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Boeing Faces 787 Labor Case Amid Pressure Over Next New Jet

Boeing Co. (BA), facing a federal labor complaint hearing next week over its new 787 Dreamliner assembly line, is already being pressured by politicians and unions interested in work on a subsequent generation of airliners.

While the planemaker held a ribbon-cutting ceremony today for the 787 plant in South Carolina, Washington state has begun working to secure production for Boeing’s upcoming single-aisle jet. The South Carolina plant at the center of the National Labor Relations Board complaint is the first commercial factory Boeing has built outside Seattle, where it was founded in 1916.

Washington Governor Chris Gregoire named an adviser this week to help ensure her state wins production of the successor to the 737, Boeing’s most popular model. The planemaker plans to decide on the timing of that jet this year, after the composite- plastic Dreamliner and the new 747-8 jumbo are in service.

“The biggest risks to our aerospace competitiveness are complacency and taking our lead for granted,” Gregoire said yesterday. She’s promising “significant” investments in aerospace-focused high schools and training along with reforms to keep the state’s 650 aviation-related manufacturers competitive.

Boeing cited a need for production stability in choosing South Carolina for a non-union plant that will replicate the 787 work already begun in Everett, Washington, where the company has built all its wide-body aircraft. The decision came after the Machinists union’s 26,000 members stopped work for two months in 2008, their fourth strike since 1989.

Four-Year Legal Process

After the union’s complaints, the NLRB investigated and accused Boeing in April of violating workers’ right to strike with actions and comments meant to chill walkouts. Boeing said today that a settlement offer from the International Association of Machinists and Aerospace Workers was unreasonable, and the case goes before an administrative law judge June 14 in Seattle.

Michael Luttig, the Chicago-based company’s general counsel, said he expects to lose initially and will appeal the case all the way to the Supreme Court if needed, which may take four years.

A settlement is the most likely outcome, Kenneth Herbert, a San Francisco-based analyst with Wedbush Securities, said in a note to clients today. He has an “outperform” rating on the shares.

‘Positive Sign’

“We view the fact that there is at least a dialog as a positive sign,” he wrote. “We do not believe that either Boeing or the union want to see the NLRB case proceed through the legal channels.”

The NLRB’s general counsel, Lafe Solomon, has said he tried to reach a settlement for six months before issuing the complaint against Boeing.

Boeing fell $1.13, or 1.5 percent, to $73.05 at 2:02 p.m. in New York Stock Exchange composite trading. Before today, the shares gained 1.4 percent since the labor relations board’s action April 20.

Solomon wants Boeing to add three 787s a month -- the amount planned in South Carolina -- to Washington’s output, which is two a month now and is being ramped up to seven by 2013. That leaves Boeing free to operate the southern facility, as long as it increases production plans -- which the company has discussed.

Boeing is building a so-called temporary surge line in the old 767 bay in Everett, to use until the South Carolina workers are up to speed.

“In theory, with the Charleston facility and the final assembly facility here and the surge line, we could get up to 15 airplanes a month,” Boeing Commercial Airplanes President Jim Albaugh told reporters Feb. 2 in Everett.

Project Pegasus

By the time the labor issue is settled, Boeing will have a clearer idea of when and where it will build its new narrow-body plane. Boeing is weighing a redesign with an improved, larger engine in the middle of the decade to compete with a similar move by Airbus SAS for its A320. Executives have said they prefer developing an all-new plane, if it can be ready by 2020.

The 737 wouldn’t be retired until the next decade, and the replacement may use a composite-plastic fuselage, rather than a traditional aluminum body, so the new plane would need a new assembly plant.

When the 787 was launched in 2003, about half of the 50 U.S. states bid for the work. Washington, where Boeing is the biggest private employer, was chosen after it offered an incentive package valued at about $3 billion over 20 years.

Gregoire is planning a similarly vigorous fight for the 737 successor, appointing Tayloe Washburn, a Seattle attorney, to organize a statewide team and lead the Project Pegasus campaign.

“Neither the NLRB case nor the plant opening in Charleston is distracting us from our focus of landing the next jet here,” said Tom Wroblewski, the president of the Machinists’ District 751 in Seattle, who said he’s working closely with Gregoire on Project Pegasus. “Every advantage is still here.”

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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