Leeham News and Analysis
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Leeham News and Analysis
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- Bjorn’s Corner: New engine development. Part 27. Long developments October 4, 2024
- Longshoreman strike adds to Airbus, Boeing woes October 1, 2024
Critical labor contract vote for Boeing, IAM 751 today
By Karl Sinclair and Scott Hamilton
Sept. 12, 2024, © Leeham News: The International Association of Machinists (IAM) District 571 votes today on a contract proposal negotiated between union leadership and the management at Boeing (BA). It’s a critical vote for both parties.
The four-year contract calls for a 25% pay hike, a $3,000 signing bonus, an improved benefits package, and a commitment to build any future new aircraft in the Seattle area during the next four years.
Boeing yesterday issued a new Contract comparison sheet in advance of today’s vote: Boeing Contract Comparison_Fact_Sheet 9-11-24
Union workers can reject the offer, which must be approved with a 50%+1 majority. A second vote on a motion for strike action if the contract is turned down will also be on today’s ballot. A strike vote must be approved by a two-thirds majority. If this fails, the contract becomes adopted irrespective of the accept-or-reject vote. Boeing is desperate to avoid a shutdown as it faces pressure from customers, regulators, and suppliers who have endured one of the worst stretches in its history.
On Wednesday morning, hundreds of workers walked out of the Everett factory to rally against the contract. Engineers at the Renton factory were sent home because demonstrations there made it too noisy to work. They were told to work from home today,.
Leadership at the local previously indicated that they intended to demand a 40% raise for members, along with a seat on the board of directors, having gone through 16 years of giving concessions to management, as they were strong-armed in previous negotiations.
Management holds its breath
Boeing has had a rough six-year stretch. 2018 was the last year it had been profitable, and the consolidated debt load is now at $58bn, with over $3bn in annual interest payments.
Should the membership vote in favor of accepting the contract offer, newly installed CEO Kelly Ortberg can count this as a big win for the company and a major disaster averted.
Industry experts have also been bullish on the news of the offer, as Jefferies analyst Sheila Kahyaoglu noted. “[W]ith IAM leaders unanimously recommending a vote to accept the proposal, the deal is unlikely to be rejected. The wage increase is likely to set Boeing back by $900m over four years, compared to Jefferies’ initial estimate of $1.1bn.”
But whether membersare “likely” to approve the contract is speculation. Immediately after the Tentative Agreement was announced, hundreds of union members criticized the contract on the IAM 751’s Facebook post, which was later removed. Comments on LNA’s reporting, and that of hometown paper, The Seattle Times, also were negative. One well-placed labor source suggested to LNA that the contract will be rejected but the vote to strike won’t get the required two-thirds majority.
Social Media
Members are active on social media. These comments don’t bode well for the contract:
- Holden’s team is not trying to sell the offer at all (some reps reportedly are complaining that they were sandbagged by news of the tentative agreement).
- There have been loud and angry protests inside and outside the factories in Everett, Auburn and Renton.
- Very little work is getting done in Renton, because machinists are protesting for five minutes every hour on the hour.
Also, the agreement would eliminate the incentive bonus, which would amount to a loss of between 3% and 6% of total annual earnings. (This isn’t clear in the IAM 751 contract summary, but the clauses covering incentives have been completely redlined in the proposed contract.)
Analyst reaction
Reaction among aerospace analysts who follow Boeing is generally favorable, if mixed.
Deutsche Bank’s analyst wrote, “The contours of the deal are broadly similar to other recent industrial union deals, including the scale of the general wage increases (25% over four years) and the size of the ratification bonus ($3,000).”
The analyst continued, “we did not expect IAM 751 leadership to recommend a deal such as this so readily—particularly one that is not clearly better than other major labor deals reached in the last year, despite the deep scar tissue that exists between Boeing and its machinists union members. However, we emphasize that workers still need to vote to ratify the deal. While it is possible that they may ratify it as-is, we do see pronounced risk that IAM 751 members could instead reject the contract and vote to strike.”
