Leeham News and Analysis
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IAM rejects Boeing contract, strikes at midnight
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By Karl Sinclair
Sept. 12, 2024, © Leeham News: Boeing’s largest union today rejected a four-year contract and approved a walk-out beginning at midnight tonight.
The vote to reject the contract and go on strike were overwhelming: 94.6% to reject the contract, 96% for the strike.
For financially ailing Boeing, a strike is the last thing it needs. When the union, IAM 751, last struck in 2008, the walk-out lasted 57 days and set the foundation for labor wars that continued to this day. Then-CEO Jim McNerney the following year located the second 787 assembly line in South Carolina. (The first line, in Everett, was closed during the COVID pandemic.) In 2011, McNerney threatened to build the 737 MAX elsewhere if 751 members didn’t approve a contract amendment with concessions. He repeated the process in 2013 and 2014 with the 777X development. The latter was the second amendment to the 2008 labor contract that governed wages and benefits for the huge union, which represents workers at Boeing’s factories in Renton and Everett, home to the 737 and 767/KC-46A and 777, respectively. The IAM 751 also represents workers at other Boeing locations.
Union leadership want to recover benefit concessions and sharply increase wages that failed to keep up with inflation. They wanted a guarantee that the next Boeing airplane will be assembled in Puget Sound (the greater Seattle area). They wanted a seat on the Board of Directors and a role in changing Boeing’s failed safety culture.
Management wanted to hold the line. The company remains in a loss-making position, led by the continuing turmoil at Boeing Commercial Airplanes. The defense unit, which is not represented by 751, also is bleeding profits. The two units caused Boeing to burn through nearly $10bn in cash in the first half of this year alone. Only the services unit is making money, but not nearly enough to offset the losses and negative cash flows at the other two units.
More losses and negative cash flow is expected for the quarter ending this month. Company CFO Brian West speaks at a Morgan Stanley investors conference tomorrow. His will be the first detailed response to the union vote, whatever the outcome.
Internally, Boeing prepared for a 2-12 week strike.
Some observers fear that a long strike could shove Boeing into bankruptcy. LNA doesn’t agree, but we’ve nevertheless analyzed the prospect.
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. Read more
Boeing IAM vote in 2 days; approval a hard sell
By the Leeham News Team
Sept. 10, 2024, © Leeham News: Boeing’s touch labor union, the International Association of Machinists and Aerospace workers District 751 (IAM) votes in two days on a new labor contract.
Although a Tentative Agreement was reached Sunday and union leadership endorsed it, getting 50%+1 vote to ratify the contract appears in trouble. A concurrent strike vote requires a two-thirds majority for a walk out, and there is split opinion whether this high threshold can be met.
This will be a hard sell for IAM leadership. The deal makes progress in the areas IAM members identified as priorities, but falls short of the union’s stated goals in most of them:
Boeing, IAM reach tentative agreement on new contract
By Scott Hamilton
- IAM 751 and Boeing reach a four year contract agreement. The IAM summary is here.
- Additional contract news from the IAM is here.
- The Boeing fact sheet is here: Boeing fact sheet IAM 751 W24 TA highlights-090824a
Boeing CEO Kelly Ortberg. Photo source: Boeing. The new contract agreement between Boeing and the IAM 751 avoids a strike and potentially marks a new era of labor relations between the two.
Sept. 8, 2024, © Leeham News: In a development that is contrary to all expectations, The Boeing Co. and the IAM 751 labor union reached a tentative agreement this morning on a new four-year contract.
IAM members, who assemble Boeing’s airplanes in the great Seattle area, get a 25% raise over the life of the contract; the union asked for 40%. The value goes up to 33% in “wage growth” when the wage increases, and “progression” are calculated. Certain pay grades did get a 42.3% increase, the IAM said.
There is a lump sum payment of $3,000 and Boeing’s 401(k) contribution increases up to $4,160 per employee per year. The union asked for a return to a defined benefit plan, which was probably a non-starter. Lower costs for medical care were agreed.
