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A critical juncture for Boeing and Machinists

By Dominic Gates
Seattle Times aerospace reporter

MIKE SIEGEL / THE SEATTLE TIMES Boeing CEO Harry Stonecipher, left, greets employee Stan Shepherd at the Dec. 16 ceremony announcing that the 7E7 would be built in Everett. Labor peace is essential to the successful launch of the new airliner.

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Last month in St. Louis, Mo., and Long Beach, Calif., Boeing sealed two pattern-setting blue-collar union contracts. The Chicago gathering presages the bigger Puget Sound negotiations, set for 2005.

The prospect ahead? Crunch time for both Boeing and the International Association of Machinists (IAM) as they face off on two hot national issues: spiraling health-care benefit costs and offshoring of manufacturing work.

Timing is key. With the commercial-aviation industry seeing a tentative recovery, the outcome of Boeing's fierce competition with Airbus now hangs upon the success of the 7E7, which will begin production in 2006. Only about 800 Machinists will work on assembling the new plane. But for the first jet to roll out on time, Boeing needs labor peace in '05.

Still, the company must hew to its hard-nosed economic agenda. In the recent negotiations in St. Louis and Long Beach, the company moved to rein in benefit costs. And analysts believe that the commercial-airplane division — utterly committed to its new 7E7 lean globalized-production model — won't relinquish its freedom to cut jobs here and drive for ever greater efficiency.

The union, meanwhile, wants to protect the medical and pension benefits of its aging membership. And, already gutted by layoffs — the IAM is reduced to just over 15,000 Boeing members in Puget Sound, compared to more than 37,000 only five years ago — it needs to stanch the draining away of its once-vaunted power.

Since his return to the helm of Boeing in December, Stonecipher has publicly embraced "open, straightforward labor relations."

Machinists' shrinking power base The 2005 Boeing/IAM contract-negotiations bargaining unit represents just over 21,000 workers in the Puget Sound area; Wichita, Kan.; and Portland. Only five years ago, in 1999, this bargaining unit represented more than 48,000 Boeing workers — 37,000 of them in the Puget Sound region. The current IAM membership Puget Sound: just over 15,000 members Wichita, Kan.: 3,500 members (plus an extra 2,000 nonunion workers covered by the contract) Portland: 770 members Source: IAM

Tempering the harsh reputation he earned in the late 1990s as chief communicator to Seattle employees of the company's hard-edged business case, in the latest issue of Boeing's in-house magazine Stonecipher argues that Boeing managers need to be "both hard-nosed business people and softhearted teammates."

But despite the peace overtures, beneath the surface the Boeing labor strategy is steely.

As outlined in an internal document dated mid-December 2003, the first two imperatives of that strategy are: "reduce union leverage; reduce union employees."

That's language that doesn't surprise Tom Buffenbarger, the IAM's powerful Washington, D.C.-based international president, with whom Stonecipher arranged a private meeting soon after he came out of retirement last December.

"I know what Harry Stonecipher is all about," said Buffenbarger, who like Stonecipher once worked at General Electric and represented the union throughout the tenure of Jack Welch, GE's legendary, bottom-line-driven chairman.

"Harry was a disciple of the Jack Welch school of union relations," said Buffenbarger, "meaning: outsource it, offshore it; get out of the business if you're not dominant in it; minimize your exposure to union influence."

"Nothing has changed. They are our best friends while they are quietly euthanizing us," he said. "I'm not under any illusions."

Wages up; premiums up

	BETTY UDESEN / THE SEATTLE TIMES Tom Buffenbarger, international president of the Machinists union, says of Boeing leaders: "They are our best friends while they are quietly euthanizing us."

For all the skepticism, woo is in the air on the union side, too. Buffenbarger, welcoming the "respectable" wage increases in the St. Louis contract, is ready to talk.

"I'll give Stonecipher credit," Buffenbarger said. "The first step out of the box seems somewhat positive."

Union leaders were generally pleased with the nearly identical economic packages negotiated by the IAM in St. Louis and the United Automobile Workers (UAW), which represents blue-collar aerospace workers in Long Beach.

Workers got an average earnings boost of around $5,000 in the first year of the three-year contracts.

