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Boeing Ups the Ante by $1 Billion, but Will the Union Sign?

777 rolled out at Boeing factory in Everett, Wash. Photo: Cubbie_n_Vegas via Wikimedia Commons 

Boeing (NYSE: BA  ) has a long, and successful, history of having commercial planes built in Washington. However, contract negotiations between the Machinists union and Boeing haven't gone well, and Boeing is threatening to pull production of the 777X out of the Puget Sound area. Could Boeing's latest contract offer get the union to sign?

Boeing sweetens the pot
Tom Buffenbarger, the international president of the Machinists union, said that Boeing's latest contract offer is an improvement by more than $1 billion. However, it still moves workers away from traditional pension plans and replaces it with a 401(k)-style retirement plan. Consequently, local union leaders have urged members to reject the contract. If they do, it could put an end to contract negotiations. "I am duty-bound to inform the membership this vote will be the final vote on this proposed contract," Buffenbarger said, according to ABC.  

777 production. Photo: Boeing.

Will they, or wont they?
The vote on Boeing's latest contract is scheduled for Jan. 3, so we won't have a definitive answer until then. However, there are things investors should keep in mind, regardless of how the vote goes.

First, there are a number of other states offering Boeing incentives to move production of the 777X. But that would also prove to be time-consuming and costly for the company, not to mention that the Machinists union is already skilled at making Boeing's planes. More importantly, Boeing only began selling the 777X in May, but it's already garnered significant sales. If Boeing decides to move, that could delay deliveries of the 777X.

On the flip side, if Boeing pulls production of its 777X from Washington, that could have a significant impact on Washington's credit rating. Bloomberg reports that the loss of jobs and tax revenue could result in a credit downgrade, which is something no state wants to face.

In short, there are strong incentives for Boeing and the union to come to an agreement -- eventually. Leon Grunberg, a professor of sociology at the University of Puget Sound in Tacoma, and the co-author of Turbulence: Boeing and the State of American Workers and Managers, has seen similar events unfold before. "In the past there has been brinkmanship -- waiting until the last minute and then seeing who buckles," he said, according to Reuters. "Locals have seen Boeing start out tough and then, in the end, give them a better deal."

However, it should always be noticed that past performance isn't a guarantee of future performance.

What to watch
If Boeing decides to move production of its 777X elsewhere, that could affect deliveries. That, in turn, could affect earnings, which could have an impact on stock price. However, it seems likely that the Machinists union and Boeing will come to an agreement. I could be wrong, but there are strong incentives for both sides to do so. What we know for sure is that the 777X is a hot-selling plane for Boeing, and regardless of where it's built, it'll probably make Boeing a significant amount of revenue. That's great news for Boeing's bottom line, and Boeing investors.

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  • Report this Comment On December 29, 2013, at 4:56 PM, DNMay wrote:

    About this statement, Katie: <What we know for sure is that the 777X is a hot-selling plane for Boeing, and regardless of where it's built, it'll probably make Boeing a significant amount of revenue. That's great news for Boeing's bottom line, and Boeing investors>

    Revenue is no guarantee of a good bottom line unless we also know that expenses are lower than revenues. So, yes, Boeing's sales look like they'll bring in sizable revenues. But to keep expenses down over the long haul, especially for sales prices fixed in advance, Boeing has to know they won't be squeezed by the unions once the production line is set up. For this they need to keep expenses not only low but under contract to stay low in a union environment. The lack of such a contract is why Boeing may relocate some production to a low-cost area in a non-union state, as their best bet.

    Those massive launch orders undoubtedly came at rock-bottom prices, against fierce competition, and Boeing does not want to repeat a situation where they have to deliver hundreds of airplanes of a new model before becoming profitable.

  • Report this Comment On December 30, 2013, at 2:34 PM, foolishddaryl wrote:

    No the Union will not accept the Billion$ in takeaways while Boeing just announced $10 billion in stock buybacks and more in dividend increase. While CEO pay is going up exponentially.

    Boeing is a company that is management top heavy, and all of its problems come from this fact.

    Boeing outsourced the 787 and built a plant in South Carolina,, both experiments are failing massively.

    Boeing needs to do a better job with their contract offer, otherwise the 77x will be a revenue hog as they go through the same pains they have already learned.

    The union members are drawing a line for labor everywhere. They didn't want this extension and they sure don't want to have it forced down their throats with BILLION$$$$ in takeaways for members while they hand over BILLION$ to shareholders

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