Strike has big risks for Boeing, union

As the Machinists union and Boeing management stare each other down over the contract vote Wednesday, the stakes are high for the company, its customers and its suppliers — and also for the union leadership and rank-and-file workers.

On Friday, the International Association of Machinists rejected Boeing's final contract offer and recommended a strike. Union officials have already prepared burn barrels and picket signs for those who would be on the picket lines.

"All that's been done," said Mark Blondin, the IAM's national aerospace coordinator, who led the union negotiating team. "We're ready to go."

Boeing declined to discuss the potential impact of a strike. It hopes to persuade at least a third of the voting Machinists to accept the contract and so avoid a strike, which requires a two-thirds majority.

But if the Machinists do strike, the effects would ripple out around the world:

Boeing would miss hundreds of millions of dollars in profits this year.

The 787 Dreamliner program would slip again, with its first flight potentially delayed into next year.

Airlines desperate for fuel-efficient 737s and 777s would be frustrated.

Suppliers, including many in this state, would stop making more parts.

Locally, Machinists and their families would have to make do without paychecks.

Then, after a strike, the union and the company would face the consequences of one more chapter in their bitter history.

Along with improvements in compensation in benefits, the union is fighting for job protection. Yet, a strike could mean more outsourcing in the future.

"A short strike will be relatively inconsequential. ... By the time we get to 2009, we'll forget about it," said Wall Street analyst Joe Campbell, of Lehman Brothers. "A longer strike will have more material consequences, particularly for the 787. And it will make Boeing continue to think about alternatives to the Seattle work force."

A one-month strike, like the one in 2005, would slash this year's revenue by about $3 billion. Most of the lost revenue and profits could be recouped when the planes are delivered after the strike, though that could take up to three years.

The lost profits that would result from a more extended strike would take much longer for the company to recover.

And it's not just Boeing's money at risk.

"Suppliers will have to cut back to match [Boeing's] requirements," said Scott Hamilton, aviation analyst with Leeham.net.

Local aviation suppliers such as Marysville's C&D Zodiac, which makes airplane interiors, and Everett's Tyee Aircraft, which makes connecting rods to hold interior aircraft elements in place, can keep producing their parts for weeks. But if a strike extends and inventory builds up, eventually they'll be forced to pause.

Suppliers to the 787 program already have stopped building the large fuselage barrel sections because of a bottleneck at the Everett final-assembly plant.

Airlines awaiting delivery of a 787 some years out may not notice a one-month strike, even if the airplane flies for the first time a month later than scheduled. The first flight is expected in the fourth quarter. But airlines expecting a 737 or 777 in September or October would be forced to continue flying gas guzzlers such as MD-80s.

However, typical airplane-purchase agreements have a clause that says Boeing won't have to pay penalties for deliveries that are late due to a strike.

"Kitchen-table economics"

A strike has costs and risks not only for business, but for the workers and union leaders, too.

If the strike extends for weeks, Machinists and their families would face a financial struggle at a time when prices are climbing and the economy is tough. The union strike pay of $150 a week would kick in only after three weeks of being out of work.

Many of the Machinists know what it would mean — they've been there before.

"We've gone 69 days; we've gone 48 days," Blondin said Saturday, referring to the 1995 and 1989 IAM strikes. "We can sustain. People help each other through these strikes. We will make it."

Union officials face their own perils: If the vote falls short of the two-thirds necessary to authorize a strike, or if a strike fails to bring substantial contract improvements, Blondin and other union leaders will be undermined.

And what of the risk that striking the company to force a bigger increase in compensation would encourage Boeing to send more work away?

"In the long run, it makes [Washington state] a bit less competitive," Teal Group analyst Richard Aboulafia said. "The only parts of the country where aerospace is growing are 'right-to-work' states down South," where unions are weak.

Yet Blondin contends the IAM's stand is aimed at putting the brakes on outsourcing.

Perhaps the key outstanding contract issue is job security. Blondin said the fear of Boeing outsourcing more work on future jets has the union digging in now for some language that protects jobs.

In the 2002 contract (which was rejected by a majority of Machinists but took effect, nonetheless, because they did not authorize a strike), Boeing imposed a clause allowing it to use outside companies to deliver parts within the factories. That's now a reality, with a nonunion North Carolina subcontractor called New Breed delivering parts for the 787 assembly lines.

In the IAM's counteroffer to Boeing last week, Blondin said, the union demanded that this clause be limited in its application to existing work — in other words, keep New Breed on the 787, but no further outsourcing of parts delivery on future jets.

"We wouldn't be saying job security is a top issue if we didn't think they already had plans for doing that," Blondin said.

In the past, the company has refused to allow unions to restrict its ability to outsource.

In a message to Boeing employees posted on the company Web site Saturday, lead negotiator Doug Kight said the employees' decision on the contract — as they study the impact on their families — would come down to "kitchen-table economics."

Under the current contract, Machinists earn an average base pay of $54,000 a year, or $65,000 with overtime.

The company offer would, by the end of the three-year contract, increase average base pay to $65,000, or $77,000 with overtime.

The company sees a hefty compensation increase. Union leaders see less than they wanted in the wage and pension increases and some raised medical costs.

But if there's a strike, the long-term ramifications might be bigger than money.

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