Boeing dodges risk as labor peace to 2024 spans two jets’ debuts

Chicago-based Boeing Co. will be able to develop new versions of its best-selling jets without the threat of production-halting strikes after its largest union accepted a contract extension through 2024.

The decade of labor peace at the planemaker’s Seattle hub lowers development risk for the 777X and 737 Max, the heart of Boeing’s commercial jet lineup. Machinists voted Jan. 3 for an agreement that freezes pensions in exchange for Boeing’s promise to assemble the updated model of the 777 in Washington state.

“The Machinists accepting the contract is a best-case scenario for Boeing,” Eric Hugel, an analyst at S&P Capital IQ Inc. in New York, said in a telephone interview. “There would be a higher risk if they moved production.”

Boeing avoids having to follow through on its threat to move the 777X out of state, a step that would have meant building plants and training a workforce by its 2017 deadline to start manufacturing the makeover of its biggest twin-engine jet. The Chicago-based company also won’t have to worry about work stoppages slowing the Max, a revamp of the world’s most widely flown jetliner, ahead of a planned 2017 commercial debut.

“It’s a defining moment for Boeing and the Machinists,” Harley Shaiken, a labor economist at the University of California at Berkeley, said by a phone. “It makes possible a high road to competitiveness that is based on a high-wage, high- skill unionized workforce.”

Factory Derby

Machinists rejected Boeing’s initial contract offer in November, triggering a competition in which states from California to South Carolina dangled billions of dollars of incentives to land production of the 777X and fabrication of its composite wings.

With the 777X contest due to close in weeks, union members agreed to the givebacks rather than take a chance on speeding Boeing’s exodus from the Pacific Northwest. The revised accord passed with 51 percent of the vote.

“This is a different animal, a different contract, than I think I’ve ever dealt with in 36 years at Boeing,” Machinist Chris Okeefe said. “A lot of people do feel resentful. At the same time, now we must live by what we’ve got.”

About 24,000 votes were cast, a low turnout that benefited the company, according to Okeefe, one of the union volunteers who counted ballots. A Machinists union spokesman, Bryan Corliss, wouldn’t confirm that number but said turnout was about 2,000 less than on Nov. 13.

Concessions Sought

The labor agreement, an eight-year extension of the current contract, included bonuses and other sweeteners added after the initial offer failed. Boeing had said it needed concessions such as a freeze on pensions to stay competitive as it prepares to build the 777X, the company’s first jetliner for the 2020s.

“We’re proud to say that together, we’ll build the world’s next great airplane -- the 777X and its new wing -- right here,” Boeing Commercial Airplanes President Ray Conner said in an e-mailed statement after the vote. “This will put our workforce on the cutting edge of composite technology, while sustaining thousands of local jobs for years to come.”

With initial deliveries slated for 2020, Boeing can’t afford delays that would trim margins for one of its most- profitable jets, according to George Ferguson, senior aerospace analyst at Bloomberg Industries in Skillman, New Jersey.

Having Boeing employees build the 777X’s fuselage, wing, interiors and other major components breaks with the global factory concept that was a hallmark of the 787 Dreamliner, with major components built by suppliers around the world.

Execution Pressure

Development bungles and supply-chain snarls that pushed the Dreamliner’s debut more than three years late, to 2011, added to the pressure on Boeing to execute flawlessly on the 777X, Ferguson said in a December phone interview.

Since its formal unveiling in November, the 777X has amassed more than $100 billion in orders and commitments from blue-chip clients such as Emirates, Deutsche Lufthansa AG and Cathay Pacific Airways Ltd.

Boeing’s ability to generate cash with existing models such as the 777 and 737 has helped win over investors, with the shares up 81 percent in 2013. The stock closed at $137.62 on Jan. 3.

Of 29 analysts covering Boeing, 21 recommending buying the shares, including S&P’s Hugel, according to data compiled by Bloomberg. The others rate the stock as hold.

Boeing’s commercial output centers on Washington’s Puget Sound region, where workers at one factory build twin-aisle jets and assemble the single-aisle 737 at another. Boeing makes some Dreamliners at a new, nonunion plant in South Carolina in addition to the main wide-body factory in Everett, Washington.

“For the Machinists, it was an extremely difficult decision to make, but it wasn’t a sign of weakness,” Shaiken, the professor, said of the contract concessions. “In a decade the union is going to be stronger, not weaker, because so much of Boeing’s production is going to be concentrated in the Seattle area: a unionized, high-wage area.”

--With assistance from Britton Staniar in Seattle. Editors: Ed Dufner, Reed Stevenson

To contact the reporters on this story: Julie Johnsson in Chicago at jjohnssonbloomberg.net; Brendan Case in Mexico City at bcase4bloomberg.net; Peter Robison in Seattle at robisonbloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufnerbloomberg.net