Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- 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
- Bjorn’s Corner: New engine development. Part 3. Propulsive efficiency April 12, 2024
Odds and Ends: Right to Work; Middle East influence; latest on Boeing-IAM
Right to Work or Right to Worse: One of the more controversial issues in the relationship between Boeing and the IAM is Boeing’s continuous threat of removing work from union-heavy Washington and putting it in Right to Work states. South Carolina, of course, is at the top of this list.
KIRO Radio (CBS-Seattle) has a story about a Seattle transplant to Boeing’s Charleston plant who finds some interesting differences between the two locations.
As the IAM prepares to vote Wednesday whether to accept a contract extension that includes significant give-backs in exchange for landing the 777X Final Assembly Line and wing production, Boeing holds the prospect of locating the work in Right to Work states. These have been assumed to be or identified (though not by Boeing) as South Carolina, Texas and Utah. Boeing has facilities in each of these states.
As Readers know, we have suggested Washington needs to become a Right To Work state, which labor characterizes Right To Worse. It’s not that we favor RTW per se (though we do but not dogmatically), it’s more driven by the fact that Washington’s competition is RTW–and Boeing is very effectively using this as leverage over the Washington unionized labor force, and to extension, over the Washington Legislature when it compares our state’s cost of doing business with other states.
Meantime, Boeing has launched its website with its view of the contract proposal.
This is the letter Ray Conner, CEO of Boeing Commercial Airplanes, issued last week.
Middle East Influence: Aviation Week has a good piece about the evolution of the influence of the Middle Eastern airlines on aircraft design. Flight Global has this analysis of the Airbus A350-1000 vs the Boeing 777X in advance of the Dubai Air Show (free registration required).
Boeing IAM-Update: The Seattle Times has the latest from IAM 751 and from Boeing pending the vote tomorrow. Ray Conner, CEO of Bo9eing Commercial Airplanes, said Boeing is “under siege” from foreign competitors, including the Japanese, Chinese and Russians.
Maybe so, but Boeing has been helping these countries and their aerospace industries by outsourcing to them.
We also find it difficult to have sympathy for Boeing at a time when it is posting record profits and undertaking billions of dollars in stock buybacks instead of plowing the cash flow back into research and development instead of designing derivative airplanes.
The stock buyback typical of this management and BOD. R&D is the “lifeblood” of tech companies and when they decide its better to look for short-term stock/options price gains rather than the outlook of the company it usually spells trouble.
Hopefully the new incoming Chairman/CEO for Boeing will look out more for Boeing as a company rather than “instand gratification”
Cash comes first and, after the mess of the 787 program, R&D may need to be trimmed in the near term. But that said, I think both you and Scott are being unfair on Boeing wrt its R&D. Stats suggest Boeing Military has significantly increased its R&D wrt to its competitors over the past half decade or so, and since 2006 BCA has averaged 8% or just above on R&D, which is consistent with what Airbus does. It is low at the moment but way very high during the peak of 787 work. The problem for BCA was the woeful lack lack of R&D from the mid 90s through to 2006.
It isn’t clear from anything I’ve read (not that I’ve been paying attention) what, if any, effect the share buybacks will have on BCA R&D. Could simply be rebalancing debt/equity ratios to optimise cost of capital, could be a reduction in R&D, could be all sorts of things. As for what new aircraft BCA could build right now, if they feel that a technological ‘leap’ will be available only eg. late next decade, it would be folly to pump extra into an all new design now only for Airbus to be able to benefit from that leap half a decade later. Know when to spend and know when not to.
“We also find it difficult to have sympathy for Boeing at a time when it is posting record profits and undertaking billions of dollars in stock buybacks instead of plowing the cash flow back into research and development instead of designing derivative airplanes.”
The airplane selling and making business has had ebbs and flows throughout its history. There have been years on end where Boeing lost money. Did you have sympathy for Boeing in those years?
As far as I can see Boeing is raking in big profits, has a record backlog and has secured position in duopoly market that is very very hard to enter. I can’t imagine how anyone can turn this money printing press into loss making company short of massive mismanagement from the top (which, sad to say, isn’t entirely impossible).
In this situation to argue that they have to make such cuts because of competition is laughable. They simply want to extract more money from employees because they think they can, it has nothing to do with current or future Boeing’s financial position. And if it comes to that Boeing begins to have problems, you can be sure they will be back in second and demand yet more cuts regardless of what terms they agree to now.
