Update 2: (Boeing modifies offer, strike called off for now) After upbeat air show and 2Q financial report, Boeing faces strike Sunday

Update, 2:45PM (PDT) July 30: Overnight negotiating resulted in a modified offer from Boeing to IAM 837, resulting in postponing the strike set to begin at 12:01 AM CDT Aug. 1. A new vote has been set for Aug. 3.

By Bryan Corliss

Analysis

UPDATE: 4 p.m. (Pacific), July 29: On Friday afternoon, a St. Louis television station reported that Boeing and Machinists Union District Lodge 837 were heading to mediation. The station quoted an IAM 837 spokesman who said a federal mediator would lead the talks. The station said Boeing has not confirmed this.

Meanwhile, the St. Louis Business Journal reported that negotiators on both sides had met with a mediator but made no progress.

Neither side has issued a statement on potential mediation.

We will update if developments warrant.

July 30, 2022, © Leeham News: Boeing’s Wednesday earnings call had some pretty big news in it: After years of red ink, Boeing now anticipates generating free cash flow.

But there’s a big potential blocker on the Defense side of the house, in the form of a looming strike with the Machinists Union workers in St. Louis.

Workers rejected a contract on July 24. Leaders of International Association of Machinists District Lodge  837 said 91% of those voting rejected Boeing’s “best and final” offer, and 94% of voters authorized a strike, which could begin at 12:01 AM Monday. The leadership did not release the vote totals.

Three plants in and near St. Louis would be affected by a walk out.

Boeing didn’t mention it in its earnings press release, and CEO Dave Calhoun didn’t mention it on the earnings call and downplayed the significance of the labor strife during a live interview with CNBC the same day.  

“They do have high expectations,” Calhoun said. “We feel we have made a very strong offer.”

The union workers, however, disagree, and that could very well mean another stumble for Boeing, as it moves to bring the key new programs – the T-7A trainer for the U.S. Air Force and the MQ-25 Stingray UAV for the U.S. Navy – into full production.

Machinists set to strike on August 1

IAM District 837 represents some 2,500 mechanics at the three Boeing defense plants.

The union’s negotiating committee had recommended that its members reject Boeing’s initial “best and final” contract offer, made on July 15, and also Boeing’s second (“bester and finaler”?) offer made on July 22. 

It wouldn’t be surprising for Boeing to present the union with an 11th-hour offer over the weekend. However, as of Wednesday evening, the union said it hadn’t heard from Boeing negotiators.

Missouri is a “fair bargaining” state, in union parlance – meaning that the state doesn’t have “right-to-work” laws. This means there aren’t likely to be many workers crossing the picket lines, so a strike would effectively shut down production at Boeing’s three St. Louis-area plants:

  • St. Louis, where Boeing is building U.S. Navy F/A-18 E/F Super Hornet fighters, U.S. Air Force F-15EX Eagle II fighters, and USAF T-7A Red Hawks.
  • St. Charles (MO), where Boeing builds Harpoon missiles and Joint Direct Attack Munitions kits that turn dumb bombs into guided ones.
  • Mascoutah, (IL), a new plant where Boeing will build MQ-25 Stingray UAVs for the U.S. Navy.

The keys here are the T-7 and MQ-25 programs. Boeing rolled out the first T-7 in April, and the Navy is testing how MQ-25s can refuel carrier-based strike aircraft. Boeing projects a market for 2,700 T-7s, both as trainers and as armed replacements for F-5s in allied air forces who fly them. The Navy wants 72 MQ-25s as carrier-based refueling tankers; it has considered the Stingray as a potential unmanned surveillance/strike aircraft as well.

However, the F-15EX also is a factor. Boeing delivered the first Eagle II last year, and one point the Air Force was considering ordering 144 of them to replace aging F-15C/Ds now deployed by the Air National Guard. 

Current dispute has roots in past contracts

Boeing is touting that it has offered the Machinists a signing bonus, wage increases and a 10% match on 401(k) contributions. 

But the Machinists aren’t buying it. To understand why, we have to go back to 2014, when Boeing management – fresh off of a bruising victory with IAM District 751 in Seattle – came after District 837 Machinists in St. Louis.

