Boeing Co. resumed talks on Monday with union leaders to end a strike that most investors aren’t paying much attention to. This is a problem for the 3,200 employees who rejected a company offer that provided an all-in 40% average compensation increase over four years and walked off the job on Aug. 4.
The striking workers help build aircraft, including the F-15 and, among other things, produce kits that turn dumb bombs into smart ones in facilities near St. Louis, Missouri. This labor struggle has drawn little publicity compared with the high-profile strike at the end of last year that shut down commercial aircraft production for 53 days.
Boeing is likely to dig in its heels after members of District 837 of the International Association of Machinists and Aerospace Workers “overwhelmingly” rejected the offer. In reaction to the vote, Boeing withdrew a $5,000 signing bonus and then did nothing.
In a nod to which side holds the upper hand on talks, the president of the union, which represents about 600,000 workers in North America, sent a letter on Aug. 11 to Missouri lawmakers asking them to urge Boeing to return to the bargaining table. Now, two weeks later, Boeing and union leaders are holding talks again, but don’t expect a sense of urgency on the company’s part.
Boeing was under intense pressure from investors and customers to resolve the strike of about 33,000 machinists last year that shut down commercial aircraft factories in the Seattle area. Still, it took almost two months to resolve the dispute in which workers clearly had an edge.
Boeing’s financial future — and consequently its stock price — hinges on the planemaker revamping its manufacturing culture and cranking up production at its commercial airplanes’ unit. The company has a backlog of 5,900 commercial aircraft worth $522 billion, and a smooth ramp-up of production will turn those orders into a cash machine.
That’s not the case for the defense, space and security unit, which has a backlog of $74 billion. The unit has been losing money after the company got into trouble with fixed-rate contracts that failed to anticipate an inflation surge. While investors expect the business to rebound eventually, defense work doesn’t make or break Boeing’s finances like the commercial unit does.
The union’s bargaining position is weakened by company contingency plans that have kept these defense factories operating, albeit at a lower pace.
Workers may have voted against the offer in light of the gains that their commercial-aircraft counterparts made by holding out for more. But machinists in the Seattle area were negotiating their first contract renewal since 2014, when Boeing played hardball by threatening to move production out of the Seattle area and won concessions that angered workers. The St. Louis-area machinists had already renegotiated the 2014 contract in a three-year agreement reached in 2022. That dilutes some of that anger from the days when Boeing ran roughshod over union workers.
Economics have changed as well from just a year ago. The economy is clearly slowing, although defense spending around the world has increased, and the inflation rate is solidly below 3%. A year ago, workers had just come off two years of the highest inflation in decades.
A serious problem that the striking workers face is that the preliminary agreement they rejected was fairly generous. The company offered machinists a 40% all-in compensation increase over four years that included strengthening medical benefits and increasing pension matches, according to the union leadership, which trumpeted the agreement in a July 24 statement.
Under the agreement, hourly wage increases average 20% and are weighted more heavily toward those who earn less. A first-shift worker who makes $34.25 an hour would make $52.03 an hour in the fourth year of the contract. For workers already at the maximum hourly wage, their annual pay would increase to $110,718 a year from $95,326, according to a Boeing fact sheet.
Boeing Chief Executive Officer Kelly Ortberg will have to decide how to balance his strategy of revamping the company’s manufacturing culture with stamping out union activism that, if unchecked, could spread as labor contracts come due. The ability to hold costs in check are key for turning around the defense business. Then again, building that manufacturing culture of excellence is also crucial, especially after the company won a contract worth at least $20 billion to build the sixth-generation fighter jet, known as the F-47, in the St. Louis area.
Time is on Boeing’s side. The last time District 837 machinists went on strike, in 1996, the walkout lasted 99 days. One side will have to give ground. If the company ends up sweetening its offer, it won’t be by much.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Thomas Black
