Three years ago, contentious and drawn-out contract negotiations brought Boeing (NYSE: BA) and one of its most important labor unions to the brink of a strike. Three years later, Boeing isn't making that same mistake.
Last week, Boeing confirmed that it has reached a "tentative agreement" with representatives from the Society of Professional Engineering Employees in Aerospace (SPEEA). If approved, the new contract will cover Boeing engineers and technical workers in the Puget Sound region for the next six years. Backed by Boeing and supported by representatives from SPEEA's Executive Board and Bargaining Unit Councils, voting on the new contract will begin Jan. 27 and continue through Feb. 10, 2016, at which point, given its almost universal support, the contract will most likely be approved.
But what exactly is in this shiny contract, and what does it mean for Boeing shareholders?
Money is the grease that keeps the wheels of capitalism turning. And with Boeing raking in record profits from the booming global market for airplanes, the company's admirably positioned to share some wealth with its workers today. According to data from S&P Capital IQ, it earned more profits over the past 12 months ($5.6 billion) than in any other year in its history.
Result: Whereas three years ago, Boeing tried to strong-arm its union into accepting long-term pay raises of just 3% per year (barely matching the inflation rate), its starting position this time around is to give the union precisely what it wanted three years ago: 5% annual pay raises as far as the eye can see.
Boeing talks a lot about how it pays its workers "above-market compensation" -- but usually in the context of how they shouldn't be asking for more than what it is willing to give them. This time around, it is promising to pay its engineers at least 15% more than their peers at non-Boeing companies make -- and to pay its technical workers a 22% premium to market. To make that promise happen, every year from now to 2021, Boeing says it will hike salaries by 5%, only tapering to 4.5% in the final year of the new contract, 2022.
"No work, and pay"
Additionally, Boeing is promising to double its payout for workers who "volunteer" to be laid off by the company. Workers laid off because their jobs get moved elsewhere during the contract period can look forward to severance benefits of anywhere from 26 to 60 weeks' salary -- paid lump sum.
According to Boeing, the company already pays "more than 85%" of employee healthcare costs. Going forward, employees will have to shoulder just a bit more of that burden. Five percent paycheck contributions starting in 2018 will defray the cost of their health insurance. Deductibles and co-pays will also increase slightly.
But no more pensions
The writing's long been on the wall for Boeing's phase-out of traditional pension plans. This new contract will make it official. While employees hired with pension benefits will be allowed to keep what they've earned, going forward, Boeing will phase out defined benefit pensions and switch all SPEEA workers into "enhanced" 401(k) plans.
What's it all mean for investors?
To eliminate any risk of a labor strike by its engineers and technical workers, Boeing is paying through the nose -- but not unreasonably so. Analysts who follow the company think business is going so well at Boeing that profits will continue to grow at better than 10% annually over the next five years. Given this, Boeing can probably afford to share some wealth with its workers.
Granted, this month's deal with SPEEA isn't as clear-cut a victory for Boeing company negotiators as was the incredible deal Boeing struck with the much larger International Association of Machinists and Aerospace Workers union last year. But 5% pay raises for employees in exchange for uninterrupted 10% growth in profits for the employer? That doesn't sound like such a bad deal for Boeing or its investors, and it's definitely not a bad deal for SPEEA members.
So is it fair to call this contract a win-win for all parties concerned? Yes. As a matter of fact, it is.
Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 245 out of more than 75,000 rated members.
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