Unfinished 737s await completion at Boeing's Renton, Washington factory this weekWith jetliner production frozen, Boeing and the International Association of Machinists and Aerospace Workers, the company's largest union, struggle with the future of the company.
The confrontation centres on the role of outsourced responsibilities once held by machinists inside Boeing facilities.
The outcome of the battle between Boeing and the IAM is likely to have an impact on the company well beyond the troubled early years of the 787 programme.
In a cyclical industry, Boeing's business case for outsourcing pits oversight against stability. The shared responsibility and risk of the programme, Boeing argues, insulates the company from the painful cyclical industry downturns, opting for stability over direct control of suppliers.
Without having to manage a native workforce beyond a core final assembly team, Boeing would need only to specify the rate at which suppliers deliver to the company, maximizing productivity and better managing the aircraft backlog. The responsibility for managing the workforce is the responsibility of the suppliers and sub-contractors, not Boeing, potentially avoiding significant layoffs of its own in the event of a downturn.
The goal is to "get the volatility out of the programme," said Ron Epstein, industry analyst with Merrill Lynch.
Epstein emphasized that the key to success becomes the strategies employed in managing the outsourcing.
Though the underlying business case for outsourcing pre-supposes a supply chain able to meet the demands of its customer.
In the first 16 months of final assembly operations, the significantly outsourced 787 supply chain found itself unable to keep pace with the early and aggressive demands of the programme schedule, forcing at least a 15 month delay in the first delivery to Japan's All Nippon Airways.
Boeing has worked to regain oversight and drill down into its suppliers to regain the stability it had hoped to have.
Both the IAM and SPEEA, the union of engineers readying for a contract battle of its own, contends that the 787 programme would have been able to avoid its early problems had a larger share of work been allocated to Boeing employees.
The IAM and its membership of 26,800 roundly rejected Boeing's best and final contract offer 3 September, which provided an 11% increase in pay over three years, plus bonuses.
Though the Union voted 80% to reject the contract and 87% in support of a strike. The union membership emphasized that it was not the pay increase it took issue with, but new contractual provisions opening the door for expanded outsourcing for the movement of parts to Boeing's legacy programs inside the company's facilities. Currently, that responsibility is sub-contracted solely for the 787 programme.
The strike, which is into its second week has left four 787 flight test aircraft, about a dozen and a half 777s and twice as many 737s, and a handful of 767 and 747s languishing at various states of assembly at three Boeing facilities in Washington State.
There is no sign that the contract battle and strike are nearing a conclusion.
"I think there'll be at least a one-month delay," said James Bell, Boeing Chief Financial Officer at an investor conference. "Right now it's a one-for-one day slip on the 787 and all other programs as well."
On the other side of the picket line, the union appears to be preparing for a prolonged fight, advising its members that, "If you have ongoing prescriptions, fill them NOW and fill them again before the end of September."
The union membership loses it health insurance on 1 October.
As prepared for Flight International Magazine next week. Photo credit: FlightBlogger
on September 12, 2008 11:49 AM | Reply
Boeing has to hold it's corse and not give into the IAM demands. The financial ramifications will reshape the financial future of BCA. If the IAM gets it's way it will mark the start of the end for Boeing Commercial aircraft.
By keeping a lean work force and putting focus on assembly the Boeing Company will secure it's long term financial future.
Being a share holder I am prepare to weather the loss so as there is a gain in the end. I am still of the opinion that BCA needs to be moved to a location that will offer employees the right to choose weather to be represented or work as self repesented labor.
The future of Union labor in America rests squarly on the shoulders of the IAM. In this case there will probaly not be any clear winner unless Boeing moves BCA to a right to work state.
As a share holder I am also prepared to buy special stock that would cover the cost of moving BCA to a more employee friendly location like
Arizona, Alabama or Texas. Heck why not move it to Mobile, AL
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on September 12, 2008 12:02 PM | Reply
When 85% to 90% of your customer deliveries are to foreign airlines and the customer country wants a piece of the action, you don't have a lot of choice. That is why Airbus is making such strides with the A-30 tanker. They are willing to put final assembly in the U.S. Airbus is thinking globally while the union is being parochial. You can only do that when the 85% of deliveries are to U.S. airlines.