At that point, the situation in St. Louis was precarious. The Air Force was no longer buying C-17s, and the Navy had announced plans to wind down the F-18. Large-scale layoffs seemed imminent.

Boeing management offered IAM 837 a pretty attractive carrot – an early retirement package for senior mechanics, which would allow the company to trim headcount without laying off younger workers. 

But to get that, the union had to agree to three major concessions: the workers would have to give up defined-benefit pensions; agree to a two-tier wage system, under which any new hires after 2014 would be paid less; and lock everything in place with a seven-year contract extension. 

The result was a major change in pay. For example, under the current contract an assembly mechanic hired before March 1, 2014, earns a maximum of $38.02 an hour while those hired after are paid $29.02 an hour, or 23.7% less. That’s a difference of $18,720 a year, before overtime.  

Seven years later, the situation has changed. Boeing is expanding in St. Louis, with the new T-7 and MQ-25 programs, and with a surge in orders for Harpoon missiles to backfill those being sent to Ukraine. Union workers – who stayed in the factory during the pandemic – want to share in the gains, starting by reversing the concessions they gave up seven years ago.

Union seeks to get back what it gave up in 2014

Two tier wage contracts are an anathema in the union world. (IAM headquarters in Maryland explained why in this post last year.) So eliminating that gap was a key issue for the union as it entered talks.

Boeing has, in principle, agreed to eliminate the two-tier system. However, the union says the way Boeing’s contract offer is designed, it would take close to two decades for workers currently in the bottom tier to reach the maximum pay rate that workers in the top tier now earn. The union has proposed jumping all workers to maximum pay after eight years.

While Boeing is offering a $2 an hour cross-the-board raise in the first year of the proposed new contract (an average 7.2% wage increase) and a 4% raise in Year 2, the union points out that’s not keeping up with current inflation rates. 

And after the loss of the pension in 2014, the union is pushing to get Boeing to contribute even more to 401(k) retirement benefits.

“We need a lot more than what the company is giving right now to secure retirement,” Mark Blondin, the IAM’s general vice president for aerospace, said at the start of talks.

Longtime readers might recognize that name: Blondin is a former worker at Boeing’s Everett plant, who rose up through the union ranks to lead IAM 751 through two strikes against Boeing in the 2000s. Preserving pension benefits was one of the key issues in both those disputes.

Boeing unlikely to find replacement workers

Boeing has hinted it has a contingency plan in case of a strike, which some might read as a thinly veiled reference to replacement workers.

Replacement workers are unlikely, for two reasons: 

  • If you know where Boeing is going to find 2,500 high-skill aircraft assembly mechanics with security clearances willing to walk away from their current jobs to take a temporary assignment in this labor market, then you’ve got mad HR skills and I want to be your friend; and 
  • The Biden administration is unabashedly pro-union, and there almost certainly will be a phone call from the White House to the Pentagon instructing the Navy and Air Force to not accept delivery of any trainers, drones or missiles that the replacement workers touched.

Calhoun told CNBC that the company’s contingency plans center around keeping customers (ie., the Pentagon) apprised on what’s happening so they’re prepared for likely delays that would be caused by a strike.

Is St. Louis a preview for Seattle in 2024?

Boeing’s 10-year contract with IAM 751 in Seattle expires in September 2024, and it’s hard to see negotiations going any better than the current talks in St. Louis. 

Long-time readers may recall that in 2014, Boeing forced IAM 751 to accept an 10-year contract that froze union worker pensions and locked in average 0.5% wage increases. In return, Boeing agreed to locate 777X final assembly in Everett, a move touted as sure to create thousands of union jobs.

Locking in the low pay was a mistake. Entry-level wages at Boeing fell behind the pay for service-sector jobs around Puget Sound, and low pay also meant the company couldn’t find qualified plumbers and electricians to work on its planes or its buildings. Boeing had to go back to renegotiate wages with the union, just to keep up. 

