There are deeper, longer term implications for the January 3 vote by IAM 751 members on the revised contract proposal from Boeing than have been discussed in the public domain.
The near-term implications have been discussed ad nausea: for employees, vote for a contract that includes concessions, notably on pensions, or risk losing the assembly site for the 777X. For the states, Washington could be a winner, or a big loser. The state that’s awarded the assembly site would be a big winner. Suppliers will supply Boeing regardless of where the 777X is assembled.
Another near-term implication we’ve talked about: the fall-out on the IAM, both at the International level and the District 751 level. No matter how the vote turns out, there is a civil war within 751 members who are royally upset with their leadership and others who believe in it. The civil war between 751 and IAM International HQ will continue well beyond the vote, with the prospect that International could simply depose all the 751 leaders and place 751 under a trustee “for the good of the union.”
But there are much longer term implications of the vote.
Extending the contract to 2024
If 751 members approve the contract proposed by Boeing, the term will be extended to September 2024 from September 2016. This means Boeing will have “labor peace:” there can be no legal strike during a contract. This means Boeing can assure customers there won’t be any delivery disruptions because of a strike, an important piece of mind during the production ramp-up periods for the 737 family, the 787 and the introduction of the 777X.
With the 777X Entry-into-service slated for 2020, production of components begins as early as July 2016. Having labor peace during these early days is important to keeping the 777X EIS on time.
Roll-out and flight tests are slated for 2018. With a 2020 EIS, Boeing did not want a four year contract extension from 2016 that could put at risk contract negotiations and the possibility of a strike just as the plane was to be delivered. The logic of Boeing’s strategy is understandable and compelling—and one with which we totally agree.
We last wrote about the need for a 757 replacement October 16. Boeing knows there is a need for a 757 replacement. Neither the Airbus A321neo nor the 737-9 MAX are true replacements. Neither has the range, and the 737-9 MAX—which is a double-stretch of the original baseline 737—and which is between 7,000-9,000 lbs heavier than the 737-900ER with only a 1,000 lb thrust bump, according to one airline customer we’ve talked with, simply doesn’t match the performance of the 757 or the A321neo.
Neither do the proposed airplanes offered by the two competitors to Airbus and Boeing, COMAC and Irkut. The COMAC C919 is purely a paper airplane at this stage with a range that doesn’t even match the A321ceo. The Irkut MC-21 (to be renamed YAK-242) won’t have the performance standards, either, and Western airlines won’t order this airplane. Suggestions that the MC-21 is a potential 757 replacement simply don’t stand up to scrutiny.
We have written on several occasions that Boeing plans to develop a 757 replacement with an EIS of around 2025. We know from our Market Intelligence that Boeing is already working in this project. In fact, Boeing has been conducting a “New Airplane Study” (NAS) about a 757 replacement since at least March 2012.
If 2025 is the EIS, a seven year development period means a launch of around 2018—just about the time the 777X has its first flight. If a longer development period is required for a clean-sheet airplane, back this up to as early as 2016 for Boeing to be surveying customers.
How does this fit into an IAM contract extension? Here’s how.
The Renton (WA) factory is full assembling the 737. The wide-body factory at Everett should have space by 2025 but may not then if sales of the 747-8 recover, which we consider unlikely but we can’t rule this out. Boeing claims the 747-8 will be in production to 2030. So it’s possible there may not be room for the 757 replacement to be assembled in Everett.
In any case, Boeing will stage a competition where the 757 replacement will be assembled—and when this happens, it will return to the IAM for yet another contract extension and no doubt include concessions. This would occur while the 2024 contract was in effect. With an inability to hold a strike threat as leverage, the 751 membership would hold the weaker bargaining hand, just as it does today.
Boeing’s strategy is brilliant. Whether Boeing will prevail remains to be seen.
We’ve previously written that a clean-sheet, new design replacement will flow from the 757 replacement. We have an EIS for this around 2027. A seven year development period backs this up to 2020. Site selection competition once more starts during an IAM contract that’s in place. Once more the 751 won’t have a strike threat to use as leverage.
The 737 MAX is assembled in Renton (WA) and Boeing is gearing up this factory to produce 52 airplanes a month (a rate of 47 has been announced) and studies have been conducted for years with the potential of going to 60 a month. Although there is also a study about establishing a 737 MAX line in Charleston (SC) at the 787 factory there, we consider this prospect unlikely; Charleston will be gearing up to produce seven 787s a month by 2018 and expanding to include 737 MAX supplier work. It will have its hands full.
The facilities lease with the City of Renton expires in 2030, with options for two 10 year extensions.
The Bottom Line
For Boeing, its strategy of extending the contract and using site selection competition as a cudgel for more extensions and more concessions is masterful. For 751 members, they have to weigh give-backs against job security. The states are subjected to economical blackmail.
And in the current situation, the civil war within IAM can only work to Boeing’s advantage, for it disrupts unity within the union and weakens it.
These are all factors that 751 members should consider when they vote on January 3.