I started out this column with the best of intentions. All I wanted to do was pen a few words on the subject of Boeing's
And all for naught.
Intellectually, I know this was Boeing's plan. When a company is forced to admit that despite doing $12.7 billion in business, it couldn't earn even a penny's worth of profit -- to the contrary, that it lost $0.08 per share -- any PR spokesman worth his salary is obviously going to try to change the story. Divert attention from the loss, make something else the headline.
Much as I'd like to dwell on Boeing's failure to earn its shareholders (including yours Fool-y) any profit this quarter, the sad fact is that "they got me." The bigger story here is not one quarter's loss (however massive). But rather the news of how Boeing's union laid it low.
In months past, I wrote several times on the Great Boeing Machinists Strike of 2008. How it first endangered, then torpedoed the businesses of Boeing parts suppliers like General Electric
And of course, I discussed the strike itself, in which Boeing's machinists union angled for guarantees of job security against Boeing's warnings that guarantees would hobble its ability to react to changing markets (like, for instance, a global recession) and hurt profits. When all was said and done, the union won job guarantees concessions -- but now we see the cost.
There, is power, in a un-ion
Following the lead of fellow industrial heavyweight Caterpillar
After all, heading into the strike, union president Tom Buffenbarger boasted of his ability to drain $100 million a day from Boeing's coffers by preventing the building of planes. Essentially, he argued that unless Boeing caved to union demands, the union would destroy the company's profits. Now that it's done just that, the union is back, complaining about job cuts initiated to repair the very damage the strike caused.
Commenting on the layoffs, and apparently forgetful of past union boasts, District Union President Tom Wroblewksi ignored the fact that it was the 57-day strike that cost Boeing some $1.2 billion in operating profit in Q4. Rather, he placed the blame for Boeing's problems squarely on management's efforts to cut costs by outsourcing work on the 787 airliner, calling the project a "poor management decision" and "a business model that failed miserably." Wroblewski's solution? Unsurprisingly, it's to cut contractors before axing employees.
You can guess how well this idea is going to go over with management. From Boeing's perspective, it's the union that caused last quarter's loss. Boeing will most likely use its current predicament as an excuse to wield the axe against employees rather than contractors, for two reasons:
- First, it's not the contractors that struck, but the Boeing employees. Turnabout's fair play.
- Second, the fewer employees Boeing keeps on the payroll, the less future strikes can hurt it. Boeing can hobble the union's enrollment efforts by shifting to more of a contract labor model.
Personally, I try to see the merit in both arguments. On the one hand, the union has a point. Boeing relied heavily on contract labor to build its 787 and the plane's now long overdue. It still has to be built, though, and the plane's popularity has contributed to some of the $352 billion in profitable backlog that needs working through. So if the workers aren't getting their fair share of that profit, they probably should bargain hard to get it.
Management's arguments, though, also have merit. Reliance on unionized labor hurt the company badly in 2008 when the IAM struck. I can understand why management would want to limit the risk of this happening again by shifting ever more toward a flexible labor model, laying off employees and hiring more contractors.
In the end, though, one fact seems clear. The bad blood that boiled over the course of a two-month-long strike has not yet cooled. To the contrary, if Boeing starts cutting union jobs, the union is going to view Boeing's decision to lay off workers both as retaliation for the strike, and as a "strike" of its own at the very lifeblood of the union -- full-time, unionizable employees. Whatever good the layoffs do for Boeing in terms of cutting costs today, they'll lay the groundwork for yet another round of contentious negotiations when the IAM contract comes up for renewal four years hence.
Long-term, that's nothing but bad news for Boeing shareholders.
Can't get enough of bad Boeing strike news? Get your fill: