Boeing Makes a Move

The labor market news coming out of Washington State continues to be interesting.  After voters in the airport district passed a $15 minimum wage, the next major news item was a contract negotiation between Boeing and the Machinists' Union.  Boeing currently builds the 777 wide body jetliner in Washington state.  However, they just announced a series of orders for a newer model of the plane, the 777X.

In order to keep building the new plane in Washington, Boeing renegotiated the contract.  The final offer would extend through 2021 and included several features that would not endear it to the union.  First, the wage increases in the contract were limited to 1% every other year.  Second, the new contract would introduce a two tier wage scale.  Under the current contract, assemblers start at $15 an hour.  after 6 years of annual increases, they top out at $35 and hour.  Under Boeing's offer, the new hires would take 20 years to reach that top rate.

The big enchilada, however, was the pension plan.  Boeing's workforce in Washington is currently covered by a traditional defined benefit pension plan.  With a defined benefit plan, once you retire, your monthly benefit is fixed.  The company bears all of the investment risk of choosing the right investments to make sure enough money is in the plan to make all of the payouts every month.

Boeing proposed to replace that with a defined contribution plan.  Under defined contributions plans, the company agrees to place a percentage of the employee's earnings into the employee's account.  The employee is then responsible for investing that account in such a way that it grows over time.  When the employee retires, the account is theirs to spend as they wish.  Don't spend it all at once, however, because the money has to last you for the rest of your life.

When the contract proposal was put to a vote, th Machinists voted it down by a two to one margin.  Reasons that were cited for the rejection included the fact that the company is highly profitable, and that the CEO of Boeing got a big increase in compensation.  Too bad for the Machinists that those things don't matter worth a squat.

What does matter is this: Boeing can build the new 777X in one of several new locations.  One possibility that was cited was North Charleston, South Carolina, where Boeing is currently starting to assemble 787 Dreamliners.  Although the 787 had a really rough launch, they seem to have gotten past their teething pains.  The workforce now has experience, and the good people of South Carolina would be thrilled to increase the Boeing payroll.

Another possibility is Long Beach, California.  Boeing currently assembles C-17 military transports in Long Beach.  That contract is going to end in 2015, about the same time Boeing will be gearing up for the 777X.  Although unionized, the folks in Long Beach recognize that without a new piece of business, they're toast.  They will be very receptive to Boeing's overtures, because they recognize that the alternative is massive unemployment.

Another area talking to Boeing is Huntsville, Alabama, where Boeing has located their space operations.  Alabama, like South Carolina, is another Right to Work state.

The Machinists' Union thinks they are calling a bluff on the part of the company.  They think that the skills of the workforce in Washington state are unique and irreplaceable.  You used to hear such statements coming out of the United Auto Workers as well.  At least, you did before the Japanese and Koreans opened up a whole series of assembly plants in the US using non-union labor from Right to Work states.

By rejecting the contract offer, the Machinists have gambled the future of their jobs.  I certainly would not cover their side of the bet.  I think they are going to find out their skills are not irreplaceable.  Then they are going to find out that nobody else thinks their skills are useful in any other situation than building aircraft.