Deutsche’s analysis was typical among those we’ve seen.
Stock rebounded
Boeing stock rebounded upon news of the agreement, gaining back some 4% of the ground it recently lost, as investors were heartened by the news of the negotiated agreement. The share price is still well off the 30-day high of $180 it hit in August, however, most of the drop can be attributed to the recent news of structural problems on the 777X engine mounts.
Union didn’t get everything
It turns out that the militant union leadership, ready to claw back concessions given to Boeing during previous negotiations, didn’t get everything it promoted to its membership.
Some might hail the agreement by Boeing to build any new aircraft in the Seattle area as a win, but critics say it is an empty victory. BA does not have the resources, nor the inclination, to launch a new jet anytime soon, probably not within the four-year time frame that the agreement covers. Previous CEO David Calhoun canceled plans to roll out a middle-of-the-market 757/767 replacement early in his tenure, saying that 2030 would be the earliest date of a clean sheet launch.
Critics of the agreement say that Boeing would be free to located the final assembly of the new airplane anywhere if the launch comes after this contract expires in September 2028. But one sources notes that new contract negotiations will be based on this contract, and this includes the final assembly site of the next airplane. Reneging on this commitment, the person says, will be difficult—and 751 would likely make this commitment a make-or-break deal in a subsequent contract.
Current production issues and institutional knowledge
Boeing is having difficulties in getting the aircraft it currently has, past regulators, with the 737MAX-7, 737Max-10, and the 777-9 all delayed years past the promised entry into service. Boeing has simply lost too much experienced talent over the past five years, to be able to take on a new design.
The consensus from analysts is that the agreement will cost Boeing an added 32%, or 8% per year, over the life of the contract. Post-pandemic, it is in line with what other companies have agreed to with their organized labor. Not bad, but not great – hardly the great clawback talked about by union leadership recently, to recoup what was given to the company.
The $3,000 signing bonus will cost Boeing about $100mn, which totals what BA gave to previous CEO’s Dennis Muilenberg and David Calhoun to leave the company. Split some 32,000 ways.
2028 negotiations
Boeing and the IAM will be back at the negotiating table in 2028, if this agreement is accepted or adopted. If union leadership reached across the table to work with current CEO Kelly Ortberg, understanding the bad position the company is in – in four years, given his age, he may not be there. Ortberg already is nearing mandatory retirement age for an executive, although the Board agreed to waive this until he is 71, should both sides choose to continue beyond age 65. Any goodwill, any handshake agreements, could be undone if a slash-and-burn type CEO is brought in.
So, if the first vote (deal) ends in rejection, but the second vote (strike) also ends in rejection, then the deal automatically gets accepted anyway..?
Gosh, such an outcome will produce a *really* motivated workforce, won’t it?
Mentioned this before. The first vote is a throwaway vote to make a point. The only vote that really matters is that 2/3 to strike
There is a lot of research that labor negotiators do to make an offer just good enough to get 1/3 to “not strike”
There are good will aspects that could have been kept or offered and were not.
Not what I call a way to get your workers on board. And that is what Boeing needs.
I agree, I work for Boeing. They used the “we will keep the 787 program in Washington if you sign” on the last contract. Guess what, it moved to South Carolina anyway. They pay exorbitant bonuses to executives, rewarding them for the poor decisions they got us into the all time the we’re currently in. The 401k is a SEPERATE account. Not our existing one, that’s controlled by the union…we can’t trust the union either. We’re getting screwed from both sides.
“Boeing boss in last-ditch plea as strike vote looms”
“Boeing’s new chief executive Kelly Ortberg has pleaded with workers to not go on strike as it would put the company’s “recovery in jeopardy”.”
“”I ask you not to sacrifice the opportunity to secure our future together, because of the frustrations of the past,” said Mr Ortberg in his message to staff.
“”Working together, I know that we can get back on track, but a strike would put our shared recovery in jeopardy”.”
https://www.the-star.co.ke/news/world/2024-09-12-boeing-boss-in-last-ditch-plea-as-strike-vote-looms/
—
What a circus.
