Feb. 15, 2017, © Leeham Co.: Boeing’s touch-labor workers at its 787 assembly plant in North Charleston (SC) will vote today on whether to become represented by 
the International Association of Machinists (IAM).
It’s a vote with huge stakes for both sides.
Boeing vociferously opposes a Yes vote. The IAM, which represented workers on the property when it was owned by Vought before Boeing purchased the plant, was voted out by the workers, by then employed by Boeing, just days ahead of Boeing selecting Charleston for the second 787 assembly line. It is widely believed the vote throwing out the IAM was the capper in Boeing’s decision to locate line 2 in Charleston.
The IAM has been itching ever since to regain representation of the workers here. A previous vote was scrubbed when it became clear, via nose-counting, it would fail.
Huge stakes
For the IAM, a successful vote has more symbolism than merely gaining new dues-paying members. It will be seen as vindication of the earlier representation and an endorsement of its long-running campaign asserting Boeing mistreats and underpays Charleston employees. It will also remove some leverage Boeing has over the
Boeing Charleston (SC). Photo via Google images.
Seattle-based IAM 751 district, which Boeing successfully beat up on several occasions for labor contract concessions. Bitterness remains with IAM members in the Seattle area.
For Boeing, losing the vote means having to deal with another union representation that will demand higher wages and benefits. It will open the Charleston plant to the potential of strikes. It will have to deal with a union in the event of employee dismissals or grievances.
It will also be a repudiation of Boeing’s own stewardship of its employees.
Three thousand employees are eligible to vote in today’s election.
Long fight with the IAM 751
The Seattle area is represented by IAM District 751. Boeing and 751 have a long history of contentious relations. Strikes were common. The turning point was the 58-days 2008 strike, which came just as the Great Recession started. The timing couldn’t have been worse. How could the union strike for better wages and benefits, and rejecting give-backs, when the financial markets were collapsing, Boeing orders were drying up and hundreds of thousands of Americans were losing their jobs?
The strike prevented Boeing from delivering airplanes for near two months, costing it billions of dollars in revenues. The full catch-up didn’t occur until the next year.
Then CEO Jim McNerney had it with IAM. All-out war was declared. The first decision on the table was where to locate the second 787 assembly line.
Jon Ostrower, one of the leading aviation journalists, said Boeing decided as early as February 2009 to located line 2 in Charleston. Boeing claimed this wasn’t so.
New negotiations between 751 and Boeing began. Boeing wanted a long-term contract and some concessions. IAM 751 wasn’t willing to give everything Boeing wanted, but its leadership claimed they made a concessionary offer that stunned Boeing negotiators. 751 said the negotiators went away and never came back with a response.
Boeing claimed 751 demanded higher wages and benefits that were unacceptable.
In October 2009, shortly after the Charleston vote decertifying the IAM district there, Boeing announced line 2 would be in Charleston.
Along with it came state and local incentives that are widely believed to approach $1bn, but the value was never confirmed.
What was true was that Washington State kept asking Boeing if new incentives here would help Boeing decide to locate line 2 in Everett. Boeing kept saying incentives had no role—this decision was all about the union.
Union? What union?
After Boeing announced the decision to put line 2 in Charleston, IAM 751 filed a complaint with the National Labor Relations Board (NLRB), charging the decision was retaliation for the 2008 strike. Under discovery, 751 obtained documents that made it clear Boeing’s own internal assessment declared locating line 2 in Charleston was the highest risk alternative.
In a written response to the 751 complaint, Boeing—despite plenty of on-the-record press statements and conversations with Washington elected and administrative officials—claimed the decision had nothing at all to do with the union difficulties. It was a remarkable piece of sophistry.
Before the NLRB could begin hearings, Boeing launched the 737 MAX. And McNerney lowered the boom.
Forced into the MAX
When Airbus launched the A320neo program in December 2010, Boeing dismissed the airplane as a ridiculous idea that nobody wanted.
Boeing then was studying what to do about the 737: just improve it, re-engine it (an option largely publicly dismissed, but nevertheless considered) or launch a new, clean-sheet replacement.
Tom Enders, then CEO of Airbus (left), Gerard Arpey, then CEO of American Airlines, and Jim Albaugh (right), then CEO of Boeing Commercial Airplanes. Albaugh was surprised by American’s talks with Airbus. Getty photo via Google images.
Jim Albaugh, then CEO of Boeing Commercial Airplanes, favored the latter. Confident in the presumed superiority of the 737NG over the A320(ceo), and dismissive of the neo, Boeing took its time.
All this changed in June-July 2011. Word leaked to Boeing that American Airlines was about to place a huge order for the A320ceo and neo families. Boeing officials in Chicago (headquarters) and Seattle (BCA HQ) were thunderstruck. American had been an exclusive Boeing customer since the 1990s.
But American had a huge fleet of rapidly obsolescing Boeing MD-80s. From a practical standpoint, it would have been difficult for American to replace these aging airplanes from a sole-source provider. But Boeing, complacent with the exclusive supplier arrangement with American, didn’t even know AA and Airbus were talking.
After word leaked, Boeing insiders told LNC that McNerney himself decided within 48 hours to launch the 737 MAX.
Boeing went on to win a major order from American—but the Airbus deal wasn’t blocked. More than 400 ceos and neos were ordered.
At the press conference, Tom Enders, then-CEO of Airbus, sat grinning ear-to-ear. Albaugh looked as if he had just swallowed a half dozen lemons, whole.
The 737 MAX threat
Over the next few months, it was assumed Boeing would build the MAX at its Renton (WA) plant. Albaugh even said so.
