October 16, 2009 Volume 110 Number 20

Boeing uses jobs to pressure government, union for concessions

By Don McINTOSH, Associate Editor

The Boeing Company has become a repeat offender in using siting decisions to get what it wants. But the company may have exhausted its ability to wring concessions from its unions and the State of Washington.

In a 32-page report released Sept. 28, Washington Gov. Chris Gregoire outlined why the aerospace giant should choose Washington as the site of its second 787 “Dreamliner” assembly line, but offered no new incentives for the company to do so. Meanwhile, the International Association of Machinists and Aerospace Workers (IAM) has held firm in the face of a demand that workers give up the right to strike in return for Boeing picking Washington over a nonunion locale like South Carolina.

In 2001, the company decided to sever corporate leaders’ personal ties to Puget Sound and move its headquarters closer to customers. Boeing held a sort of “auction” between Chicago, Denver, and Dallas-Ft. Worth, and Chicago won the contest, getting 500 jobs in return for $56 million in state and local incentives.

That seemed only to whet the company’s appetite. In 2003, Boeing announced with great fanfare that its new 7E7 Dreamliner would be a globalized operation, with 50 suppliers in eight countries. The site of final assembly would be left to an “open and fair competition,” i.e., a bidding war.

To win the assembly line, the Washington Legislature approved an extraordinary package of incentives: a specialized tax break, targeted at Boeing alone, that would reduce the company’s tax bill an estimated $3.2 billion over 20 years; changes to the unemployment insurance system that would reduce what Boeing pays; funding for aerospace-related training programs at the University of Washington and community colleges in Edmonds and Everett; and road and infrastructure improvements, including an additional pier at the Port of Mukilteo and a railway line ending just below Boeing’s Everett facility.

The company reviewed 80 proposals from 20 states, and chose to locate the new 7E7 assembly line at the existing Boeing facility in Everett.

The next-generation jet, renamed the 787 in 2005, proved a hit with airlines: The Dreamliner is made of lighter, more durable composite materials, and will deliver huge savings in fuel and maintenance costs. Boeing racked up over 800 orders for the aircraft, and determined that a second assembly line — representing an additional 700 to 900 jobs — will be needed in order to meet demand. The company announced that South Carolina, Texas, and Kansas were being considered as locations, as well as Washington.

Could Washington do more to get the company to locate a second 787 assembly line in the state? In the report entitled “The Business Case for Consolidating Boeing 787 Assembly in Washington,” Gregoire reminded the company why Washington is already a great place for Boeing to do business: 80,000 trained aerospace workers; outstanding air, water, rail, and road infrastructure; ongoing investments in aerospace workforce training at local colleges and universities; and favorable tax laws.

Connie Kelliher, spokesperson for IAM District Lodge 751 in Washington, adds one more reason to locate in Washington — Boeing’s existing workforce possesses a shared practical knowledge about how to build Boeing jets that can’t easily be duplicated.

Kelliher recounts a recent conversation with a recently hired Boeing machinist.

“He said, ‘I could have drilled holes in a classroom forever. But they put me in the wing line, and I’m standing at the top of a ladder at a 45 degree angle inside a wing, with a mirror in one hand to see what I’m doing, drilling to a close tolerance. The only way I could learn that is for somebody to tell me how to do it who has done it before.’”

Mistakes in such an environment can be very costly, both in scrapped parts and in image, if the public starts to think Boeing is cutting corners.

“When you’re at 30,000 feet, I don’t think you want your plane to have been built by the lowest bidder,” Kelliher says.

Boeing executives have said they will make a decision on where to locate the second assembly line by the end of the year.

It might not seem that the 1,240 Machinists at Boeing’s Portland unit have a stake in the fight over where the new assembly line will be. The unit, actually located in Gresham, fabricates hundreds of aircraft parts for Boeing planes, and isn’t being considered as an assembly site. But by mid-2009, Boeing was making noises about using the siting decision to extract a no-strike pledge from the union, a concession which would affect every Boeing machinist.

