What Does The Recent Boeing Union Vote Mean For The 777X?

The Boeing machinists union rejected a new contract offer from Boeing just about a week ago.  I was actually in the camp that thought they would accept the offer, though probably not by a wide margin.  Instead, they soundly rejected it by a margin of 2 to 1.

For those that haven’t been following along, Boeing was offering the union a lengthy extension to their current contract but with concessions.  Some of those concessions were painful, like moving to a 401K style retirement plan instead of a defined pension.  But, the wage scales were largely untouched at the top (with senior machinists earning in the $80K range) and the proposal contained guarantees for inflation adjustments.  While maybe not generous in the eyes of the union members, I think there are many folks in the US who would be very happy to have these sorts of protections.  But, my main focus today isn’t on whether I think the machinists should have accepted Boeing’s offer (they should have).  It’s to contemplate what happens next.

Boeing secured a large package of tax credits from the state of Washington to build the 777X there but they ultimately wanted the union contract so they could prove to their customers that they would have long-term labor stability.  They can’t do that in Washington right now.

They’ve proven they’re willing to start over by spinning up a second production line for the 787 in South Carolina, where they got generous tax treatment from the state and non-union employees.  And, they’re building 787s just fine there right now.  The efficiencies of the South Carolina line aren’t quite that of the Washington line, but they are improving.

I feel confident they could get the tax package they’re looking for from another state, maybe even South Carolina again since they continue to expand operations there.

I don’t think the discussion is over in Everett, though.  The 777 has been built there for a long time and that line has a history of efficient production.  The machinists in Everett have been doing their job well for quite some time.  Ultimately, the machinists union may see it as a boon if Boeing ultimately agrees to build the 777X in Everett under a “better” offer than what Boeing gave them to vote on last week.  They might be right, but I don’t think they are.  The number of businesses offering pensions and guaranteed wage increases is shrinking, not growing.  Despite an uptick in the economy, those types of employee benefits really are largely a thing of the past.

My guess?  Boeing will go out and flirt with some other women and think about marrying them, but ultimately come back to the girl they brought to the 777 dance many years ago.  They’ll do it begrudgingly and for more money/benefits than they wanted to, but two things will likely happen.  Parts of the work will get farmed out elsewhere, likely parts that yield high paying jobs.  And, there have been consistent rumors about increased automation on the 777X line.

Looking back 10 years from now, I think we’ll say the machinists union in Everett won the battle but lost the war.

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