Thursday, January 02, 2014

Boeing's Biggest Union to Vote on Key Pact: Machinists' Decision Will Help Determine Assembly Site for 777X

The Wall Street Journal

By  Jon Ostrower

January  2, 2014 6:02 p.m. ET

Boeing Co.'s largest union is set to vote Friday on a contract that will likely shape the power of organized labor at one of the U.S.'s biggest manufacturers for years.

If members of the International Association of Machinists and Aerospace Workers, which represents more than 32,000 Boeing employees, approve Boeing's eight-year contract offer, the aerospace company has vowed to assemble its planned 777X and manufacture its carbon-fiber wings in unionized factories in Washington state that assemble most of its jetliners.

If a majority rejects the offer, Boeing has threatened to assemble the 350-to-400-seat jet and its wings, which it plans to start delivering in 2020, in another state. Boeing, in disclosures to states reviewed by The Wall Street Journal, has said that work could eventually involve about 8,500 jobs. If it goes outside Washington, analysts say the company is likely to locate in a state less friendly to unions.

The 777X is pivotal for Boeing. The current 777 models that it will replace are part of the backbone of Boeing's top-earning jets—its best-selling model carries a $320 million list price before discounts. Boeing delivered at least 90 777s last year. Production of those current models is expected to be phased out gradually once Boeing starts manufacturing the 777X around 2017.

The contract deliberations have divided the union's local and national leaders. Members rejected an earlier offer for the contract, which would take effect in 2016, by a 2-to-1 margin on Nov. 13, with many criticizing Boeing's demands for deep concessions such as changes to the wage structure and a shift of future retirement earnings from the current defined-benefit pension to a 401(k) system.

A revised offer from Boeing early last month keeps the pension change and other key concessions, including increased health-care costs. But Boeing agreed to preserve the current wage structure that increases each member's hourly pay by 50 cents every six months—separate from planned raises and cost of living increases—and "zooms" workers to the top of a pay grade after six years, instead of indefinitely continuing the 50-cent increases in the November offer.

Local union leaders rejected the new offer, but other local groups of Machinists that have been formed in social media back the deal—a contrast to November when little support was evident for Boeing's first offer. International union leaders who called Friday's vote haven't explicitly endorsed the offer, but have emphasized that the contract would assure job security for Machinists in Puget Sound.

Thomas Buffenbarger, the union's international president, said that while he supports defined-benefit pensions, "I am experienced enough to know that we have now become the tail trying to wag the dog to keep it there when all other locations [at Boeing] have moved to the 401(k)-style system."

Mr. Buffenbarger, in an interview, argued that a deal is urgent, because he expects Boeing to decide soon where to build the 777X wings.

"We're out of time," he said, adding that if they don't strike a deal now, Boeing would likely be "even more entrenched the next time around" in negotiations for the 2016 contract.

Tom Wroblewski, president of the local union, said in a late-December message in the union's newsletter that the deal provides a "weak promise of job security" and reiterated the local leadership's recommendation to reject the deal. He declined further comment through a spokesman.

The vote comes weeks after Boeing announced the biggest cash deployment in its history, with plans to return $10 billion to shareholders and increase the company's regular quarterly dividend by 50%. That move angered many workers.

Boeing, which is likely to post a record profit for its commercial unit for 2013, has said that intense competition requires it to reduce costs.

"The airplanes we are selling today are at significant relative price discounts compared to those in the past," Alan May, vice president of human resources for the commercial unit, wrote in a letter to Machinists.

Mr. May urged members to ratify the contract and said placing the 777X manufacturing in Puget Sound "will help us establish in this region a skill base...upon which to build innovations for the future."

After November's vote, Boeing solicited proposals from other states for the 777X work, eventually receiving bids from 22 states for 54 possible locations. It has said it narrowed that list down, but didn't elaborate.

Should the membership reject the deal, Mr. Buffenbarger expects Boeing to find a site outside of Washington state for the 777X's wings. Boeing could still choose to assemble the jet in Puget Sound, adding a logistical challenge to moving the massive wings to the final assembly site.

Boeing already makes some of its other main widebody passenger jet, the 787 Dreamliner, in a nonunionized plant in South Carolina, which it has indicated it plans to expand. Putting the 777X work elsewhere would leave Puget Sound primarily making the company's single-aisle 737 planes, some 787s and a limited number of 767s and 747s, an important part of its business but still a major reduction in the overall capacity and importance of those factories.