Benefits Cuts Were Too Harsh for Boeing Machinists

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It seems like Boeing Co.’s (NYSE:BA) 777X will not be built in the Seattle area, the company’s traditional manufacturing base. On Wednesday, a strong majority of Boeing machinists rejected an eight-year labor contract extension, a decision that could ultimately impact the jet manufacturer’s 97-year presence in Washington state.

With 67 percent of members of the International Association of Machinists voting against the agreement, which would have given the union’s 31,000 machinists an estimated 20 years of work building the aircraft, Boeing said it will have to consider constructing key components of the redesigned 777 in right-to-work states or abroad. Japan has already made the company an offer.

As Reuters reports, more than 100 people began cheering after the vote was announced at the union’s main hall in Seattle. John Orcutt, a 17-year union member, told the news service the contract went “against everything that we’ve fought for over the years.” He does not believe that Boeing will build the carbon-fiber composite wings of the redesigned 777X elsewhere because the Washington machinists are already trained, and developing new production lines is risky.

Orcutt told Reuters that he believes another contract offer will made. “I think they’re totally bluffing,” he said. Analysts and industry experts have also theorized that because of the logistical headaches that would accompany a production line move, the 777X may be built in Washington despite the vote. The company could the use the same workforce and the same large, fixed tooling to build the updated plane, which has essentially the same aluminum fuselage as its predecessor.

“The door isn’t shut on Washington” state, Canaccord Genuity analyst Ken Herbert told Reuters.

Given the sweeping ramifications the contract rejection will have on Boeing’s Washington machinists, the atmosphere of the meeting was charged, and the vote drew a strong turnout. The 777X — which boasts the largest engines ever put on a plane and key cost-saving technologies that could change trends in modern aircraft design — is considered a pivotal to Boeing’s future profitability and is a crucial component in the company’s fight against Airbus for dominance in the long-range twin engine market.

More importantly for machinists is the fact that the new version of the popular long-haul get, due for delivery in 2020, will likely be the last major new jet constructed by Boeing for 15 years, making it an extremely important aircraft. Not only would the contract bring job security to the labors building the plane, but its construction would have a huge ripple effect for the state where the production line is located, giving a boost to the local economy.

Last year, Washington’s aerospace industry generated $76 billion in economic activity, with the 777 contributing $20 billion in economic activity and 56,000 jobs to the state.

But because the contract would have terminated the union’s pension plans and increased health care costs, the machinists deemed those giveaways too harsh to to accept. As Kathy Cummings, a Washington state Labor Council official, told Reuters, Boeing “overreached” in writing the contract’s terms.

In stronger language, Wilson Ferguson, vice president of District 751, told the news service that Boeing’s decision to put the “future of the job market of the Puget Sound for the next 30 years on us is ridiculous.” If the company is “going to make those business decisions and take the company down the road to corporate suicide, that’s entirely their business,” he said.

In a statement released after the vote, Boeing Commercial Airplanes CEO Ray Conner said that the jet manufacturer is “very disappointed in the outcome.” However, Boeing went on to explain that those terms were meant to balance its goal of enabling the 777X to be produced in Puget Sound while also creating a “competitive structure” to ensure that the company could continue to provide market-leading pay, health care, and retirement benefits.

“Without the terms of this contract extension, we’re left with no choice but to open the process competitively and pursue all options for the 777X,” Conner’s statement said.

Unlike Orcutt, other workers Reuters spoke to are not as certain that Boeing will make a second contract offer. After all, the company did set up another production line for the 787 Dreamliner at a South Carolina factory — that facility is the first final assembly plant for jets manned by nonunion workers. Because South Carolina is a right-to-work state, legislation prohibits agreements that govern the extent to which a union can require employees’ membership. On Tuesday, the company broke ground in the state on a new factory that will make engine housings for the upcoming 737 MAX planes.

Boeing could also give the wing production contract to Mitsubishi Heavy Industries, the company that builds wings for the 787. Boeing also has facilities in Long Beach, California, where the C-17 military transport plane is built, and because that program is ending, that factory could be repurposed for the 777X.

The 777X jet will launch at the Dubai Airshow later this month, but it has already received record orders.

Follow Meghan on Twitter @MFoley_WSCS

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