In this industry specific Supply Chain Matters commentary, we provide perspectives on aerospace and commercial aircraft producer Boeing’s added challenge in 2024, that being on the labor relations front.

Background

Prediction Four within the Ferrari Consulting and Research Group’s 2024 Predictions in Global Supply Chains, available for complimentary downloading in our Research Center, represented our belief that the increased labor activism that occurred in 2023 will continue this year, with different nuances.

Last year, increased labor activism came in the form of labor contract demands for higher wages, added benefits along with an added voice of labor in operational policy and decision-making. Such activism was demonstrated not only in labor contract negotiations and outward communication, but in more aggressive tactics on the part of labor unions, and in actual strike actions. Of most concern was the tactic of targeting a company’s vulnerable supply chain points in labor stoppages, which was adroitly practiced by the United Auto Workers (UAW) in contract negotiations with Ford Motor, General Motors and Stellantis. Thus far in 2024, a majority of auto workers within Volkswagen’s Tennessee production facility have voted to be represented by the UAW in labor negotiations. Workers within Hyundai’s Alabama based production facilities will be voting for potential representation later this month.

As noted in our prediction, the lens in 2024 further turns toward labor negotiations involving U.S. East and Gulf coast dockworkers, major Canadian based railroads CN Rail and Via Rail, along with U.S. Postal Service (USPS) workers.

But a far more growing significance is that of Boeing production workers and engineers where contract talks are underway leading up to mid-September when the existing labor contract expires.

 

The Stakes for Boeing

An editorial commentary published by the Seattle Times in mid-March (Paid subscription or metered view), began with the following sentence: “You know a company is in deep trouble when comedians and stock analysts take similar jabs.”

Indeed, a week does not pass without an added news or social media based amplification of another incident involving Boeing commercial aircraft, or of cocktail parties and social gatherings were people exchange conversations that question how really safe Boeing aircraft are.

In our Supply Chain Matters commentaries of late, we have reflected on the expanded scope of production and quality lapses, and on the published reports that bluntly declare that this company’s corporate culture challenges require a systemic change.

Labor Contract Negotiation Process Underway

In early March, Boeing and the International Association of Machinists and Aerospace Workers (IAM) officially began negotiations related to a new labor contract.

In its editorial, The Seattle Times noted the following: “For Boeing, there is more at stake than what it pays for in salaries and benefits. It is no exaggeration to say that the future of the 107 year-old manufacturer hangs in the balance.”

That was followed with that statement: “Boeing has to do right by its workforce. It must reinforce its commitment to the women and men who work in its local factories by making the unprecedented declaration that its next plane will be made in Washington. It must move its corporate headquarters from Virginia back to Seattle — a symbolic but meaningful return to the community that once made aerospace history, in a good way.”

Boeing itself has produced a dedicated web page to inform interested parties on the progress of these negotiations. This site indicates that “Once Boeing and the union have passed proposals and counterproposals over the course of several months, the company will present the union with a comprehensive contract offer. It is then up to the union to put that contract offer up for a vote of all eligible members.”

Further noted is that as talks continue into the summer, the IAM will likely hold a strike authorization vote in July. That is when union leaders will ask members to grant permission to call a strike if a new contract is not in place by the time the current one expires. The update specifically indicates: “This procedural step does not necessarily mean there is a breakdown in negotiations, or that a strike will actually occur.

The Labor Union Voice

In a posting published by the Northwest Labor Press, the stakes of these negotiations are outlined for the 33,200 members of the IAM based either in Puget Sound or Gresham, Oregon.

It is noted that this is the first full scale contract negotiation in 16 years. After the existing contract was negotiated in 2008 after a 58-day labor stoppage, there have been two multi-year contract extensions, that reportedly did not involve open bargaining.

Rather, these extensions involved IAM leaders and Boeing directly. During these extensions, Boeing threatened to build both the 737 MAX, and later the next generation 777X in other U.S. locations rather than Puget Sound. The company had previously decided to sole source the assembly of the 787 Dreamliner wide body aircraft to a facility in North Charleston, South Carolina, a right to work state.

Reportedly, IAM union leaders are determined to reverse the concessions that were granted during this prior period, including the restoration worker pensions, an end to mandatory overtime required on weekends, along with a demand of wage increases amounting to 40 percent over a three-year period.

