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
Pontifications: A sea change at Boeing
By Scott Hamilton
Jan. 18, 2016, © Leeham Co. The surprise announcement last week of a tentative contract agreement between Boeing and its engineers union, SPEEA, was the best news coming out of the company that I’ve heard in years.
New airplane and derivative programs and stock buybacks and dividend payments are important, of course. But this labor agreement has all the appearances of a sea change from the 10-year rule of former CEO Jim McNerney, whose destructive policies toward the unionized workforce were damaging to the long-term culture of Boeing.
First, let me hastily add that my entire professional career has been in management and I’ve never had to deal with unions, though I’ve worked for companies that have them. Having said that, my positions about the labor relations between Boeing and its unions have been very clear. SPEEA and IAM 751 members saved Boeing’s ass during the 787 and 747-8 production and design debacles and Chicago repaid them by cutting wages and benefits and moving jobs out of Washington State.
At the same time, the union members failed to face up to reality that the defined pension benefit plan had to give way to defined contributions and members had to face up to market realities to share medical costs.
Still, McNerney’s war on unions failed to appreciate the contributions made by their members in bringing Boeing through those rough times during the 787 and 747-8 problems. This principal ignored the fundamental truth: unhappy workers don’t make for a cohesive work environment.
As a time when Boeing wants to boost production of the 737 and 787 and it faces development of the 787-10, 737 MAX, 777X and KC-46A, it needs a happy and productive work force now more than ever.
Dennis Muilenburg, CEO of The Boeing Co.
When Dennis Muilenburg was elevated last summer from president and COO to CEO, many wondered what his approach toward labor would be. He was an enigma to the unions at Boeing Commercial Airplanes. (He still is, largely.) Would Muilenburg follow the McNerney path or set his own?
It now looks like he is setting his own path. (Through a Boeing spokesman in Chicago, Muilenburg declined a request for a statement or an interview.)
SPEEA officials were somewhat circumspect in commenting on the appearance of a new tone. Still, it was clear from our interview with Ray Goforth, the executive director, that Muilenburg’s approach made a deal possible that would not have happened under McNerney.
The new SPEEA contract is for six years from the amendable date in September, or well into 2022. This means labor peace through the development and entry into service of the airplanes mentioned above. (The 777-8, the last of these airplanes, has a planned EIS in 2022.)
It also means labor peace with the engineers as they design the new Middle of the Market airplane, a program that is widely believe will be launched in 2017 or 2018.
Muilenburg still has to deal with the lingering resentments at IAM 751 for the blackmailed concessions demanded under the McNerney rule in exchange for 777X work remaining in Everett (WA) instead of some other location.
Maybe it’s not all black & white, and maybe “management” gets the unions they deserve.
Were there also non SPEEA and IAM 751 members too, that saved Boeing’s ass during the 787 and 747-8 production and design debacles? Who were striking during the biggest 787 debacles in 2008? Were engineers not conservative / realistic enough in 2004? Is it only “Chicago”, Management” and “Foreign Suppliers” making errors, or dare we look closer to the home base too?
Anyway if this deal is a sign of better cooperation and mutual respect that can only help Boeing. If Dennis Muilenberg was at the base of this, he made good decisions it seems.
Scott: Thank you for being blunt about McNenery, while there may be disagreement I think he was the worst CEO in Boeing entire history including some not so good recent ones.
Management can set the tone for what follows. Its obvious that’s what was just done and I am impressed and cautiously optimistic.
It would be good to see Boeing move forward in a positive manner with new product offerings instead of the inward looking self destruction previously.
I have been a member of 3 unions, I know the minuses but as noted, when they are focused and working together they can also do amazing things (and not only pass that onto but teach a new generation and we sadly lack that)
This is a very balanced editorial as it reveals the strengths and exposes the weaknesses on both sides at the same time. It also discusses the most urgent issue at Boeing that needed to be addressed immediately in order to start repairing as soon as possible the damages inflicted by the previous administration which affected employees morale.
We often see very smart CEOs completely lacking in emotional intelligence, but unfortunately this doesn’t seem to be an important criteria when time comes to hire a new CEO. In spite of harsh circumstances at Bombardier in recent years, there has been very few problems or issues with unions. This is because the CEO knew how to negotiate with workers (Pierre Beaudoin studied Industrial Relations at a prestigious university).
To get back to Boeing, I am happy to see that on the labour front there should be calm seas until 2022; because on other issues Boeing is likely to be very challenged in the next six years. New programmes are emerging on the horizon and can no longer be postponed if Boeing wants to remain competitive. But those programmes will require large expenditures at a time when money will not flow as abundantly as it currently does. As a new century is opening for Boeing what needs to be bought back is not shares but time. Because a lot of this precious commodity has been wasted in the last decade on escalating labour issues that could have been avoided with a bit of diplomacy. If there is one thing that Boeing is successfully buying back with this agreement it is peace. But the damage is so extensive that it will take years, if ever, before Boeing can rebuild what has been systematically destroyed.
