Nov 142013
 
The new 777X airplane is Boeing's next major airplane project.

The new 777X airplane is Boeing’s next major airplane project.

Boeing’s long-time loyal association with the Seattle area ended over a decade ago, when in 2001 it made a decision that seemed stupid at the time, and seems even stupider with the benefit of hindsight, to move its corporate offices to Chicago, although to be fair to Boeing, WA state had definitely been taking Boeing for granted for decades.  But a move to Chicago seems to be an example of ‘cutting off one’s nose to spite one’s face’ rather than a sensible management decision.

While there are lots of reasons for the disastrous development of the 787 and only slightly better development of the 747-8, clearly one of the factors has to be the physical distancing of upper management from their production facilities.  Boeing replaced the famous concept of ‘management by walking around’ with ‘management by walking away’ and has been the weaker for it, ever since.

Boeing’s uncoupling from Seattle has continued since that watershed moment in 2001, and in its most visible form can be seen in the 2009 decision to open a new $750 million assembly facility in South Carolina, and its 2013 decision to spend another $1 billion on expanding that facility.

Although there were and are no obvious reasons to move Boeing’s headquarters away from Seattle, there are all too obvious reasons why Boeing is expanding its manufacturing away from Washington state.  Boeing considers itself saddled with too-high labor costs with its union employees in WA, and probably believes it can lower those costs by moving labor to right to work states such as SC.

Not only does Boeing have what it perceives as uncompetitively high labor costs in WA, it also has a rather fractious relationship with its unions, and has endured two extended strikes by its machinists (in 2005 and 2008 for one and two months respectively) and lots of surrounding ill-will.  Some people might think that even if Boeing’s labor costs were lower in WA, it would still prefer to move to a non-union state where it might have an opportunity to create a more stable and positive work environment.

With that as background, Boeing has several key decisions to make about future airplane assembly, with the most immediate of them being where it will assemble its new generation of 777 airplanes.  The obvious choice, for very many reasons, is in its existing Everett (just north of Seattle) facility – this is where current 777s are assembled, and the Everett plant would seem to have sufficient capacity to accept the new production line.  The Seattle region also has an enormous abundance of supplier companies that provide Boeing with many of the sub-assemblies and components and other resources needed.

And whereas in the past Boeing has indeed been largely taken for granted, that quickly changed after the 2001 move of its headquarters.  In 2003 Boeing extracted a $3.2 billion package of tax concessions from WA state in return for siting its 787 assembly in WA – a reciprocal gesture that has been somewhat watered down by Boeing opening up its second 787 assembly line in SC.

Oh yes, and in among Boeing’s complaints about allegedly illegal government support given to Airbus, the WTO has ruled that its $3.2 billion from WA is also illegal.  Boeing is currently appealing that ruling.

Although in the past, Boeing has sometimes clearly had the weaker hand to play in its labor negotiations, allowing its unions to possibly drive more favorable bargains than Boeing would have otherwise wished to agree to, that dynamic is dramatically changing.

Boeing has learned from its past weaknesses, but it seems their machinists union (IAM – the International Association of Machinists and Aerospace Workers) has failed to appreciate the strategic shift in balance.

Currently the contract between Boeing and its machinists runs through 2016.  Boeing very cleverly told the IAM that it wanted to renegotiate its contract right now, with a new contract containing reduced benefits for its machinists.  If the union were to accept the contract, Boeing promised to build the new 777X in WA, but if the union refused the contract, Boeing said it would choose the most advantageous location for this new assembly project, wherever in the US that might be.

The machinists found themselves in a difficult position.  They couldn’t use their traditional bargaining tool – strikes and the threat of strikes – because their agreement remains current and in place.  All they could do was accept Boeing’s offer or refuse it (or try to negotiate an improved deal).

On Wednesday the local union members voted, and when the votes were counted that evening, Boeing’s offer had been rejected by a 2:1 margin (33% for and 67% against).

With ill-concealed glee, Boeing promptly announced it was considering other alternatives for the 777X assembly line location.

We can understand the machinists wanting to earn as much money as they can, and to keep their benefits as favorable as possible.  But do they understand that their refusal now means they risk losing their jobs if Boeing locates the 777X assembly facility elsewhere?

Indeed – wonderful irony – the workers who lost their jobs might find their only comparable employment opportunity would be to move to whatever state Boeing’s new plant is opened in, at their own cost, and accept a job with the new Boeing factory, at a lower rate of pay and with greatly diminished benefits, than those which they would have had if they’d accepted Boeing’s offer on Wednesday.

This makes claims by union leadership that the ‘no’ vote has ‘saved our union’ hard to understand.  If Boeing moves thousands of jobs away from WA and the union, how has the union been saved?

Other union representatives talked about Boeing being suicidal if it chose to move out of WA, but they also need to clearly think through the issue of who is being suicidal.

We’re not debating the rights and wrongs of what constitutes a fair rate of pay, nor are we speaking for or against unions.  We’re simply pointing out that Boeing has clearly shown it will go – and that it already is going – where its costs are lowest.  Boeing’s Seattle region workforce can no longer dictate labor costs to Boeing, because they’re no longer the only game in town, and there is no ‘secret sauce’ that only union members have access to when it comes to assembling airplanes.

It seems to us that the suicidal tendencies are entirely and exclusively on the union side.

For its part, the WA government urgently put together another $8.7 billion of tax concessions – concessions that seem likely to also be ruled as illegal by the WTO – to try and keep Boeing in WA, but this alone, without the union agreement, may not be sufficient to keep Boeing’s 777X assembly in WA.

While there’s no doubt that some Boeing executives would be delighted to rid themselves of their dependency on the IAM (and their other Seattle area unions too), Boeing isn’t being primarily motivated by malice.  It is prudent business sense to control your costs, and in particular, Boeing makes the point that it needs to compete against other airplane manufacturers out there (although it seems strange to think of EU based Airbus as a low-cost manufacturer!).

