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Boeing’s Next Jet May Be Bargaining Tool in 787 Factory Dispute

Boeing’s Next Jet May Aid 787 Factory Dispute
The North Charleston, South Carolina location is the first commercial factory Boeing has built outside the Seattle area, where it was founded in 1916. Photo: Stephen Morton/Bloomberg

June 13 (Bloomberg) -- Boeing Co.’s successor to the 737 may become a bargaining tool in any resolution of a labor hearing set to start tomorrow over the new, non-union 787 Dreamliner plant that opened last week in South Carolina.

Work on the new jet, which Boeing has said it would prefer to adding upgraded engines to the 737, was part of an offer the Machinists made at the end of May to settle a federal complaint that the company illegally retaliated against union workers with its new plant, said Tim Neale, a Boeing spokesman.

That case is going before an administrative law judge in Seattle after Boeing rejected the proposal as unreasonable.

“It sought various production guarantees, including a commitment by the company to place our next new program and its related supply chain work” in Washington’s Puget Sound region, Neale said. Connie Kelliher, a Machinists spokeswoman, declined to disclose details of the offer.

Washington state has also begun lobbying Boeing to secure production of the successor to the 737, the planemaker’s most popular model. Governor Chris Gregoire named an adviser last week to lead that effort. Boeing plans to decide on the timing of the 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 last week. She promises “significant” investment in aerospace-focused high schools and training along with reforms to keep the state’s 650 aviation-related manufacturers competitive.

Four-Year Legal Process

The North Charleston, South Carolina location is the first commercial factory Boeing has built outside the Seattle area, where it was founded in 1916. Boeing cited a need for production stability in choosing South Carolina for the plant, which will replicate the 787 work already begun in Everett, Washington. The decision came after the Machinists’ 26,000 members stopped work for two months in 2008, their fourth strike since 1989.

After the union’s complaints, the National Labor Relations Board investigated and accused Boeing in April of violating workers’ legal right to strike with actions and comments meant to chill future walkouts.

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

‘Positive Sign’

A settlement is the most likely outcome, Kenneth Herbert, a San Francisco-based analyst with Wedbush Securities, said in a note June 10.

“It will be hard for the NLRB to demonstrate that Boeing built the South Carolinian facility to retaliate against the union for striking in 2008,” he wrote. “While we cannot for certain dismiss this claim outright, we also find it very hard to prove outright.”

He has an “outperform” rating on the shares, which fell to $1.49, or 2 percent, to $72.69 in New York last week. Before today, Boeing stock was little changed since the NLRB’s April 20 complaint.

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

The Machinists remain open to a settlement, “even once the hearing gets under way,” said Kelliher, the union spokeswoman. “The bottom line is Boeing is the one that broke the law and should be making a settlement offer.”

The NLRB’s general counsel, Lafe Solomon, has said he tried to reach a settlement for six months before issuing the complaint against Boeing. His April 20 case stirred prompted Republican threats to defund the NLRB, and he’s being summoned before the House Committee on Oversight and Government Reform for a June 17 hearing in North Charleston.

Surge Line

Solomon said in a letter last week that the request was unprecedented and he wouldn’t answer any questions that would jeopardize his case.

Solomon wants the planemaker 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 frees Boeing to use the southern facility, as long as it increases production -- 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.

While the surge line probably will become permanent, the South Carolina plant is necessary for Boeing to meet its long-term production objectives, Wedbush’s Herbert said.

Project Pegasus

By the time the 787 labor issue is settled, Boeing will have a clearer idea of when and where it will build its 737 successor. Boeing is weighing a redesign with a 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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