Boeing Union Accepts Concessions to Keep 777X in Seattle

Boeing Co. (BA) gained a decade of labor peace after its largest union voted to accept contract concessions in exchange for a promise to base production of the new 777X jet and three other models at its Seattle hub.

Machinists’ union members late yesterday voted 51 percent in favor of ratifying the new agreement, which is effective through 2024. The deal would freeze pensions starting in 2016, a term that Ray Conner, who heads Boeing’s commercial airplane unit, had said was non-negotiable.

“Boeing got what it wanted,” said Richard Aboulafia, an aerospace analyst with Teal Group, a Fairfax, Virginia-based consulting firm. “This probably takes care of a host of problems for years to come.”

Union leaders, who had urged members to reject the concessions, vowed to make Boeing keep a pledge to retain in Washington the thousands of jobs that would accompany the 777X’s final assembly line and a new facility to make the jet’s composite wings, the largest ever made by the company.

“We’ve got 78 years of striking and fighting and walking picket lines to get where we are today,” said Jim Bearden, administrative assistant of the Machinists’ District Lodge 751, which represents 31,000 Boeing workers in Washington and Oregon. “That’s really hard to just give up.”

Photographer: Mike Kane/Bloomberg

A nearly completed Boeing Co. 777 reaches the end of a moving production line at the company's facility in Everett, Washington. Close

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Photographer: Mike Kane/Bloomberg

A nearly completed Boeing Co. 777 reaches the end of a moving production line at the company's facility in Everett, Washington.

By keeping the work at its commercial hub, Boeing avoids the risk of rushing to build new facilities and training a workforce before a planned 2017 start for 777X production and an initial delivery targeted for 2020.

Global Concept

“We’re proud to say that together, we’ll build the world’s next great airplane -- the 777X and its new wing –- right here,” Conner said in an e-mailed statement. “This will put our workforce on the cutting edge of composite technology, while sustaining thousands of local jobs for years to come.”

Having Boeing employees build the new jet’s fuselage, wing, interiors and other major components also breaks with the global factory concept that was a hallmark of Boeing’s 787 Dreamliner. The 787’s bungled development and supply chain snarls pushed its 2011 debut more than three years late, adding to the pressure on Boeing to execute flawlessly on the 777X, according to George Ferguson, senior aerospace analyst with Bloomberg Industries in Skillman, New Jersey.

Yesterday’s vote also lets Boeing halt a multistate competition in which suitors including California, South Carolina, Texas and Washington state dangled billions of dollars in incentives to win -- or keep -- a factory building the company’s first jetliner for the 2020s.

Buyback, Dividend

Boeing’s ability to generate cash with existing models such as the 777 and 737 has helped win over investors, with the shares up 78 percent in the past year to $137.62 at yesterday’s close. A $10 billion stock buyback and a 51 percent dividend increase were announced on Dec. 16.

The new contract is an eight-year extension to 2024 and includes $15,000 per member in bonuses and retention of a seniority system letting workers reach the top of the pay scale within six years. In exchange, they agreed to freeze pension contributions in 2016 and shift to a 401(k)-style plan with defined employer contributions instead of their current program of fixed benefit payments.

Boeing offered the bonuses and the pay scale after the union rejected the company’s initial contract proposal in November. Boeing also pledged to continue making the 737 Max, KC-46 military tanker and P-8 submarine hunter in the Pacific Northwest for a decade, Doug Alder, a spokesman, said by e-mail.

Union Order

Assembling the twin-aisle 777X plane and its composite wings is likely to generate thousands of jobs, a lure to 22 states that submitted bids to host production. Lawmakers in Washington state approved $8.7 billion in tax breaks to ensure that the production stayed in the area where Boeing was founded in 1916.

Deep regional roots haven’t always translated into labor peace for Boeing in Washington, where machinists halted assembly lines with strikes in 2005 and 2008.

Members of union District 751 voted on the new contract offer at the behest of Machinists International President R. Thomas Buffenbarger. He overrode the local leaders’ decision to dismiss the new contract terms outright, saying they deserved consideration because the terms provided $1 billion more in benefits than a measure turned down in November by 67 percent of union members.

About 24,000 members cast votes, a low turnout that benefited the company, according to Chris Okeefe, a machinist who volunteered to help count ballots. Union spokesman Bryan Corliss wouldn’t confirm that number but said today’s turnout was about 2,000 lower than that of the earlier vote.

‘Triple-Checked’

Asked if a recount is possible given the narrow margin of victory, Bearden said, “It’s been triple-checked.”

Grim-faced machinists filed out quietly after yesterday’s tally was announced at the Seattle union hall, some shaking their heads.

“When they’re my age, I hope they look back and remember that they could have had a pension instead of a diminishing 401(k),” said Ron McGaha, 70, a retired machinist who joined Boeing in 1965 and worked four decades for the company and the union.

To contact the reporters on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net; Brendan Case in Mexico City at bcase4@bloomberg.net; Peter Robison in Seattle at robison@bloomberg.net

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

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