Boeing's Costly Dispute

It's no secret that this year has been a good one for Boeing's (NYSE: BA  ) commercial aircraft business. The company has booked more than 620 orders in 2005, the most since 1998. With its new Dreamliner winning over many new fans, the future looks pretty bright. But the firm needs to bring a nagging problem under control quickly to make sure the good times keep rolling.

The Chicago-based aircraft giant has been wrestling with a strike since Sept. 1, when the International Association of Machinists rejected the company's latest contract offer. That deal would have increased worker's health care costs and raised pension benefits by 10%, less than the 33% the union was demanding. As a result of the strike, Boeing expects to delay the delivery of 25 to 30 planes this month. Those delays should cause a dent in the bottom line in the near term.

The more worrisome aspect of the strike, though, is its potential long-term effect. If the strike drags on long enough, customers expecting deliveries may get frustrated. And frustrated Boeing customers could quickly become Airbus buyers. For its part, Airbus is waiting in the wings to capitalize on any discontent with Boeing. The European outfit's CEO recently announced that Airbus expects European governments to kick in $1.8 billion in launch aid to develop the yet-to-be-launched A350 -- Airbus' answer to the Dreamliner.

At the moment, both labor and management appear to be willing to hold their ground in the Boeing dispute. The Chicago Tribune recently quoted one worker who predicted that the strike would last until next year.

For Boeing, the longer the rift lasts, the less financial sense it makes to hold out. Granted, acceding to union demands has been cited as the source of other industrial powerhouses' current woes. General Motors (NYSE: GM  ) , Ford (NYSE: F  ) , and DaimlerChrysler (NYSE: DCX  ) are all suffering under weighty pension and benefit costs.

Still, a recent Business Week article calculates that meeting the union's pension terms would cost $90 million over the three-year life of the contract. Production delays, meanwhile, cost Boeing $90 million every month. Therefore, appeasing U.S. workers in now may not translate into a long-term burden, since Boeing's plan is to become increasingly reliant on foreign suppliers to build its aircraft. For Boeing, it may pay to give in.

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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.