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Boeing (NYSE: BA ) has been battling with its 23,000-member technical union, the Society of Professional Engineering Employees in Aerospace, for months over the terms of a new four-year contract. A vote last week authorized a strike, which would cripple the jet maker's ability to increase plane production or solve problems with its troubled 787 Dreamliner flagship jet. However, union members split on a key provision, strengthening Boeing's negotiating position.
The SPEEA operates in two negotiation segments: engineers, or "professional" workers, make up about two-thirds of the union, with technical workers making up the rest. Each operates under its own contract. Union members voted last week on two separate but related issues: whether to authorize the union to call a strike, and whether to accept Boeing's most recent contract offer. Both professional workers and engineers voted to authorize a strike, but the "profs" and the "techs" split on accepting their contract, with profs narrowly voting to accept and techs narrowly voting to reject. The engineers' acceptance of their contract means, however, that even should the union call a strike, the engineers would not participate.
Technical workers, however, could still strike, which would still be very damaging to Boeing at a sensitive time: Boeing has just proposed a plan to get its grounded 787 Dreamliners back in the air, and the company is still seeking to ramp up production of its planes to meet an eye-popping $390 billion backlog. Talks between the two will continue on Wednesday, and a strike-free resolution looks more likely now. Boeing has already heeded calls to simply continue the wages and benefits under the previous contract, rather than curb raises for its workers as it originally desired, and the engineers have now accepted a four-year contract that grants Boeing its most important demand.
The heart of the problem
Boeing would like to change the way pension plans are funded for new workers. Like other iconic, pedigreed American manufacturers, including Ford (NYSE: F ) and General Motors (NYSE: GM ) , many of Boeing's workers enjoy defined benefit plans. Unlike defined contribution plans, under which an employer promises to pay a certain amount into an employee's retirement account, a defined benefit plan requires the employer to pay out a certain amount in retirement. The difference shifts 100% of the investment risk away from the employee and to the employer.
Employees obviously prefer these plans, precisely because they don't bear investment risk. However, in the past -- most spectacularly during the Great Recession -- unrealistically high expectations for pension fund growth have come together with sudden dramatic drops in stocks, bonds, and asset prices to produce huge pension shortfalls. This sort of thing can bring a company to its knees; General Motors had to go through bankruptcy, seek a taxpayer bailout, and break its old pension contracts with union employees.
A company like Boeing, which depends on the knowledge and hard work of its engineering and technical talent, must always put a premium on keeping the talent happy. However, in my view, it's not realistic to expect a company to make guarantees about the future that it may not be able to keep. If events outside Boeing's control -- like a global recession -- prevent the company from paying out pensions, the only choice could be bankruptcy. Then, former employees would find themselves without retirement benefits and current employees would find themselves without a job. Since nobody can predict the future, I don't think it's responsible in the long term to make absolute guarantees, so I agree with Boeing's desire to transition new hires into a defined contribution plan.
Ideally, though, Boeing's management and workforce should see themselves on the same side. Engineers and technical workers have claimed that their expertise is being overlooked to the detriment of the company. Technical worker and negotiating team member Joel Funfar complained that "Boeing corporate created the 787 problems by ignoring the warnings of the Boeing technical community," while an anonymous engineer commented that "it appears to me that the missteps in the C-suite that negatively impact the bottom line are glossed over in the congratualtory pay raises that the C-suite votes itself." (CEO James McNerney received a 34% pay raise after the launch of the Dreamliner, while engineers and technical workers were offered the insulting contract that led to this dispute.)
Boeing is, at heart, an engineering company, and the best judgment of the engineers needs to come before financial concerns. On the other hand, however, workers might feel more engaged with the financial health of the company (and be more understanding about transitioning to defined contribution pension plans) if Boeing introduced more worker-friendly policies, including offering more stock ownership for employees and giving everyday employees the same kind of profit-sharing the management team indulges in. I believe strongly that if Boeing treats its people well, they will return the favor and help the company execute on the massive opportunity ahead of it.
Not only does Boeing have a $390 billion order backlog to work through, but over the next 30 years, it also has a multitrillion-dollar market to work in. However, the company's execution problems and emerging competitors have investors wondering whether Boeing will live up to its shareholder responsibilities. In this premium research report, two of the Fool's best industrial minds have collaborated to provide investors with the key, must know issues around Boeing. They'll be updating the report as key news hits, so make sure to claim a copy today by clicking here now.