Boeing Labor Deal May Avoid Strikes, Help End 787 Complaint

Boeing Co.’s (BA) tentative contract agreement with the Machinists union to keep building the 737 jet in Washington state may help resolve a U.S. labor complaint against the company over the 787 Dreamliner.

The Machinists’ deal today assures nearly a decade of labor peace by extending the agreement four more years. If members approve the contract, union leaders will tell the National Labor Relations Board that complaints over Boeing’s relocation of some Dreamliner work after four strikes since 1989 are satisfied.

“This is an extraordinary development,” said Howard Rubel, an analyst with Jefferies & Co. “It has been almost a tradition that the union strike to get a ‘better deal’ at the end of each contract. The potential for this deal could enable Boeing to improve its competitiveness and clearly shows a genuine effort at finding solutions to vexing problems.”

The labor board accused the company in April of illegal retaliation after Machinists complained about Boeing’s 2009 establishment of a production line in South Carolina, which forbids requiring union membership as a condition of employment. The planemaker said this year it would also consider sites outside of the existing 737 assembly plant in Renton for production of the new MAX variant starting in 2017.

If union members ratify the contract next week, Tom Wroblewski, president of Machinists District 751, said he would meet with the NLRB “to inform them that we believe all our grievances with the Boeing Co. will be resolved.”

NLRB Case

The labor board views the Machinists’ agreement as a “very significant and hopeful development,” Acting General Counsel Lafe Solomon said in an e-mailed statement, adding that he’d be in discussion with all the parties about the next steps in the process.

Nancy Cleeland, a spokeswoman for the board, said the complaint won’t be automatically dropped and declined to speculate on whether it would be.

Under the proposal, Machinists would get a 2 percent wage increase each year of the contract. They’d also get a new performance-based incentive program, their pensions would be preserved along with retirees’ medical benefits, and they’d get a $5,000 ratification bonus.

Puget Sound

Boeing is hiring about 100 Machinists a week as it boosts production by about 60 percent over three years to whittle down a backlog that now stretches to nearly 4,000 aircraft. If the Chicago-based company had chosen another state for the 737 MAX plant, however, the Renton facility could have shut down within a decade, leaving just the wide-body jet plant north of Seattle.

“Landing the MAX means there’s a stronger future for Puget Sound,” said Connie Kelliher, a Machinists spokeswoman in Seattle. “If we hadn’t gotten it here, we would have been left dying on the vine. It would have been a clear signal the other way.”

The deal requires Machinists to pay more for their health care, one of the reasons for the 2008 strike that eventually led to the labor complaint.

Kelliher said union representatives had already gone out to the shop floors to promote the deal. “The benefits are only good if you’re on the payroll to collect them,” she said. “What are the best benefits in the world worth if the work goes away?”

Boeing promised not to discuss the details of the plan until tomorrow, to give Machinists’ leaders time to speak with their members about it, said Tim Healy, a spokesman.

Workforce Stability

That marks a change from three years ago, when the company aired radio spots and sent e-mails to bypass union leadership and communicate directly with workers, something that riled the labor group.

“We’ve had strikes three out of the last four times we’ve gone to the table with the union,” Boeing Commercial Airplanes President Jim Albaugh said at a Credit Suisse conference in New York today, before news of the deal was announced. “It was a lose-lose for both of us.”

The company has “worked very hard” to make the union understand the “realities of the marketplace,” including new competition from China and Canada, Albaugh said. Boeing executives, in turn, listened to the labor group on issues regarding stability of the workforce, he said.

Albaugh said in an interview yesterday that the plant site decision would be made based on “workforce, it’s the cost of doing business now and in the future, it’s surety of production, capital investment, business climate, access to engineering and production talent, and the investment you have to make.”

‘Game-Changer’

Negotiations for Boeing were led by a new team including Ray Conner, who had been in charge of supply-chain management and operations, including the South Carolina complex, until he was made sales chief in August, and Rick Stephens, Boeing’s head of human resources.

“He’s never been involved, and he was a real game- changer,” Kelliher said of Stephens. “Even in the release Boeing put out today, it’s a change in tone and relationship. This could mark a turning point.”

The government’s legal action over the 787 move prompted a barrage of criticism, both from South Carolina and from Republican lawmakers who said businesses have a right to choose where they operate. The union accused Boeing of trying to win politically because it couldn’t do so in court.

The planemaker had cited a need for production stability in choosing North Charleston, South Carolina, for the 787 line after the 2008 strike. That labor action lasted two months, slashing revenue by as much as $6.4 billion.

Because of the possibility of a similar action, “striking a deal 10 months before contract expiration and ahead of major production rate increases removes a significant overhang,” Heidi Wood, a New York-based analyst with Morgan Stanley, said in a note to clients. “The thunderclouds are clearing.”

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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