Leeham News and Analysis
There's more to real news than a news release.
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
Latest on Boeing v IAM v WA State in 777X drama
Here are some developments since Friday in the drama over Boeing vs the IAM 751 and Boeing vs the Legislators in Washington State in the effort to site the 777X at Everett, Boeing’s main wide-body production plant and the current location of what we’re now calling the 777 Classic:
- After a kumbaya moment when Gov. Jay Inslee announced his plan last Tuesday for a series of incentives the State could offer Boeing, including an $8.7bn extension of the (illegal) 787 tax breaks to encompass the 777X and a $10bn transportation tax over 10 years opposed by Republicans, the political on-line magazine of Washington politics, Crosscut, has this not-so-kumbaya wrap-up.
- Dominic Gates, the aerospace reporter for The Seattle Times, did a rare radio interview–this for Seattle public radio station KUOW–in which you can almost hear the plaintive, “Can’t everybody just get along?” call.
- Other states are salivating over the prospect that the Washington Legislature or IAM 751 will blow their opportunity to land the 777X. South Carolina has already said it can’t wait to step up. Texas, where Boeing has a facility in San Antonio, is presumed to be another option. California media is engaged in hyper-speculation over the prospect of Boeing’s Long Beach plant as a potential site, though even they admit this is a long shot. We know of another state that is ready to step up, but were told off the record so we can’t report the name.
- Adding to the hyperbole, Gov. Inslee told legislators that 49 other states are ready to make a bid. We doubt that placed like Alaska, Hawaii or Vermont (just to name a few) really are prepared to do so.
- Ray Conner, president of Boeing Commercial Airplanes, issued a letter Friday to all employees (but obviously intended for the IAM), urging contract approval.
Deadlines:
- This Wednesday, Nov. 13, for the IAM vote.
- This week for the Legislature, though a vote on some of the elements could come as early as today.
- The Dubai Air Show begins Nov. 17, where Boeing is expected to officially launch the 777X program and would like to have the site location controversy put to bed.
Looking forward for this week as it will be amusing to see Boeing in Dubai claiming to everyone that everything will be smooth for the 777X;, just like they did at the 787 roll-out. in 2007!
Long has gone the time when the responsible company was taking care of its unique asset, the skilled and reliable workforce…
These IAM guys need to realize they aren’t special. This is a large country with lots of people willing to do their job for less than what was offered in this contract. In addition only like 6.6% of private employers are unionized. That means the large majority of places and people in this country are non-unionized.And by the way most of the Seattle Boeing engineers are from everywhere in the country and they moved to Seattle. If the jobs move out of Seattle then they will move too.
The performance of the distributed outsourced providers on the 787 project, the desperate pull-back of 787 work to Puget Sound & Wichita, and the delivery performance of the Charleston 787 facility would say otherwise.
Would I really like to see is an in-depth analysis of the situation in Charleston. Rumors I hear from contractor/body shop recruiters are that things there are far worse than public reports and not getting better over the last 12 months. But that’s not exactly a disinterested source either.
Of course its secret- “If they told you- they would then have to kill you ”
Its hard to find out how many deliveries have been made from or by SC built airplanes.
Boeing is downplaying just how long it takes to get a new workforce up to speed, even in a highly automated factory. Thus the ‘ surge ‘ line in everett.
Also people tend to forget what happened in 1995-97 time frame when the golden handshake was offered in 95. About 9500 senior employees bailed. About two years later, they had backdoor rehiring of many- and still had to shut down production due to many many foul ups.
I commented on that in 1997
http://community.seattletimes.nwsource.com/archive/?date=19970914&slug=2560268
Letters To The Editor
Boeing And Temps — Company Should Clarify Why It Shuns Experienced Retirees
Tom Shick’s letter Sept. 9 (“Company clarifies position on use of outside employees”) accuses The Times and IAM of not accurately portraying Boeing’s situation about using outside temporary workers. He then goes on to state. “We are considering the use of skilled workers . . .”
In the interest of accuracy, it is appropriate for Boeing to clarify why they still refuse to make use of several thousand experienced and skilled 1995 Boeing Special Retirees as temporary contract workers. They have declared them ineligible for such work in all Boeing facilities in 27 states.
Boeing still refuses to provide a rational business case for their decision, and persists in ducking the issue. Boeing claims it was made clear when the program was announced that the company would not rehire people after paying them a generous incentive to retire, because it would not make good business practice. Boeing also claims the ineligibility was part of the contract we signed.
Both claims are false and misleading.
And Boeing accuses The Times and the IAM of inaccurate statements?
Don Shuper 1995 Boeing Special Retiree
Redmond
Out of the 100 787-8’s delivered so far, 13 were delivered from SC, with the first 13 months ago on 10/05/2012.
So SC is producing an average of one per month so far …
Deliveries from Charlston are accelerating:
http://home.foni.net/~kuttersegeln/aerostuff/deldateslog.png
( note logscale, exponential learning curve should plot as a straight line.)