In recompense, the company extracted a big shift toward employees paying more of their health-care costs. It raised premiums on traditional plans, while promoting a zero-premium plan carefully structured to encourage employees to minimize health costs.

Boeing also required in both contracts that future hires — Buffenbarger calls them "the unborn" — be cut off from retiree medical benefits.

Buffenbarger lamented Boeing's asking the current work force to "take what they can get today and let the unborn fend for themselves tomorrow."

Such a demand helped provoke a strike when used in the recent California grocery-store dispute. It creates a two-tier compensation system: Down the road, two people doing the same work but hired on different dates will have different benefits.

Puget Sound workers can expect a very similar benefits offer to those just agreed on in St. Louis and Long Beach. Laurette Koellner, Boeing's executive vice president of internal services and head of labor relations, said the Boeing approach to benefits is now "enterprise-wide."

"In terms of benefits, we and every company in the U.S. are facing these soaring medical costs," Koellner said. "People know most companies have already gone this way. It's facing the economics out there."

Boeing and the Machinists: key players Harry Stonecipher Boeing CEO, Chicago • Age, 68 Background: Stonecipher came to Seattle in 1997 as company president following Boeing's merger with McDonnell Douglas, which he had headed. "I was not happy at all when I arrived," he said this year, complaining of the inefficiencies that he found then. He earned a reputation for harsh criticism of the Seattle work force and for pushing severe cost-cutting measures. He came out of retirement to step in as CEO last December. Now he says the Seattle commercial-airplane division "has reinvented itself" and no longer requires his guiding hand. He is wooing the unions and advocates a policy of being "hard-nosed and softhearted." Tom Buffenbarger International president, Machinists union Washington, D.C. • Age, 53 Background: Buffenbarger, one of the most powerful labor leaders in the country, heads a union of 375,000 Machinists. He came up through the ranks, starting as a tool-and-die maker at General Electric. His initial apprenticeship was delayed by a strike when 200,000 workers, including his dad, stayed out for more than 16 weeks. Charismatic and eloquent, Buffenbarger is a formidable critic of the offshoring of American manufacturing jobs. He also has an engineering degree. Laurette Koellner Boeing executive vice president, internal services Chicago • Age, 49 Background: Koellner, who came from McDonnell Douglas as a protégé of Stonecipher's, assumed a much-expanded role in November. She had been head of human resources, directly responsible for labor relations. Now she also leads the Shared Services division, which provides services enterprise-wide, including administrative, security and realty services and computing support. And she manages international relationships with Africa, the Americas and Russia. Koellner moved to Chicago in 2001 and is one of the dozen most-senior executives who make up Boeing's executive council. Mark Blondin Washington state district president, Machinists union Seattle • Age, 44 Background: Blondin became local district president in February 2001. It's been the toughest of times: Since then, Boeing has shed 27,000 jobs in the state. In 2002, with the layoff situation looking bleak, the membership went against Blondin's recommendation and voted for the company's contract offer. But Blondin's stature grew last year when he led a vigorous campaign to lobby for the company in Olympia and win the 7E7 for Everett. In the process, he upset other labor groups while impressing some people inside Boeing management. In the next contract talks, he expects payback for his members.

Indeed, union staff members recognize that the problem of health-care costs is a national one. They cite a 2002 employer survey by Mercer Human Resource Consulting showing that in the last decade, the percentage of large U.S. companies offering medical coverage to retired employees over 65 has dropped from 40 to 27 percent.

To compensate somewhat for the loss of medical coverage, Boeing did offer new hires better matching in their 401(k) retirement-savings plans.

"The nature of the benefits package is changing," Koellner said. "There's a different way to care for people in the future and it requires more employee participation."

Protecting jobs here?

But the biggest sticking point in next year's talks will likely be the union's demand for job guarantees — a demand Boeing flatly rejected in the last negotiations.

"Job security is going to be the top issue," said Mark Blondin, the IAM's local district president here. "We are still all about maintaining and creating jobs for our community here in Puget Sound."

In St. Louis, the Machinists won a strengthened job-protection clause that allows Boeing to lay people off only in the case of external hits to the company's business — such as canceled contracts or a change in customer demand for aircraft.