The union at present has the ability to challenge any assembly manufacturing location on a cost basis. If Boeing workers can do it cheaper they get the job. Considering the transportation penalty that foreign suppliers pay, the union should be able to compete.
on September 12, 2008 3:19 PM | Reply
While "Texan" (who may or may not own shares)
sees the Boeing outsource strategy as needed and worth the cost of a protracted strike to current earnings and customer relations and commitments,
it appears to most of us that the outsourcing strategy is half baked.
Per Boeing, the cause of the 15 month (and growing) delay to the 787 program is due to its global supply chain's inability to perform.
What is left unstated in blaming its supplier's is Boeing management's own responsibilities in managing both its strategy and its mitigation.
So, it would appear Boeing's current labor contract approach is to what...? double down on what has produced dramatic financial losses, loss of customer confidence, and a share price decline of >40%.
on September 12, 2008 8:00 PM | Reply
RE: “anonymous”
This Texan dose own shares in BA as well as LUV, MESA, SPR and a host of other non-tech stocks. Yes they are mostly in the tank right now but then so are a lot of others.
While my BA stocks are not as far down as some people, I am OK with my 3.4% loss. I have been in the aerospace business for 28 years. I started in the military and have A&P, IA and DER credentials on my resume. I worked my way through college by building Boeing airplanes. I graduated from the BA Liaison Engineer Course and am a Boeing MRB Certified Engineer. I have worked for 3 large airframe manufactures and 2 major US airlines. So I think I know what I am talking about. I have seen what unions have done to good companies. Unions are like “White-Out” everyone know what it is for but has little or no use for it today…Well except for the folks who are still locked back in the 40’s to 90's.
In today’s world you have to take care of yourself. Look at what happened to the retirement for the guys at Northwest...The Union bargained and in the end it was the union who caused the airline to file for bankruptcy. I have friends who lost everything after spending 20 + years supporting the union at Northwest. They lost most of their retirement, medical, and many lost their homes.
I am a well educated person who is not going to let that happen to me. I am on track to retire with NO worries about my financial well being. This is because I alone control my money and investments.
As for me, I got my vaccination for organized labor. My mind is free and clear on this point. I sleep very well at night. My bills are paid and everything I own is paid for. I am even going out tonight with a pocket full of $$money$$
I truly hope that Boeing executives will use this situation to put the IAM outside the fence in Washington for good. Heck, I would pack up my tool box and move to Seattle just to go to work just to do my part to rid BCA of the IAM!
One thing I do want to make clear is I am a firm believer in the quality that every assembly technician builds into every Boeing aircraft. I have worked on just about every kind of aircraft and the Boeing planes always have the highest quality built in from day one. Some may say this is because of the IAM but I know that each and every Boeing employee has it at heart to build the best airplane that money can buy. Even if the IAM left today I know in my heart that the dedicated craftsmen and craftswomen at Boeing would retain that same high quality standard that our customers have come to expect and demand.
On your comment about outsourcing, I ask you this is there that many people out of work in Washington? Or is it that you’re just too greedy? Get with the future and realize we are all part of a world economy.
If you need a lesson just post me with a name and you’re “Here’ My Sign” award and I will take the time to explain it in this wonderful forum.
TIME TO OPEN YOUR EYES AND UN-UNIONIZE!
THE ONLY PERSON YOU CAN COUNT ON IS YOUESELF
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TEXANS FOR A NEW BOEING BEGINNING.
on September 13, 2008 11:21 AM | Reply
Texans, and others who argue from a non-union side, need to consider a few things. Granted, the IAM is putting it to Boeing's weaknesses. But, Boeing set the stage (more below).
