SEATTLE Boeing Co (BA.N) has made an early deal with its biggest union for a four-year contract extension, which if ratified would end the planemaker's dispute with the National Labor Relations Board and ensure the new 737 MAX single-aisle plane is built in Washington state.
The agreement, nine months before expiration of the current contract, gives Boeing some comfort that strikes will not disrupt its operations as it ramps up production of many of its models, and gives the union the local jobs for which it has campaigned.
The 28,000 members of the International Association of Machinists & Aerospace Workers are due to vote on the contract deal next week.
If ratified, the union said it would drop its grievances against the company over its new 787 production site in South Carolina, the subject of a dispute between Boeing and the NLRB.
The contract deal is "a very significant and hopeful development," said Lafe Solomon, acting general counsel for the NLRB. He added that the NLRB would discuss next steps with both parties after the contract was ratified.
"This is huge," said Scott Hamilton, aviation industry consultant at Leeham Co. "For IAM 751 and Boeing to reach a labor agreement before contract negotiations even truly commence is pretty much unprecedented. The fact that it would settle the NLRB case is huge for all the parties involved."
Boeing shares closed up 5.2 percent at $68.69 in a generally higher market, as investors welcomed the prospect of no strikes until at least 2016, when the proposed contract extension would end.
"This removes the risk of a damaging labor confrontation just as it is ramping up production across its models," said analyst Rob Stallard at RBC Capital Markets.
Boeing has always made its wide-body jets in Everett, 30 miles north of Seattle, and its single-aisle planes in Renton, 10 miles south of the city, but it has a rocky history with the local workforce.
The IAM has had four strikes in the last 22 years, most recently a 58-day stoppage in 2008 that delayed the already-late 787. The company has lost more than 200 production days to strikes over the past two decades.
The union and the NLRB accused Boeing of punishing local workers for those strikes by putting a second 787 production facility in South Carolina, which opened this year. The company has said the decision was made purely on business grounds.
A high-profile court battle over the issue has become the fulcrum of a larger conflict between supporters of labor union rights and those who believe U.S. companies should have the freedom to build factories where they want, for whatever reasons they choose.
Boeing's decision to build the new 737 MAX at its Renton factory is a major victory for the union. Narrow-body jets are the short-haul workhorse for the global airline industry, feeding the big hubs or operating quick turnarounds for low-cost carriers.
The 737 MAX, featuring a new, more fuel efficient engine on its existing 737 body, is set to be the company's most financially important plane for the next decade. Due to enter service in 2017, Boeing says it has already taken more than 700 provisional orders.
The aircraft is a reaction to rival Airbus' EAD.PA revamped A320neo single-aisle, due out in 2015. Airbus has more than 1,000 orders for the plane.
Boeing's contract extension, which would take effect immediately if ratified and run through September 2016, includes annual wage increases of 2 percent, a plan for bonuses between 2 percent and 4 percent each year and a $5,000 ratification bonus for each worker. It also preserves defined benefit pensions, now a rarity in corporate America.
IAM members are scheduled to vote on the new contract next Wednesday, December 7.
(Additional reporting by Karen Jacobs in New York and Kyle Peterson in Chicago; Editing by Gerald E. McCormick and Tim Dobbyn)