Boeing’s move to shop around the 777X assembly site, while telegraphed and certainly expected, is another example of the shifting loyalties at Boeing that have been more than a decade in the making.
Before we start, it must be acknowledged that Boeing is a publicly traded stock company and it has fiduciary duties to make sound financial decisions. That being said, one can debate endlessly whether the decisions executives have made have been financially sound (and there is ample evidence with respect to 787 outsourcing and opening a second line in Charleston that the decisions were not sound). Setting aside this debate, since Boeing moved HQ to Chicago in 2001, loyalty appears a thing of the past.
Boeing and Washington State
Washington State, of course, has brought a lot of this on itself by taking Boeing for granted and in many cases ignoring issues advocated by Boeing (better education, improved transportation, better business climate) or making bureaucracy so difficult that Boeing (as well as others) throw up their hands in frustration.
Washington politicians were complacent for decades, resting on the assumptions that Boeing was here to stay and other things mattered more. Even though Boeing CEOs remarked over and over about issues like education and business climate, the politicians essentially shrugged off the complaints.
When, in 2001, Boeing announced it would move its headquarters to Chicago, then-Gov. Gary Locke didn’t even know officials were shopping around. This was a “wake up call,” it was said.
Locke and others hit the snooze alarm and went back to sleep.
Two years later, Boeing began shopping around for an assembly site for the 7E7. Only a last minute scramble by Locke and the Legislature, cobbling together a $3.2bn tax break package over 20 years, saved the day. The 7E7 stayed in Everett. This near miss was characterized as another wake up call, but politicians once more hit the snooze button.
The tax package was written so loosely that six years later Boeing located 787 line 2 in Charleston after a high profile negotiation with IAM 751 that failed. While Boeing told Washington State and Congressional politicians that no incentives could be offered for line 2 that would make a difference–that it was all about the union–South Carolina offered nearly $1bn in tax breaks and other incentives. Washington, having taken Boeing at its word, didn’t offer up any. (Boeing later said in a legal answer to the infamous complaint by the National Labor Relations Board over the Line 2 site location that, in essence, it never even heard of the union–the decision was entirely about incentives.)
Elected officials once again declared this a “wake up” call. This time, they actually did something and began looking beyond Boeing to generate business from other OEMs for the supply chain.
Boeing, Kansas and the Tanker
During the contentious and bitterly fought competition between Boeing and Northrop Grumman/EADS and later EADS solo for the huge KC-X USAF tanker competition, the Kansas Congressional delegation fought hard to support Boeing and to persuade the USAF to award the contract to Boeing.
Boeing promised the tanker would be finished at its Wichita facilities if it won the contract and frequently touted the number of jobs that would be in Kansas.
Boeing did win the contract in 2011. In 2012, the company announced it would close its military facilities there (citing defense spending reductions). Predictably, Kansas politicians cried foul, pointing to the support for the tanker, to no avail.
Boeing, Washington and the Tanker
Just as Kansas’ Congressional delegation fought for Boeing, so did Washington’s. Sens. Patty Murray and Maria Cantwell and Reps. Norm Dicks and Jay Inslee were the heavy lifters, with Murray, Dicks and Inslee being especially visible, vocal and hysterical. Cantwell was more low key, but would tout her role in her reelection campaign the next year. (Her first TV ad had an Airbus A320 in it, quickly pulled and recut with a Boeing 767. We wonder if her campaign and the Washington Aerospace Partnership used the same ad agency.)
This support meant nothing at the end of 2009 when Boeing elected to locate 787 Line 2 in Charleston; the dispute with the IAM 751 trumped all.
Boeing and the Unions
It’s not as if Boeing’s complaints about its unions, notably SPEEA (engineers) generally and the IAM (touch labor) in particular, aren’t without merit. (Boeing’s relationship with the UAW at Long Beach’s C-17 plant has generally been much better than with the IAM in Puget Sound.) IAM 751 struck Boeing several times, including back-to-back strikes in 2005 and in 2008, the latter for 57 days. Boeing can’t endure work disruptions as it has in the past when Airbus now has equal or better market share and new competitors are or will be nipping at its heels. Customers become unhappy and there are alternatives today.
Additionally, decades of embedded contracts drive up costs, and being encumbered with a defined pension plan based on unrealistic return assumptions hurt the balance sheet and eat up cash unnecessarily. Today’s economy is based on defined contribution plans or other retirement vehicles. Unions need to recognize this and be willing, however reluctantly to change.
At the same time, when the unions see record profits, billions of dollars going into stock buybacks that benefit the McDonnell family and Harry Stonecipher among other shareholders–which for a long time starved research and development of funding in favor of derivative models rather than new designs–union members are less willing to give back benefits previously hard won. Executive pensions have reached the obscene level ($265,000 a month for Jim McNerney) while McNerney advocates taking traditional pensions away from Boeing employees and changing Social Security for the nation’s citizens.
Still, it was the members of IAM 751 and SPEEA that toiled to work through the 787 and 747-8 program debacles. It was the 751 members who cranked up production on the 737 and 777 lines to keep the cash flow coming to support the billions of dollars in cost overruns of the 787 and 747 programs.
Members of both unions feel disrespected and unappreciated by Boeing. This adds to the hostility felt by the unions toward Boeing, where it’s clear Chicago is engaged in a war on the unions who saved Boeing’s bacon in the bad times.
Confrontation and Ultimatums
Boeing has created the impression with Washington State, IAM 751 and SPEEA that it prefers confrontation and ultimatums to cooperation and accommodation. Boeing is not shy about telling these parties that “if you don’t do this, we will leave.” There is a fine line between being straight-forward and candid vs giving the appearance of ultimatums. Boeing seems to cross that line on a regular basis.
Boeing vs Airbus
Airbus diversified its production from its historical bases in Toulouse and Hamburg with a new A320 line in Tianjin, operations for several years, and Mobile (AL), now under construction. There is a significant difference in the positioning Airbus used vs Boeing’s approach. Airbus positioned these two new lines as strategic positives. Boeing used South Carolina and is now using 777X as tactical confrontations with its union, and to a lesser extent, with Washington State.
Loyalty is a One-Way Street
As noted at the start of this column, Boeing has a fiduciary duty to make sound financial decisions. But the track record since 2009 in particular seems to dismiss the loyalty exhibited by its political supporters and its own employees for pure dollars-and-cents expediency. Boeing seems driven more by “what have you done for me lately” than by loyalty.
Loyalty, indeed, seems in short supply in the business world in general.