Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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- Bjorn’s Corner: Air Transport’s route to 2050. Part 19. April 25, 2025
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
Today’s the big day for Boeing, IAM, WA State and rivals
Today is Wednesday, Nov. 13, and it is the big day for Boeing, IAM, Washington State and rival states wanting to build the Boeing 777X.
IAM 751, the local union that provides the “touch labor” to assemble all the 7 Series commercial jetliners except those assigned to Boeing’s South Carolina plant, has a hard choice: accept deep givebacks in its pension plan, health care benefits and wages in exchange for the 777X work, or roll the dice, reject the Boeing contract proposal and challenge Boeing’s statement that it will put the 777X assembly out to bid.
Rival states are salivating. The Seattle Times reports that internally, Boeing’s facilities in Long Beach (CA), Huntsville (AL) and Salt Lake City (UT) are the top possibilities outside Washington. Interestingly, Charleston (SC) is not on The Times lists because the Boeing plant there still doesn’t have the 787 assembly under control yet. It had been widely assumed Charleston would be the first choice outside Washington.
Neither is Boeing’s San Antonio (TX) facility on The Times list.
Political officials in South Carolina and Texas have already expressed interest in bidding on the 777X. We’re told Utah has already submitted a proposal, but this is unconfirmed.
Long Beach is a major Boeing facility that was part of McDonnell Douglas prior to the merger of the two companies. All DC and MD commercial jets were built there, and the last remaining vestige of McDonnell Douglas, the C-17 military cargo transport, is slated to end production in 2015. But California is a heavily unionized state and the business climate there is widely considered poor. The other states are right-to-work states.
Texas Gov. Rick Perry reportedly Tweeted he hopes the IAM rejects Boeing’s contract offer and invited Boeing to Texas.
The IAM votes until 6pm. IAM 751 officials have historically been open and transparent during the counting process, allowing media to observe. IAM International, which has muscled out the 751 officials and which is overseeing counting, has decided to bar the media during counting except for a five minute photo op.
Odds and Ends: Right to Work; Middle East influence; latest on Boeing-IAM
Right to Work or Right to Worse: One of the more controversial issues in the relationship between Boeing and the IAM is Boeing’s continuous threat of removing work from union-heavy Washington and putting it in Right to Work states. South Carolina, of course, is at the top of this list.
KIRO Radio (CBS-Seattle) has a story about a Seattle transplant to Boeing’s Charleston plant who finds some interesting differences between the two locations.
As the IAM prepares to vote Wednesday whether to accept a contract extension that includes significant give-backs in exchange for landing the 777X Final Assembly Line and wing production, Boeing holds the prospect of locating the work in Right to Work states. These have been assumed to be or identified (though not by Boeing) as South Carolina, Texas and Utah. Boeing has facilities in each of these states.
As Readers know, we have suggested Washington needs to become a Right To Work state, which labor characterizes Right To Worse. It’s not that we favor RTW per se (though we do but not dogmatically), it’s more driven by the fact that Washington’s competition is RTW–and Boeing is very effectively using this as leverage over the Washington unionized labor force, and to extension, over the Washington Legislature when it compares our state’s cost of doing business with other states.
Meantime, Boeing has launched its website with its view of the contract proposal.
This is the letter Ray Conner, CEO of Boeing Commercial Airplanes, issued last week.
Middle East Influence: Aviation Week has a good piece about the evolution of the influence of the Middle Eastern airlines on aircraft design. Flight Global has this analysis of the Airbus A350-1000 vs the Boeing 777X in advance of the Dubai Air Show (free registration required).
Boeing IAM-Update: The Seattle Times has the latest from IAM 751 and from Boeing pending the vote tomorrow. Ray Conner, CEO of Bo9eing Commercial Airplanes, said Boeing is “under siege” from foreign competitors, including the Japanese, Chinese and Russians.
Maybe so, but Boeing has been helping these countries and their aerospace industries by outsourcing to them.
We also find it difficult to have sympathy for Boeing at a time when it is posting record profits and undertaking billions of dollars in stock buybacks instead of plowing the cash flow back into research and development instead of designing derivative airplanes.
Countdown to the IAM 751 vote Wednesday on Boeing’s contract offer
The vote of IAM 751 membership on the Boeing contract proposal is Wednesday, and over the weekend, some disturbing details emerged in the non-stop coverage locally.
The Seattle Times’ Dominic Gates reports that it’s now clear there is a schism between the IAM International HQ in “the Other Washington” and the IAM 751 local leadership. Readers will recall that last Thursday, Tom Wroblewski, president of the local, dramatically called the proposed contract, containing substantial take-aways (as local membership calls it), “crap” and tore up the agreement. It was entirely a symbolic move; the International decreed the vote would proceed as planned.
For someone who purportedly helped negotiate the agreement, this was odd behavior, to say the least. With Gates’ reporting, it now appears there is far more to the back story than meets the eye.
The 751 media team has been put on ice by International, and all media calls (including ours) are now referred to the International. The local leadership isn’t making statements to the press; it was an International official who spoke with Gates.