On a related note, Boeing DID not have to mis-plan the 787. They DID not have to have the 'potemkin' event (where is LeeLaw?). Many sane minds were shouted out of the room, essentially, thrown out on their ears.
Why was Boeing so off (remember, the 787 has not been technically tested as of yet)? Well, it's due to the lure of technology and mathematics, coupled with a few manipulators, which created an irresistible siren song.
This is a convenience strike for Boeing, granting time and opportunity to fix the 787. Will the delay work? Well, consider that the 787 might not come out and about for about 5 years or so.
Now, about the unions. What union leader has gained wealth like Turner (Wichita) who is now among the ultra-rich (in a mere 3 years)? The IAM took it on the chin there (do you not think that the Seattle people were watching?), albeit sometimes a double-chin according to some characterizations of the 'lazy bee' people.
Then, on top of that, Onex got oodles of bucks plus the banker and its friends. They took off the table much more than what the IAM is asking for.
Those who tout the stock market and free market ought to consider two things.
1) The market, as we have it now, is a computer-based game (and, we taxpayers have to buy out the rich idiots - wealth does not denote mental capacity) that is too unstable to found a basis for an economy (we'll learn how to do it better - need to).
2) There ain't now such thing as a 'free' market; we need to teach that better. Stock, or any other financial instrument, cannot be used for truth and value checking. That is an illusion that was used to sell the gaming notions mentioned in item 1.
I would take the union any day to a Turner (who opportunistically profiteered by removing benefits from his workers, now works them beyond their capacity, and much more). Boeing management allowed these two-tongued people in Wichita their unethical takeout of Boeing workers and Boeing property. But, then, there is a principle that says that those at the top are far beyond what their capability allows.
There is a silver side in that the past few years will help support much analysis and critical papers related to 'how not' to do it.
on September 13, 2008 6:19 PM | Reply
Texan,
i am greedy. i want my shares to perform. i am PO-d about a >40% decline since the (thrice!) announced delays to the 787.
Per the market and per the strike, the only group that seems to believe that this outsource model is profitable is management. The group that brought us the 'Potemkin' roll out on the 8th of July.
Unions were not the cause of the costly delays, and the right to work states of Texas and S. Carolina have not brought any solution. Boeing is perfectly in its right to ship the final assembly there now, but they understand that would not be cost effective.
on September 13, 2008 10:52 PM | Reply
The current situation raises many questions. Vote. Comment. Suggests other questions.
on September 15, 2008 5:53 AM | Reply
One thing which always amazes me when it comes to unions is their timing.
On the one hand, Boeing has a lot of planes to built but struggles with the 787 and probably has to pay quite large sums as compensation to the different airlines. The company is faceing a hard time but at the same time, the unions make it even harder...
So why didn't the union support Boeing and took the last offer, maybe with an option for new negotitiations when the 787 is back on track and money is made again ?
Regards from Hamburg, Germany
on September 22, 2008 12:51 PM | Reply
I was in Whichita, KS today and noticed that some of the union members had crossed the picket line today and returned to work.
One union member stated that he was more afraid of the current financial meltdown on Wall Street than the strike.
Also heard that the US Gov is getting involved and ordering the union back to work.
And YES Texas is looking to add to our resume BCA.
I bet it's pretty tough living on your savings, grass mowing, Wal-Mart cart wrangling jobs?
on September 25, 2008 4:28 PM | Reply
Texan, we all know that our co-workers in witchita would not cross the picket lines. They have more at stake than most of us. Only about 1% of workers, cross the picket lines, to return to work. (and we all know who they are!). Boeing will still not be building any airplanes until the rest of us return. So, even if that were true, it still has no bearing on our strike. The majority will not cross the picket lines, and will be out for as long as it takes!
on September 25, 2008 4:35 PM | Reply
Just one more thing texan..........................the federal government will not even try to force us back to work. It's an election year. Bush is on his way out, and neither of the nominees are going to risk votes by intervening. Give it a rest. It will never happen!