Kelliher says the company never directly proposed a no-strike promise from the union. The message has come second-hand from elected leaders, like Congressman Norm Dicks (D-Bremerton), who told reporters that Boeing’s decision centers on whether they get assurances there won’t be a work stoppage. A work stoppage would further delay deliveries of the 787, which is already two years behind schedule. And a Boeing vice president told the press that choosing a final-assembly site somewhere other than Everett would enable Boeing to keep its jets rolling out in the event of a work stoppage there.

The company has said it’s considering locating the new line next to its non-union facility in South Carolina. The IAM organized the 500-worker South Carolina facility, which Boeing bought from Vought Aircraft Industries last year. Workers voted the union out this year.

Long-time union members can’t remember there ever having been a golden age of labor relations with Boeing. It’s a company that bargains aggressively. But unlike most American workers, Boeing workers have a rare ability to use the strike weapon to defend their interests. That’s because the work they do is highly technical and closely regulated by the Federal Aviation Administration. They can’t be replaced when they strike, like so many other workers.

“Our members are very well educated and very knowledgeable about their power,” said Bob Petroff, directing business representative of Portland-based IAM District Lodge 24. “They know that they can stop the company from producing an airplane. They possess the skills that Boeing needs, and Boeing can’t go anywhere else to get them.”

And the work they do is extraordinarily profitable for the company: Boeing posted a $2.7 billion profit last year, $4 billion in 2007, and $2.2 billion in 2006. The combination of the company’s profitability and their skills enables Machinists to make up to $39.89 an hour under the most recent contract, plus generous health and pension benefits.

But union leaders say they couldn’t have gotten or kept those gains without the strike. Boeing Machinists struck for 48 days in 1989, and for 69 days in 1995. In 1999 they reached agreement days before a strike was to begin, and in 2002, gave major concessions after the 9/11 attacks dealt a blow to the airline industry. They struck again in 2005 for 28 days, and in 2008 for 58 days.

“My members have asked me what my opinion is, and I’ve been very candid about it,” Petroff said. “I will not give up the right to strike. The only weapon we have is our right to strike.”

Strikes aren’t an act of sabotage, Kelliher says.

“These strikes are always triggered because Boeing comes at us with takeaways,” Kelliher said, “not because we’re trying to get more.”

Boeing, despite its profitability, has proposed that union members give up benefits like retiree health care and spousal survivor benefits. Yet union member wages and benefits account for less than 4 percent of airplane costs, Kelliher said.

“A strike is a grave step,” Kelliher said. “People don’t make that decision lightly. Anybody who believes otherwise hasn’t walked a picket line and went without a paycheck.”

IAM general president Tom Buffenbarger has said the union is “all ears” if Boeing wants to talk about a no-strike pledge or any other issue. But it would be a negotiation, and Boeing would have to be prepared to give something substantial in return. Boeing Machinists current contract doesn’t expire until 2012, and the union is under no obligation to modify or extend it.

The union has faced tremendous public pressure from politicians and newspaper editorial boards worried that Boeing will locate elsewhere. But some labor leaders think the union is being targeted as a distraction from Boeing’s real problems with the 787: Its much-vaunted global supply chain isn’t working out, and customers have already canceled 75 orders. Parts are arriving late, or are defective and have to be remade. Parts from different suppliers aren’t fitting together properly. For the union, it’s a case of “I told you so.”

“I can remember saying as early as 1983 that if you continue outsourcing more and more of the plane, eventually you’re going to lose control of your product and you’re going to become hostage to your vendors,” Kelliher said.

The one 787 part that’s on time, Kelliher said, is the vertical fin, and it’s built in Fredrickson, Washington, located 11 miles southeast of Tacoma, by IAM members. For the Dreamliner to succeed, the union argues, Boeing will need to consolidate more operations in-house.

Still, Machinists leaders say they take the threat of locating elsewhere seriously, and are ready to hear proposals. As Kelliher points out, Boeing already has a no-strike clause — the current agreement. It can unilaterally guarantee labor peace by dealing fairly with the union come negotiation time.

In April, both sides committed to improve the relationship to break the cycle of strikes.

“Wouldn’t it be great,” Kelliher said, “if at the contract opener we announced we had a tentative agreement for members to vote on and did it all without the media focused on us?”

“Like everyone else in Washington,” Kelliher said, “we want to grow aerospace jobs and make sure this stays the largest aerospace cluster in the world.”

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