The International Association of Machinists and Aerospace Workers is involved in two significant high-profile strikes this week – at Caterpillar in Joliet, Illinois, and Hawker-Beechcraft in Wichita, Kansas. The situations are quite different, with Cat making record profits and Hawker on the cusp of bankruptcy with its finances controlled by a cadre of Hedge Funds – but the workers feel they are being abused in both places.
Cat is asking for a 6-year wage freeze for the striking workers, who do not comprise a majority of the Joliet workforce. Caterpillar can keep the plant going without the striking workers. The strike is interesting to me because Cat is expanding production in the U.S. now and building new plants. It has had relative labor peace since the awful Peoria war 10 years ago with the UAW, which set the stage for the tremendous profit growth in recent years. But it left lingering resentment between the workers who were entrenched and those whose contracts were not grandfathered. In Joliet we are seeing union anger play out as Cat uses its financial and manufacturing muscle emanating from its foreign plants and new non-union plants to undermine union workers at factories like Joliet.
The anger is understandable, with the Joliet workers seeing the company doing so well yet offering no wage increases and reduced health care benefits for the next six years. Meanwhile, Cat knows it can move the work to South Carolina or Texas where labor costs will be significantly lower than in Joliet, Illinois.
In Wichita you have a weak company in Hawker-Beechcraft, which will be going into Chapter 11 bankruptcy imminently, while the workers are trying to position themselves in the next iteration of the struggling company, which was mated by Goldman Sachs in 2007 – perfect timing for disaster.
As often is the case when manufacturing companies are run by investment guys to score a quick killing – very bad things happen. Hawker-Beechcraft is getting slaughtered by Cessna these days, and the private aviation business is mediocre. Defense buying is also down.
On the other hand, while Caterpillar could move production to other facilities relatively easily, Wichita is the mecca of small plane building, and a new plant would require big investment and expensive training. This is a case where union and management are stuck with each other. Unfortunately, the key players in this deal are the hedge fund guys who control the crappy debt of Hawker. They are evidently going to swap debt for equity in the bankrupt company and then hammer the workers for concessions. The union can make life miserable for the new owners, which they are making clear by striking while the lawyers are dividing the pie. Meanwhile, if you were shopping for a private jet these days, you probably would not buy Hawker-Beechcraft’s offerings.
For the last several years we have been living in relative business-labor tranquility. These two machinist strikes in progress may auger in a period of more unrest, particularly with China a less attractive alternative. The high unemployment rate will theoretically mitigate labor contention, but the reality may be more volatility in the machining and machinery environment.
Question: What would you do if Caterpillar cut your benefits and froze your wages for six years?