Boeing drivers are banging heads, setting the stage for a long recovery

On the eve of the nation’s presidential elections, another important contest, also marked by very divided camps, has come to a conclusion. Fifty-nine percent of International Automobile Association District 751 members voted to accept from Boeing the latest offer of a 38 percent pay rise, along with other concessions, and a return to work.

The 53-day standoff shut down factories in the Seattle area where Boeing 737 and 777 planes are assembled and halted deliveries through the industry’s complex supply chain. Workers will begin returning Nov. 6, but it will take months to resume aircraft deliveries at an appreciable level. Even then, Boeing will continue to lag behind its rival, Airbusin delivering aircraft variants for years into the future due to regulatory limits on production and certification following years of accidents and quality incidents.

In addition to a pay raise, workers won a $12,000 ratification bonus, a 13 percent pay increase that starts immediately, a guaranteed 4 percent annual bonus and improved health insurance and 401,000 contributions. That last point was a major impediment to a deal, as the union demanded a return to the defined benefit program it enjoyed until the last contract in 2014.

Why did the union accept to lose this rare survival benefit? Few companies still offer a defined benefit plan for their employees simply because they are very expensive and the cost falls on the employer, while the earnings in 401K programs come from the market.

The 2014 deal was narrowly accepted by the union in exchange for a promise from Boeing to build the next plane in the Puget Sound area. In the early 2000s, Boeing chose to move assembly of its new 787 to a non-union Charleston, South Carolina facility, following a pattern set by automakers that had moved production from Detroit to the Southeast. for similar reasons.

The concession made sense at the time, but then in the last ten years, two major factors have changed the landscape. First, the cost of living in the Seattle area has skyrocketed with the rise of Amazon and other tech giants. Second, Boeing’s next new aircraft, the 777X, has been hampered by ongoing design and certification delays. Originally slated for initial delivery in 2020, Boeing in late October indicated that its certification would take place in 2026 — a prediction that few in the industry believe can be fulfilled.

Therefore, going into this latest negotiation, one side was adamant about their need for back pay and the other side was gripped by the existential challenges that began in 2018 with the twin 737MAX crashes that -they killed everyone on board. Instead of moving quickly to meet the requirements in mid-September, Boeing went through a round of bids from a 25 percent increase to a 38 percent increase that was accepted on Nov. 4 — and burned more than 2 billion dollars in cash, has affected large airline customers such as Southwest and Ryanairand created a shutdown that will reverberate through the supply chain for months or more.

Not surprisingly, the union also demanded a promise to build the next new aircraft, if it happens within four years, to be in the Seattle area.

Still, the resolution is an important foundation for new CEO Kelly Ortberg to build on. In late October, the company raised $25 billion in new credit and debt arrangements to ease a cash crunch that will continue for at least a year. With more than seven years of inventory and airlines ordering planes to meet demand that has returned from the pandemic, the strategy is clear — produce planes, make a profit on each unit delivered, and get Boeing out of the financial hole it’s in.

And along the way, Mr. Ortberg must reorient the company’s culture to quality, not profit, as paramount, while reducing its white-collar workforce of 170,000 by 10 percent. One means of achieving this goal is to restore the company’s primary focus on its core business of designing and producing aircraft that will successfully challenge those of Airbus and China in the long term.

Expect to see many of the aviation-related services businesses that were acquired in the early 2000s when Boeing was trying to diversify be sold. Due to the lack of new aircraft in the system, older aircraft that would normally be retired are now forced to fly more, resulting in increased maintenance, repair and overhaul services. This market is booming, and Boeing will be in the happy position of a seller in a seller’s market.

It is important to the nation and the global economy that Boeing succeeds in this endeavour. Yesterday’s resolution was the first critical step in that journey.