Except for the 1997 debacle with production and special write downs, tell us when Boeing lost money on operations since WW II?
OK, I read the article about the Seattle man in Charleston and it boils down to two things:
– Local people are happy because so far the new plant is bringing new money.
– There is no sense of entitlement among employees. I have no idea what this means, perhaps that employees are obedient and don’t question higher ups?
If this is the best he can come up with…
They also like to take jobs from people who fight with management!!! I bet he also learned that the dollar goes much farther in the south than it does in other regions of the US. Interesting Japan was the first nation to realize the potential of the South, now the US is seeing the value of their own nation. If the folks in Washington don’t stop writing about the South soon and get to work the stores will all be coming from the South on how the aerospace assembly has moved completely away.
Steve- on the heals of the upcoming airshow, can you share how well the A350-900 flight test program is going? I’ve not been able to find any comments on how well the program is going, and whether performance targets are being met or exceeded. Assume it is going well because there is little news, but the world continues to have major interest in the 777X.
http://www.reuters.com/article/2013/10/21/us-airbus-a-idUSBRE99K0SJ20131021
Thanks but that’s not what I’m looking to understand. This is a marketing pitch and there has to be more. A flight test can be going very well but the performance of the aircraft might be better or worse than predicted. This tells me aircraft performance is below expectation because nothing is mentioned of performance. Boeing had a world of folks provding updates and there has been nothing from anyone on the A350? Somethings not right.
Yes, all is going wrong, that’s the only conclusion you can make.
Just out of interest, who at Boeing was providing commentary on the aircraft performance 5 months into the FT programme?
UK how could you ever forget? We had read information about PIPs for both engines by this time. We had heard that weight was impacting range, and Berstein was reporting quite a bit of the performance issues. Interesting no outside firm has shared a single thing on the A program. Maybe none of the firms can read French? The Boeing reports were coming very early in the process. Remembering the number of delays on 787 there was good opportunity. A350 has just been quite and reading all of the other press on the A350, like the stretching and the seat arguments, makes one wonder about performance. Figured hitting a nerve might get someone with knowledge to share. Steve anything?
“A flight test can be going very well but the performance of the aircraft might be better or worse than predicted. This tells me aircraft performance is below expectation because nothing is mentioned of performance.”
Like the lack of reports about reliabilty and electrical issues on the 787, right?
“UK how could you ever forget?”
I hadn’t. It is for that reason I asked you to provide an example of ‘a world of Boeing folks providing updates’ and you pointed to a Bernstein Research piece….
I understand your worry about the A350’s performance, you are clearly eager to be reassured that all is well and the airplane will deliver on its promises. I do hope that in the coming DAS, Airbus will be able to prove an update which should alleviate your worries.
“Steve anything?”
I am guessing here but perhaps you mean Scott?
Yes the world will race to the 777x if the wing and engines perform according to plan. In the mean time, I’m still optimistic that LH will switch a few 777x commitments over to 747-8i.
Why so they can keep the folks working at Everett? Nice try with that move.
No, just the 747-8i is a sweeter airplane.
Who is Steve?
You can try googling Jens Flottau. He seems to be as about as up to date as anybody. From what I have read, it seems that they should be getting their performance numbers together around now. Don’t know if they will release them publicly and if so, just how detailed it would be.
This has been the most openly publicised and followed flight test program I’ve ever seen, so I can hardly believe you’ve “not been able to find any comments”!!!
There are already 8 threads of 250+ comments on airliners.net – you’ll find daily updates of flights, photos, layman’s analysis on there…
http://www.airliners.net/aviation-forums/general_aviation/read.main/5908655/
As for it going well, well if you believe the snippets of info in those threads, plus the consensus about the pace of testing being ahead of schedule based on observed configurations and test equipment etc. then I would say it’s doing absolutely fine.
Boeing management has employed ownership that has in new models/derivatives at an all time high rate the past 5 years ($5.3 to 2 billion annually). That said ownership has employed management which perceives the unionized workforce in Washington, largely, as an adversary speaks volumes, indeed.
But again, it is tough to dispute the company’s position that (a) it is besieged by competitive products globally (in Europe and Asia specifically) and (b) the market has moved to 401K’s from pension funds. Is there sympathy sought by those two viewpoints?