Certainly the Charleston facility had the misfortune to be assigned the AI deliveries, so we don’t know what their real delivery rate is (then again, neither do they).
And my sources if rumor are as/more suspect than anyone else’s. However both those rumors and simple input/output analysis indicate all is not rosy in South Carolina.
What’s wrong with being unionised and refuse to take part in the race to the bottom? Sure you can eventually replace the IAM guys, but not in the time span available to meet the delivery time of the 777X. I am sure another 787 delay is most welcome by AB.
With the less than stellar performance/reliability issues on the 7 late 7, and the several years it takes to get a ‘ new workforce’ up to speed ( SC ) it seems likely IMO that Boeing is running a bait and switch game via neat weasel wording of forget what we told you- we are TELLING you.
I’m sure it impresses the customers- a major derivitive airplane being assembeled by a new workforce in a new plant in east nowhere. Did you want fries with that ??
I’ll post a little later what I believe is a reasonable compromise for the pension game, based on more time and effort on that issue than almost any outsider- which was a great learning experience. From my perch- it would in then long run accomplish what the company wants to do “now” ( transition to defined contribution ) while at the same time saving money/contributions by Boeing which can then be put into operating earnings much like they have done in the past. It has to do with bizzare- legal – accounting games, federal rules ( ERISA ) and legal pencil whipping of the books.
For those who are interested in my background and on the pension games by the company here are links to 4 shareholder proposals made in 2001 thru 2004
http://www.boeing.com/assets/pdf/companyoffices/financial/finreports/annual/01proxy/2001proxy.pdf see page 46
The other proposals have close to the same wording- slightly different supporting statements and similar company response.
Keep in mind- that until 2006, the company and the SEC could require a change of ONE word if they believed it was pejoritive- such as the word ” pumped up earnings”
or demeaned the company. In later years,the rules were changed which made it necessary for the company to PROVE any so called miss-statement ( AKA first amendment rights of shareholders ) instead of ” he inferred we were dummies – and we want his proposal tossed as it demeans us ”
http://www.boeing.com/assets/pdf/companyoffices/financial/finreports/annual/02proxy/2002proxy.pdf page 44
NOTE MY STATEMENT THAT STARTS
Boeing does not use excess plan investment gains to increase the benefits…
but uses them to reduce or eliminate company contributions. Last year the amount used was 428 milion, about 20 percent of net earnings…
I had a major battle over that statement ..
http://www.boeing.com/assets/pdf/companyoffices/financial/finreports/annual/03proxy/2003proxy.pdf page 49
http://www.boeing.com/assets/pdf/companyoffices/financial/finreports/annual/04proxy/2004proxy.pdf page 47
Don- I understand you want this to fail because it helps to put your position in a much brighter light. Bad news, 13 frames have been produced and more are coming. By the time the 777X the line will be further along and the jobs will be further gone if the union fails to get their rank in file in line. This world is changing and Don you might be one who should consider moving South as well.
Following is an attempt at a thumbnail of the pension games Boeing is playing and a possible compromise
The information sources are available on the Boeing site to anyone- so on one level they are not ‘ hidden’ – but few employees or news-types ever bother and Boeing only explains what is absolutely necessary in Annual reports.
Sort of if you don’t ask, we wont tell PR game.
1) The BA PR mantra re high costs of pension is of course technically correct but misleading due to lack of context.
2) By stuffing in tax free money under ERISA rules, excess funds or ‘ surplus ‘ as defined under the rules can be and has been put into operating earnings ( usually described in annual reports )
3) For example, in one of my proposals, well vetted by the company AND the SEC, i was eventually able to state the following:
The Company’s pension plan documents state that “[g]ains arising from experience under the Plan will not serve to increase the benefits otherwise due any participant but will be used to reduce future Company contributions.”
Boeing, like many corporations, legally improves earnings with non-spendable pension gains based on anticipated pension fund returns. ”
Source 2003 proxy at
http://www.boeing.com/assets/pdf/companyoffices/financial/finreports/annual/03proxy/2003proxy.pdf page 49
Currently ( 2012 data ) Boeing has about 2.5 BILLION extra in the heritage plan ( BCERP ) under discussion, and about 4 BILLION in the hybrid Pension value Plan most of which could be slipped into operating earnings at company discretion. Factual data links at end
4) IMO – IF BA were to simply allow all employees not now in the PVP plan a choice at discharge or retirement of which plan provides the best $$, then over time, the BCERP plan would slowly drop off, and the PVP hybrid plan would prevail, and eventually (maybe a decade or more) the 401K portions would be the most favorable. The PVP plan is mostly a notational ( book entry issue ) as far as $$ allocation. The PVP plan favors the newbies ( between say 5 and 20 years) and and is a disadvantage to the older employees in many cases due to 100 percent pension at 65 instead of 60.
5) In addition, I believe that as the BCERP plan slowly dissolved as the better choice, Boeing, during that time could continue to pump tax free dollars into earnings since it is a bookkeeping issue
6) All of the above comments as to what might be negotiated are of course my opinion, and would need to be be vetted by expert actuaries on both sides, along with minor tweaks to existing plans.
