September 4, 2008 / 6:04 AM / 11 years ago

Boeing in tight spot after union strike vote

NEW YORK (Reuters) - Boeing Co (BA.N) must make concessions to its machinists or risk a damaging work stoppage after members of its biggest union rejected the plane maker’s contract and voted overwhelmingly to walk off the job.

International Association of Machinists (IAM) national aerospace coordinator Mark Blondin speaks to machinists at machinists union headquarters in Seattle, Washington September 3, 2008. Boeing's largest labor union, IAM, said on Wednesday that it will postpone a potential strike for 48 hours to allow more time to negotiate with the company. REUTERS/Robert Sorbo

The vote was a clear rejection of Boeing’s “best and final” wage and benefit package — sweetened with a one-time $2,500 ratification bonus — and showed Boeing’s new strategy of selling the contract directly to members through YouTube videos and local radio ads failed.

“They (Boeing) are facing the immediacy of a real strike,” said Victor Schachter, a labor dispute expert at the law firm Fenwick & West LLP. “If experience is any guide, we could expect Boeing to put in a last, best and final offer with some additional concessions to try and bring this to a resolution.”

Late on Wednesday, 87 percent of the International Association of Machinists and Aerospace Workers’ (IAM) 27,000 members voted to strike, but agreed to delay its walk-out by 48 hours to allow more time for bargaining, an idea suggested by federal mediators.

The world’s biggest-selling plane maker — already struggling to get its 787 Dreamliner in the air and work through its massive backlog of plane orders — now faces the stark choice of backing down and improving its offer to workers, or risking the cost and uncertainty of a strike.

“They (Boeing) are in a very difficult position. Their effort to sweeten the pot for enough of them to avoid a strike has failed,” said Richard Aboulafia, an aerospace analyst at Teal Group. “But Boeing might choose to feel pain until the worker rank and file pain outweighs theirs, and they come back to the table.”

BEST AND FINAL

Boeing’s “best and final” contract offer, delivered to union members a week ago, proposed an 11 percent wage increase over the three-year life on the contract, a one-time lump sum and ratification bonus, and other incentives that the company said would add about $34,000 to the pay of the average machinist, who now makes about $65,000 a year including overtime.

That failed to meet union demands for a 13 percent wage increase, no change to health care contributions and the roll-back of provisions allowing Boeing to outsource work.

“Given the stakes, its quite likely that there will be some further concessionary bargaining in this 48-hour period,” said Schachter. “But it may be that Boeing has already drawn a line and said we are willing to take a strike on it.”

Boeing is most likely to avoid a full showdown with a union at the peak of its powers, as the aerospace industry hits the top of the cycle and skilled aerospace workers are in high demand.

But so far the company is standing firm on the outsourcing issue, which has been critical to its new 787 Dreamliner, whose parts are being constructed around the world and assembled at Boeing’s Everett, Washington plant.

The project has been plagued with supplier problems pushing the first plane’s debut more than a year behind schedule. But the craft is a hit with airlines and most in the industry — including rival Airbus, a unit of EADS EAD.PA — seem to agree that global outsourcing is the future for commercial aerospace.

Outsourcing is “one of the fundamental things that allow us to operate efficiently,” said Boeing spokesman Tim Healy on Thursday. The IAM says it is still one of the major unresolved issues in contract negotiations.

LOSE BATTLE, WIN WAR

“Boeing will probably have to pay more (in the current contract) but simultaneously adopt a long-term goal of moving much more work out of the Puget Sound area,” said Aboulafia. “That will take at least 10 years, so it’s probably not the machinists’ immediate concern.”

Boeing already has maintenance and manufacturing plants in Texas and South Carolina, both states with “right-to-work” laws, which effectively ban unions from enforcing closed shops, and therefore reduce their power. Twenty-two U.S. states, mostly in the south and west of the country, have such laws.

Most of the 787’s parts are being produced in Japan, South Korea and Europe. Boeing has admitted to problems overseeing the dispersed production, but there are no signs that it will bring work back to Seattle for its next plane.

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The IAM has made a lot of noise about the perils of outsourcing, but has not offered Boeing any alternative strategies.

If Boeing can counterbalance fears of more outsourcing with improved pay and benefits, then a fairly prompt resolution of the contract dispute remains.

“From what I know, they have the makings of a deal,” Washington state Governor Chris Gregoire, a Democrat, said on CNBC television. “It’s worth a try.”

Additional reporting by Mark McSherry, editing by Leslie Gevirtz

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