Boeing enjoys profitable model here in Puget Sound

Boeing’s second quarter profit was $998 million. That’s $46 million more than a year ago. How does this work, with the 787 sucking up billions of dollars in development and mistakes? The answer is embedded in Boeing’s tried-and-true, decades-old business model.

Boeing made more than $800 million from its commercial airline production this past spring. Every workday Boeing completes another 737. Each plane brings in gross revenues of $60 million to $70 million. Unionized workers supply the skills to build these planes from the ground up. Each plane is a custom-built, complex piece of machinery, with slightly different tolerances, set-ups and even lengths, as requested by the carriers, built to fly hundreds of people across thousands of miles.

So how about that outsourced 787? Last month Boeing engineers discovered that the 787 wing-box to fuselage attachment is compromised, so that the wing made by Mitsubishi and the center wing box made by Fuji don’t work together as they should. A fix will push out the first flight into 2010, more than two years behind schedule. Boeing has now lost 5 percent of its orders for the 787. With each delay, Airbus gains orders for its competing A350.

Another 787 innovation is to shift production to non-union states. But if you start with an unskilled workforce and add in the lack of technical infrastructure, no matter how little you pay workers, you still are not going to get a flawless airplane. And that’s what you need when you are going up into the sky.

So one business model makes money — the Washington state unionized business model — and subsidizes the emerging business model, which is sucking up money and showing nothing but delay.

An outraged reader responded to my last column by huffing that “overhead crane operators at Boeing … are paid in excess of $35 per hour.” He’s right. These workers operate overhead cranes in the high bays of aircraft production. A highly skilled job, with a lot of negative consequences if you do it wrong, such as the destruction of airplanes, workplace accidents, and on-the-job injuries and fatalities. Seems like the task deserves this compensation, especially if you are appreciating its benefits 35,000 feet in the air.

The contract between the Machinists and Boeing enables profits and productivity, work and advancement. You can start as a typist or a sander at $12 an hour (that’s a little less than $25,000 a year). You can advance to a sand blast operator, and onto an automatic fusion welding machine operator. Aircraft and engine mechanics start at $21 an hour. Senior electronic technicians for aircraft systems are paid between $22 and $37. The pay schedule tops out at about $77,000 for Machinists on the first shift at Boeing. This looks like a bargain, considering the product they build and in which we trust our lives.

When you go to work at Boeing, you have health coverage, a pension when you retire, and paid leave for vacation and when you are sick. You can get into an apprenticeship program to increase your job skills. And you know you are making the best and most profitable planes in the world, especially if you are working on the 737.

Why would Boeing destroy this business model and depart for South Carolina, a state that only knows aircraft as they fly overhead? Boeing’s own second quarter report shows that this has nothing to do with profitability. The answer lies with the front-page photograph that appears every three years when Boeing and the Machinists or the engineers sit down to negotiate their next contracts. The photograph shows two sides, an equality of interest and reasonableness between management and workers. But if you want unilateral control, you don’t want unions voicing the concerns of workers and elbowing their way to a contract that sets a high bar for the company.

This is now Boeing’s dilemma, because that model of employer-union cooperation has yielded the company and its shareholders great profits. If the company sees a union-free environment as its No. 1 objective, then it has to leave behind the talent and the workers who helped to create the sweet spot for Boeing profits. That’s a heavy price for an ideological agenda, a price that would be paid by Boeing, by its current employees, and by this great community here in Washington that Boeing has helped to build.

John Burbank is executive director of the Economic Opportunity Institute in Seattle. He can be reached at john@eoionline.org.