Boeing Stakes Rise on Union Contract Vote Tied to 777X

Boeing Co. (BA) has billions of dollars in cost savings at stake as its largest union votes on a labor agreement today that would end pensions in exchange for keeping work on the newest 777 jet at the company’s Seattle hub.

The eight-year contract extension would boost earnings by about $2 a share annually, according to an estimate by Ken Herbert, an analyst at Canaccord Genuity Group Inc. State lawmakers in Washington also have approved $8.7 billion in tax breaks and other Boeing incentives.

Boeing’s demands for concessions, backed by threats to move production out of state, have sparked backlash among Machinists union members including “Vote No” rallies and accusations of blackmail. Labor leaders are mindful that more than 20,000 jobs may hang in the balance with the vote, as well as the region’s continued role as the company’s commercial manufacturing base.

Keeping assembly of the 777X model in Washington would be “highly positive for Boeing” from a logistical standpoint and take advantage of the workforce building the current 777 at a factory in Everett outside Seattle, Douglas Harned, a Sanford C. Bernstein & Co. analyst, wrote in a research note today.

Machinists leaders plan to count the ballots late today after voting ends at 6 p.m. in Seattle. Chicago-based Boeing has said it would consider all options for an assembly location if the contract extension is rejected.

Photographer: Patrick T. Fallon/Bloomberg

A worker assembles a Boeing Co. 777 airplane at the company's production facility in Everett, Washington. Close

A worker assembles a Boeing Co. 777 airplane at the company's production facility in Everett, Washington.

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Photographer: Patrick T. Fallon/Bloomberg

A worker assembles a Boeing Co. 777 airplane at the company's production facility in Everett, Washington.

Boeing rose 0.6 percent to $133.17 at the close in New York. That extended the shares’ year-to-date gain to 77 percent, the most among stocks in the Dow Jones Industrial Average.

‘Significant Value’

Cumulatively, the benefit changes could be worth more than $2 billion for Boeing, with the greatest savings coming from lower pension expenses, according to Herbert.

“The bottom line is that the new labor agreement creates significant value for Boeing,” wrote Herbert, who rates Boeing as buy. Harned’s outperform recommendation is equivalent to buy.

A new union agreement is pivotal to lower costs and keep the company competitive in a cutthroat environment, Boeing Commercial Airplanes President Ray Conner wrote in a Nov. 8 letter to employees.

“When times are good, it’s easy to forget that continued success is not guaranteed,” Conner said. “We want to be proactive in designing our future.”

Retaining 777X work in the Seattle area would spur job growth as Boeing builds more than 1.5 million square feet (139,000 square meters) of facilities to house final assembly of the jet and production of a carbon-fiber wing borrowed from the 787 Dreamliner, the Machinists’ union said in a Nov. 5 message to members.

‘Personal Decision’

“This is a very personal decision, laced with emotion and repercussions,” Tom Wroblewski, president of Machinists District 751, which represents about 33,000 employees, said in a letter posted on the union website. “But at the end of the day, this is about 30 years of jobs in Puget Sound for us, our children and our grandchildren.”

About 20,000 Boeing employees currently work either directly or indirectly on the 777 jet, Boeing’s largest twin-engine aircraft.

The contract extension would be tacked onto the agreement that expires in 2016, guaranteeing labor peace for a decade. It would end traditional pension accruals in late 2016, replacing them with a defined contribution plan in addition to an existing 401(K) plan.

The company would boost its matching 401(K) contributions while also promising members a $10,000 signing bonus. It would alter pay scales so that new hires take 16 years to reach the top wage from the current six years.

To contact the reporter on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net

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

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