If Mr. Ortberg wants to “secure our future together”, then he can just give the union what it’s asking for. After all, $900M per year is peanuts compared to the cash that BA burns elsewhere, e.g. due to selling aircraft at a loss in order to win orders.
You have to spend money to make money.
What the union is asking for is more like 2.5 billion a year. That will maybe result in a more motivated workforce that still won’t translate to increased deliveries to pay for the increased cash flow because there are all sorts of accompanying problems.
It’s a tough position to be in for the new CEO. Especially for a problem he didn’t create with a company that doesn’t have any financial flexibility. It’s clashing priorities. So he has to do what he can to avert a strike. At least he’s speaking to them and hearing them out. They will ultimately get close to 40 maybe 30 or something.
So I tbink your comment is a bit one dimensional
Let’s just look at the contrapositive argument: if Ortberg doesn’t give the union what it wants, then he *certainly* won’t get increased deliveries…or improved quality.
He’ll be stuck with a horrendously demotivated workforce and/or an army of cheap — but underqualified and inexperienced — ex-KFC rookies.
Logic dictates a clear path here.
Further: the analysts cited in the LNA article estimate additional costs of $900M per year for the current deal (25% hike)…so giving the requested, augmented deal won’t cost that much extra in relative terms.
—
“It’s a tough position to be in for the new CEO. Especially for a problem he didn’t create with a company that doesn’t have any financial flexibility”
He knew what he was getting into.
And he’s getting paid handsomely for it, isn’t he?
+1
A happy employees is also a conscientious employee.
Meh……….give them the 2.5 Billion, its all about good feelings anyway.
“Shared recovery”??? WTF? So far, the only ones giving up anything are the hourly folks. The executives gave themselves all a 250% salary increase last year and used the Covid funds for themselves while we were considered Essential workers and came to work the entire time. If they truly felt like WE needed to sacrifice our wages and benefits….then they should also do the same. until that time…STRIKE STRIKE STRIKE
The agreement with the union seemed ok, it’s just that the union seems to have misread the mood of the members.
Always a risk when a company has been run so badly for so long. Logic stops working. It reminds me of the British car industry in the 1970s. Guess what happened there, ultimately? The original company more or less disappeared and today more cars per year are manufactured here per year, but under foreign stewardship.
A lot of emotion, not a lot of logic.
“TD Cowen aerospace analyst Cai von Rumohr said it is realistic based on the history of strikes at Boeing to figure that a walkout would last into mid-November, when workers’ $150 weekly payments from the union’s strike fund might seem low going into the holidays.”
“A strike that long would cost Boeing up to $3.5 billion in cash flow because the company gets about 60% of the sale price when it delivers a plane to the buyer, von Rumohr said.”
https://fortune.com/2024/09/12/new-boeing-ceo-strike-workers-vote-unloved-contract-25-pay-raise/
“Boeing Machinists will vote throughout the day Thursday on the company’s contract offer.
A massive mandate to strike seems all but inevitable.”
https://x.com/dominicgates/status/1834074136723030103
Looks like Mr. Ortberg is in for a baptism of fire 🙈
Interesting that he — evidently — didn’t accurately sense the shopfloor sentiment during his factory visits…
When will result of the vote come out?
I’ve seen multiple sources saying somewhere around 9 pm (Seattle time).
The same sources say that a strike (if there is one) may start at midnight.
Thanks.
I’m guessing vote results will be around 8pm. But it’s only a guess.
Thanks.
Seems like the union is being asked to put the good of the company first in a way the last four CEO’s have not.
Was Calhoun thinking of the good of the ompany when he accepted $32.8m last year from his buddies on the bod compensation committee? He got a 40% raise for being a total and spectacular failure. How about when he paid Boeing’s most experienced employees to leave with early retirement incentives? Was he thinking of the long-term good of the company then?
+1
Don’t forget the very generous golden parachute that he awarded himself.
