The New Cold War at Boeing

You've heard about those companies that hire cheap overseas professionals to do their accounting, software programming, and architectural work, and you want to jump on the bandwagon. Not so fast. Your U.S. staff might just balk. There may be no better example of that than Boeing Co. (BA )

Nearly 12 years ago, as the Soviet Union collapsed, Boeing started recruiting out-of-work Russian aerospace engineers to collaborate on space and commercial-airplane projects. At first, their numbers were small. But the Russians did good work for as little as $5,400 a year. Boeing began to view its Russian staff as the vanguard of a new push into the European market, and in 1998 it opened its Moscow Design Center, which a year ago boasted nearly 700 engineers. From the day the center opened, engineers at Boeing's Seattle hub had voiced concerns. Last year, those fears boiled over.

Boeing's 22,000 engineers in Seattle, represented by the Society of Professional Engineering Employees in Aerospace (SPEEA), threatened to walk out in December, when their contract expired, if the Russian venture wasn't cut back. Partly as a result, Boeing reduced its corps of Moscow engineers to about 350, though the company won't be precise. "The underlying fear is that we're giving away our technology and our competitive advantage, and we're losing jobs," says Dave Landress, a test engineer and union rep. The union has good reason for concern: Struggling to reduce costs to cope with the sharp falloff in orders from the ailing airline industry, Boeing has laid off 5,000 engineers since 2001.

Still, Boeing has refused to yield entirely to the union's demands. It declined, for instance, to adopt tough new job-security language. The best the union could muster: a nonbinding letter acknowledging the concerns of both sides. And Boeing still plans to shift jobs to Russia in the future, company insiders say.

The strategy is to integrate the cheaper Russian engineers into the design process for everything Boeing makes. The Russian staff--spread over seven cities--already works on everything from redesigning jet-wing parts to designing components for the International Space Station. Boeing's other goal is to develop a 24-hour global workforce, made possible by a satellite link from Russia to Boeing's Seattle offices.

It's not just lower pay that makes Russia so attractive. The company hopes a local presence will help to win Russian orders. It hasn't so far: Last summer, Aeroflot weighed the pros and cons of the Boeing 737 vs. the Airbus A320 and picked Airbus, which opened its own Russian design center last year and plans to hire 50 engineers. Still, given the savings, Boeing is likely to keep shifting work to Russia, which is sure to keep some engineers sleepless in Seattle.

By Stanley Holmes in Seattle, with Simon Ostrovsky in Moscow

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