This is an industry where every major new model remains a “bet the company” venture, and Boeing continues to gamble with the owners invested funds. The 787 has been a massive (and yes painful) undertaking, and perhaps the delays to the 777x/737Max are unfortunate, but this past month has illustrated quite well how delicate the timing of these very public launches/campaigns/engineering operations/production planning can be.
On the other end of sympathy I see Boeing having been locked into uncompetitive pension and health benefits in WA thru 2012 (set to 2005 levels), after the massive 2008 strike. I’m not a big fan of the McDonnell family/McNerny making out at the expense of workers, but given the example of VEBA taking over a bankrupt GM/Chrysler by royal fiat (guess how the investors made out), I can’t blame Boeing ownership seeking to maximize value in a shorter term window, possibly at the expense of further concessions to the unions/investment alternatives.
In news unrelated to this story, it appears the US DOJ is going to allow the AA/US merger. There will be some divesting of slots at airports like BOS, LGA, DCA, ORD, DFW, LAX, and MIA, but it appears the merger is now only awaiting approval of the bankruptcy court.
http://www.foxbusiness.com/industries/2013/11/12/report-amr-us-air-to-settle-anti-trust-suit-over-merger/
IMO, nothing wrong with Boeing switching to a defined contribution plan. But what’s up with the drop from a 10% to a 4% contribution at 2020? That is probably a $6,000 per year cut in compensation. Granted it’s 6 years in the future, but not exactly a golden parachute. More like moths in the parachute that are going to eat holes in 60% of the fabric.
Interesting $$ analysis by BA on their site. For example the age 52 analysis found at http://www.boeing.com/iam-agreement/pdf/IAMFutureRetirement_Age52Example-FactSheet.pdf
I’m sure the numbers are correct for the assumptions shown.
Interesting in that they do not show or mention the Alternate benefit formula since it *might* give even better results compared to the basic formula- and BA is obligated to give the best of the two methods. It will take some checking to figure out if the $$ shown are based on the ‘ basic ‘ -( minimum ) or the alternate- and also the MONTH/year of retirement. What most do not realize is the levelling that takes place every year ( between Jan and possibly march ) depending on a combination of average salary over previous 60 months, the increase in ” covered compensation ” ( average SS caps over previous years ) which change on Jan 1 and are subtracted from calculations ). This levelling actually starts in November every year for credited service and continues for several months into the new year. Whjy is this important ? Because many IAM with say 25 to 35 years will and have retired under the Alternate formula, which means the much toluted x% increase ( 95/month/year ) usually affects a minority of IAM ( and SPEEA ) retirees.
As I’ve said – the devil is in the details.
OTOH- regarding the medical coverage – face it folks- that is as good or better deal than can be expected under the ACA ( Obamacare) restraints at this time. However, It is uncertain if a contract with those features will be allowed to continue next year unless certain waivers are provided. It is a VERY complex set of rules and waivers which is why companies such as Boeing were given a one year pass.
In my case, as a retiree, I am certain I and other retirees- new or very old will be totally screwed, with my $500/month premiums taken out of my pension check to either go up along with copays or simply be tossed out on the ‘market”
The company makes good arguments and on the surface it appears to be a good deal. But the cherrypicking of examples and what isn’t said leaves me apprehensive- which means zip since I have no voice or choice.
Sidenote; The Opera Tosca is playing in many local theaters on wendsday night ( encore in HD from the Met ). Ironic – one might consider Boeing playing the role of Scarpia and IAM as Tosca . :-PPP
Mr. Shuper seems to have a certain degree of expertise on the subject of penions. I wonder if he would care to comment on this:
http://www.751voteno.com/pdf/Mobile%20Phone/TB_2.mp4
View What Buffenbarger Says About Pensions
View video of IAM International President Tom Buffenbarger warning our union members at Boeing St. Louis when they were faced with eliminating the pension for new hires. If you have trouble viewing, change the extension to .flv.
OK- my answer will be in two parts re the Buffenbarger Video and MY OPINION – impressions on his Pension comments
Part 1
1) I agree with most of his comments on pension and what might happen with few if any reservations. However there is perhaps one gotcha against Boeing which could be significant to the immediate issue. see 2)
2) He is correct as to what the company could do re the BCERP pension if frozen. Which is to sell it to an outside insurance company. BUT BCERP also applies to several other unions for example SPEEA , etc
See http://www.boeing.com/assets/pdf/companyoffices/empinfo/benefits/pension/spd/spd_58.pdf page 3 for list of other unions and contracts which could also be affected.
