Labour relations trumped 787 profitability on line selection: Documents

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Despite the conclusion that the establishment of the second Boeing 787 final assembly line in North Charleston, South Carolina presented a high risk and would erode the profitability of its long-delayed flagship programme, Boeing weighed its labour relations as its deciding factor, newly released documents show.

Ahead of the October 2009 decision, Boeing evaluated placement of its second 787 line - dubbed Project Gemini - duplicating its already existing Everett, Washington final assembly line, "establishing long-term manufacturing capability outside of Puget Sound, starting with a second 787 final assembly line and progressing to the next new airplane programme," reads one 27 April 2009 presentation by then-Commercial Airplanes CEO Scott Carson.

The package of documents from Boeing's Board of Directors and strategy meetings was released today, just days before the delivery of Boeing's first 787 to Japan's All Nippon Airways, by the International Association of Machinists and Aerospace Workers (IAM), the company's largest union.

One of Boeing's chief considerations, the documents show, focused on its labour relationship with its unions, with the decision following the 57-day September-October 2008 IAM strike.

A 26 October 2009 presentation, given just before the Charleston site selection by Commercial Airplanes CEO Jim Albaugh to the Boeing Board of Directors identifies one of three objectives behind the South Carolina selection as "leverage 787 final assembly placement decision by rebalancing an unbalanced and uncompetitive labour relationship".

In its defence, Boeing claims the rationale for placing the second 787 line in South Carolina was driven by multiple considerations, including supporting customers with reliable deliveries and support and improving short and long-term cost competitiveness.

However, under the "cons" identified for placing the line in Charleston, Boeing said the $1.5 billion price tag for the line would reduce "earnings on 1/3 of the backlog" which stood above 850 aircraft.

Further, a 19 October 2009 presentation cites a "negative impact to 787 programme profitability" and a cost which stood "significantly greater than incremental capacity increase to Everett".

Bernstein Research now estimates the break even point on the 787 programme to stand at around 1,000 deliveries.

The move by the IAM comes as the US National Labour Relations Board is pressing its case against Boeing, alleging its second 787 line placed in North Charleston was retaliation for the 2008 strike.