Union rejection sends Boeing in search of new 777X site

SEATTLE Thu Nov 14, 2013 4:56am EST

The Boeing logo is seen on a Boeing 787 Dreamliner airplane in Long Beach, California March 14, 2012. REUTERS/Lucy Nicholson

The Boeing logo is seen on a Boeing 787 Dreamliner airplane in Long Beach, California March 14, 2012.

Credit: Reuters/Lucy Nicholson

Related Topics

SEATTLE (Reuters) - Boeing workers' rejection of a new labor deal has sent the U.S. plane maker in search of alternative sites to build its newest jet and could mark the beginning of the end for wide-body aircraft manufacturing in the Seattle area.

The vote by machinists late on Wednesday revealed strong opposition to the deal that Boeing said it needed to commit to building its 777X jet in Washington, with no indication whether fresh talks would take place.

The Seattle plant builds the current 777, but the 777X is seen as crucial to Boeing's future as the successor to its most profitable long-haul aircraft. The 777X is expected to be launched at next week's Dubai Airshow with the announcement of more than 100 orders.

Boeing Chief Executive Jim McNerney declined to say in a TV interview on Wednesday whether the vote was a take-it-or-leave-it deal. "There are options for us to look at and we will evaluate them and decide," he told an NBC affiliate in Seattle.

"I'm not prepared to say we're moving in one direction or another. Where and how we build it (the 777X) will be decided in the next few months."

The International Association of Machinists (IAM) could present a counter offer, but union leaders in Seattle said that the strong "no" vote by a heavy turnout of members makes it tough to hammer out a new proposal agreeable to both sides.

With a "slam-dunk 'no', it'll be hard to get people excited about a new deal," said one person close to the process.

State officials in Washington said they would keep fighting for the work. "We intend to compete, and that's what we've got to focus on," Governor Jay Inslee said at a news conference in Olympia, Washington.

SURPRISE REJECTION

Inslee, who last week led a successful five-day legislative effort to pass $8.7 billion in tax incentives and other measures to aide Boeing and the state's aerospace industry, urged the machinists and Boeing to talk to each other, though he does not expect that to happen within the next day or so.

The rejection surprised observers from Wall Street to Tokyo, where many had expected the union to back a plan that would have replaced their pension with a second savings-contribution plan and raised healthcare costs in exchange for Boeing locating the 777X factory in Washington state, sustaining an estimated 20,000 jobs for a generation.

"It was a no? Really?" said a Japanese government official who helps to oversee Japan's aerospace industry.

The Washington workforce is well-trained in building the current 777 jetliner, which is 90 percent hand-built. The factory and tooling are in place, with suppliers geared towards delivering to the plant.

"The door isn't shut on Washington," Canaccord Genuity analyst Ken Herbert said in San Francisco, adding that the agreed tax package means that Boeing and the union could return to the bargaining table.

Still, Boeing said in a statement after the vote that it was disappointed and would shop the work to other states. Boeing has operations in about 40 states, but among its most likely options are North Charleston in South Carolina and Long Beach in California.

POSSIBLE ALTERNATIVES

The company already builds 787 Dreamliners at North Charleston and is investing $1 billion to expand its engineering capability.

Long Beach, meanwhile, is home to production of Boeing's C-17 military transport plane, which is due to stop in 2015 because of faltering sales. Boeing plans to lay off 3,000 workers involved in the 30-year-old program.

Other options include the Japanese port city of Nagoya, where Mitsubishi builds carbon-composite wings for the Dreamliner. Mitsubishi has told Boeing that the plant could be expanded to produce wings for the 777X. [ID:nL5N0IX420]

Wednesday's voting also revealed discord within the IAM's District 751, representing 31,000 Boeing workers in Washington and Oregon, which could inhibit its ability to enter new talks.

District President Tom Wroblewski appeared to support the deal when it was announced last week, then criticized it at a rowdy union meeting last Thursday.

His initial stance was at least partly dictated by the union's national leaders, according to three people familiar with the situation, and cost the leadership credibility with members. Many of the members present when the vote was announced jeered when union leaders took the stage.

"That's not a reaction our leadership should be getting," said Wilson Ferguson, vice president of District 751.

Asked if more talks were possible, he said: "We have a contract until 2016; we'll continue building airplanes until then."

(Additional reporting by Jonathan Kaminsky and Eric Johnson in Seattle, Tim Kelly in Tokyo and Tim Hepher in Paris; Editing by Peter Henderson and David Goodman)

FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article