Looking ahead, union leadership in Seattle remains largely intact from 2014, and still bitter about the pension loss. Rank and file members are angry that Boeing moved 787 production out of Everett and were embarrassed by management’s failures during the 737 MAX crisis.

It’s not hard to imagine that IAM 751 will push just as hard for double-digit company 401(k) matches and substantial wage increases as their brothers and sisters in St. Louis, and they’re angry enough that a low-ball initial offer from Boeing could guarantee a strike vote.

Boeing is in a tough spot

Boeing is in a tough spot in St. Louis: Its fixed-price Pentagon contracts make it hard for it to recover additional production costs, so increasing pay and benefits either comes directly out of the margin – or adds to cost overruns.

However, avoidable delays on the T-7 and MQ-25 at this stage of those programs – after years of problems with the KC-46 — would do nothing to help Boeing’s relationship with the Pentagon. With the Air Force reportedly having second thoughts on how many F-15EXs it wants, now is not the time for a production shutdown in St. Louis.

A strike also would kill the momentum Boeing has behind it, after a strong show at Farnborough and a solid earnings report and outlook for the rest of the year. A strike in St. Louis now also makes a strike in Puget Sound more likely in 2024. 

The summer in St. Louis is heating up.

27 Comments on “Update 2: (Boeing modifies offer, strike called off for now) After upbeat air show and 2Q financial report, Boeing faces strike Sunday

  1. What a disaster!

    Amazing that management at BA seemingly believed that those past cuts wouldn’t come back to bite at a later juncture — and the present backlash couldn’t be happening at a worse time for the company.

    Incidentally, not sure how anyone could think that the Q2 financials produced “a solid earnings report”. Yes, there was a little bit of positive cash flow, but revenue and earnings both missed expectation, the operating profit was very anaemic, outlook was tempered (500 –> 400 MAXs)…and ongoing writedowns ultimately produced another loss.

    • I wonder what Boeing mgmt thinking was in accepting fixed-price fixed-price contracts.
      Also, the takeaway of *real* pensions and their inadequate replacement by 401ks will be remembered by the rank-and-file, I think.

  2. > “They do have high expectations,” Calhoun said. “We feel we have made a very strong offer.”<

    Well, Dave why shouldn’t they? You and your execs have high expectations but so far we don’t see much of that these past 4 years, matter of fact how do you justify yourself?
    With inflation most likely to be almost 10% by year end, $2.00/hr wage increase Dave is pathetic. The 401k matching is pathetic. You want a first class aerospace organization then start paying.

    And for you folks out there thinking that they could just bring in replacement people to pick it up for the strikers, think again.
    These are highly skilled professionals with multiple certifications to assemble, inspect and test fly prior to delivery. These ‘certs’ take a lot of time to obtain and require testing and retesting. Just bringing in people off the street will not happen, plus the military that oversees these build programs won’t allow it.
    The author states that Boeing is on the upswing, really? Just because of the dog and pony show at Farnborough isn’t necessarily an upswing. If they truly are on the upswing then pay your people!

    I know just how difficult an extended strike will be for these folks and their families. They deserve better. It shouldn’t have come to this.

    • The systemic, abysmal quality coming out of Charleston shows that BA seemingly doesn’t attach much importance to having a high-quality, motivated workforce.

      If you pay peanuts, you get monkeys.

      • Correct Bryce.

        And to contrast let’s look at the quality builds, low defects coming out of Airbus in Mobile with on time deliveries.

        The pay is on par with what Boeing pays in Charleston and it’s a non union workforce.
        The difference?
        It’s great leadership, motivated workers and providing opportunities.

  3. All is perfect at airbus mobile? Check the Leeham reporting for 23rd May….

    “Some quality control issues at the Mobile plant, which is still in its learning curve phase, have been reported…..”

    • “…which is still in its learning curve phase…”

      Is Charleston still in its “learning curve phase?”

          • Working in the aerospace supply chain for both A and B for going on a decade, I’ve heard the horror stories with regard to QC and FOD coming from Airbus as well, Mr. Bryce. You’d be wise to remember Airbus isn’t all that special either ;).

