By Julie Johnsson / Bloomberg
Boeing Co. is seeking to avert a crippling strike by its largest labor union as the clock runs out on the existing accord.
Negotiations between the IAM District 751 union and the planemaker are always tense. This time though, the stakes are particularly high for Boeing, which make these contract talks particularly consequential. Here’s why.
45 billion reasons to settle
Maintaining labor peace is essential if Boeing wants to stabilize production and repair its battered finances. The aviation giant has been burning through cash, while its net debt has soared to $45 billion during five years of tumult.
The company hasn’t reported an annual profit since 2019 as it dealt with the monthslong global grounding of its workhorse 737 Max following two fatal crashes. That crisis was then compounded by the COVID pandemic, supplier shortages, a mass exodus of experienced factory workers and sloppy production.
A near-catastrophe on an airborne 737 Max in early January prompted a deeper scrutiny of the company’s manufacturing practices and culture. U.S. regulators have capped 737 production until they’re convinced the planemaker has a better handle on its quality, while the crisis led to the ouster of some of Boeing’s top management.
With Boeing and its global network of suppliers slowly starting to ramp up production and deliver jets at a steady tempo, a long strike would disrupt this recovery.
16-year lag
Boeing last negotiated a full contract with the IAM in 2008, when striking mechanics shut down its airplane manufacturing hub for 58 days. In the aftermath, then-CEO Jim McNerney stood up a second final assembly line for the 787 Dreamliner in South Carolina, which had previously only been built in Puget Sound.
Boeing extracted even deeper concessions in 2014, when IAM members narrowly agreed to end pensions in exchange for a company pledge to build the 777X in the Seattle area. The 10-year deal quieted activists for a decade, while locking in modest pay raises that didn’t keep pace with inflation.
Upper hand
This time, the union has a stronger hand — and it’s demanding that Boeing commit to building its next all-new plane in the Seattle area. Doing so would provide long-term job security for the 33,000 members of IAM District 751. Union leaders are also pushing for a big pay raise — upwards of 40% — alongside better retirement and health care benefits, and more flexibility in the company’s mandatory overtime policies.
“We are coming off a long 10-year extension with stagnated wages and increased medical costs while experiencing the highest inflation in over 40 years,” the union said in a Wednesday dispatch on the contract talks. “Striking over wages is now a real possibility and would be justified. Our members deserve better!”
Can Boeing afford the union’s demands?
Yes, according to Sheila Kahyaoglu, an analyst at Jefferies. She estimated in an Aug. 29 report to clients that the damage from a strike would outweigh the cost of keeping Boeing workers content.
Boeing’s operating cash flow took a $2.5 billion hit as a result of the two-month work stoppage in 2008. Kahyaoglu calculates that the wage and benefits sought by union leaders would increase Boeing’s cash costs by about $1.5 billion annually.
While that’s a lot for a company still burning cash, Boeing would more than recover the outlay just by building 737 jets at a pace of 38 planes per month by the end of the year, up from the current 25-aircraft tempo, she estimates.
Next steps
Boeing will present its final contract offer over the next few days, and union leaders will then advise members whether to accept or reject the deal. Rank-and-file workers will vote twice on Thursday: once for whether to accept the Boeing offer and then on whether to strike. If the contract is rejected and two-thirds of voters support a strike, Boeing’s factory workers will walk off the job at 12:01 a.m. next Friday.
Boeing’s 787 factory complex in South Carolina is not unionized and would stay open. It’s not clear if manufacturing and deliveries from South Carolina would be disrupted by the labor strife since some of the jet’s components are sourced from Boeing plants in the Seattle area.
Is a strike inevitable?
More than 99% of IAM members supported a strike in a largely symbolic vote at a raucous rally in July. Pro-strike sentiment is running high in online Boeing forums, with participants urging the need to send a message to management, and with some even planning September vacations in anticipation of a work stoppage.
And in a possible precursor, IAM members at Spirit AeroSystems Holdings Inc., walked off work for about a week in 2023 — even though union leaders’ recommended they accept a management offer.
IAM District 751 President Jon Holden insists there is still room for a compromise.
“We’ve laid out a pathway. I’m sure there is a middle ground, absolutely,” Holden said in an Aug. 27 interview. “I don’t know if they’ll get there.”
Is Boeing’s new CEO involved?
Kelly Ortberg, Boeing’s new chief executive officer, met with Holden shortly after taking over the top job but hasn’t been directly involved in the negotiations. His efforts to reset Boeing’s antagonistic relationship with unionized workers would get a boost if the company can avoid, or minimize, a strike.
“This would be a great opportunity to show those days are gone, and both sides see what is needed to move forward,” said aerospace analyst Richard Aboulafia, a managing director with AeroDynamic Advisory.
With assistance from Anthony Palazzo.
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