Union rejects Boeing's wage increase offer as "insulting"

NEW YORK (Reuters) - Boeing Co. offered its (BA.N) largest workers' union wage increases and other incentives for a new labor contract, but the union called the proposals "insulting" and stepped up its threat to go on strike in early September.

Boeing proposed a pay raise of 2.5 percent the first year and 2 percent in each of the following two years, but the International Association of Machinists and Aerospace Workers (IAM) -- which represents 27,000 Boeing workers, mostly in the Seattle area -- demanded more.

The machinists' union said it submitted a counter-proposal including a substantial increase on the pension, improvements in health care, and retiree medical and pensions for all employees.

Connie Kelliher, a spokeswoman for the IAM, did not reveal exactly how much of a wage increase the union was demanding, but said the trend for the overall aerospace industry was for gains of around 9 percent to 13 percent over three years.

"We would be expecting for at least the industry trend," she said on Sunday, adding that talks were currently tense ahead of the current contract's expiration.

Boeing is expected to propose its best and final offer around Labor Day, September 1, with union workers set to vote on the contract on September 3. The current 36-month labor agreement expires at midnight on September 3, meaning a strike -- if approved by members -- could start on September 4.

Industry watchers say a strike is likely given the fractious history of Boeing and its workers.

Boeing spokesman Tim Healy said the two sides were "making progress" and the company was optimistic that an agreement would be reached before Labor Day weekend.

"Our focus is on giving members a final offer before Labor Day weekend so they can review and talk it over with their family, and vote in their best interests on September 3," he said.

Sticking points have included Boeing's proposals to stop offering retirement medical cover for future hires, and putting new workers into a defined retirement benefit plan rather than the traditional Boeing pension fund.

The IAM has gone on strike three times in the last 20 years. Its members walked off the job for 48 days in 1989; for 69 days in 1995; and 28 days in 2005. The union rejected Boeing's final offer in 2002, but less than the necessary two-thirds voted for a strike, which meant the contract was accepted by default.

A strike could cost Boeing $3 billion a month in revenue, as it would not get paid if planes went undelivered. Last quarter, Boeing's commercial airplanes unit took in $8.6 billion in revenue, or about $2.9 billion per month.

(Reporting by Ritsuko Ando and Bill Rigby, editing by Maureen Bavdek)