787 delays may give unions leverage against Boeing

Boeing Co.'s delayed 787 Dreamliner may give its two main unions extra leverage in contract talks with the world's second-biggest commercial aircraft maker.

Machinists and engineers will cite stumbles that have put the 787 at least 14 months behind schedule as proof that Boeing should have given them the work rather than rely on suppliers, union leaders say. At the same time, they say they'll use the threat of a strike as Chicago-based Boeing presses to get the plane into service to push for better wages and benefits.

"Unions have the upper hand now," said Richard Aboulafia, an analyst with Teal Group, an aviation consulting firm in Fairfax, Va. "They're determined to get their share of the good times."

Labor unrest would jeopardize Boeing's effort to reclaim the position of No. 1 planemaker from Toulouse, France-based rival Airbus SAS and keep the current schedule for the 787, its most successful new aircraft based on orders. The most popular 787 model seats as many as 250 passengers, while the Airbus A380 seats 525. The Dreamliner has been delayed as contractors failed to complete work, and the A380 was postponed by wiring issues.

Talks begin tomorrow on a contract for 25,500 machinists and have already started informally for 20,000 engineers and technicians. Boeing employed 159,300 workers at the end of 2007. Both unions say they made concessions as air travel fell after the 2001 terrorist attacks and will strike if needed for better wages and benefits.

"The last two negotiations, we were at the mercy of the company," said Thomas Wroblewski, president of the International Association of Machinists' Seattle-based District 751. Union members' pay hasn't been raised since 2004, he said. "We are looking for improvements in every aspect of the contract."

Chicago-based Boeing's lead negotiator, Doug Kight, declined to comment for this story. Spokesman Tim Healy said the company "would strenuously disagree" with the union's characterization and does plan to reward workers for Boeing's "great success."

Boeing's Puget Sound-area machinists have gone on strike six times since the union was founded in 1935. The last one, in 2005, kept Boeing from manufacturing 30 planes.

The machinists are scheduled to vote Sept. 3, the day their contract runs out. If the proposal is rejected, a strike would start at midnight, Wroblewski said in a May 6 interview.

The Society of Professional Engineering Employees in Aerospace has staged work stoppages twice, most recently for 40 days in 2000. Their contract runs out Dec. 1.

"We seem to be on a repeat pattern this year with the same kinds of issues that provoked our members the last time," said Ray Goforth, who took over as executive director of the group Feb. 4. "There could be some serious conflict this fall. I'm hoping not, but it's looking pretty bad."

Boeing has lost about 15 percent, or $14.8 billion, in market value since the first of three Dreamliner delays was announced in October. The shares rose 30 cents to $84.85 in early trading.

The company shuffled resources from other programs to help get the 787 back on schedule for a first flight by year-end and deliveries by the third quarter of next year.

A bigger portion of the 787 is built by vendors worldwide than for other models, with Boeing workers in Everett, Washington, doing only the final assembly. Some suppliers didn't deliver parts on time or didn't do as much pre-assembly work as expected, Boeing says.

"Outsourcing is obviously a concern to us," Goforth said in his Seattle office, where a poster with a picture of the 787 says, "Bring back the work so it's done right."

Contracting some production out to companies around the world "is the reality of the industry" and will continue, Boeing's Healy said.

Boeing needs to become more involved with suppliers early in the design process and monitor how work is proceeding to avoid future delays, Chief Financial Officer James Bell said today in a presentation to analysts in London that was Webcast. The company may more do production itself and have back-up capacity at its own factory if a supplier gets into trouble, he said.

"In some cases we drew the line too far and we ought to pull back a bit and retain some of the work," Bell said. "But it would only be a moderate bit."

Even with delays to the 787 that may result in customers seeking compensation, Boeing will continue farming out more work to suppliers.

"We absolutely believe in this model," Bell said. "It is the model you will see us using going forward."

The 787 is the first jetliner to be built mostly of lightweight composites rather than aluminum, meaning the manufacturing process requires new skills. The new material, made of carbon fibers, helps cut fuel costs, making it popular with airlines, which placed orders at a record rate for a new model. About 900 are on order in total, led by customers International Lease Finance Corp. and Qantas Airways Ltd.

Boeing has boosted production rates to work off its record order backlog, which reached 3,600 planes valued at $271 billion as of March 31. Employees in Renton, Washington, churn out 31 737s every month, while their colleagues in Everett build a record seven 777s a month, Wroblewski said.

Boeing increased profit by 38 percent last quarter, to $1.21 billion, as it boosted deliveries and orders. The company says it will deliver 500 to 505 airliners in 2009, up from as many as 480 this year, helping profit continue to grow.

Starting wages haven't been raised since 1992, when the main group of new machinists were given $12.72 an hour, Wroblewski said. Unions are also upset about changes Boeing made to its medical plan, which shifted more costs to workers, and about a new pension system the company has said it wants to implement.

With profit and demand rising, the union is in "the best position we've been in a long time," Wroblewski said. "It's our time this time."