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Boeing Under Pressure From Union Strike Action as Recession Looms

Companies / Corporate News Sep 13, 2008 - 09:49 AM GMT

By: Mike_Shedlock

Companies Going on strike just as the global economy is headed into a recession is simply not a good idea. But that is exactly what happened to Boeing. On September 6th Boeing Machinists Start Strike, Jeopardizing 787 Plan .
Sept. 6 (Bloomberg) -- Boeing Co.'s machinists went on strike today, seeking improved pay and job security as the planemaker benefits from record orders and tries to keep its 787 Dreamliner schedule from slipping further.

The union's 27,000 members in Washington, home to Boeing's Seattle-area manufacturing hub, Kansas and Oregon began the strike at 12:01 a.m. local time today. Machinists make parts and assemble planes for the Chicago-based company, which trails only Airbus SAS in commercial planemaking.

"We're out here for a lot of reasons," including built-up resentment over previous contracts and workers' hopes for job security and higher pensions and starting wages, said Don Grinde, 51, as he picketed outside Boeing's Everett, Washington, wide- body factory, where he's a crane operator. "The first step for us is to hit the 'delete button' for all the take-aways, and then we can start from there" with a new contract.

The walkout may jeopardize Boeing's customer relations amid unprecedented demand from airlines for newer, more fuel- efficient planes and keep the 787, its most successful new aircraft, from flying this year. A monthlong strike would shave 31 cents a share off Boeing's earnings and cost $2.8 billion in lost revenue, Merrill Lynch & Co. analyst Ronald Epstein of New York estimates.

The International Association of Machinists and Aerospace Workers members rejected Boeing's three-year contract offer on Sept. 3, and leaders delayed the strike until today so the two sides could work with a federal mediator. The extended talks also failed because "the Boeing company did not address our issues," the union said yesterday on its Web site.

Boeing on Aug. 28 issued a final proposal that it called the best in the industry, offering an 11 percent pay raise over three years and higher pension payments. The company refused union demands to limit the use of outside contractors for work the machinists have traditionally done. Boeing also asked that workers pay higher medical co-pays and deductibles.

Test Of Wills

Bloomberg is reporting Boeing Engineers Bolster Machinist Outsourcing Fight .
Sept. 10 (Bloomberg) -- Boeing Co. engineers today became the planemaker's second union to demand the return of work farmed out to contractors, an issue that contributed to the strike started by 27,000 machinists Sept. 6.

The Society of Professional Engineering Employees in Aerospace, representing 21,000 Boeing workers in Washington state, Oregon, California and Utah, presented its first proposal to Boeing executives for a three-year contract to replace the one that expires Dec. 1, Executive Director Ray Goforth said.

The engineers may increase pressure on Boeing to take back work it gave suppliers to help control costs while developing and building planes like the new 787 Dreamliner. The strike by machinists shut down production at Chicago-based Boeing's Seattle-area manufacturing hub, where an increasing amount of the work is now the final assembly of parts built elsewhere by contractors.

"The fact the engineers are bringing up similar demands reinforces that this is a big issue for Boeing employees and strengthens the machinists' position," said Harley Shaiken, a labor-relations professor at the University of California at Berkeley. "We have a test of economic wills that could go on for quite some time."

The engineers' union is seeking raises, more vacation days, higher overtime rates, a restoration of early retiree medical benefits and changes to the health-care plan and pension, Goforth said in an interview. It's also "proposing limits to Boeing's use of contract labor," he said.

Boeing Strike: No End in Sight

BusinessWeek is reporting Boeing Strike: No End in Sight
Machinists face a loss of health coverage after three weeks, but anger over Boeing's power to outsource work may keep the strike going.

As the strike by 27,000 machinists at Boeing (BA) is poised to move into a second week, labor and management seem as far apart as ever. Estimates for how long the impasse will linger range from about three weeks, which would mark the time when health insurance coverage lapses for the strikers, to until a couple of weeks before Thanksgiving, when prospects for a lean Christmas begin to weigh heavily on both sides.

For now, both managers and union officials say, no talks are scheduled. Each is waiting for a call from the other and a federal mediator.

Just how Boeing and its workers went off the cliff, yet again, may be an object lesson in how tough it can be to bridge the gap between labor and management in a globally competitive, old-line business. If Chief Executive W. James McNerney Jr. wanted to use this go-round to break a nearly 60-year cycle of acrimonious relations between Boeing and the International Association of Machinists & Aerospace Workers (IAM), he certainly hasn't succeeded.

With a Sept. 3 strike vote looming, management caved in on the plan to end medical benefits for some retirees. They decided to stick with traditional pensions even hiking the amounts the company would contribute. Kight and his team made a best-and-final offer on the Thursday before Labor Day, offering raises of 5% in the first year of a new contract and 3% each for the two years afterward.

But the take-it-or-leave-it tack, which barred further talks before the vote, proved to be a dud.

The union pored over the offer and pounced on terms it found objectionable. Trims in health-care benefits loomed large, even though Boeing officials insist the changes on balance would be neutral, with higher co-pays offset, for instance, by cuts in premiums. Even more problematic, however, is the company's power to subcontract work, to let suppliers from around the U.S. and in other countries provide parts and have nonunion outsiders deliver such goods to the assembly lines in Washington. The union fears that such outsourcing, which it says has been on the upswing, will ultimately kill off jobs. Management contends that globalization requires it be able to have work done around the world—especially in countries where that might help it sell more planes.

