Boeing crisis: Amid 737 turbulence, Boeing has a brand new headache & its not going away easy

Boeing crisis: Amid 737 turbulence, Boeing has a brand new headache & its not going away easy



Boeing crisis: Amid 737 turbulence, Boeing has a brand new headache & its not going away easy

Boeing Co. executives have spent the past month grappling with the aftermath of a near-catastrophe on an airborne 737 Max jet. As the US planemaker works through its latest crisis tied to manufacturing lapses, a new risk looms: a labor rift 10 years in the making.

Boeing’s largest union, the International Association of Machinists and Aerospace Workers, is still smarting over a 2014 deal that sacrificed pensions, locked in minimal raises and tied the hands of activists for a decade. Union leaders will demand a 40% pay raise over three or four years, emboldened by a resurgent US labor movement, a scarcity of qualified aerospace workers and pressure on Boeing to stabilize work in its factories.

“Our goal is to negotiate a contract that we as a union leadership and our members can accept,” said Jon Holden, president of IAM District 751, which represents 32,000 Seattle-area Boeing mechanics. “We don’t take going on strike lightly. But we’re willing to do it.”

Holden sees a path to a successful deal with Boeing, he said in an interview. Even so, he’s prepared to follow the lead of auto workers in Detroit, writers and actors in Hollywood, and fellow machinists at Boeing supplier Spirit AeroSystems Holdings Inc. in Kansas. Each emerged from walkouts last year with significant improvements in pay and other contract terms.

A strike would shut down Boeing plants in Washington and Oregon, including assembly lines for its cash-cow 737 jets, crimping output after the current IAM contract expires in September.

With talks set to start on March 8, labor tensions will add to the scrutiny on Boeing Chief Executive Officer Dave Calhoun. He already faces questions from lawmakers and investors over a spate of manufacturing problems — the latest, an issue with holes misdrilled by Spirit — while the Federal Aviation Administration has stepped up its oversight and capped production increases for the 737 until quality improves.“We remain focused on working with our teams to strengthen quality across our operations,” Boeing said in a statement. “We believe there’s a path to a new contract that addresses the needs and concerns of our people while maintaining our ability to compete in the global market.”

10-Year Grudge

The tactics Boeing used a decade ago to wrest pension concessions and limit pay increases to less than 1% on average loom large over the coming negotiations — they were still in place when inflation soared post-Covid.

“There’s no loyalty because Boeing wasn’t particularly loyal,” said analyst Richard Aboulafia. “Now the labor markets have shifted radically, and they may stay that way for a long time.”

Back then, the aviation titan held crucial leverage over its Seattle-area workforce: a hulking new jet program known as the 777X. The company’s commitment to its century-old base was in question after Boeing had begun assembling 787 Dreamliners in South Carolina a year earlier.

To force the IAM into contract talks that included freezing pensions, Boeing threatened to take the 777X program out of the Seattle area, inviting states around the US to compete for the factory.

While local IAM leaders saw a bluff, senior union staff in Washington, DC, took over the talks and backed down. The narrowly approved deal that resulted preserved jobs, but the fixed-pension plan was ended, and pay raises totaled 4% for the eight-year extension that kicked in in 2016.

“The anger that was experienced by our membership throughout that process in 2013 and 2014 is certainly palpable today,” Holden said. “I hear it any time I’m in the factory, and from all across the spectrum.”

Boeing shares have declined 20% this year, the worst among members of the Dow Jones Industrial average, as intense scrutiny on its manufacturing process creates uncertainty in its plan to raise production of the 737.

As it prepares for the coming talks, Boeing doesn’t have a new plane to use as a bargaining chip, and with unemployment rates near record lows, it can’t threaten to shift manufacturing to the South. The company can ill-afford a work stoppage as it tries to steady its factories and suppliers, and return output to a steady, reliable pace.

The union holds the upper hand, said Ken Herbert, analyst with RBC Capital Markets. “If there’s really a time to strike a deal that works for them, it’s now,” he said. “They’re going to be very, very aggressive.”

Boeing last week declined to give a financial outlook for this year, though it held to a target of generating free cash flow of $10 billion in 2025 or 2026, a goal at risk of being trashed by a prolonged work stoppage.

A labor deal could also be costly. Every 10% increase in machinist wages will drag down 2026 free cash flow by an estimated $260 million before price and productivity offsets, according to Sheila Kahyaoglu, an analyst with Jefferies.

There’s further uncertainty with US regulators digging deeper into Boeing’s quality practices after the structural blowout on Alaska Airlines Flight 1282 on Jan. 5. On Tuesday, the National Transportation Safety Board issued its preliminary finding that the door panel on Alaska Air Flight 1282 was missing four crucial bolts.

Boeing’s suppliers, who are gathered in the Seattle area this week, must also weigh whether to risk a continued ramp-up of production.

The machinists intend to use their leverage to push for more than the usual economic concessions. Holden wants Boeing to reinstate thousands of quality inspections it suspended last decade. And he plans to press executives to commit to making planes in Seattle for decades.

Boeing says it restored the inspections, and has increased the number of quality inspectors in its commercial division by 20% since 2019.

The union also plans to press for the return of defined-benefit pensions, lower out-of-pocket health costs and more flexibility around overtime. The IAM local has been studying the tactics employed last year by the United Auto Workers, including striking at selective locations, Holden said.

“We need jobs for 50 years, not four years,” Holden said.

There’s a link between Boeing’s labor pains and the quality lapses that prompted US regulators and airline customers to send auditors into the planemaker’s factories after the Alaska Airlines accident, said Cliff Collier, a consultant with decades of aerospace manufacturing experience.

Boeing’s recent struggles are rooted in turnover, he said: an influx of inexperienced workers and managers since the pandemic, and labor tactics that led to an earlier exodus of seasoned staff, Collier said.

“People don’t get stupider,” Collier said. “People get overworked, people get pushed to do things they probably shouldn’t do.”

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