The Background

Nov. 1, 2009, (c) Leeham News: It had been a long time coming. Boeing’s 787 repeated delays and great backlog meant that the company had to have a second production line to catch up and to offer delivery positions within reasonable time periods for new customers.

Observers and analysts long predicted that Boeing would put Line 2 in the growing 787 facility in Charleston (SC) rather than Everett (WA). By now, all the signs are well known to Boeing followers and need not be recounted here.

Boeing CEO Jim McNerney had been clear that the IAM labor strike for 57 days last year was a seminal moment. If 787 Line 2 were to be put in Everett, labor peace and long-term production stability was required–some kind of no-strike agreement. The only way to achieve this was a long-term contract. The current IAM contract is amendable in 2012, so this had to serve as the basis for a new deal.

Clearly the IAM wasn’t going to extend the contract for a long-term period, during which no strike is permitted, without something in return.

IAM 751 president Tom Wroblewski had a dilemma. Winning Line 2 for Everett would mean another 700-900 direct jobs–for the 787 Line. But in return for granting some kind of a long-term contract during which no strike was allowed, he faced the ultimate question from the workers on the 737, 747, 767, 777 and P-8A lines: “What’s in it for me?”

Fifty-five year old workers within sight of retirement were concerned about pension payments, something that Boeing attacked in the 2008 contract proposal. All workers were worried about rising health case costs. Boeing wanted worker contributions in the 2008 proposal. New hires and young workers may not be worried about pension payments at their age but they are worried about a living wage.

And in this economy, everyone is worried about job security, paying the rent and feeding their families.

So Wroblewski could hardly propose a deal that would include concessions without getting something for everybody.

Boeing, faced with billions of dollars of cost overruns and penalties to customers, and a 787 program that’s already had a $2.6bn write-off and the prospect of more, needed a solution that not only provided production stability but one that also had economics that it could live with.

So talks (but, as Boeing would later say, not “negotiations” in the classic sense) began.

What transpired over the course of the talks will forever be a matter of debate. The IAM said it provided an offer to Boeing but never got one back. Boeing says it told the union clearly what it wanted and when. The union said, no Boeing didn’t–that it was prepared to revise terms of the offer in response to a Boeing counter offer and in any case, the IAM said it didn’t know the deadline had come-and-gone.

After the decision was announced to put Line 2 in Charleston, Boeing and the IAM issued dueling messages outlining their positions in the inevitable spin war that followed. We posted these previously.

The Seattle Times, Everett Herald and several newspapers in South Carolina have various, and sometimes varying, accounts of what transpired. We provided links to these in previous posts, so we won’t go into these details here.

But we will do some recapping that we haven’t seen elsewhere.

It was all about labor–or was it?

Throughout the run-up to the decision, Boeing told everybody who would listen and everybody who asked that the key point in deciding where to put Line 2 was labor and strike disruptions.

But in explaining its decision, Boeing’s corporate communications professionals and a vice president of marketing revealed that there was more than labor that influenced the decision.

Washington Gov. Christine Gregoire was told over and over that the state’s business climate and incentives were not the issue–only labor was. Said the Governor upon hearing the news:

On the question of additional incentives to the company: “I have to tell you, they’ve never raised that issue. Never, they’ve got over $3 billion sitting on the table and what’s the incentive for every 787 – they get more money in incentives. So the state, and the Legislature, I think, with (former Gov.) Gary (Locke), stood up to the question and the challenge. And it’s unmatched by anybody in the country. And the amount of money (from South Caroline) $170 million versus $3 billion. It has never been raised to me by (Boeing Vice President) Jim Albaugh, or by (Boeing Vice Presidnet) Scott Carson. Scott Carson after the last legislative session when I said is there anything else the state can do with respect to the 787 line. He said, ‘don’t take away what you have on the table for us right now. Don’t take it away.’ And I said I will fight takeaways. Then when Jim Albaugh came I asked the same question of him, and I’ve asked it on numerous occasions, and today he made it very clear to me. ‘This is not about workers compensation, this is not about taxes from the state of Washington, this is not about you and your efforts or the Legislature and their efforts, because in fact they’ve been good efforts and we appreciate them…this is about negotiations with labor.” (From The Seattle P-I.)

US Rep. Jay Inslee (D-WA), whose district includes the Everett Boeing plant, said this (from The Seattle P-I):

Rep. Jay Inslee, a Democrat whose district is also home to many Boeing workers, said he “point blank” asked a “high-level official” with the company last week [before the decision was announced] whether there were any tax breaks or changes in worker’s compensation benefits that would convince Boeing to build the line here.

“The answer was no,” Inslee said.

Yet in the media interviews following the announcement, the Boeing spin changed in very noticeable ways.

Boeing spokesman Russ Young told KOMO TV (ABC-Seattle) that siting Line 2 in Charleston is not the beginning of the end for Boeing in Puget Sound, despite predictions (by aerospace analyst Richard Aboulafia of the Teal Group and by us). Yet Boeing would not guarantee future airplane programs will be here in Puget Sound (properly, in our view, but also an element in our prediction).