Plus his extensive private use of BA’s fleet of private jets — for free.
Well that’s what happens: privatize the profilts while socializing losses – heads I win, tails you lose.
👇 What’s possible!!
CNBC:
“American Airlines flight attendants ratify new contract with immediate raises topping 20% American Airlines flight attendants on Thursday voted on a new five-year labor deal, giving cabin crews more than 20% immediate raises.”
Besides, it wasn’t many months ago (March?) when Calhoun was telling analysts in an earning call that Boeing would hit $10b in free cash flow sometime next year. Surely he couldn’t have been lying….blowing smoke up investor’s ____. So why should the union agree to a mediocre contract just cause at this moment the company is broke when according to it’s own pronouncements it will soon be rolling in dough?
At this moment……………..LOL………………….
in other news, Santa Claus is not real.
Good questions-
The new hires have no reason to strike the old guard do to send a message.
I believe they will strike.
“The new hires have no reason to strike”
That depends on what conditions on the floor are like, what overtime is being demanded, how many actual vacation days are being made available, etc.
Hard to square with 96% voted to strike
“Reuters: S&P Global Ratings says extended worker strike may hurt Boeing’s rating”
“(Reuters) -S&P Global Ratings said on Thursday if Boeing faces an extended worker strike, it could delay the planemaker’s recovery and hurt its overall rating.”
“”A shorter strike (along the lines of the situation at Spirit Aero last summer where union leadership accepted the company’s offer and membership rejected it) would probably be manageable for the company and the rating,” said Ben Tsocanos, aerospace director, S&P Global Ratings.
“Tsocanos said the strike could pressure Boeing’s ability to reach its target of increasing MAX jet production to 38 planes a month by the end of the year.”
https://finance.yahoo.com/news/p-global-ratings-says-extended-134854194.html
So why should global airlines what to continue deal with Boeing if a long term strike happens. Maybe it will result in the Emirates to canceling their 777x orders
2040 Vision for Boeing in Seattle (maybe) One single FAL (20 a month rate) for the new single commercial aircraft in Everett (no wing production)
Second US FAL for NSA in Charleston (20 a month) with wing production for both US FALs (clean sheet production systems)
Third (10 a month) and Fourth (10 a month) FALs for NSA in Southeast Asia
A couple wing production centers in Southeast Asia/UAE
Fuselage production (40 a month) for US FALs in Boeing Wichita, Fuselage production for other FALs in Southeast Asia
Just like Boeing shut down McDonnell Douglas for high cost reasons, it will do the same for Seattle if this become a long strike that causes major financial harm to Boeing with combination of 40% wage increase and major production delays.
Seattle commercial aircraft industry is in the IAM hands today, but short term thinking and rally in the alley mentality will most likely prevails .. Seattle loses and Charleston wins
You’re assuming that BA is going to survive — even if there’s no strike.
In reality, there are many things that could kill it off quite quickly.
In a way, it’s already bleeding to death: August was another meager month for orders, there’s no near-term hope of higher line rates, manufacturing processes are in total chaos, and certification of all its new programs is in Limbo. One could posit that a strike is the least of its worries.
Abalone…you are probably right
Maybe IAM will be doing Boeing a favor Long term strike, complete stoppage of production, no incoming cash flow to accelerate the inevitable
File Bankruptcy, during the proceedings sell of Space, Defense (get rid tankers program losses) and Services divisions, write off commercial program deferment costs, cancel 777x program, and have commercial division sold to private equity company for $30 billion (total market cap today is $100 billion), renegotiate a new union contract (if you want a union), renegotiate all your commercial sales contracts to get rid of any potential cancelation damages/penalties from the past
Wonder why it has not happened already.
Some patients take a long time to die…particularly when they have creative doctors.
But there’s only so much that can be done before options run out.
@williams
Boeing has not gone bankrupt because of investor “gullibility”
This is a company that has long since stopped funding their operations out of working capital. It is all a debt bubble that is one crisis of confidence away from bursting.