Factual data and sources
Boeing PVP – Pension value Plan
http://www.boeing.com/assets/pdf/companyoffices/empinfo/benefits/pension/spd/spd_94.pdf
Sort of a hybrid which over time evolves to a 401k- defined contribution plan
Summary of Plan Finances
http://active.boeing.com/companyoffices/empinfo/benefits/news/pension_fund_2012.pdf
shows the following
Total participants 201,343
Active 83,577
retired or separated and receiving benefits 69,138
retied or separated and entitled to future benefits 48,628
Carryover ( excess assets over liabilities ) 4 BILLION ROUNDED
FUNDING PERCENTAGE 115 %
This excess can be pencil whipped into operating earnings at company discretion.
Boeing BCERP plan under discussion to be frozen
Total participants 151,086
Active 56,091
retired or separated from service and receiving benefits, 67,049
retired or
separated from service and entitled to future benefits. 27, 945
Carryover balance 2.5 BILLION ROUNDED
FUNDING PERCENTAGE 115 %
This excess can be pencil whipped into operating earnings at company discretion.
I am not sure, but who has actually the upper hand in the negotiations and where does Emirates fit in?
Roughly 1 week to go to the planned launch of the 777X with what is predicted to be the biggest single aircraft order ever. And if I was Tim Clark, I would be hesitant to sign on the dotted line if it is going to be a greenfield site. Emirates needs probably 20 aircraft deliveries or more per year from day one. As Charleston, Tianjin and other sites have shown, a ramp up of a new site is very tough. If I was Tim Clark, I would make a few phone calls to ensure “that everyone just gets along for a change or else…”
I think the AIM is in a much stronger position than everyone thinks. If they let this one go they will not get the chance for a big leverage anytime soon.
Ndb, If there is a huge 777X deal with Emirates it probably has already been signed. Ceremonial aspects aside, the Dubai Air Show is just where it will be publically announced.
6 years and lessons learned from the 787 transition. Can and will be done.
Would not one of those lessons be, “don’t give major work packages to companies/locations that have no experience.”
Sure, Charleston will have much more experience by then, but will it be relevant? e.g. Assembling wings instead of final assembly
“don’t give major work packages to companies/locations that have no experience.”
The lesson was that external companies are not telepathic.
“Do what I think I mean” or even “Do what I should want, ignore what I say”
does not work.
Boeing was unable to provide liaison on a technical level in any way.
(Those that could have done that job had been fired all along. )
IMHO another item exposed was that the manufacturing process in house was
incomplete. Problems seem to have been fixed “automagically” in manufacturing but this was never fed back into the design documents.
Vote NO, don’t “vote to cut your own throat”.
http://www.751voteno.com/
Honestly, the letter to the members on that page almost makes a more convincing argument to vote “Yes”.
Sheesh, what a mess we’ve gotten ourselves into.
Price is too high, yeah it is. The company making a bad decision, yeah they might. Somebody will have to do something and it appears the union is using the same language most unions say; bad offer, bad deal and bad for the history.
I can see from Boeing’s perspective that they would want to switch over to a fixed stipend for health care and pensions in a few years. I think the MAX contract was for 2% a year raises plus cola. The proposal for 1% for ten years seems low.
So the “anonymous” state that you all heard could also be ready wouldn’t happen to be Arizona would it? I have heard that it is “somewhere in the desert” which could mean Nevada, Arizona, New Mexico, or Utah. Nevada would be an interesting choice. So would Arizona. Both have ex-military infrastructure that Boeing could just as easily set up and renovate. Both have economies that they’d like to see diversified. NM and Utah have been gunning for spaceports and stuff like that, would only be natural to chase after Boeing too. Nearly all of them can afford extra-low tax rates too, and would be closer to suppliers’ Mexican operations (which only will expand given Boeing’s push to lower their suppliers’ costs).
At any rate, Inslee’s comment is on the money. He knows that Boeing knows that millions in this country would LOVE to have the job the union folks seem to take for granted.
I actually think that San Antonio has a good shot. There is a lot of flat land with former Air Force bases or underutilized runways as well as a skilled workforce. I would diversify to a 3rd spot. Charleston right now is sucking in all of the available skilled trades for the 787, don’t push it. I think Boeing would like for the vote here to fail.
” He knows that Boeing knows that millions in this country would LOVE to have the job the union folks seem to take for granted.”
I think that’s Boeing thinking..
When an alternative location is pursued people infra structure is most important. I gues in the US that’s along the coasts..
In the US. something like 80% of the population is within 150 miles of the coasts. But that is a pretty useless statistic really, for planning purposes. The deserts of az nm ut and NV are ideal for aviation mfg in reality. Dry, stable climates without many storms and transportation is easier and cheaper than ever. It’s comparatively easy to lure cheap labor there now and create a modern day company town in a right to work state.
After all is done and the dust clears would you tell your kids to go to work for Boein?