McNerney promptly slapped Albaugh down, in a rare public rebuke and illustration of oft-talked about tensions and divisions between Chicago and Seattle. McNerney said no decision had been made where to assemble the MAX.
Washington State and union officials went into panicky overdrive. The State came up with new incentives and the union granted new concessions, including extending the contract expiration date agreed after the 2008 strike.
The union also agreed to drop the NLRB complaint.
Boeing announced the MAX would be assembled in Renton. Few believed otherwise, but Boeing skillfully played the decision to locate 787 line 2 in Charleston against the fear the MAX could go elsewhere, too.
One IAM 751 insider—who is hardly a moderate when it comes to discussing Boeing—grudgingly admires Boeing’s strategy in locating line 2 in Charleston. He said the move gave Boeing then and continues to give Boeing now the ability to play Charleston off against Seattle in contract negotiations or site selection for the next airplane.
Next Up: 777X
Next up was the decision to launch the 777X program, in response to the Airbus A350 XWB. Although the A350-1000, the direct competitor to the 777-300ER, has been a slow seller, it nonetheless renders the 777-300ER economically obsolete.
The 777X is Boeing’s response. The 777-8X, about the same size as the -1000, is an ultra-long haul airplane, with more than 9,000nm range. This compares with the -1000’s range of a little more than 8,000nm.
Although Boeing claims the -8 is more economical than the -1000, LNC’s analysis gives the edge to the -1000.
The 777-9 has 40-45 more seats than the -1000 in typical three-class configuration. Accordingly, it has better seat-mile economics, but a direct comparison is unfair because the two airplanes are in different categories. Airbus is considering launching an equally-sized A350-2000, but so far has been rife with indecision.
Boeing is also considering an even larger 777-10, but at this point, it’s wishful thinking. (This figured, however, in Singapore Airlines’ decision to order the 777-9 last week. See a report on this in LNC tomorrow.)
McNerney, once more sensing an opportunity to beat up IAM 751, declared the 777X might be assembled outside Everett. A new battle with the union began, one that would tear 751 apart and pit it against its own parent, the IAM International headquarters.
More concessions, incentives and drastic fallout
McNerney demand that 751 further extend the already-extended 2008 contract, this time to 2024, and make major give-backs on health care and pension benefits.
Before the union could even take up the issue, Washington State offered to extend tax breaks given in 2003 for the 787 (line 1) another 25 years. The price tag: $8.7bn. Although for the entire Washington aerospace industry, the package’s language tied Boeing’s portion specifically to the 777X—something that was illegal under World Trade Organization rules. The WTO already ruled the 787 tax breaks illegal. LNC warned that extending those to the 777X would come under WTO scrutiny and likely would also be found illegal. The State pooh-poohed the warning, but in fact, this is exactly what happened in a decision handed down in January.
The Boeing CEO bypassed 751 leadership and began dealing directly with the head of the IAM International, which pretty much drove the bargaining. Leadership at 751 reluctantly appeared to support the new concessions. The membership revolted, causing the 751 president to backtrack and label the proposed contract “crap.” The contract was voted down.
The IAM International took over, bypassing 751 entirely and negotiated a new contract with Boeing. A new vote was scheduled the first day after the annual Christmas-New Year’s holiday break, when many senior union members were still on vacation.
Leadership and many rank-and-file members charged International set the date to stack the vote with junior members who weren’t vested in the pension and health benefit plans. The tactic worked. The new contract passed, barely.
Boeing located the new 777X wing production plant and assembly line in Everett.
High cost of peace
Boeing obtained labor peace, if that’s what you want to call it, because no strike is possible until 2024. But the cost was high.
The president of 751 retired. International tried to purge select members of the leadership team who opposed International and the two contract offers. Members were divided. Disarray within the union was deep and divisive—outcomes that no doubt didn’t distress McNerney and those in Boeing’s leadership who were anti-union.
But the cost to McNerney was not free of charge, either. Wall Street analysts told LNC the war on the union cost McNerney credibility at the Board of Directors, despite many being hand-picked by the CEO. The complaints, the analysts said, focused on McNerney’s downplaying or failing to correctly analyzing just how pliant the union would be or how disruptive the fights would be.
Several analysts believe that the declining credibility with the board contributed to naming Dennis Muilenburg president and COO of The Boeing Co. when he was, and eventually CEO and chairman on the timeline that occurred.
What’s next
Boeing continues to build up Charleston. The 787-10 is assembled exclusively here, not co-located with other 787 work in Everett. Some work for the 737 MAX is now done here. More than enough land is nearby to expand. The Middle of the Market airplane, also called the New Mid-range Aircraft (NMA), could be a prime candidate for assembly in Charleston.
Without a union, Boeing can come back to IAM 751 following the NMA program launch (generally thought to be likely next year) to seek yet more contract concessions on the current one, with yet another extension from 2024 to still farther in the future.
Undoubtedly, Boeing will try to obtain more concessions from Washington State, though what can be done with tax breaks to 2040 and an adverse WTO ruling hanging over matters will require some very creative thinking.
If the 3,000 Boeing workers vote today to unionize with the IAM, holding Charleston over Seattle’s head becomes largely moot.
This would not prevent Boeing from soliciting RFPs from across the country for an NMA assembly site. Missouri, where Boeing’s defense business is located and which is in decline, is one possibility. Boeing’s defense operations in Huntsville (AL) is another. Kinston (NC), which nearly won the 787 line 1 assembly line in 2003 (and which has a growing aerospace cluster) could be another. Other states would certainly make a bid.
President Donald Trump, who is anti-union, is to visit the Charleston plant Friday. His Tweets probably can be expected shortly after the vote is announced tonight.
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