Everett, Wash.
Published: Thursday, October 23, 2008

Boeing Chief Executive Jim McNerney: 'We want this strike to end'

As talks resume today, the company strives for an agreement on job security with Machinists and warns of possible layoffs.

By Michelle Dunlop
Herald Writer

 The Machinists strike drove down Boeing Co. earnings and could force the company to send other workers home, Boeing executives said Wednesday.

"Simply put, we want this strike to end," said Jim McNerney, Boeing's chief executive, while reporting a 38 percent dip in the company's third-quarter earnings compared to the previous year.

Boeing and the Machinists have another chance to end the strike today when negotiators for both sides meet with a federal mediator in Washington, D.C. The strike, which began Sept. 6, forced Boeing to deliver fewer aircraft than the company had forecast. The company's lowered income, as reported Wednesday, reflects both the impact of the strike and delays in jet parts by a supplier.

The aerospace giant reported its third-quarter revenues were down to $6.9 billion, a 16 percent decline compared to the third quarter of 2007. Boeing's earnings per share were down 33 percent to 96 cents compared to the same period last year.

Boeing executives did not provide new financial estimates for the fourth quarter. The company is expected to do so when it resolves its labor dispute with the Machinists.

"All of our commercial airplane programs and a few of our defense programs have been impacted by the strike," said James Bell, Boeing's chief financial officer, in a conference call with media and analysts Wednesday.

Boeing delivered 84 commercial jets in the third quarter. That's down from 126 jets delivered in the second quarter and 115 in the first quarter. The company, however, continued to add to its record backlog, logging in 149 gross orders in three months, which increased its commercial airplanes division's backlog to $276 billion. Companywide, Boeing's backlog sits at $349 billion.

Boeing does not believe the financial crisis will be an issue for aircraft deliveries through 2009. The company has seen the cancelation of only two orders and the deferral of about 80 jets as a result of the tight economy, McNerney said.

McNerney and Bell declined to predict how the Machinists strike will affect jet deliveries in the fourth quarter. But the 27,000 union members have been on strike for nearly the first three weeks of the 13-week quarter.

Boeing's McNerney remained upbeat about the latest round of talks with the Machinists. Previous discussions between the two got caught up on the issue of job security. "We are focused on improving our competitiveness long term," McNerney said. But "I'm hopeful we can find a way forward here … and sooner rather than later."

Should the strike drag on, to control costs, Boeing may need to lay off workers, including potentially members of its engineering union, Bell said. Boeing is to begin negotiations with the engineers and technical workers next week.

If Boeing were to lay off engineers, its contractors would need to be the first to go, said Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace. But Goforth believes there's enough work to go around that Boeing won't "choose" to let anyone go.

"They don't need to lay off anyone," he said.

Both the engineers and Machinists unions have been frustrated by Boeing's increased use of outsourcing on its 787. The mostly composite Dreamliner already was 15 months behind schedule when the strike began.

Tom Wroblewski, president of the local district of the Machinists, pointed to Boeing's management as the culprit in both the 787 delays and the strike.

"McNerney should have to justify the lost revenue and answer why they continue to keep their employees on the picket line," Wroblewski said. "The Machinists were not involved in the decision to outsource the 787, which took airplane production out of Boeing's control. Although the strike might be a convenient excuse for production delays, these delays were already coming."

Boeing suffered several setbacks with its global partners on the 787. The company also acknowledged Wednesday that an aircraft galley supplier for its widebody jets, built in Everett, had fallen behind schedule. Even had Boeing avoided the Machinists strike, it likely would have missed five to 10 twin-aisle jet deliveries in the fourth quarter, McNerney said.

And, regardless of the strike, Boeing also saw a spike in its research and development budget based on soaring costs on its 747-8 jet, Bell said. Boeing had to keep engineers and workers on the 787 longer than expected, forcing the company to contract out work on the revamped jumbo jet.

Boeing's shares fell 7.52 percent on the day, or $3.49, closing at $42.91.

McNerney said he is involved on a daily basis in resolving the Machinists strike and believes a compromise over job security might be struck when the two sides meet with the mediator.

"I think there's a way forward," he said.

The Machinists' Wroblewski hopes that McNerney isn't using this round of talks as a "convenient answer (for investors) to what the company is doing to resolve the strike."

"Customers want their planes, shareholders want their value, and our members want to get back to building the best airplanes in the world," Wroblewski said.



Boeing Machinists Strike Day 48

Contract talks will take place today in Washington, D.C. with a federal mediator.

This strike ties for the third-longest in Machinist history, with only the 69-day strike of 1995 and the 140-day strike of 1948 in front.
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