Looks Like Boeing Might Not Be Bluffing
Last Wednesday, a strong majority of Boeing (NYSE:BA) machinists rejected an eight-year labor contract extension that would have ensured production of the key components for the company’s newest plane — the redesigned 777X — would have remained in Washington state, the jet manufacturer’s traditional manufacturing base. Now, where the important production lines will be set up is unknown. A Boeing executive told the New York Times Saturday that the company would “look very broadly” at where else the aircraft could be built. The agreement would have given 31,000 members of the International Association of Machinists an estimated 20 years of work building the 777X, the latest iteration of Boeing’s profitable wide-body series.
Given the sweeping ramifications the contract rejection will have on Boeing’s Washington machinists, the atmosphere of the union meeting was charged and the vote drew a strong turnout. The 777X — which boasts the largest engines ever put on a plane and key costs-saving technologies that could change trends in modern aircraft design — is considered a pivotal to Boeing’s future profitability and a crucial component in the company’s fight against European Aeronautic (EADSY.PK)-owned Airbus for dominance in the long-range, twin engine market.
“The airplane will build on the market-leading 777 and will provide superior operating economics,” as Raymond L. Conner, the chief executive of Boeing’s commercial aircraft division, described the jet in a press release. “The airplane will be 12 percent more fuel efficient than any competing airplane, necessary in today’s competitive environment.”
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 fifteen years, making it a very important aircraft. Not only would the contract have brought job security the labors building the plane, but its construction would have had 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. Washington state even promised Boeing a tax incentive package worth nearly $9 billion.
However, because the contract would have terminated union’s pension plans and increased health care costs, the machinists deemed those giveaways too harsh to to accept. Sixty-seven percent of all votes cast were no votes.
“Today, the democratic process worked and our members made the decision to not accept the company’s proposal. It is my belief that we represent the best aerospace workforce in the world and hope that as a result of this vote Boeing will not discard our skills when looking to place the 777X,” said the union’s District 751 President Tom Wroblewski in a statement issued after the vote. “We preserved something sacred by rejecting the Boeing proposal. We’ve held on to our pensions and that’s big. At a time when financial planners are talking about a ‘retirement crisis’ in America, we have preserved a tool that will help our members retire with more comfort and dignity.”
Wroblewski’s statement suggested that there was a belief among Boeing’s union workers that the company would reformulate the agreement, addressing the machinists chief concerns. Similarly, John Orcutt, a 17-year union member, told Reuters last week, “I think they’re totally bluffing.”
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 no vote. The company could the use the same workforce and the same large, fixed tooling to build the updated aircraft, which has essentially the same aluminum fuselage as its predecessor. “The door isn’t shut on Washington,” Canaccord Genuity analyst Ken Herbert told the publication last week.
Yet, Conner said at a news conference held just before the Dubai Airshow that the company is “all options open” on where to build the 777X, but he expects a decision will be made within the next several months. “The timing of the airplane hasn’t changed,” Conner said. “It has always been the end of the decade.”
On November 17, Boeing officially launched the 777X program at the 2013 Dubai Airshow, with a record number of customer orders and commitments made for the jet manufacturer’s latest twin-aisle aircraft. According to a company press release, it was the “largest product launch in commercial jetliner history by dollar value.”
Orders and commitments included Lufthansa’s (DLAKY.PK) 34 planes, Abu Dhabi-based Etihad Airways’ 25 plans, Qatar Airways’ 50 planes, and Emirates’ 150 planes. The combined value of those agreements is more than$95 billion at list prices. “We are proud to partner with each of these esteemed airlines to launch the 777X — the largest and most-efficient twin-engine jetliner in the world,” said Conner. “Its ground-breaking engine technologies and all-new composite wing will deliver unsurpassed value and growth potential to our customers.”
Etihad also placed an order for 87 Airbus jets worth $26.9 billion at list price, which included 50 A350s, the twin-aisle competitor of the 777X. Plus, Dubai’s Emirates announced an order for 50 Airbus A380s, an deal worth $23 billion.
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