By Sept. 3, when 87% of the workers backed a walkout, it was clear the union had long been spoiling for a fight. Sporting T-shirts emblazoned with the slogan "It's Our Time This Time," the workers paraded to the union polls led by motorcycle-riding colleagues. Many were angry when the union leaders agreed to delay the strike for 48 hours, until late Sept. 5, to see if any common ground could be found.

It's really anyone's guess just how drawn out and costly this fight will ultimately be. Analyst Cai von Rumohr of Cowen & Co. (COWN) figures a strike could last between 29 and 65 days, pushing a conclusion into mid-November at the latest. He figures the end of health-care coverage, at the opening of October, will put the first bit of serious pressure on workers, while in November the approach of the holidays steps it up. The union went on strike at Boeing for 69 days in 1995.

Von Rumohr estimates Boeing could lose as much as $2.3 billion in revenues this quarter. Some of that, of course, could include deferred rather than lost sales, but company officials do fret that demand for planes could slip over time, especially as the global economy slows.

Some workers say they'd love to see a change in the contentious relationship between the company and the union that flares anew with every contract round. "My family and I are completely exhausted with going through a financial disaster or potential disaster every three years," says one 21-year veteran worker. On the other hand, he looks on the IAM as one of the last strong unions able to hold the line on hard-fought gains, while other industrial labor groups have folded.

For the company's part, when Kight began the talks with the union back in May, he seemed to do so with the best intentions. "Boeing's goal is to create an open and honest environment by communicating frequently and having robust discussions," he told managers back then in an e-mail message. But when the differences—and distrust—are deep, honesty may do little to bridge the gap. Instead, it boils down to which side can stand the pain of a strike long enough to claim victory.

Over the Brink

On September 5 BusinessWeek was reporting Boeing Workers Are on the Brink .
Despite being offered a relatively generous package by management, Boeing machinists are ready to go on strike. Here's why.

When a stunning 87% of Boeing machinists voted on Sept. 3 to go on strike, second-guessers wondered whether these skilled plane builders had a few screws loose. After all, management was offering wage hikes that would top 11% over three years and bonuses of more than $5,000. Boeing was even offering to hike its traditional pension payments, rather than scrap them, as the company first proposed. "You guys are crazy!" wrote one reader on a message board. "Those numbers are great. Most people would die to get those raises in the midst of an economic slowdown."

What has these workers so riled up? Blame a contentious union-management history, and executive suite turnover that has led to costly strategic blunders. Throw in some job outsourcing and a bit of the trend that's swept across Corporate America to cut benefits and push costs for medical care onto workers. Add to that a sense that there may be no better time to grab a piece of the pie: Boeing's hefty backlog of plane orders has prospects at the company looking brighter than they have in years, and the company is racking up impressive profits, which the union says should be shared more with workers.

The result is a surprising recipe for an explosion of deeply felt anger. "We're fed up," says Russell Wise, a mechanic and team leader who is helping to build the company's new Dreamliner 787. "We're frustrated."

Indeed, while unions are in retreat in much of the rest of old-line industry—from carmakers to washing-machine producers—the angry Boeing workers believe they're in a position to hold the line. They're determined to keep the benefits they've won over the years and do even better, IAM members say. They've struck six times at Boeing since World War II, and are very happy to do it again.

IAM officials argue that Boeing has no business seeking any such rollbacks when the company is thriving. Instead, they say, it should be sharing the gains. In past years, especially when airplane orders dried up just after the terrorist attacks on September 11, 2001, the company put thousands of workers on furlough.

The BusinessWeek coverage of Boeing from all angles has been excellent. There is much more coverage and many more links in the Boeing Strike: No End in Sight article for inquiring minds to consider. And even though the economy in general is heading into the dumper, both in the US and globally, things appear relatively rosy for Boeing.

Management Mistakes

The mistake management usually makes in these situations is to project those rosy forecasts forever into the future. GM (GM), Ford (F), and Chrysler continually gave into union demands and that eventually and completely wrecked the automakers. To be fair, a string of incompetent management decisions on vehicles, leasing, and subprime lending have also taken a toll.

Unions nearly always want their "fair share" when times are good, never wanting to give anything back when times are poor. When it comes to the automotive sector, reality finally sank in when workers accepted buyouts out of fear of getting nothing if the automakers went under.

In this case, it is hard to say what "fair" is, but a bonus structure tied to profitability would arguably be more fair than other arrangements.

The longest strike at Boeing so far has been 69 days. So we will see who, if anyone " wins " this test of wills. From my perspective, the fact that 78% of union workers voted to go on strike in spite of an offer that most union in the country would die for, indicates something seriously wrong with the mindset of union workers in this global economic environment. The unions were itching for a fight and they got one. Time will tell who, if anyone, wins the battle. Most often both sides proclaim victory even though no one does.

By Mike "Mish" Shedlock

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2008 Mike Shedlock, All Rights Reserved

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