Machinists tried to buy Boeing's commercial unit

Boeing was at a low point in fall 2003 when leaders of the national Machinists union teamed up with one of the country's most powerful private investors to spring a surprise on Boeing Chief Executive Phil Condit.

They wanted to buy Boeing Commercial Airplanes.

If it had succeeded, the deal would have given the blue-collar work force a financial stake in the commercial-jet company, undone the merger with McDonnell Douglas and brought Boeing's headquarters back to Seattle.

This was no offhand, pie-in-the-sky idea. According to participants in the secret meeting, the lead investor was ready to write Condit a $1 billion check on the spot as a deposit.

"Labor and capital coming together to further the cause of manufacturing. Pretty wild stuff," Tom Buffenbarger, head of the International Association of Machinists (IAM), said in an interview. "But it was dead serious."

The Machinists' partner in this effort was David Bonderman, head of a leading private investment fund, board member at Continental Airlines and chairman of a key Boeing customer, Ireland's Ryanair.

In recent years, his investment firm has led the multibillion-dollar acquisitions of such companies as Burger King and Nieman Marcus.

Boeing spokesman John Dern confirmed the meeting took place but said the company "never seriously considered" the offer and that it did not go to the full board.

Less than a month after the meeting, the idea died after Condit was ousted over a defense-procurement scandal and Harry Stonecipher took over.

"I don't think we're interested," Stonecipher told Buffenbarger in a breakfast meeting soon after he took charge, the union leader said.

Buffenbarger, one of the nation's most powerful union bosses, said the IAM was concerned about the slide of Boeing's commercial business and its increased outsourcing.

It hoped to wrest control from a board of directors steeped in the bottom-line values of General Electric — alma mater of both Stonecipher and current Boeing chief Jim McNerney.

"I came out of GE. I know what it's about," Buffenbarger said. "GE stands for Gone Elsewhere. We didn't want that to happen with Boeing."

But the acquirers might have kept the management of the division, headed by Alan Mulally at the time, Buffenbarger said.

The plan would have left Condit the head of a Chicago-based defense contractor, likely renamed McDonnell Douglas.

Investment banks advising the union estimated that a controlling interest in Boeing's commercial division might be acquired for as little as $9 billion to $12 billion.

Boeing at the time was beset by the Pentagon procurement scandal, and the commercial division had not yet launched the 787 that has lifted the plane maker's fortunes in the past three years.

The outline of the buyout offer is revealed in a book due out in January, "Boeing versus Airbus: The Inside Story of the Greatest Competition in International Business," by John Newhouse. The book updates Newhouse's previous account, "The Sporty Game," written 25 years ago when he worked at the New Yorker magazine.

Sources had told The Times about the meeting two years ago on condition of anonymity and agreed to discuss it more fully now because of the book's publication.

In researching the new book, Newhouse was granted access to high-level Boeing executives, including Condit and Stonecipher.

According to the book, several Wall Street banks — one of which was Merrill Lynch — saw potential to increase the value of Boeing's assets by breaking up the company, a mere six years after it had merged with McDonnell Douglas.

Although Buffenbarger declined to identify the lead investor — describing him only as heading "a large customer of Boeing's" — Buffenbarger otherwise added considerable detail to the book's account of a crucial private meeting between Condit and the executive heading the buyout team in November 2003, in Washington, D.C.

Independent reporting by The Seattle Times identified the lead investor who joined the IAM effort as Bonderman, head of Texas Pacific Group, which manages more than $20 billion in capital.

Newhouse's book does not name Bonderman or the private equity firm behind the bid. However, two people outside the union identified Bonderman and his firm as those involved.

According to Buffenbarger's description, Condit was surprised when he entered to find Buffenbarger and his top lieutenants present. Relations between the company and the IAM were poor; only a year earlier, bitter contract negotiations had ended with the union forced to accept a deal it didn't approve.

"Is this for real?" Buffenbarger recalls Condit asking. "What's the union doing here?"

Told that the union was trying to broker a deal, Condit expressed doubt it could be serious.

"I am here because it's dead serious," the executive replied, according to Buffenbarger.

Bonderman — a graduate of the University of Washington who serves on the board of the UW Foundation — had forged good relationships with the IAM in the early 1990s, when he helped bail out of bankruptcy both Continental Airlines and America West.

According to Newhouse's book, at the meeting with Condit the lead investor was "prepared to write a check for $1 billion then and there as an earnest of [Texas Pacific's] intent to invest seriously in the venture."

Buffenbarger said the union's members would have been informed only if the deal had progressed further than it did.

"If we could entice our members to experiment with ownership of the enterprise they worked for, a piece of the action, it's something they would have looked at seriously," he said.

It's unknown what stake they might have attained.

Steve Sleigh, a senior IAM official at the time of the proposal meeting, which he attended, told Newhouse that when the offer was rejected, "our investors were very disappointed."

"We all thought the merger [with McDonnell Douglas] produced the worst possible synergy," Sleigh told him. "What did Boeing get? ... The move to Chicago and military scandals."

That December, after Condit was pushed out, Boeing launched the 787. The company's stock has zoomed ever since, fueled by the commercial-aircraft division. Buffenbarger said it's unlikely the proposal could be revived.

IAM District 751 President Mark Blondin, reached Thursday on a hunting trip in Eastern Washington, said he had been made aware of some interest from outside investors but had not heard details.

Through spokesmen, Bonderman and Condit declined to comment. Stonecipher did not return phone calls.

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

Seattle Times researcher Gene Balk contributed to this report