November 12, 2013 / 3:43 AM / 5 years ago

Analysis: Boeing, Washington machinists may find compromise on 777X

NEW YORK (Reuters) - Boeing’s biggest union rallied against a proposed labor contract on Monday, calling the offer “destructive and divisive” and vowing to reject it at the ballot box on Wednesday.

A Boeing 777 sits on the assembly line at the company's operations in Everett, Washington, October 18, 2012. REUTERS/Andy Clark

But union members risk losing years of work and thousands of jobs producing Boeing’s next jetliner, the 777X, if they spike the deal. And Boeing would be giving up a workforce trained to build the first version of the plane and factories tooled for it.

So in a strange twist, analysts and industry experts said the workers could vote no and still get the work anyway, because the logic of building the jet in Washington is compelling for both sides.

“I think Boeing would prefer to do it in Washington, because it’s their center of expertise,” said Cai von Rumohr, analyst at Cowen & Co in Boston. Even if the union rejects the contract, more talks and negotiating could find a deal to put the 777X in Washington.

“Absolutely it could come back,” von Rumohr said.

While the relationship with the union likely would be more rocky, Boeing could decide that the better place to build the jet is in Washington, even without the labor deal, he added.

Boeing has said the contract extension it worked out with leaders of the International Association of Machinists union last week must be ratified by its 31,000 rank-and-file members in a vote set for Wednesday to ensure the plane is built in Washington.

The workers rallied at a union hall near the factory in Everett, Washington, just hours after Gov. Jay Inslee signed a law that provides nearly $9 billion in tax incentives that Boeing said were necessary to keep its next jet program from moving to another part of the country.

Boeing and its largest union have endured a series of bitter strikes over the past few decades, and investors seemed largely unconcerned about the vote. Boeing stock fell 0.72 percent on Monday to $132.53, still near a record high.


The 777X battle shows the growing pressure to cut costs in aerospace. Orders for planes are booming as flight becomes common in emerging nations like China. But airline ticket prices have fallen by half since 1990, with inflation taken into account, and aircraft makers constantly seek to undersell each other to win big orders from cash-strapped airlines. Discounts can reach 40 percent of list prices, according to industry sources.

“We are under siege by our competition from abroad,” Boeing Commercial Airplane Chief Executive Ray Conner said at the signing ceremony on Monday, referring not just to Boeing’s main rival, Europe’s Airbus but also to Chinese, Canadian and Brazilian competitors.

Boeing’s pension plan costs $3 billion a year and remains $20 billion underfunded, undercutting profitability, said Carter Copeland, an analyst at Barclays in New York.

“Boeing has to be focused on long-term competitiveness and the pension is a big factor in that,” he said.

Many union members, however, are voicing strong opposition to the proposed eight-year extension of the labor agreement that expires in 2016. It would replace a traditional pension with a 401(k) that did not guarantee payments, would raise health care premiums and cut back wage increases in later years.

Repugnant as those take-always are to members, some say the alternative is worse: Jobs and revenue would leak away from Washington over the next decade. And because the state would miss out on developing new wing technology, the jobs and programs probably would never return.


Boeing does have flexibility. It, Airbus and other plane makers now buy major components in finished form from suppliers, and build less of the plane in-house. Like car makers, they also use robots and computer-aided design to cut costs and reduce reliance on skilled labor.

The “snap together” manufacturing doesn’t have to stay put, and investors have less to worry about if Boeing decides to locate the 777X factory outside of Washington.

“Aircraft production is extremely portable,” said Tom Captain, global head of aerospace consulting at Deloitte, in Seattle.

Boeing started a second 787 assembly line in North Charleston, South Carolina. That site now is considered a strong contender to win the 777X, among other possible sites including Texas and possibly Oklahoma, analysts said.

“We’ve made it very clear to Boeing that we’re very interested,” South Carolina state Representative Bobby Harrell said. “I expect we’ll be negotiating with them in the very near future.”

North Charleston Mayor Keith Summey said city and county officials have met to discuss what they can offer Boeing in workforce development and property and school tax breaks.

“We’re willing to work for it but it’s going to be determined by the union. You would think they would have learned their lesson by now. You have to work with Boeing or they’ll go somewhere else,” he said.

But placing 777X production outside Washington 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.

In contrast, South Carolina poses logistical challenges for Boeing and its suppliers to the current 777, analysts said.

The company would need to set up new tooling, train workers and deal with the distance between its current 777 operations and the 777X line.

“Producing things in two places adds a level of complexity and cost that can’t be ignored,” Copeland said.

Additional reporting by Harriet McLeod in South Carolina; Editing by Peter Henderson and Michael Urquhart

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below