Boeing committed to build the next new airplane in the Seattle area. A Boeing spokesperson did not have details whether this would be in Renton, where 737s are built, or Everett, where widebody aircraft are currently assembled. Boeing also committed to keep the current 737, 767 and 777X production in Puget Sound.
The union also wanted a seat on the Boeing Board of Directors. Neither side referred to the seat in their information released today, so it appears this may not have been agreed. The Boeing spokesperson had no information on this and the IAM wasn’t immediately available to comment.
The IAM leadership unanimously recommends approval of the contract. The vote is set for this Thursday.
If a strike occurs, here’s what Boeing can do
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- Contingency plan for 4-12 week strike.
By the Leeham News Team
Analysis
Sept. 5, 2024, © Leeham News: There seems to be quite an expectation that there will be a strike by Boeing’s touch labor union, the IAM walkout at Boeing this contract cycle. The costs associated with a strike are well understood. Crippled cash flow, upset customers, and stock price losses not counting the damage to the companies in Puget Sound that built much of their business models on Boeing worker’s paychecks. It’s never a good thing to sustain a strike of any duration because the disruptive effects can last for years.
The last time the IAM struck was in 2008, for 57 days. The strike cost Boeing billions of dollars in lost revenue, much of which was made up in the following years. The ill-will generated by the strike affected customers. Management-labor relations remain strained to this day. Union leadership is determined to recover previous givebacks in wages and benefits. They want a seat on the Board of Directors, a role in improving Boeing’s safety culture, and a guarantee that the next airplane will be assembled in Puget Sound.
Talks remain far apart, according to the union. Boeing says progress is being made. A strike seems likely at this stage.
Boeing is clear about a strike potential. In a message last week to employees, Boeing said:
Does Boeing want a strike so it can stabilize production or allow time for the supply chain to recover?
Absolutely not. Any work stoppage, whether days, weeks or months, would disrupt our production system, supply chain and most importantly, our customers. When Boeing cannot deliver airplanes as scheduled, customers question our reliability. A strike would only help the competition and hurt our suppliers.
What is Boeing supposed to do if the IAM walks out? The usual answer is sweeping and cleaning and trying to deliver whatever you can sneak out the door to keep the money coming in. It is never a very effective way to operate.
Here are some points to ponder if the strike occurs and Boeing production shuts down.
China banks on C919, but numbers say it still needs Boeing
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By Scott Hamilton
Sept. 2, 2024, © Leeham News: Airbus and Boeing see China doubling its airliner fleet over the next 20 years. The numbers vary between the two companies. But the underlying data points to how challenging it will be for China to meet this demand without letting Boeing back into the mix.
Boeing has largely been frozen out of China since 2017 when then-President Donald Trump initiated a trade war with one of the world’s largest economies. Then, Boeing’s self-inflicted wounds came in the form of the 21-month grounding of the 737 MAX, a 20-month suspension of deliveries of the 787, and major, slow rework required for each model.
On top of this, after Russia invaded Ukraine, the Biden Administration—which kept Trump’s tariffs upon taking office in 2021—ramped up the pressure on China, which initially covertly supported Russia’s war on Ukraine. This support became more open as the war dragged on.
Few Boeing airplanes have been delivered to China since 2017 and fewer orders have been placed.
Boeing predicts that China will need 6,720 single-aisle aircraft through 2043. Airbus sees a need for 7,950 single aisles for the same period. On the widebody side, Boeing forecasts a requirement for 1,575 aircraft; Airbus forecasts a need for 1,380. Widebody freighter forecasts for China are 170 and 190 by Boeing and Airbus, respectively.
Let’s compare these numbers with production rates. China still needs Boeing.
Using stock could be one option for IAM salary demands
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By The Leeham News Team
Aug. 26, 2024, © Leeham News: Boeing’s in contract negotiations with its touch labor union, the International Association of Machinists District 751 (IAM 751). The powerful union wants a 40% raise over the life of a four-year contract. Leadership wants to recover medical co-pays and reinstate a defined pension plan, given up in previous contracts.
