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
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:
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.
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.
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 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:
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.
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 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.