Yes -BA could split out the other unions/contracts OR bully them into the same as ‘offered” to the IAM. It would NOT be trivial to do such.
3) What Buffenbarger may have overlooked has to do with the federal rules which apply when selling pensions to insurance companies or did not have time to explain.
In thumbnail form – ERISA requires Boeing ( and others) to do due dilligence in picking an buyer ( insurance company ). While they cannot sell it to ‘ flybynight’ airline and storm door insurance company ” , it is true that they get out of the direct liability game.
4) Comes a grey area – Under ERISA , if they underpay you according to the legal plan documents ( not the SPD listed above ) you have 3 to possibly 5 years to catch them, But under ERISA if they overpay you due to a clerical error, there is NO time limit as to when they can come back and collect ALL the overpayments plus interest.
Now just how that applies once the pension assets are sold/transferred to an insurance company is questionable and well above my pay grade. Including what recourse either way a retiree would have.
A sidenote: An excellent Book on pension games is: Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers
by Ellen E. Schultz – should be required reading for union officials and those who are concerned. She also has a website http://www.retirementheist.com/.
5) So I believe it is unlikely that such a sale to high rated Insurance company , and the XX company goes later belly-up- it IS a possibility. Can you spell AIG , etc
End part 1
You said it all, this is pathetic!
“We also find it difficult to have sympathy for Boeing at a time when it is posting record profits and undertaking billions of dollars in stock buybacks instead of plowing the cash flow back into research and development instead of designing derivative airplanes.”
Hmm, before the last person out of Seattle was asked to turn off the lights in 1971, you had the sixties can-do attitude of the Boeing workforce, and Airbus existed only in the minds of some obscure European visionaries. 😉
http://www.youtube.com/watch?v=p5F9_7XyaQQ
Part 2 – deja vue all over again re Buffenberger- St Louis- and MDC games
First a note about Pension Plan documents. Few pay attention to the standard disclaimer which says ( paraphrased ) . . .plan documents and plan adminstrators have the final word in case of confusion between SPD and plan documents.
What Boeing and others provide are/is the SPD Summary plan document/description.
How valid is it ? normally it is adequate- but a look at the history of Boeing and especially the MDC crew should give one pause.
Here is what Supreme court Justice scalia has to say about SPD in a recent case
SCALIA, J., concurring in judgment –
* * * I agree with the Court that an SPD is not part of an ERISA plan, and that, as a result, a plan participant or beneficiary may not recover for misrepresentations in an SPD under §502(a)(1)(B). Because this is the onlyquestion properly presented for our review, and the only question briefed and argued before us, I concur only in the judgment. ( CIGNA CORP. ET AL. v. AMARA ET AL may 16, 2011)
OK with that out of the way- lets take a quick look at past games by MDC and how they **might** apply here.
http://articles.latimes.com/2003/may/29/business/fi-rup29.10
Boeing Co. agreed to pay $36 million to more than 1,000 former McDonnell Douglas Corp. workers who said federal pension laws were violated when a plant in Tulsa, Okla., was closed.
The workers can pursue damages to cover back pay, said attorney Michael Mulder. The settlement covers pension and health-care benefits lost when McDonnell Douglas shut the plant in 1993. Boeing purchased McDonnell Douglas in 1997.
http://www.nytimes.com/1992/10/09/business/company-news-mcdonnell-douglas-altering-pension-and-health-plan.html
The McDonnell Douglas Corporation yesterday announced changes in its health-care and pension plans for nonunion retirees. The changes are meant to reduce the financial impact of new accounting rules going into effect Jan. 1 that will require companies to show estimated costs of providing future health care.
The company said it would replace its company-funded plan for nonunion retirees with one paid for by the retirees themselves. Retirees who enroll will receive a one-time pension supplement of $18,000 from the company, which can be used to pay the premiums. The new program, which goes into effect Jan. 1, involves about 20,000 retirees and 50,000 current employees when they retire. The company said coverage under the new plan would be the same.
http://articles.chicagotribune.com/1992-09-19/business/9203250422_1_mcdonnell-pension-st-louis-based-corporation
Pension boost: Troubled aerospace giant McDonnell Douglas…
Troubled aerospace giant McDonnell Douglas Corp. is sweetening some employees` pension benefits in an effort to soften the blow of more pending layoffs. Under the revised early-retirement plan for salaried employees throughout the St. Louis-based corporation, eligible workers who are laid off will be entitled to larger pensions when they reach age 55. McDonnell officials said the change could affect about 4,600 of 99,000 employees.
http://www.leagle.com/decision/19811584517FSupp1067_11443
CATTON v. McDONNELL DOUGLAS CORP.
