Boeing Wins!


Boeing's planned 777X is a big plane. But it's small compared with the size of Boeing's historic win in Friday's union vote. Source: Boeing.

The vote was close -- just 51% to 49%. In contrast, the size of Boeing's (NYSE: BA  ) win in yesterday's union vote in Seattle was so huge, it's hard to overestimate. Here are the key takeaways.

Pensions
The Seattle branch of the International Association of Machinists and Aerospace Workers -- Boeing's largest union, with 21% of its workforce participating -- has now joined Boeing's second largest union, the Society of Professional Engineering Employees in Aerospace in agreeing to give up guaranteed pensions for life. 

Going forward, pensions for current employees will be "frozen" at the end of 2016. After that, retirement benefits will accrue in the form of 401(k)s -- and new hires will have only 410(k)-like plans available to fund their retirements.

Needless to say, this is going to be a big weight off the minds of Boeing's accountants, who up until now have had to weigh every decision they make in light of the company's $68 billion-plus pension obligation to its workers. That load just got a whole lot lighter.

Paychecks
Another big benefit to Boeing is that the IAMAW has agreed to lock itself into a decade-long stretch of exceedingly modest wage increases. On average, Boeing machinists can look forward to about a half-a-percentage point increase in wages (plus cost-of-living adjustments) annually from 2016 through 2024.

In competing against established rivals lacking such guaranteed wage-price stability over the next decade, such as Airbus (NASDAQOTH: EADSY  ) , Embraer (NYSE: ERJ  ) , and Bombardier, that's going to be a huge advantage for Boeing. It will enhance the company's bargaining position when negotiating the price of its airplanes. It will definitely improve Boeing's ability to earn beaucoup profits when it sells those planes to its customers.

Predictability
And what did Boeing have to give away to win these concessions from labor? Very little, actually. In exchange for getting the union to give up its pension guarantees, Boeing must contribute 10% of salary into a 401(k)-type plan for current employees in each of 2017 and 2018, then 6% in 2019, and 4% per year thereafter. New hires get 4% in all years.

Meanwhile, ensuring minimal wage growth over the next decade cost Boeing $10,000 in upfront signing bonuses for each of its machinists, plus a further $5,000 due in 2020. From Boeing's perspective, that's definitely a worthwhile investment.

Oh, and yes -- Boeing did throw in a better dental plan as well.

What? You say you want a raise? How about a nice set of dentures instead? Source: Wikimedia Commons.

Foolish final thought
And as for the Holy Grail of all this negotiating? Boeing's promise to build the 777X in Seattle, now and for the foreseeable future? Well, Seattle is where most of Boeing's best and most experienced workers are living and working already. Honestly, while guaranteeing that these jobs stay in Washington state was the union's main objective in voting to ratify the contract, I doubt Boeing itself will see this as much of a concession at all -- especially given that Washington has promised the company $9 billion in tax breaks to build the plane in-state.

Long story short, Friday's vote was a clear and convincing win for Boeing and its shareholders. As for the workers, their best chance of coming out ahead in this vote may be to rush right out and buy some Boeing stock for themselves. After all, as Boeing Commercial Airplanes President and CEO Ray Conner exclaimed after hearing of the voting results: "Thanks to this vote by our employees, the future of Boeing in the Puget Sound region has never looked brighter."

I imagine that right now, a lot of Boeing shareholders would agree with that statement pretty emphatically.

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Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2014, at 4:16 PM, miks7 wrote:

    Kind of a biased title, don't you think? Had the union continued down this road of TAKING, Boeing would eventually have a satellite station in Washington State, and who really wins then?

    We have to realize that capitalism needs to work, and that Boeing for sure has to compete globally. If you can't get the cost to build these airplanes in line with what others are producing, the sale of the airplanes never would take place.

    Considering what the rest of the world has for pensions and retirement, I can't understand why the unions can't figure out that they must be a part of the long term future of the companies they are affiliated with!

  • Report this Comment On January 05, 2014, at 1:14 PM, toomuchgas wrote:

    Don't understand why Bombardier isn't more successful they have a cheaper more efficient jet that has a simpler design. The Boeing jet has way too many electronics that can go wrong.

  • Report this Comment On January 05, 2014, at 8:28 PM, Scott2 wrote:

    Boeing is a billion $ plus company run by very smart people with a lot of common sense. Why would they stay in Seattle where 49% of their employees hate their guts??? Until they sign on the dotted line the vote means nothing.

  • Report this Comment On February 26, 2014, at 5:26 PM, Pelermon wrote:

    Just BUST the damn cancerous unions..

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