For any company three elements are required to be successful: customers have to be satisfied, workers must be kept happy and shareholders need to be thriving. In that order. All three aspects are important and none can be favoured to the detriment of another. But what we have seen in the last decade(s) is shareholders interest having precedence over labour satisfaction. And the customers are often caught between these two factions. This may explain why in the interval we haven’t seen as many new products as we should have. But it’s getting late and that should be Boeing’s next priority.
I had the privilege hear a video given by Mr. Muilenberg before I retired in 09. He said something that impressed me, he said he wanted a more vertical Boeing Co. This means less outsourcing. There has been so much damage done under Mcnerney, I don’t see any way to efficiently recover.
I would not read too much into this agreement. When SPEEA went out on strike before, I’ll remind you that the union leadership already had an agreement with Boeing only to have the rank and file reject it and walk out.
“Boeing is likely to be very challenged in the next six years. New programmes are emerging on the horizon and can no longer be postponed if Boeing wants to remain competitive”
Agreed.
IMO Airbus has a finger on the trigger to launch e.g. low risk A320NEO stretch tomorrow, that buries the bread and butter 737-8 in all areas, leads massive upgrades, supplier switches and severely unbalances Boeing NB strategy for 2016- 2025.
That might lead to Boeing shelving the MoM and hurry to find partners / launch customers for a composites A320 NSA with high BPR GTF’s ASAP. Regardless of what they communicated so far.
http://i191.photobucket.com/albums/z160/keesje_pics/AirbusA320NEOPlusConcept.jpg
I continue to be puzzled by Boeing thinking on the MOM vs the 737
While it would take a couple of years for Airbus to produce a stretch A320, they certainly can and should do it (I think they are focused on the NEO part now)
Regardless, it won’t start to affect the 737-8 until after 2020 or a bit further, sold out till then (future sales past that yes, just not already sold)
Boeing still has to do it, and Airbus can still do a new wing for the A320 and probably as competitive as anything brand new (short of a form change) that Boeing can come up with. Tough to get a new form going as people want to see it proven (and for good reason)
I am sitting ont he sidelines on this one as its impossible to tell what is driving Boeing (if at all) and they are focused on
thank you Scott for this”pontification”
IMO Airbus clearely helped Boeing in the time of Mr. McNerney
They played the role of the one to kill … for the workers’ moral it helps !!!
I think Boeing indicated they want to position a MoM significant above the current NB families >230 seats. That seems realistic, Airbus will have saturated the market with thousands of A321’s by 2023 and can go aggressive on pricing. Better stay away there.
Disadvantage of getting bigger on a MoM is, it doesn’t offer a 150-230 seat < 2000Nm solution. And that's were the bulk of the market is. I think Boeing is now in the process of recognizing / accepting the 737 is second choice for most. And they have to launch an NSA up to 230 seats anyway.
If they have resources to do a MoM too is questionable. I think the assumptions of 2 new aircraft families for the price of 1.5 is based on hope.
A scenario I see emerging in the next few years is Boeing launching an NSA sooner than later and Airbus launching a MoM. Replacing A300/A310 / A330 used for short-medium long <280 seat flights.
A Boeing NSA would be able to use high BPR engines and, although it is not really important.. it would definitely have the A320s AKH container/pallet capability.
It looks to me like the range is now 3000 NM
And where I don’t know how good or bad the MOM market is, certainly nothing for Airbus to compete in it if its a good one.
A321 is good but better pricing does not make it work if it does not have the capability, That’s like saying a 737-900ER can do out an A321 if you offer it at a lower price, only if it works for the mission.
I do think Airbus can pull rabbits out of the hat and keep the A320 competitive with a new aircraft, single aisle or not, but that also puts them in the same position as Boeing is now, they can’t go any further with the A320, end of the line.
I see no inductions Airbus is interested in nor can afford to get into the MOM market, the needs are the A350-1100 area/777-9
I can see Boeing thinking that a new market offers no competition and make money before the 737RS but its still two aircraft programs one after another.
Maybe they will have to do what we non corporate non sharehoolder entities have been told so often, , ie you just have to bite the bullet.
Interesting read. My take is you don’t have to go to extremes, baby a work force or rip and slash them. There is a middle ground.
http://www.ft.com/cms/s/0/5487ad7c-b5fd-11e5-b147-e5e5bba42e51.html#axzz3y0CJaONi