Abalone is right it may take a while. But there is such a massive debt pile and lack of margin that I struggle to think how it will be paid off without a restructuring. Sears/Kmart proved a moribund company can muddle around for decades before a final death.
@casey
It is partly political too, horrible optics for a certain political party.
Put the State of Washington in charge of counting the votes. The result won’t be known for months, deferring any strike.
‘Why Boeing machinists view the 25% wage increase over 4 years as deceptive advertising.
“All they really did was take money from one place in the existing contract and move it to another place in the new contract to give the illusion” of an increase’
https://x.com/dominicgates/status/1834240067596173800
Seattle commercial aircraft downfall………..IAM leadership should have never put out 40% wage increase to their membership
While most of American will get 12 to 16% wage increase in next four years, 25% wage increase looks pretty good But when expectations are set to high, chaos happens. From the production floor view, you said 40% wage increase, now deliver on your promises
union is trying to get back some of the losses they took over the last 14 years where Boeing CEOs screamed poverty while lining their own pockets to the tune of half a billion in CEO pay and stock options.
Boeing CEOs have received between $20M and $35 million a year annual total compensation since 2010, not to mention $50M handshakes when they get fired, while union workers pay was cut, benefits cut, pension frozen…
“Boeing CEOs screamed poverty”
for many reasons, but Boeing has not made a profit since 2018. Stock when from $400 a share to the current $160.
@biblbo
That may be true but what is the situation now.
Well, some commenters here have convinced themselves that BA is sitting on a fortune in inventory — so maybe they can offer a rosy picture?
Of course, they look at revenue rather than earnings 🙈
‘Boeing also has committed to notifying the union “as soon as practicable” of “significant” production-rate changes “and to provide a summary of the proposed rate adjustment plans prior to implementation,” the contract says
https://x.com/AviationWeek/status/1832836967392055660
The Rank and File of IAM751 have been preparing for this for at least the past 4 years. Boeing on the otherhand has been doing Status quo business practices and damage control for poor quality practices. All the while keep the same excutives and senior leadership in place that are perpetuating this situation. In my opinion Boeing has no ethical Vision
just a fyi
China Development Bank’s aviation unit buys 80 Airbus A320neo jets
“The company said deliveries are expected between 2030 and 2032.”
https://www.reuters.com/business/aerospace-defense/china-development-banks-aviation-unit-buys-80-airbus-a320neo-jets-2024-09-12/
Strange that they weren’t tempted by the “early slots” being offered by BA…🫣
Virgin Australia converts order from the MAX 10 to MAX 8 to ensure better delivery certainty. 😂
They will not build the next plane in Seattle. Just like they lied about building the 787 here to get the contract and then sent it to south Carolina.
The machinists make $75,608 per year on average, not counting overtime, and that would rise to $106,350 at the end of the four-year contract, according to Boeing.
They should take the deal! They can’t just expect to “have the whole cake” at one time. They can take a “piece of the whole cake” now and get more in 4 years when they renegotiate. They can keep working, make more money for their families, and have job security. Striking and putting more strain on a company in massive debt already which would potentially affect the jobs of everyone at Boeing is not a smart move. Don’t be greedy, take what you can get, and negotiate even better terms in 4 years.
Imagine what it’ll be like on the Boeing line if the contact is not approved by the employees, but gets ratified anyway via the greasy, backdoor mechanism (whose idea, exactly?) mentioned..
That’s looking like a probable outcome to me.
Yeah, I also raised that point above.
That will be a spectacularly-motivated workforce 🙈
..in ways.
😉
My brother-in-law was a Boeing mechanic and I recall him years ago saying that he voted to strike just cause he was working a lot of hours and eager for a break. A lot of people at a lot of companies wouldn’t mind a break, even an unpaid one. Some guys have home projects or honeydo lists.
[Comment deleted as violation of Reader Comment rules.]
Or maybe management can hire 20,000 ringers as mechanics just to vote against the strike, then fire them all next week.