The union also wants a guarantee that the Next Boeing Airplane (NBA) will be built in the Seattle area. Boeing’s executives used the threats of relocating 737 MAX and 777X assembly elsewhere to wring economic concessions out of 751 members in previous contract talks.
The contract expires on September 12. The union membership already has voted to authorize a strike on September 12 if the contract offer is voted down.
This time, the membership believes it is in a stronger bargaining position. Boeing’s weak financial position is viewed as playing right into labor’s strength. Jon Holden, president of the union, echoed those sentiments. “We understand our power. We are ready to use it,” Holden told The Seattle Times. Holden was also not going to let management off the hook, due to the poor financial position Boeing finds itself in, he told the newspaper. “It’s not about whether they can afford to pay us. That’s not even a question,” he added. “They can.”
But the ultimate question is, How can Boeing afford to pay what the union wants?
Here’s how.
The Military Gravy Train. Not for everyone.
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By the Leeham News Team
Aug. 22, 2024, © Leeham News: Lockheed Martin (LM). RTX. Northrop Grumman (NG), General Dynamics (GD). BAE Systems (BAE). These are the world’s largest defense contractors, by revenue.
| 2023 | 2022 | 2021 | |||||
| Sales | Earnings | Sales | Earnings | Sales | Earnings | ||
| Lockheed Martin | $67,571 | 6,920 | 65,984 | 5,732 | 67,044 | 6,315 | |
| RTX | $68,920 | 3,195 | 67,074 | 5,5216 | 64,388 | 3,897 | |
| Northrop Grumman | $39,290 | 2,056 | 36,602 | 4,896 | 35,667 | 7,005 | |
| General Dynamics | $42,272 | 3,315 | 39,407 | 3,390 | 38,469 | 3,257 | |
| BAE Systems (in £) | £25,284 | 2,682 | 23,256 | 2,479 | 21,310 | 2,205 | |
| (in millions) |
Source: 2023 Financial reports. BAE reporting in EBIT.
Five corporations. Three years. Fifteen sets of data points. Not a drop of red ink to be seen. Airbus and Boeing can’t say the same thing.
The all-important Unit Cost
- Part II of the Boeing Liabilities Problem
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By the Leeham News Team
Aug. 15, 2024, © Leeham News: Chief Financial Officer Brian West recently cautioned Boeing (BA) analysts and investors about the cash burn on the Q2/2024 earnings call;
“I’m just not smart enough right at this moment to say whether it’s $5bn or $10bn,”
BA used $4.3bn in the second quarter, which followed a burn-off of $3.9bn in the first quarter. The company shored up its cash position by borrowing $10bn during Q2/2024, injecting much-needed funds to cover losses. Eventually, all that money must be repaid.
LNA continues to analyze just how short Boeing is from that point and where it needs to be to make that happen.
Supply chain may be stabilising — but risks remain, says Accenture’s aerospace lead
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By the Leeham News Team
August 12, 2024, © Leeham News at Farnborough: After a period of intense disruption, the aerospace supply chain is showing signs of stabilisation, partly due to Boeing’s recent production slowdown, according to Accenture’s global aerospace and defense lead, John Schmidt.
Titanium is now a scarce material given the sanctions against Russia. All Airbus and Boeing airplanes use the material. Photo Credit: Leeham News.
The reduction in output has eased some pressure on suppliers, allowing them to catch up on backlogs and recalibrate operations. However, Schmidt warned this respite may be short-lived as new challenges loom on the horizon.
Geopolitical tension involving Western nations and Russia, and the Asia-Pacific region, risks raw material shortages that may disrupt the delicate balance once more.
“The supply chain has evolved and changed in terms of where the focus is since COVID,” noted Schmidt in a sit-down interview with LNA at the Farnborough Airshow in July. “It wasn’t too long ago that we couldn’t get chips – chips were holding things back. It seems like we’ve gotten ahead of that, and now we’re dealing with trying to find other sources of supply, and sometimes it’s an issue with quality coming in.”
“What’s next is going to be sources of supply for things like titanium? There is enough in the supply chain already that has insulated the impact, but we’re starting to see early indications that [titanium] might be the next thing that comes up.” Read more