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SEATTLE (Reuters) - Boeing Co (BA.N) machinists soundly rejected an eight-year labor contract extension on Wednesday that would have let them build the company's newest jetliner in Washington, a historic decision that could forever alter the course of Boeing's 97-year presence in the state.
International Association of Machinists members voted 67 percent against a deal that would secure an estimated 20 years of work building Boeing's 777X jet, but a deal that would have terminated their pension plan and raised their healthcare costs.
The decision means Boeing will consider building key parts of the 777X, including the wings, in non-union U.S. states or in Japan, where it has already received an offer.
A crowd of more than 100 people erupted in cheers when the vote was announced amid a charged atmosphere at the union's main hall in Seattle.
The vote means Boeing will look for other locations to build the 777X, the only jet it is likely to develop in the next 15 years. Even though the union's 31,000 workers gave up their chance for those jobs, they considered the giveaways in the contract too grave to accept.
Boeing "overreached," said Kathy Cummings, a Washington State Labor Council official.
Boeing swiftly issued a statement saying it had sought to strike a balance between its desire to build the jet in the state and to get what it termed a competitive cost structure.
"We are very disappointed in the outcome of the union vote," Boeing Commercial Airplanes Chief Executive Ray Conner said in the statement.
"Without the terms of this contract extension, we're left with no choice but to open the process competitively and pursue all options for the 777X."
Tom Wroblewski, president of International Association of Machinists District 751, the local union, said in a statement that members "preserved something sacred by rejecting the Boeing proposal. We've held on to our pensions and that's big. At a time when financial planners are talking about a ‘retirement crisis' in America, we have preserved a tool that will help our members retire with more comfort and dignity."
He said he hoped Boeing would "not discard our skills when looking to place the 777X."
Wroblewski came under fire for standing with Boeing and Gov. Jay Inslee in announcing the labor proposal last week, then two days later at a raucous meeting with members, he tore up the agreement and disparaged it.
Wilson Ferguson, vice president of District 751, said Boeing's attempt to put the "future of the job market of the Puget Sound for the next 30 years on us is ridiculous."
"If they're going to make those business decisions and take the company down the road to corporate suicide, that's entirely their business," he said.
Washington state Gov. Inslee, who won approval of an $8.7 billion tax package for Boeing and the aerospace industry in less than a week, said the state still has much to offer Boeing.
"This does not diminish the strengths we do bring to the table," he said. "Tremendous workforce, tremendous incentive package, good permitting, a way to move forward on transportation. We bring those strengths to the table and we've got to continue to maximize those."
Voter turnout was high. Workers began lining up in predawn darkness on Wednesday outside the union hall in Everett, Washington and elsewhere in the Seattle area and in Oregon. Boeing builds the current 777 model in Everett.
"It goes against everything that we've fought for over the years," said John Orcutt, 42, a 17-year union member and hydraulic tube bender in Auburn, Washington.
Orcutt said he doesn't believe Boeing would build the 777X wing elsewhere because the Washington workforce is trained, tooling for the plane is in place and new production lines are risky. He expects the company to eventually come back with another offer if the contract is voted down.
"I think they're totally bluffing," he said.
But others said they would accept the new deal, fearing Boeing would eliminate 20,000 jobs over the next decade as it moved work elsewhere.
"I don't think Boeing's bluffing at all," said another worker. "They did it with second line of the 787."
Separately, Boeing Chief Executive Jim McNerney confirmed on Wednesday that Boeing would consider moving production elsewhere, but declined to say if the vote was a "take it or leave it deal," according to an interview with KING 5 TV, Seattle's NBC affiliate station.
Boeing's alternatives include non-union South Carolina, where the company currently assembles 787 Dreamliners and where it broke ground on Tuesday for a new factory that will make engine housings for its forthcoming 737 MAX planes. <ID:L2N0IX1WZ>
Boeing is buying more than 200 acres near the 787 campus to expand its facilities and has agreed to invest more than $1 billion and hire 2,000 more workers over the next eight years.
Boeing also may consider giving the wing work to Mitsubishi Heavy Industries (7011.T), the Japanese industrial giant that already makes wings for the 787.
Reuters reported exclusively on Tuesday that Mitsubishi had made a detailed proposal to Boeing for building the 777X wing. <ID:L5N0IX420>
Boeing also has facilities in Long Beach, California, where it builds the C-17 military transport plane. That program is ending, freeing space and workers for 777X production.
The vote might not mean the 777X ultimately gets built outside Washington, because moving the work would bring logistical headaches, analysts and industry experts said.
Boeing already has a smooth-running factory line in Everett for the 777, its best-selling wide body jet.
It could use the same workforce and large, fixed tooling to build the 777X, an updated version with essentially the same aluminum fuselage, and new wings, engines and systems.
Boeing also is scaling back output of other jets built in Everett, notably the 747-8, which would make room for the 777X.
Any other site would require time to set up tooling, train workers and deal with the distance between its current 777 operations and the 777X line.
"The door isn't shut on Washington," said Ken Herbert, an analyst at investment firm Canaccord Genuity in San Francisco.
Reporting by Alwyn Scott in New York and Jonathan Kaminsky in Seattle; Editing by Matt Driskill