In an interview with The Seattle Times in March, Jon Holden, President of the IAM indicated that the union “must stand up and save this company from itself.” Bredan Bryant, directing business representative at Machinists District Lodge in Gladstone, Oregon added: “We think that there’s a solid future ahead of us, but they have to partner with the IAM. We have to be the valuable stakeholders in this company to get them back to being successful.

Separate Labor Negotiations Off to a Troubling Start

In parallel with IAM related labor negotiations, Boeing and The International Association of Fire Fighters have been in contentious labor talks.

Earlier this month, Boeing locked out upwards of a reported 130 firefighters who protect production, airfield and other operations in the state of Washington.  The labor union and Boeing reportedly had been negotiating for months over wages and staffing levels.

According to reporting from The Wall Street Journal, the labor union contends that the company pays union members well below the wage rates of surrounding municipal fire departments, that workers are short staffed, and that it currently takes too long to reach maximum pay levels. For its part, Boeing has indicated that its private fire fighters and medical aide workers should match that of other corporate safety workers, not that of municipal departments. Noted is that the average Boeing employed fire fighter makes upwards of $91,000 per year. The union indicates that starting pay is currently $52,000 per year and tops out at reportedly $85,000 per year, not accounting for overtime.

A Boeing spokesperson indicated to the business newspaper that: “The company has gone as far financially as it is willing to go and will not add any money to its offer.” The company further indicated that it has secured temporary firefighters and medical aide workers for coverage of its existing facilities.

Added Supply Chain Matters Perspectives

There is without doubt, a huge significance to these ongoing labor talks related to Boeing.

We have highlighted for our readers business media commentaries that identify the perceived roots of these continual quality and production deficiencies.

The theme is a corporate culture that was once reflective of an engineering and product quality driven leadership to that of a financial and investment community culture of driving up share price and investor returns regardless of process control, pandemic or building supply network challenges.

Now the focus turns to labor relations, and the 16 years of past history without formal bargaining are presented in the form of not only worker grievances, but also threats and actions that Boeing no longer has. The most obvious is the ongoing production quality crisis that has prompted senior leadership changes relative to board level chair, CEO and leadership of the Commercial Aircraft business unit. There is little in product development pipeline that can be thrown in as a bargaining chip.

Instead, it is the fabric of the company itself.

In our February update we specifically noted:

What is missing are the systemic changes in control and reward systems to instantiate a production and quality control system that can support this plane maker’s production volume needs. It is a corporate culture focused on producing each aircraft with the utmost quality and efficiency, and that rewards production and supply chain workers for their ingenuity and follow through. Such a culture rewards operational workers for significant quality and operational milestone achievements.

The latter half of the above comes to the forefront regarding these ongoing labor negotiations. Beyond wages and benefits there needs to be a sense that workers have a very significant role in both quality and operational milestone achievements. Production workers can have a voice in quality adherence as the Toyota Production System tenets often manifest. Production engineers have a critical role in identifying process quality weaknesses or conflicting milestones that need to be addressed.

We have highlighted the Boeing firefighter labor development because from our lens, it again points to cultural challenges of Boeing senior management, which being tone deaf to the needs of accomplishing financial and shareholder milestones, to the ongoing safety of the company’s workers and facilities. Locking out workers, albeit those responsible to assure a safe workplace depicts the culture that has garnered so much direct attention, and rightfully so. It further smacks of outsourcing as the lever to reduce operational costs. That ship has sailed and the results are becoming more troubling with each and every day.

From our lens, stewardship of these negotiations has to come from the new senior executives that will lead and implement the necessary corporate changes that need to occur, including an overhaul of production quality and operational consistency.

These negotiations pale in comparison to those conducted in 2023 among automotive and other industries.

The future of a U.S. based commercial and aerospace manufacturer is at stake, along with the operational needs of global airline customers. Company shareholders have a stake as well, and it is not the impact to dividends and share buybacks. This is about the fabric of the company’s production and supplier networks that count on Boeing to become the company it once was.

Both parties need to have such a perspective.

History is what it is- a keen lesson on what practices need to change between management and workers. Both should be heard and listened to. This is an opportunity for creativity and win-win negotiations.

Stay tuned to these developments. They are sure to be the subject of continued business news headlines and learning.

 

Bob Ferrari

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