Sept. 6 (Bloomberg) -- Boeing Co., working to reach a new contract with union engineers, says some development work on future airliners may be done at less-expensive sites outside its Seattle jet-manufacturing hub.
While keeping the renewed focus on engineering championed by former Commercial Airplanes President Jim Albaugh, Boeing can draw on resources from across the breadth of the company, not just those in the Puget Sound region, Mike Delaney, the chief engineer, said yesterday.
“Seattle is a love-hate relationship for me,” he said. “I love pumping all the money into my team, but now we’re in the same place as southern California and the Washington, D.C., area in terms of cost to do engineering. Those are the three most expensive places in the country to do engineering.”
Boeing’s engineers not only design new planes, they inspect those being built and sign off on the work before aircraft are delivered. That means any labor action would interrupt work flow during a record production increase, so the Chicago-based planemaker must balance that risk with winning cost savings in a contract to replace the one expiring Oct. 6.
“We’re committed to the Puget Sound,” Delaney said. “But we also have access to the Boeing corporation.”
Talks have been contentious, with disagreement strongest over Boeing’s plan to switch new engineers to a 401(k)-style retirement benefit rather than a pension, according to the Society of Professional Engineering Employees in Aerospace.
Speea, as the union is known, represents about 23,000 Boeing workers, mostly based in the Seattle area. Its 15,000 engineers make an average of $110,000 a year, while 8,000 technical workers under the same contract earn an average $79,000.
Other U.S. cities where Boeing has engineering operations are less expensive, Delaney said, including St. Louis, Philadelphia, Houston, San Antonio and Huntsville, Alabama. Boeing also now builds the 787 Dreamliner in Charleston, South Carolina, where assembly workers aren’t in a union, as they are at the company’s wide-body plant outside Seattle.
“We’re committed to the Puget Sound, to Charleston, to St. Louis,” Delaney said. “But we will do -- I’ve told Speea this -- when we do the next airplane, I will do and use whatever resources it takes to launch that airplane.”
Managing costs is pivotal as Boeing braces for U.S. defense cuts and focuses on productivity after amassing billions of dollars in charges from delays to the Dreamliner and the new 747-8 jumbo jet. The planemaker is bringing some design work back in-house after acknowledging it outsourced too much on the 787 and lost control of the program.
“We’re willing to pay a premium to be in Seattle because there’s a base, there’s capability, we’ve got a great team,” Delaney said. “But if you took Speea’s proposal,” Boeing’s costs would balloon and it wouldn’t be competitive, he said.
“No customer will pay that kind of premium,” he said.
Boeing has been able to draw on companywide engineering resources to solve previous crises, Delaney said. Engineers in Philadelphia were critical in fixing the 787’s problematic side-of-body joint, and Boeing’s space team in Houston and engineers in Huntsville helped with the Dreamliner’s new electrical power system, said Delaney, who was the 787’s chief engineer.
Speea argues it’s crucial to development for engineers to work alongside those who build the planes. Boeing assembles its 737s in Renton, south of Seattle, and its 747s, 767s, 777s and 787s in Everett, to the north, along with the new 787 plant in South Carolina.
“Everybody who worked on the 787 will tell you that the vast majority of problems came from lack of coordination due to the separation of engineering from manufacturing,” said Ray Goforth, Speea’s executive director. “To have Boeing resurrect this failed model to threaten employees into accepting pay and benefit cuts is the most disrespectful thing I’ve heard yet in these negotiations.”
Boeing has already made some shifts from its historical hubs. In 2001, the planemaker moved its corporate headquarters to Chicago from Seattle, where the company was founded in 1916. Earlier this year it decided to shutter operations in Wichita, Kansas, where it has built military airplanes since 1929.
Speea has struck at Boeing only twice since the union’s 1946 founding: for one day in 1993 and 40 days in 2000. The issues in that last walkout were different, and the conflict was over Boeing’s direction, not economics, Delaney said.
“We weren’t doing new airplanes,” and the company hadn’t yet responded to the threat to the Boeing 767 posed by Airbus SAS’s A330, Delaney said. “We did have some leadership who did not appreciate and understand the value of engineering.”
He also disputed Speea’s characterization of Boeing’s proposed contract changes as cuts, since compensation will increase, though the gains won’t be as large as in the 2008 contract that included annual raises of 5 percent.
Boeing says it’s committed to maintaining its reputation as an engineering company after challenges to that status in the past decade.
Delaney said he met with Chief Executive Officer Jim McNerney after the June announcement that Albaugh was retiring and being replaced by Ray Conner, the sales chief. Delaney said McNerney told him “that all the things we were doing on engineering excellence and leveraging our engineering talent in the company” were unchanged by Albaugh’s departure.
“We have a product strategy today,” Delaney said. “We have 15 years of incredible product development in front of us.”
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