Six Lessons From Boeing’s Big Contract Victory

Courtesy of BusinessWeek. By Justin Bachman

Boeing’s (BA)new labor contract with Seattle-area aerospace workers will leave production of the company’s new 777X jumbo jet in the region. The narrow vote—approved 51 percent to 49 percent—deeply split the local and national chapters of the International Association of Machinists and Aerospace Workers, and will save Boeing tens of millions in long-term wage and benefit costs. After three months of acrimony, here’s what we learned:

Boeing’s new threat worked. The old paradigm of contract negotiation—give-and-take haggling—is so 1980. The new model is one in which the employer uses its willingness to walk: Take this job on our terms or we’ll find someone who will. Boeing said it had gotten proposals to host the 777X program from 22 states, most of them offering millions in tax breaks and other incentives to lure airplane manufacturing jobs. Washington State politicians had already passed the largest corporate incentive package in history, $8.7 billion, but Boeing demanded that its workers pay, too. When new airplane programs come along, expect Boeing to use the same successful playbook.

The 777X project will be smoother than the 787 Dreamliner. Boeing initially struggled to build 787s in North Charleston, S.C., an East Coast, nonunion outpost where it lacks an experienced aerospace workforce. (That has been a sore spot for Puget Sound machinists, who feel that they saved the entire 787 program by correcting early assembly mistakes on 787s off the Charleston line, and that Boeing returned the favor with a slap.) It was also going to be expensive for Boeing to build and staff a new 777X plant in six years, to keep to the company’s 2020 delivery schedule. This is why the new plane will probably enjoy a less rocky debut than the Dreamliner’s.

Long-term savings trumped short-term costs. Many workers in Oregon and Washington doubted that Boeing would place a major aircraft program outside its skill base. But the nationwide auction Boeing conducted for its 777X work showed that it was willing to pay to build a new plant and train a new workforce in order to secure long-term structural savings. What’s more, Boeing’s 787 experience in South Carolina had already proved its fortitude for these kinds of teething pains.

Pensions died another death. The new contract ends the age-old pension system in favor of a defined-contribution, 401(k)-style plan. By now, many Americans consider a company pension as much a workplace relic as the wardrobes on Mad Men, but unions everywhere have clung to it fiercely. The new Boeing contract is another nail in that coffin.

Unions can no longer count on the Democrats. While Puget Sound machinists were angry about both of the company’s offers, Washington State Democrats pleaded for the workers to accept the Boeing contract and keep the company’s workers in the region. The specter of the Detroit auto industry was raised. And no matter how you feel about the particulars of the just-passed deal, politicians of both parties consider a Boeing assembly job to be well-paid.

Boeing won—and workers lost. Boeing’s decision to play hardball comes at a time of record prosperity for the company, which is boosting its dividend by 50 percent and buying back $10 billion in shares. For 2013, the company is likely to post record net income of $5 billion or more. Boeing’s “corporate power play” is more evidence that in the economic contest between labor and employer, most employees have little power to improve their collective lot. That’s one reason Senator Patty Murray (D-Wash.) felt compelled to note that machinists’ “concerns about income and retirement security for current and future generations of aerospace workers—and all American workers—are legitimate.”

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