Boeing Risks Labor Unrest With Engineers Contract Talks

Boeing Co. (BA) tried to head off labor unrest during a record production increase by reaching a landmark contract with the machinists who build its jets. Now the planemaker faces a similar risk with its engineers.

Bargaining has been contentious before the current accord’s Oct. 6 expiration, according to the union, which alleged in a federal labor complaint last week that Boeing supervisors had intimidated members. Boeing denied that and said union leaders “are attempting to create a crisis where none exists.”

Keeping the engineers on the job is vital for Boeing, since they work alongside machinists and are required to sign off on assembly throughout a jet’s production. A strike would crimp Boeing’s efforts to boost output 60 percent over four years, work through delays on the 787 Dreamliner and develop new variants such as the 737 Max.

“They don’t need a distraction, and they don’t need any sign that they’re not a reliable and predictable supplier,” said Gary Chaison, an industrial relations professor at Clark University in Worcester, Massachusetts. “The engineers are in a position of having considerable leverage, and negotiations are going to be tough.”

Talks between Chicago-based Boeing and the Society of Professional Engineering Employees in Aerospace, known by the acronym Speea, are being held every Thursday near Seattle, the company’s commercial headquarters. Today’s discussions will center on health care, said Ray Goforth, Speea’s executive director.

Machinists Deal

The union represents 23,000 engineers and technical workers, compared with 31,000 machinists. That group’s surprise deal with Boeing, announced in December, was reached nine months before the expiration of an existing contract, erasing the prospect of a walkout by workers who had struck four times since 1989.

“Given the weak economy and the desire to avoid production disruptions, we think an agreement will be reached,” Stephen Levenson, a New York-based analyst with Stifel Nicolaus, wrote in a note to clients this week. “But investors can expect a fair amount of noise between now and the expiration.”

Even a threat of labor trouble may alarm airlines that have had to suspend new routes when planes were held up by past walkouts.

A two-month strike by machinists in 2008 that delayed dozens of deliveries, including a 777 for V Australia, had an “utterly ghastly” impact, Virgin Group Ltd.’s Richard Branson said later as he picked up the jet. He said he would reconsider future orders if Boeing didn’t resolve its labor issues.

Avoiding Disruptions

Investors took note. Boeing stock dropped in the two weeks after Branson’s comments to trade at a 15 percent discount to Airbus SAS parent European Aeronautic Defence & Space Co. on a price-to-earnings basis. That’s about the same premium EADS now commands, Bloomberg data show.

Airbus, based in Toulouse, France, says it has never had a strike that stopped production.

Both the engineers and the machinists have made much of Boeing’s booming business, citing the $10.6 billion in profits since their last contracts. The Chicago-based manufacturer has a backlog of 4,000 airliners valued at $302 billion as air travel continues to expand and oil prices rise, bolstering demand for more fuel-efficient jets.

Boeing has raised its dividend 10 percent since 2008, when the unions’ last contracts ran out, and Chief Executive Officer Jim McNerney’s total compensation including pension has increased 21 percent to $22.96 million.

‘Clear Challenge’

“They reward themselves, they answer to Wall Street, they’re afraid of the machinists, but they don’t think the engineers or techs will stand up for themselves,” said Ray Goforth, Speea’s executive director. “That’s a clear challenge to the workforce.”

The planemaker described itself in an e-mailed statement as “absolutely committed” to rewarding its engineers for their contributions. The company said executives weren’t available to talk about negotiations.

Speea’s 15,000 engineers account for about 9 percent of Boeing’s 175,000 employees worldwide and make an average of $110,000 a year. The 8,000 technical workers covered by the same contract earn an average $79,000.

That compares with an average $56,000 a year for machinists, who have walked out a total of seven times since 1935.

Pension Benefit

Speea has only gone on strike at Boeing twice since it was founded in 1946: for one day in 1993 and 40 days in 2000.

A major disagreement in Boeing’s current talks with engineers is over pensions. Boeing recently moved non-union employees and smaller unions to a 401(k)-style defined- contribution plan to mitigate fluctuating interest rates’ impact on pension obligations.

The company is making a $1.5 billion voluntary cash payment this year to its $67.7 billion pension, which has a $16.6 billion shortfall.

Engineers won’t accept Boeing’s plan to switch new hires over to a defined-contribution plan because it would cut their benefits by 40 percent, Goforth said. The planemaker also wants to cut the rate of growth for current engineers’ pensions in half, he said.

‘Posturing’

Boeing says it’s trying to keep engineers competitive for future work and that its total compensation package will continue to be market-leading. While proposals are being made more piece-meal this year, Boeing said a final package still should be ready next month.

“Both sides are posturing a bit,” Levenson said.

A group of Speea members suspended their participation in a labor-management committee two weeks ago, citing tension over negotiations. The union also filed a complaint with the National Labor Relations Board last week, claiming Boeing supervisors took pro-union materials out of workers’ cubicles and warned them not to bad-mouth the company in public.

Boeing said yesterday it has no such policy or interest in conveying that type of message to employees.

The biggest aerospace company has posted earnings and developed sought-after products from the Dreamliner to the 737 Max that leave it negotiating from a different vantage point than U.S. management teams who have gained greater power over unions because of their companies’ deep financial trouble.

“Boeing’s problem is that they’re profitable,” Chaison said. “They don’t have much of a case of claiming poverty, and so as a result much is expected of them by their unions.”

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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