The contract does not allow for layoffs to increase productivity or to promote cost-saving efficiencies.

But the St. Louis plant caters to a different customer than do the Puget Sound plants: the U.S. Defense Department.

When it comes to building U.S. warplanes, offshoring of work is necessarily limited. Also, the unions have substantially more influence through members of Congress who approve defense-contract spending.

The commercial side of the business, where Boeing is assailed by Airbus, is much more sensitive to competition.

Boeing's Koellner wouldn't comment on the issue of job guarantees in advance of the Puget Sound negotiations.

But the December commercial-airplanes division internal document — which recommends "engaging fully the minds of all stakeholders ... despite continued aggressive implementation of our lean global enterprise and smaller Boeing team" — strongly suggests that the commercial unit will want the freedom to continue cutting.

Adam Pilarski, an industry analyst with consulting firm Avitas and a former director of strategic planning with McDonnell Douglas in Long Beach, seriously doubts that Boeing's commercial unit would agree to job-security provisions in its union contracts.

"No way. I think the chance is close to zero," Pilarski said. "I'm fairly confident Boeing will say, 'Nothing guarantees your jobs.' "

Potential for conflict

Two recent Boeing labor contracts point way to Puget Sound offer in 2005 St. Louis, Mo. International Association of Machinists (IAM): 3,000 employees. Contract settled in May. Long Beach, Calif. United Automobile Workers (UAW): 2,600 employees. Contract settled in May. Contract details Wages and bonuses: 1st year: signing bonus ($3,000 for IAM; $2,500 for UAW) + 3 percent wage increase 2nd year: $2,000 lump sum 3rd year: 3 percent wage increase Pensions: Increased from $50 to $60 per month for every year of service Medical plans: Traditional plans: employee premium increased to 10 percent of cost from a flat-rate equivalent to about 7 percent New plan offered: zero premium; company pays first $500 of medical costs; employee pays next $500; employee pays 10 percent thereafter Source: IAM, UAW

Koellner argued that the internal document succinctly summarizing the Boeing labor strategy — "reduce union leverage; reduce union employees" — should not be interpreted as anti-union.

"When we talk about leverage, we're looking for basically an even playing field," she said.

The reference to reducing the number of union members, Koellner said, is "a piece of the leverage."

"Where we don't have unions in place," she said, "we want to create the kind of work environment where people don't feel they need a third party to represent them."

But she insisted that where unions are established, "we will work productively with them."

Blondin believes the IAM will be better placed in 2005 than it was in 2002 to force the company to do so.

Through most of last year, to win the 7E7 for Everett, Blondin worked closely with the company and against most of the rest of organized labor to lobby for Boeing-friendly legislation in Olympia.

In secret talks last fall, though, he balked at the company's request to extend the contract by two years through 2007.

That stand looks now like a good poker move: Boeing gave the 7E7 to Everett, without Blondin having to hand over his bargaining power.

In 2002, contract talks took place in the shadow of the Sept. 11, 2001, atrocities and the drastic layoffs the company made soon thereafter.

In 2005, Blondin can hope for a more favorable economic climate and a company depending on getting the 7E7 out the door.

"The company had leverage last time," he said, "But our members learned some things, too. This membership won't roll over for anything again."

"(The company) did nothing but take last time," Blondin said. "Many of our members feel it's our turn."

Pilarski, the analyst, thinks that with the IAM's shrunken membership the union will be in no position to dictate terms.

And to try to do so, he argued, could be a mistake.

"If the union becomes very rigid and says, 'If you don't play, there won't be a 7E7,' the danger is, there won't be a Boeing," Pilarski said.

"When you play chicken, you have to accept the possibility that both sides will lose massively."

Though Blondin said he won't go into negotiations threatening a strike, he remains confident that even with its much diminished numbers, his union can pack a punch if it needs to.

"It's still a knock-out blow when the place empties," he said.

For now, though, he's looking forward to schmoozing with Stonecipher in Chicago and laying some cards on the table.

"I'm pleased he's willing to sit down this early," Blondin said. "We've got some time."

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Copyright © 2004 The Seattle Times Company

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