          • @ TechNoir
            And, yet, we don’t hear very vocal complaints coming from Mobile customers — in contrast to Qatar and KLM, for example, who made no secret of their dissatisfaction with the quality of their Charleston 787s.

          • “we don’t hear very vocal complaints coming from Mobile customers”

            that’s right. you don’t hear about it. Doesn’t mean they aren’t.

          • @ Scott
            Thank you for that interjection.
            How bad is the situation? Does it go beyond “learning curve teething issues”? Is Mobile becoming Charleston-like? How widespread and serious are the issues there?

          • @Bryce: Bear in mind, the 220 FAL in Mobile has only been on its own since 2020; the previous 2019 assembly shared the line with the A320neo, so I’m not sure where it is in the learning curve. I don’t have specifics about the QC. I heard one customer wants airplanes from Montreal instead of Mobile.

          • @Scott said: “I heard one customer wants airplanes from Montreal instead of Mobile”

            Oh my…that doesn’t sound good at all!
            Shades of Qatar Airways refusing deliveries from Charleston in favor of Everett.

    • I said “low defects, It’s not a perfect world.
      Airbus Mobile is so successful, they are expanding the lines.

  4. Instead of wanting to do right by your employees and wanting the best for them, Boeing under the GE leadership treats employees like resources and its all about making the most profit. The original founders of these companies didnt start these business to make the most money, they started them to make great aerospace stuff and while they needed to make money to stay in business it wasn’t the primary focal or anything close to it. The original founder treated the employees like family and greatly appreciated the value that they brought to the company. I’m not saying you shouldn’t strive to make money but you can do both, you can work with your employees and find common ground to ensure they are taken care of and still make profits. But since the GE leadership has descended onto Boeing its all about costs and making the most money, shareholder value.

    Anyway what I wanted to say is what Boeing has done these last 8-10 years to the union is to leverage taking work away e.g., 777x etc., and use that leverage to force the union to take less than what they normally would. In the case of IAM 751 I believe Boeing will do that once again, they will at some point soon, I think before the next contract, launch a new plane and once again use that as a bargaining chip against the union.

    I really wish everyone could just work towards a common goal and treat each other with respect and look at it as if your family was working for the union, would you really be trying to get them less pay and benefits. Well unfortunately I do think some of the bean counters *cough* Mcnerney would even do that to their own family, sigh.

  5. Since this is going on in a nation where the average CEO makes 350 plus times more income than his or her average employee, issues such as this are likely to become the norm. The contrasting figures in the EU are – apparently as I cannot find comparable data – far less extreme.

  6. Will wonder’s never cease…
    FAA gave Boeing the green light to resume 787 deliveries..
    Perhaps the CEO finally got it right for early August return to service.

  7. AP:

    -> “The Federal Aviation Administration notified Boeing on Friday that it *would approve* the company’s process for validating fixes to each plane before they are delivered to airline customers …

  8. This year, the plan to raise the [NDAA] bill’s price tag was authored by two moderate Democrats. The amendment to increase the topline, which last year was offered in committee by ranking Armed Services Republican Mike Rogers of Alabama, was instead sponsored this year by Reps. Jared Golden (D-Maine) and Elaine Luria (D-Va.).

    Both years yielded the same result: 42-17 votes in favor of more money than the administration sought.

    Action has been even more lopsided in the Senate Armed Services Committee, which backed a $45 billion addition to its defense bill. Only one senator on the committee — Massachusetts Democrat Elizabeth Warren — has voted against increased defense spending in both years..”

    https://www.politico.com/news/2022/07/26/democrats-defense-spending-military-00048041

  9. Seems like Boeing’s “best and final” offer is as good as its “most favored” customer clause.

  10. I guess Boeing is now finally out of ‘good’ news for a long while to pump up the stock and spam news sites. I don’t think another reaffirmation of the Vietjet order of 200 will pump up the stock much

    • – There might be some new defense contracts coming.
      – Maybe some new 787 orders will trickle in.
      – And, of course, the company can try to tout “progress” in certification of the 737-7, 737-10 and/or 777X.

      Expect non-descript fudge such as:
      “The turnaround is gaining traction…”

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