It’s now pretty clear that International is driving this train, apparently by-passing the local leadership in crafting this contract extension.
The question is, “why?” What’s in it for the International to negotiate an agreement that has so split the local membership?
Whatever the outcome, Boeing comes up a winner. If it gets contract approval, it has a divided IAM 751 membership. If the contract isn’t approved, it has a divided membership and a free hand to take the 777X to Charleston, where the 787 is also assembled, to Texas, where it has a facility, to Utah, where it has another operation (and all of which are right-to-work states), or an option to take another crack at reaching an agreement here.
In any case, it’s clear there is a split between the IAM 751 and the IAM International, and this can only benefit Boeing.
Gates’ Sunday reporting includes some language that, for a family newspaper, is pretty unusual. Coupled with Wroblewski’s “crap” and Sunday’s reporting, not since the days of President Clinton and Monica Lewinsky detailed an entirely new use for cigars has mainstream reporting been so graphic.
Here are some weekend stories:
It’s a kick in the balls but better than decapitation
Legislature Approves Boeing incentives
Anguish Many of Us Can Understand
In a break from all the doom-and-gloom, hand-wringing and controversies surrounding the IAM-Boeing stuff, Seattle Times columnist Ron Judd on Sundays takes an irreverent look at news in the Puget Sound area. He lent his wit and sarcasm to this issue in Once again, Boeing’s got our back.
Special to Leeham News: A compromise on pension plan
With the IAM 751 membership vote scheduled for Wednesday this week, one of the biggest areas of controversy is Boeing’s plan to eliminate the defined pension benefit plan in place now and replace it with a 401(k) plan. IAM 751 is the last Boeing union with a defined plan, and Boeing has tried for years to do away with this.
IAM 751 members appear to be split over this issue.
We received a suggestion from a Boeing retiree, Donald Shuper, who is a regular contributor to our Reader Comments. A long-time shareholder activist of Boeing, he’s offered shareholder proposals (which management routinely rejected and shareholders voted down) throughout the years.
Here’s Shuper’s suggestion for a compromise on the pension plan. It will be irrelevant, of course, if IAM members approve the proposed contract but could be a basis for discussion if the contract is rejected.
A Suggested Compromise on the Pension Plan
By Don Shuper
1995 Boeing Retiree
A major sticking point for the IAM in the Boeing Proposal appears to be the freezing of the defined benefit plan (BCERP) and conversion to a defined contribution plan generally known as a 401K plan. This conversion puts all the risk for future growth or loss on the employee, while eliminating future liabilities for Boeing.
In the event the Boeing proposal is turned down by the IAM, I suggest a possible compromise on the Pension issue that might be considered. In simple terms, it would involve melding the existing Boeing PVP ( Pension Value Plan ) , also known as a Cash Balance plan with the existing BCERP Plan ( Boeing Company Employee Retirement Plan )
The PVP generally favors the younger employee, while the BCERP makes more sense for the older longer serving employee. (This is a very simplified explanation.)
For 2012 the following data applies:
- The PVP Plan had 201,343 total participants with 83,577 Active employees
- The BCERP Plan had 151,086 total participants with 56,091 Active employees
- Combined, both plans had about 6.5 Billion in carryover balances.
Perhaps it is time for both sides to have a significant discussion/review on a possible melding of the PVP, the BCERP and the current proposal regarding age changes and 401K contributions. The aim would be to provide a guaranteed floor based on vested benefits, plus a risk component in 401k funds.
Background
From 2001 to 2004, I had a shareholder proposal on this issue which in the 2004 proxy stated:
RESOLVED: Shareholders request the Board of Directors adopt the following policy:
(1) Employees vested at time of conversion be given a choice between their old pension plans (the “Heritage Plans”) or the Pension Value cash-balance plan (the “PVP”) at time of their termination or retirement.
(2) The PVP to provide a monthly annuity at least equal to that expected under the Heritage Plans, or an actuarially equivalent lump sum.
This proposal received about 12 percent (61 million shares ) approval. Shareholder proposals are precatory, and even if passed, need not be implemented.
Suggestion
There many reasons put forth by the company as to why they did not want to implement at that time. I suggest the Boeing comments against in the 2004 proxy be reviewed as to current times.
The unions were not in favor of a total conversion to the PVP due to the increase from age 60 to 65 to get unreduced benefits.
Both sides have the capability to get expert actuarial help and analysis to make the necessary modifications to the proposal and plans.
I believe the following positives could result.
A) The BCERP plan need not be frozen since over time the general arrangement of the PVP plan when combined with the 401k plan could eventually provide better benefits for the employee compared to BCERP.
B) Boeing would retain the ability and option to use “surplus” funds ( as defined by ERISA ) in the BCERP and PVP plans into Operating Earnings. That option would not be available with the 401K plan as currently proposed.
C) Employees could have a ‘guaranteed floor’ of vested defined benefits based on their BCERP/PVP credited service and a risk component of 401K gains at least during the proposed time of the contract extension. This would ‘share the risk’ instead of ‘drop the risk’ proposed.