However, malice or not, the rush by the IAM to put this contract revision to its members and its overwhelming rejection certainly provides plenty of confirmation to Boeing that its union relations in the Seattle area will continue to be troublesome, and this has to encourage them to consider moving elsewhere – indeed, less than a day later, Boeing is reportedly already speaking to Utah and possibly other locations.

Here’s a helpful article from The Seattle Times and some interesting commentary from Leeham News and Comment.

  7 Responses to “Seattle Area Boeing Union Eagerly Commits Public Suicide”

  1. David, You are certainly right, these union fools have cut their own throat. The question is, what should we do about it–anything? Do we need to convince the powers that be in Stanwood to quit fighting big-box stores because these guys are going to need jobs? Or, do we convince legislators of the need for open-shop laws to avoid more of this union suicide nonsense? Nonunion folks need to understand that our property values have taken another shot. All one has to do is to check the economic growth and property values in states like Texas and South Carolina with open-shop laws to know that WA will suffer long term. I am not a fan of Boeing’s management but, as you point out, the bottom line is the challenge and unions have a 60 year history of commiting suicide. I am old enough to remember the unreasonable demands of auto unions in the ’50’s and the result is Detroit. Will Seattle, et. al. join Detroit?

  2. The union and its leadership itself is perfectly safe, hence their comment. You captured the situation of the rank-and-file membership selected perfectly. Here in Indiana, right-to-work legislation was passed at the state level and the talking points from the union types were consistent: unions built the framework that is modern US labor law, so we (the union) deserve special treatment in the labor marketplace.

    When the local Whirlpool plant shut down and moved to Mexico, the president of the Teamsters came to march on the day the plant closed for “solidarity with the brotherhood”. Surprisingly to me, many local union members were in awe of his “bravery and leadership”. I thought the plant closure was a failure of leadership on both sides. Whirlpool proposed 3 different contracts for membership approval and the union voted all 3 down (for very flimsy reasons). In the end, all the jobs went away – Whirlpool was the last assembly line in town. The state passed right-to-work the following session.

    One only needs to read the paper (internet) to see the exodus of US jobs from union shops to non-union shops. While I certainly appreciate the union’s talking points of their historical significance, this is no longer the 1870’s or even the 1930’s, and the unions need to recognize that the playing field has changed dramatically.

  3. the unions are a scourge on the nation,low lifeworkers expecting excessive salaries without contemplating the ramifications of their actions,hurrah for boeing Barrie Whitehead

  4. “Boeing CEO Jim McNerney’s compensation rose 15 percent last year to $21.1 million.” And his projected retirement income is a quarter million a month. And the offer to the machinists is 1% every other year. You really think Boeing is concerned about excessive salaries? Wake up.

  5. The purpose of Unions were to break the sweatshop mentality of American manufacturers who paid a little as possible while producing the minimally acceptable product to consumers. You can argue for or against Unions but the records have shown that unions have raised the American life style from wage slave to middle class. While that seems out of political favor today most baby boomers were raised in union employed homes.
    Now for the cruxt of the issue. Boeing may move away but it’s many Seattle based essential sub suppliers are union and those costs won’t change. Boeing has had dismal results with production in Asia. The EU isn’t going to lower it’s costs to Airbus so Boeing’s issue is bottom line profit and stock value. That was the sole purpose of the move to Chicago. One might notice that the Management hasn’t lowered their salaries or bonuses one dime.

  6. This was not about excessive salaries. If you wish to review excessive salaries, check out what McNerney and the rest of his contemporaries make with bonuses, pay incentives and retirement. Compare that to the union members. McNerney would continue to draw a very lucrative salary and the new worker at Boeing would take 16 years to attain the maximum portion of his wage. This happening at $.50 every 6 months. A family of 4 cannot survive on the starter wage unless the partner has a job that pays better. Also, review the history of pension plans and the manner in which company’s offload them. This was the beginning of the removal of a pension plan that was a contractually agreed upon item, which Boeing will exempt itself from. The retired worker will have no recourse when his/her pension dissappears and they are no longer able to be employed. Whether you agree with the pension scenario or not, if a group has negotiated a contract, neither side should be able to change the terms after the agreement has been signed, especially when one group no longer has the ability to bargain. That is the case for retirees. They have no bargaining positions. They are no longer employed by the company and as a retiree, they are no longer a voting member of the union. You might as well take social security away from all the elderly and shoe horn them back into the work place. It will work just as well.

  7. A couple of responses, and I’ve really not got a dog in this fight, I simply want to see issues are fairly aired and explained.

    First, I’m as appalled as anyone at the rampant inflation of senior executive salaries, and the beyond hypocritical situation where people on seven figure salaries, getting enormous annual raises, and with retirement benefits fit for a king feel able to impose cuts on people earning close to survival level wages.

    But, when you look at the cost of each of Boeing’s planes it builds, the cost of McNerney’s salary, whatever it is (let’s accept the $21 million figure, above) comes to about $30,000 per plane. That’s nothing compared to the cost of all the machinists and their labor, which I’ll guess to be 100 times more per plane, maybe even even higher still.

    Second, it is fine to go on a riff about removing pension plans and below poverty level wages, but stop and ask yourself – what will these people have when Boeing leaves town? They’ll have nothing. They’ll e unemployed, and unemployable, in an area full of similarly unemployed people.

    I’m not saying that the Seattle area is the next Detroit, but I am saying that the unions should see what happened in Detroit and learn their lessons. Companies will prudently control their costs, and if unions refuse to compromise on demanding high wages, they’ll end up with no wages. That’s hardly a win for the union or the workers it represents.

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