Boeing's Billion-Dollar Threat Pays Off

Boeing 777. Photo: Boeing. 

Great news! On Friday, Boeing (NYSE: BA  ) and the International Association of Machinists and Aerospace Worker came to an agreement, and now the 777X will stay in Puget Sound through 2024. More importantly, this agreement is great news for Boeing, and its investors.

Was Boeing bluffing?
Contract negotiations between the Machinists union and Boeing have been contentious. And one of the big issues was Boeing's insistence on moving away from traditional pension plans to a 401(k)-style retirement plans. However, in Friday's vote, the union agreed to Boeing's demand -- although the vote was close, with 51% in favor and 49% opposed.  

More importantly, one of the driving forces behind the union's concession was Boeing's assertion that it'd move production from the Puget Sound area to another state, if the union didn't agree to Boeing's offer. This would've resulted in the loss of thousands of jobs and significant tax revenue, as well as a possible downgrading to Washington's credit rating. However, as I recently wrote, I found Boeing's threat somewhat unlikely, given the impact it could have on 777X production, as well as the fact that there were significant incentives for both sides to come to an agreement. Nonetheless, Boeing's threat paid off.

777 production line in Washington. Photo: Boeing.

Skilled workers and structured pay
In addition to freezing pensions for current workers, and giving new Machinists a 401(k)-style plan, the contract between Boeing and the union locks in modest wage increases of 1% every other year, but gives union workers a $10,000 signing bonus, and a one-time $5,000 payment. It raises employee health contributions by as much as $4,000 a year over 2011 levels by the end of the contract, but it also increases dental coverage.

In other words, what this contract does for Boeing is guarantee skilled labor, and a predictable cost structure, through 2024. And to be blunt, it represents a significant cost-savings win for the company.

Why this matters for investors
Boeing has garnered significant orders since it started selling the 777X in May. But it still has to deliver them, and to do that, Boeing needs a skilled labor force. As such, locking in the Machinists union till 2024 is great news. Moreover, the contract that Boeing negotiated is a victory for the company, not the union -- although, as The New York Times reported: "A Boeing official wrote to workers saying that, despite the concessions, they would still 'receive market-leading wages and benefits.' Many have base pay of $70,000 a year, with some earning $100,000 with overtime." Still, what this all boils down to for investors is a "win" for Boeing. Therefore, if you're a Boeing investor, the contract agreement between Boeing and the Machinists union is good news.

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Read/Post Comments (6) | Recommend This Article (10)

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 05, 2014, at 12:57 PM, acapoz wrote:

    The workforce in this country is so divided, this is why pension security in this country is a thing of the past, Only wealthy people can depend on a secured pension now. All workers need to unite by merging Right to Work & Employee Freedom of Choice legislation. this will give the entire American individual worker a choice to be protected or go it alone.

  • Report this Comment On January 05, 2014, at 1:22 PM, ray52 wrote:

    They caved, just like Pratt & Whitney. Only Pratt held on to their union.

  • Report this Comment On January 05, 2014, at 1:52 PM, CherryVanilla wrote:

    Boeing is an example of a big company in an industry that has gotten so big that is has an unfair advantage over it's employees. Boeing is bullying their employees. If they did move, they should have to pay the employees in the new location the same as in WA. It's called equal pay for comparable work. Boeing would think twice about moving.

  • Report this Comment On January 05, 2014, at 10:05 PM, Janathan wrote:

    Union ant Union. This the organizations that made US in the bottom of procuring nations.

    Today we have every thing in this country comes from China, Vietnam, Bangladesh or any other country not to mention majority of cars on the roads. All because of these unions These union are, with no acceptation, are bunch of hungry wolf and traitors who left the majority of working man in America jobless and without social security.

    This country is bankrupt because of these unions, we buy every thing from overseas all because of these unions.

    You be the judge if I manke any sence

  • Report this Comment On January 06, 2014, at 1:30 PM, Robarino wrote:

    @ CherryVanilla. You have no idea what you are talking about. Unions were useful back in the '30's and '40s when they actually cared about the workers. Today they are just another big corporation that tries to take more then they deserve. They keep demanding more and more yet the quality of their output keeps going down. Unions are what brought GM and Chrysler to their knees back in 2008. Unions are what caused Hostess to go bankrupt. Unions are why China is getting all the manufacturing jobs.

  • Report this Comment On January 07, 2014, at 12:29 AM, donner wrote:

    Well we will see it isn't over yet. Yet another great tactic by Boeing and it's leaders. Most are demanding a revote so all of the members can be here to vote. 8,600 did not vote most I bet were out of town.

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Katie Spence

Katie Spence has been a financial journalist for The Fool since 2011. She specializes in defense companies, “green" technology, autos, and robots. Follow her on Twitter for breaking news in the defense, auto, and robot industry.

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