NO. CV 78-3341-AAH (TX)
The union lost in this case by not paying close attention
FINDINGS OF FACT
1. The instant lawsuit arises out of an alleged breach of the terms of a collective bargaining agreement entered into between the McDonnell Douglas Corporation and the International Union, United Automobile, Aerospace and Agricultural Employment Workers of America and its Local 148 (hereinafter referred to together as the “Union”).
2. Included in the final offer by MDC was a proposal to increase the basic benefits under the Employee Retirement Income Plan — Hourly West, retroactive to January 1, 1978. MDC’s offer to the Union was ratified April 17, 1978; UAW Local 148 signed the agreement in mid-September 1978; and the retroactive benefit increases were paid on October 1, 1978. The regular January through September retirement benefits were paid on schedule.
3. A period of from four to seven months to implement the retroactive increases was consistent with past practices. Increases in retirement benefits had also been negotiated by MDC with the UAW and its Local 148 in 1971 and 1975. In 1971, agreement was reached with the Union in December 1971 and payment of the benefit increases, retroactive to January 1972, was implemented in June 1972. In 1975, agreement with the Union was reached in February 1975 of payment of the benefit increases, retroactive to January 1975, was implemented in June 1975. No interest was paid on such retroactive payments and none was sought.
End of part 2
I’ve presented my view and opinion and a few facts that I think are significant.
Do I think Boeing corner office has ‘ changed its spots ‘ ? NO
Its still a tough choice for IAM workers
Thanks for your detailed response Mr. Shuper, some of which goes right over my head. Do you have a handle on the relative value of what Boeing is offering vs the current plans? Is it such a big loss in practice? O would think it’s a very individualized problem, the current age of the prospective retiree counting for a lot in the equation….
I’ll leave the question of why Mr Buffenbarger has changed his rhetoric regards the current dram on the table. I’m sure those opinions are already formed.
Regarding my opinion/analysis of the pension issue as proposed by Boeing
for reference I’ll use the age 52 pdf numbers put out by Boeing
http://www.boeing.com/iam-agreement/
http://www.boeing.com/iam-agreement/pdf/IAMFutureRetirement_Age52Example-FactSheet.pdf
It seems obvious to me BA has cherry picked a few numbers which are misleading as follows:
For some reason, they have essentially pencil whipped the basic benefit in their example by using a inflation rate of 3%, a pre retirement return of 7% . This appears to make the ‘new’ benefits worth much more while whacking the basic benefit from the existing plan
A) In 2016 the basic benefit goes to $95/month/year of service
B) At age 55 the service is 29.83 on Oct 31/2016
So the basic benefit would be 29.83*95*12 =$ 34006.20 per year.
but then they show it to be $25,028 7 years later at some unspecified inflation rate ??
My estimate of the inflation rate used is about 4.2%
C) Then they say the post retirement inflation rate is 3 % and an investment return of 5.5 % ??
D) Almost any responsible investment advisor or look at past history will tell you that doing much better than 3 to 4 percent long term is rare for the average investor- yet Boeing claims pre retirement return of 7%
And btw- few retire with 37 years of service – more like 30 to 32 if lucky. And at age 62, the SS available will be several percent less than full age of 66 or 67 to get 100 percent
Bottom line – Boeing does not lie directly- but simply uses incomplete or unrealistic assumptions
E) A long standing practice was to under estimate your pension so that when you did retire and got a ” 100 dollars /month more than the estimate’ you felt good.
So would you buy a new edsel from these people ??
F) As to relative value compared to existing- the big difference is company risk on investment gains which rarely are less than 7 percent and as high as 12 percent , and your risk of getting 5 to 7 percent for a significant part of your retirement.
Putting a dollar value on it is nearly impossible since every situation is different but Boeing wants you to believe in unusualy high rates- before and after retirement .
Mr. Shuper, I find it interesting that Boeing uses the consumer price index to calculate contractual COLA payments, but not when making pension projections. Interesting. I agree that these figures are unrealistic. Toss in reductions for retiree medical and the problem is amplified. I’ll bet there are a bunch of people who are going to receive a lot less in the end than they think.