Boeing Battles the Union: Round 2013

"There is power in a factory, power in the line
Power in the hands of a worker
But it all amounts to nothing if together we don't stand
There is power in a Union."
Billy Bragg

It's been a busy week at Boeing (NYSE: BA  ) . For three days, the Seattle plane-maker's minions sat down with representatives of the International Association of Machinists, trying to hammer out an agreement. Success would guarantee Boeing a decade of smooth labor relations with its biggest labor union and reassure IAM members that they, rather than non-union workers in South Carolina or elsewhere, will have jobs building Boeing's new 777X long-haul airliner in Seattle for decades to come.

Boeing's 777X. Source: Boeing

But we got failure instead.

How it went down
Beginning with afternoon talks Tuesday, Boeing and IAM representatives met to talk over their differences and begin drawing up proposals. By Wednesday, IAM had its plan worked out and offered Boeing a deal to replace the one presented by Boeing -- and rejected by a 2-to-1 margin in a union vote -- in November.

As you may recall, the major elements of Boeing's offer had been:

  • Job security for 32,000 Boeing machinists through 2024. 
  • Immediate $10,000 signing bonuses for all of Boeing's IAM members.
  • Cost-of-living allowances, or COLAs, through 2024, plus 1% wage increases every other year.
  • Most crucially, a "freeze" on pensions at the end of 2016, followed by a switch to "defined contribution" 401(k) plans.

IAM said these terms were "not close" to what it could accept and drew up a counterproposal ... which Boeing in its turn rejected. This set the stage for Thursday's "best and final" offer from Boeing:

  • Most of the original terms, plus an extra $5,000 lump sum payment for each worker in 2020.
  • A non-binding commitment to keep 737 MAX work in Washington.
  • Accelerated pay raises for new workers.
  • And better dental coverage.

Surprise, surprise. The union shot that idea down, too.

Where we're at today
So this is where we stand, again at an impasse. But this time, the negotiations between Boeing and IAM don't look at all like what we saw back in 2008, the last time these parties came to loggerheads.

Back then, tense and angry negotiations had IAM President Tom Buffenbarger threatening to call a strike, in hopes of draining Boeing's coffers at the rate of "$100 million a day," and bringing Boeing to its knees. (He followed through, too. In 2008-2009, a 57-day strike cost Boeing hundreds of millions of dollars in lost revenue.)

Today, striking isn't an option. Because Boeing cleverly began negotiations more than two years before the current contract expires, the company sees little downside to requesting major concessions. Boeing can offer decades of 777X job security in exchange. On the other hand, if the union doesn't play ball, well ... Boeing has 22 other states knocking at its door, all offering to give the company tax breaks and eager workers, if IAM doesn't want the work. Indeed, just last week, Boeing announced that it has leased extra plant space in South Carolina. Technically, it says it will paint 787 Dreamliners there -- but I think the subtext to that announcement was pretty clear, given its timing.

No wonder Machinists District Lodge 751 President Tom Wroblewski says today's negotiations are "respectful and constructive." The union really has no choice but to play nice.

Time to wrap this up
So how does this all shake out? Given that Boeing has little reason to offer immediate concessions, while IAM has much to lose if it does not accede to Boeing's demands, my guess is that in the end, IAM loses this fight. It'll be forced to give up its pension plan. It must grudgingly accept a switchover to 401(k)s.

And that's not a bad thing. From the perspective of Boeing and its shareholders, a removal of the constant uncertainty as to how future pension obligations affect earnings will be a welcome relief.

Meanwhile, once IAM negotiators admit that corporate pension plans are going the way of the dinosaur, they can focus on extracting from Boeing the very best 401(k) plans possible. Already, Boeing has offered to fund 401(k)s with 10% of gross salary in the first two years of the new contract. Rather than fight a battle they're certain to lose, IAM should focus on retaining those above-market 401(k) contributions for as long as possible.

With no ability to call a strike, IAM still has this one powerful card to play -- the ability to voluntarily switch to 401(k)s. It should play this card for all it's worth.

"The Union forever defending our rights
Down with the blackleg, all workers unite
With our brothers and our sisters together we will stand
There is power in a Union."

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