Just trying to help.
Settle Times live update (per D Gates)
https://t.co/7KEjsq710T
From the live update:
‘“At Panda Express, they’re making as much as a grade-three mechanic.”’
If Boeing stands to lose close to $3.5b in a 60-day strike action, why would you not give them closer to what they wanted? If a 25% wage increase = +$900m-1.1b in costs over 4 years (+$250m/yr), why not give them a 30-35% increase?
If a 66% majority of the union votes to strike, this is entirely on Boeing. IMO, their only real course of action at that point would be to immediately up the offer by 5-10%, and get a new vote scheduled ASAP.
Boeing simply cannot afford a strike at this point in time.
All good points. Also, a further-restive workforce will likely not be in Boeing’s best interests.
Think the enduring Boeing FOD issue, magnified.
@GS
If the union really thought a winnable offer was imminent…they have the discretion to delay a strike taking effect to give time for the membership to vote. Think 2-3 days though. That would be it.
My impression is that IAM “leadership” are- ahem!- not at all in sync with the requirements of IAM 751 rank-and-file. My trust goes with the latter..
So strange how that happens, over and over and over and over and..
It will really be informative if a strike vote comes out at 98% or 68%
The former would indicate a prolonged stoppage
An overwhelming no vote is a vote of no confidence against their own leadership
96% for strike
Are Boeings current employees actually worth a big pay raise?
If they arrived in recent years straight from a job at Starbucks,they would have been just accepting the going rate for a not very competent aircraft builder.
Boeings problem is much deeper,they burned their skill base and it’s going to be hard to rebuild
Why was adding one union representative to the board an apparent non-starter for management? What harm could it do? How much power would 1 of 12 or 13 have?
Perhaps the real concern is that any comments made in the board room with an elitist, robber barn we are the 1%, and down with the masses flavor, could wind up in the headlines.
Averting a strike now, and getting an investment bank positive review contract has advantages, but unless Boeing can find a way to row together as one team, there’s no getting out of this hole. Boeing’s negotiation strategy has to be getting a 70% approval vote on any contract. That costs, but the company will disappear if the Washington IAM is not revitalized.
https://x.com/jonostrower/status/1834432194812805390
If the new guy has any chance to save the sinking ship he has accepted command of, he’d better:
1) Fire his negotiating team first thing Friday morning
2) Understand from the IAM what is required to get a 90+% acceptance by Tuesday morning and put it on the Table on Monday
Precisely.
While the rally in the alley is now happening, reality will be setting in by October 1 when a couple paychecks haven’t been directed deposited and now they need to write a check for their October healthcare.
Might give time to suppliers to catch up on late deliveries and reset their production schedules.
With a 96% strike vote, it might take 8 weeks to reset expectations. That 25% pay raise might start looking pretty good.
RR
Maybe the “new guy” would be better off to let the sink ship and restart over after bankruptcy proceeding. This will allow the “new guy” to shed the past mistakes and streamline operations.
With a new union contract that allow the New Boeing Commercial (NBC) to selectively hire back previous IAM workers under a slimmed down grading classification with more flexible job transfer rules (get rid of legacy issues)
So what does the 96% strike vote show the customers (airline executives)? Will strikes happen every new contract? Will IAM require over market rate pay increases every new contract? Will this drive the airlines executives to tell Boeing to get their production house in order and move out of Seattle because they need aircraft deliveries on time?
95% rejected contract and 96% voted to strike?
So 1% approved the contract but still wanted to strike?
Actually, I’m not a mechanic and it’s been 20 years since I worked at Boeing, but as an expression of anger and disgust with recent management I am wondering, can I strike too?
Maybe they can broaden the tent and change it from a narrow IAM strike to a general anti-GE-beancounter-management protest movement?
Reuters:
“Data from equity research firm Melius Research showed median employee compensation for the aerospace and defense firms companies it monitors grew 12% between 2018 and 2023. It fell 6% for Boeing and 19% for Spirit Aerosystems.”