.

  11. MATT B said ..”but the private medical and pension systems in this country greatly magnify the cost burden of these factors on older U.S. industrial companies, like Boeing.”

    Actually, due to the arcane rules of accounting and tax issues, the company(ies) can and have from time to time overrfunded ( under ERISA rules ) pension plans, and with no actual $$ changing hands- but with a bookkeeping entry used the ” surplus” funding ( tax exempt btw ) to be put into OPERATING earnings. Thus bonus for executives, share price increases, etc. ALL legal and mentioned in annual reports.

    And the subsidy/discounts re healthcare funding by companies also follows similar games.

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