Young also told KOMO that other factors, including incentives and natural disasters were factors. Bernard Choi, another Boeing spokesman, also cited the business climate as a factor in interviews with a Seattle area radio station and a newspaper.

Randy Tinseth, VP-Marketing, runs BCA’s blog. He wrote, in part:

Finally, I want to point out that before we made this decision, we looked at a number of factors, including the business environment, logistics and infrastructure that exist at both company locations. We applied the same basic assumptions and ground rules to both sites, with a heavy emphasis on long-term competitiveness and ensuring a sustainable stream of deliveries for our customers.

We first heard the change in the Choi radio interview. We immediately called Boeing to ask that if business climate was indeed a factor, why wasn’t Washington State so advised and given the opportunity to consider more incentives rather than proceeding under the understanding that labor, not business climate, not incentives, was the issue. The push-back we received to our question was that it was simply off-base.

Afterward, we saw the TV interviews with Young and Tinseth’s blog. Clearly, what Boeing was saying after the decision did not track with what Gov. Gregoire and Jay Inslee were told before the announcement.

Demanding more than  Boeing could accept

Boeing says an agreement could not be reached because the IAM demanded guarantees that future airplane programs (the 737 and 777 replacements) would be in Puget Sound, something that Boeing would not guarantee for a decision five or six years or so in the future; and that that IAM demanded Boeing remain neutral in IAM organizing efforts elsewhere in the country–something Boeing said was unrelated to Puget Sound and which it could not accept in any event.

Frankly, we agree with Boeing’s position on these two items. But the union told us it was willing to forgo the neutrality demand, if only it had had a chance to do so but Boeing never came back with a counter-offer. And, the union told us, it was only reasonable to seek a guarantee of the new programs as long as Boeing sought a long-term contract.

On the former point, we think it was a dumb idea to propose the neutrality clause and on the latter, we simply think Boeing is correct.

But wait: the union also says Boeing negotiators weren’t willing to even guarantee that Line 2 would be placed in Everett if the IAM offered up a long-term deal. Boeing says negotiators could only recommend Everett to the Board of Directors if the IAM came up with an acceptable deal.

While the IAM makes a big deal of this, we think this complaint is a red herring. The Boeing side was in the same position as the IAM: the IAM team could not guarantee their proposals any more than the Boeing team could guarantee Line 2 to Everett. The Boeing team needed Board approval and the IAM team needed a membership vote.

The two sides were apart on economic issues. IAM says Boeing never said what it wanted or came back with a counter-offer, asking only, “is this the best you can do?” leaving the IAM “negotiating with ourselves.” Boeing said it was very clear about what it wanted and the union didn’t meet the company’s needs.

What is clear from all this ambiguity is that the entire relationship, on both sides, is totally dysfunctional. They each need a keeper in a situation like this.

Take-aways and strikes

IAM’s Connie Kelleher says Boeing can avoid strikes by avoiding proposing “take-aways.” “I’ve been here 28 years and we’ve had four strikes. Each was because Boeing proposed take-aways. If you don’t have take-aways, you won’t have strikes,” she told us.

Strike-Immune?

Boeing says Charleston will diversify the workforce and reduce the impact of strikes. We don’t think so. Charleston and Everett are so inter-connected that we think a strike in Everett will have spillover to Charleston; you can’t totally divorce the two. We’ve also talked with Boeing officials who say the same thing.

Unionizing Charleston

Charleston workers voted to decertify the IAM local there, another factor in the site selection. South Carolina is a right-to-work state where unions are weak. But this doesn’t mean the plant may not re-organize at a later date. The IAM can come back one year after the decertification (or any other union can try). The engineers’ union, SPEEA, already said it will try to organize any engineers that locate there.

And a former long-time Boeing management executive believes Boeing management will mistreat the Charleston workers such that he thinks the plant will be unionized within 30 months.

Risk Factors

CEO McNerney acknowledged some inefficiencies of having Line 2 in Charleston and Line 1 in Everett. The company undoubtedly considered all the risks we’ve been bleating about for months and concluded these were acceptable.

But we’re not impressed with Boeing’s track record in evaluating risks. Management has been consistently wrong on the 787’s program risks; they were wrong on the 747-8 program challenges; and last year, they were wrong on the risks of a strike (unless one accepts the conspiracy theory that Boeing actually wanted a strike as part of a scenario to break the union and give more breathing room on the 787 program).

We think the risk to this high-risk program, with the continuing risks and the unknown-unknowns, is greater than putting Line 2 in Everett, union issues notwithstanding.

Wake Up Calls

Washington politicians and interested parties, The Seattle Times and even a South Carolina official, characterized Everett’s loss as a “wake-up call.” We find this laughable. Boeing’s move of headquarters in 2001 from Seattle to Chicago was a “wake-up call.” So was the near-miss in 2003 to land Line 1. So was our prediction last April that Line 2 would go to Charleston and subsequent airplane programs would not be in Washington. Boeing has been sourcing airplane production outside the state for decades.

How many wake-up calls do Washington stakeholders need before they wake up and find Boeing is gone?