Details of Boeing-IAM talks show big gap, as S.C. ready to sweeten deal

The Boeing board of directors met Monday in Chicago without reaching a decision on siting a second 787 production line, as efforts continued to resolve an impasse in the high-stakes talks between the Machinists union and the company.

If the Machinists and Boeing can't agree on a 10-year no-strike deal that would land the second production line in Everett, the company is threatening to put it in Charleston, S.C.

The company released no information on the board's discussion about the second 787 line, but sources confirmed there was no decision.

In phone calls over the weekend, Gov. Christine Gregoire and other top Washington state political leaders weighed in to encourage the two sides to reach an agreement.

Meanwhile, in South Carolina, the state Department of Commerce is preparing its confidential proposal to Boeing under the code name Project Gemini.

A special session of the legislature is set to convene Tuesday to extend state unemployment benefits. One legislator said a Boeing incentive package could be added to the agenda.

Another person with knowledge of the South Carolina legislature's agenda said it may deal with two issues important to Boeing, although a possible move Tuesday by South Carolina Democrats to impeach Gov. Mark Sanford could get in the way.

The potential legislation designed to woo Boeing includes:

• First, a reform of the state's unemployment insurance system, which is insolvent.

• Second, an increase in the capacity of state-backed bonds available to the Department of Commerce so that it can fund an incentive package for Boeing without specific further legislation.

Details of the talks

According to a person familiar with the weekend talks between Boeing and the IAM, key participants included Timothy Keating, Boeing's senior vice president for government operations, and Rich Michalski, general vice president of the International Association of Machinists (IAM) and deputy to IAM international President Tom Buffenbarger.

Sources on both sides of the talks said they focused on an impasse in the negotiations that developed last week.

In exchange for the union laying down its strike weapon for 10 years, Boeing is ready to agree to binding arbitration as a mechanism to settle disputes over wages and benefits. But the union is reluctant to accept that.

An arbitrator typically settles disputes based on the wages and benefits that are offered in comparable industries in the area. The IAM, which provides industry-leading wages and benefits, believes that would limit increases in members' pay.

Instead, union officials have pushed for a 10-year extension of the contract with agreed increases in wages and benefits baked in.

The two sides proved far apart on how large those financial increments should be.

Commitment to future planes

Another stumbling block is the union's position that Boeing should commit to place future plane-making here. The big prizes would be building the replacements for Boeing's 737 or 777 airplanes, one of which is likely to be formally launched around 2015.

Because business conditions may change dramatically, Boeing opposes making such promises that extend far into the future. But the IAM argues that's precisely what the company is asking from the union.

Any 10-year agreement would have to be ratified in a vote of the union membership. The deal will reach that stage only if Boeing offers a package the union leadership thinks its members are likely to accept.

Downsides to Charleston

Neither the union nor Boeing would comment on how the talks are going. But industry observers fear the worst.

Issaquah-based aviation industry analyst Scott Hamilton said Monday that a decision for Charleston could be bad for both this region and for Boeing.

If the second line goes to Charleston, the IAM will certainly suffer future job losses, he said.

But he also argues that the costs of duplicating the 787 assembly line on the opposite coast, and doing it with an inexperienced workforce, will add enormous risk to the Dreamliner program which is already more than two years late.

And in addition, he said, choosing Charleston would so poison Boeing's relations with the IAM that it would likely lead to a damaging strike affecting all Boeing's airplanes when the next contract negotiations happen in 2012.

"Boeing could well be put in a position of winning the battle but losing the war," Hamilton wrote on his Leeham.net Web site. "Both sides have a tremendous opportunity. Let's hope neither one of them blows it."

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