Suggested Links
2004 PROXY
http://www.boeing.com/assets/pdf/companyoffices/financial/finreports/annual/04proxy/2004proxy.pdf PAGES 47 TO 49
PVP PLAN
http://www.boeing.com/assets/pdf/companyoffices/empinfo/benefits/pension/spd/spd_94.pdf
BCERP PLAN
http://www.boeing.com/assets/pdf/companyoffices/empinfo/benefits/pension/spd/spd_58.pdf
Summary of Plan Finances
http://active.boeing.com/companyoffices/empinfo/benefits/news/pension_fund_2012.pdf
Latest on Boeing v IAM v WA State in 777X drama
Here are some developments since Friday in the drama over Boeing vs the IAM 751 and Boeing vs the Legislators in Washington State in the effort to site the 777X at Everett, Boeing’s main wide-body production plant and the current location of what we’re now calling the 777 Classic:
- After a kumbaya moment when Gov. Jay Inslee announced his plan last Tuesday for a series of incentives the State could offer Boeing, including an $8.7bn extension of the (illegal) 787 tax breaks to encompass the 777X and a $10bn transportation tax over 10 years opposed by Republicans, the political on-line magazine of Washington politics, Crosscut, has this not-so-kumbaya wrap-up.
- Dominic Gates, the aerospace reporter for The Seattle Times, did a rare radio interview–this for Seattle public radio station KUOW–in which you can almost hear the plaintive, “Can’t everybody just get along?” call.
- Other states are salivating over the prospect that the Washington Legislature or IAM 751 will blow their opportunity to land the 777X. South Carolina has already said it can’t wait to step up. Texas, where Boeing has a facility in San Antonio, is presumed to be another option. California media is engaged in hyper-speculation over the prospect of Boeing’s Long Beach plant as a potential site, though even they admit this is a long shot. We know of another state that is ready to step up, but were told off the record so we can’t report the name.
- Adding to the hyperbole, Gov. Inslee told legislators that 49 other states are ready to make a bid. We doubt that placed like Alaska, Hawaii or Vermont (just to name a few) really are prepared to do so.
- Ray Conner, president of Boeing Commercial Airplanes, issued a letter Friday to all employees (but obviously intended for the IAM), urging contract approval.
Deadlines:
- This Wednesday, Nov. 13, for the IAM vote.
- This week for the Legislature, though a vote on some of the elements could come as early as today.
- The Dubai Air Show begins Nov. 17, where Boeing is expected to officially launch the 777X program and would like to have the site location controversy put to bed.
Boeing to explore options on 777X
Boeing issued this statement late last night on the news the IAM likely won’t approve the contract offer in exchange for Boeing siting the 777X assembly in Everett:
All of our options are still on the table, including those within Boeing and other interest we have received from outside.
We chose to engage in Puget Sound first, but without full acceptance by the union and legislature, we will be left with no choice but to open up the process competitively and pursue other options for locating 777X work. If this is not ratified per the scheduled union vote on November 13th, we will begin taking the next steps.
Our comment: Some IAM members evidently think Boeing is bluffing. This view is fantasy. Boeing will put the 777X elsewhere (Charleston being the obvious choice).
This is an extremely negative turn of events for Puget Sound, for Boeing and the IAM. If the IAM disapproves this contract and Boeing puts the 777X in Charleston (or Texas or anywhere else), we see open warfare between the union and Boeing, with union payback coming in 2016 when the current contract expires. The 2008 57-day strike was payback for prior outsourcing. We can easily see a strike in 2016.
Boeing will continue to move jobs out of Washington State if this deal is rejected. As distasteful as contract provisions are, it seems the IAM membership would rather cut its nose off to spite its face than to save and create jobs. We’ve seen this before. We hope we won’t see this again.
To set a flavor of member sentiment directly from them, see IAM 751’s Facebook page. When we looked last night, there were more than 400 comments, all but a handful negative.
This is a very negative, discouraging turn of events.
Other news:
Some Washington Legislators say that in exchange for tax breaks for the 777X, Boeing must commit to build all 777Xs and derivatives in this state, reports The Seattle Times. This requirement was absent from the 2003 tax breaks Washington granted Boeing for the 787 final assembly line, leaving it open for Boeing to place the 787 Line 2 elsewhere.
South Carolina is ready to step up on 777X, Tweets the Charleston Post and Courier.
It’s perhaps worth reading a couple of our own posts from 2009 when Boeing chose to put 787 Line 2 in Charleston:
Politics rears head over Boeing state incentives
It took no time at all for politics to rear its head in Washington State over Gov. Jay Inslee’s proposal for an incentive package for Boeing in exchange for siting the 777X in Everett.
Republicans, who oppose any tax hike for any reason under any circumstances, wasted no time in raising questions over the transportation tax proposal, or even if there was a need for the incentives to clinch the deal.
The IAM 751 local, which has its own problems with its membership over the proposed give-backs in the contract extension, lost no time in marshaling a team to lobby the legislators.
The Tacoma News Tribune asks why a special session is needed at all.
The IAM members vote next Wednesday, Nov. 13, on the contract. It’s unknown yet how the Legislature dynamics will play out.