As the Boeing (BA) machinist strike threatens to drag into its fourth week with no end in sight, it remains unclear where things go from here. The company is losing hundreds of millions of dollars in badly needed cash, but that hasn’t prompted it to strike a deal.
In fact, it broke off talks with the union representing the workers, the International Association of Machinists and Aerospace Workers, telling Reuters that “further negotiations do not make sense at this point.”
An earlier labor dispute this year between the planemaker and 125 unionized firefighters gave a sense that the company was gearing up to play hardball. After more than two months of the negotiations it locked them out, an inverse of a strike where a company refuses to let its employees work until an agreement is reached.
The Associated Press reported that the firefighters ratified a contract after three weeks (and some prompting from President Joe Biden), but the machinist strike is much larger, disruptive, and has higher stakes — observers are expecting it to dent the November jobs report and weigh on national GDP figures for the rest of the year.
A pay dispute
After months of negotiations, the company reached a tentative agreement with the union in September for a contract that would see members get a 25% raise. Newly installed Boeing CEO Kelly Ortberg begged the machinists to ratify the contract and not walk off the job.
The 30,000-plus machinists had been negotiating their contract in full for the first time since 2008. The IAM seeking a 40% raise, though, so members rejected the tentative agreement and kicked off the strike — as they had promised to do in a 96%-in-favor authorization vote.
“We walk the walk and talk the talk in the Labor Movement,” the union’s negotiating committee said at the time. “We stand on business, and now it’s time to show them we aren’t going anywhere.”
Some analysts had expected that Boeing would be facing as much as $1 billion a year in extra costs if it gave the union what it wanted, but paychecks aren’t the only remuneration keeping the two sides apart. The union is also seeking the restoration of its pension, which Boeing killed in 2014 in one of the contract extensions.
Bad-faith bargaining accusations
After the first week and a half of the strike, Boeing sweetened the pot, teasing a 30% raise. There was a catch, though: The company said the bump was its “best and final” offer. The union called that a “blatant show of disrespect.” It wasn’t just because of how much the number fell short of the IAM’s ask, but also how it was communicated.
“Your Negotiating Committee did not have any discussion or input on this offer,” the union told its members. “We have said all along that the Union would be available for direct talks with Boeing or, at a minimum, expected to continue mediated discussions when the company was ready. These direct dealing tactics are a huge mistake, damage the negotiation process, and attempt to go around and bypass your Union negotiating committee.”
The “direct dealing” references to how Boeing publicized its offer, which the union said was an effort to cut it out from contract negotiations. That’s forbidden under federal labor law because it undermines the collective bargaining process.
“We first presented the offer to the union and then transparently shared the details with our employees,” is how Boeing characterized it at the time.
Since then, the company has also cut off the Boeing workers from their company healthcare plans.
Last week, just before the most recent round of negotiations was announced, Rep. Pramila Jayapal of Washington state, the senior whip in the Democratic Party House caucus and the congressperson representing the district where much of Boeing’s operations are based, pushed the company to resume bargaining.
“I hope to see Boeing and the machinists come back to the table to work in good faith to address the issues of fair wages and pensions,” she said.
A recovery on pause
In the background of the strike is the ongoing fallout — primarily stemming from a door plug blowout aboard a 737 Max 9 plane in January — which has contributed to Boeing shares falling 40% this year. The incident, which prompted a great deal of scrutiny from federal regulators, hampered the company’s efforts to come back from the last 737 Max crisis when two Max 8 planes crashed months apart in 2018 and 2019.
The Federal Aviation Administration, which has ramped up its oversight of Boeing’s operations after admitting that it had been “too hands-off,” imposed a cap on the number of 737 Max planes the company can build. Even before the machinists’ work stoppage, the company was bleeding billions of dollars at a time amid reduced deliveries.
Ahead of the strike, Boeing reportedly tried to speed up production of some models using the same stop-and-start manufacturing methods that it was trying to reduce in the wake of the door plug scandal. That’s because the models produced by the IAM-represented workers make up nearly 90% of Boeing’s commercial airliner order book.
For every day that its assembly lines are shut down, Bank of America (BAC) analyst Ron Epstein told Quartz that the company is likely losing $50 million in cash a day, money it needs. Its investment-grade credit rating is hanging on by a thread; several ratings agencies putting the planemaker on watch for a cut to junk-bond territory. Should that happen, it would make Boeing’s problems much more expensive to fix because its borrowing costs would jump.
“If the strike goes beyond a certain point — I wish I could tell you, maybe a month? — the risk increases,” Epstein said. “If you get beyond a month, things get more disruptive.”
Having initially figured that the machinists would get their 40% raise and get back to business as usual, he expressed surprise that Boeing is holding out for as long as it is.
“At a point, they have to get back in the business of building airplanes,” he said.
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