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Why machinists decided to strike Boeing

Despite being offered a relatively generous package by management, Boeing machinists went on strike. Why? There may be no better time to grab a piece of the pie, say observers.
/ Source: Business Week

When a stunning 87 percent of Boeing machinists voted on Sept. 3 to go on strike, second-guessers wondered whether these skilled plane builders had a few screws loose. After all, management was offering wage hikes that would top 11 percent over three years and bonuses of more than $5,000. Boeing was even offering to hike its traditional pension payments, rather than scrap them, as the company first proposed.

"You guys are crazy!" wrote one reader on a message board. "Those numbers are great. Most people would die to get those raises in the midst of an economic slowdown."

Yet most of the 27,000 members of the International Association of Machinists are hopping mad about the contract offer Boeing dealt them last week. Many are even angry at their union leaders for putting off the strike for two days, upset that the leaders agreed to sit down with management and a federal mediator to try to resolve a contract before Friday night, Sept. 5.

After marching by the hundreds — as many as 7,000 workers gathered at one location in Everett, Wash. — to vote down the proposed pact and walk off the job, they shouted "sellout" when union leaders accepted the delay. Union leaders were hard-pressed to argue that they may yet come to terms on a deal that would make the members happy.

What has these workers so riled up? Blame a contentious union-management history, and executive suite turnover that has led to costly strategic blunders. Throw in some job outsourcing and a bit of the trend that's swept across Corporate America to cut benefits and push costs for medical care onto workers.

Add to that a sense that there may be no better time to grab a piece of the pie: Boeing's hefty backlog of plane orders has prospects at the company looking brighter than they have in years, and the company is racking up impressive profits, which the union says should be shared more with workers.

Holding the line
The result is a surprising recipe for an explosion of deeply felt anger. "We're fed up," says Russell Wise, a mechanic and team leader who is helping to build the company's new Dreamliner 787. "We're frustrated."

Indeed, while unions are in retreat in much of the rest of old-line industry — from carmakers to washing-machine producers — the angry Boeing workers believe they're in a position to hold the line. They're determined to keep the benefits they've won over the years and do even better, IAM members say. They've struck six times at Boeing since World War II, and are very happy to do it again.

The immediate cause of the unionist rage? So-called "givebacks" in the company's contract offer. While Boeing is willing to give the union respectable wage hikes — equaling 5 percent in the first year and 3 percent in each of the following two years, it is demanding that workers pick up more of the tab for their health-care costs. Some workers argue that a few visits to the hospital would instantly eat up any wage gains.

Similarly, while the company is willing to boost pension contributions, it's also trying to limit death benefits for survivors, giving spouses of deceased Boeing workers a flat $4,000 payment instead of guaranteed monthly payments for life.

Such problems, says Wise, are "in the fine print" of the proposed contract.

IAM officials argue that Boeing has no business seeking any such rollbacks when the company is thriving. Instead, they say, it should be sharing the gains. In past years, especially when airplane orders dried up just after the terrorist attacks on September 11, 2001, the company put thousands of workers on furlough.

Now, with its record order backlog, it has had to hire many of them back and add thousands more. "The company came at us with takeaways in the last two rounds (2002 and 2005) and members see how dramatic the turnaround has been," says IAM Communications Manager Connie Kelliher. "They believe it's time to make improvements."

Troubled by Dreamliner delays
Workers are also troubled by poor business moves they say has hurt both them and the company. Outsourcing, for instance, has contributed to three delays so far in the 787 Dreamliner program, with the first flight expected by yearend, more than a year late.

If important parts of the plane were built in Seattle, instead of by suppliers around the world, the Dreamliner would have arrived on time, the unionists insist. They say both the company and its employees would have been better off. Indeed, management acknowledges problems with parts have contributed to the 787 delay.

Management scandals of various sorts have also plagued Boeing and enraged the workers. Boeing Chief Executive Officer James McNerney took the top job in 2005 after Harry Stonecipher was felled by a romantic peccadillo with another Boeing executive. Stonecipher had succeeded Philip Condit, whose standing was hurt by a defense contracting scandal around the awarding of an airborne refueling tanker contract that involved executives below him, even though Condit was not personally implicated.

The management tumult, IAM members say, has led to shifts in the way the company is run. It may not have helped that management in 2001 relocated its top executives from Seattle to Chicago, a step that has kept them far from the airplane assembly plants and disgruntled workers.

Openness annoys workers
Finally, some workers are troubled by the way Boeing has tried to bargain in the recent talks — because management has been so open about it. Instead of sequestering themselves with union leaders to try to hammer out a deal, the company posted several successive offers on its Web site.

It loudly sought to have a traditional pension program replaced with a 401(k)-like plan and to kill medical benefits for early retirees, which the union had said would inspire a strike. Management then dropped both threats. "For a month, the factory was in chaos, literally, with noise and horns and people rebelling," says Wise. "You were shell-shocked."

Also infuriating workers were radio ads that recently aired after Boeing made its "best and final" offer last week. The company sought to bypass union leaders with the ads, Wise says, and persuade members to vote for the contract. Such tactics have inspired the union to accuse Boeing of unfair labor practices, although legal experts say the charge is unlikely to stand.

For its part, Boeing argues its approach was aimed at getting quickly at what workers wanted, and narrowing down the terms to what would be acceptable.

Management began bargaining months ago by meeting with union leaders to figure out what would fly and what wouldn't, and then made changes based on the reactions. The company argues that its offer is the best contract in the industry, and that so-called givebacks — the medical cost shifts, for instance — would be far less onerous than what other companies are demanding.

Plenty of skeptics
Some outside observers don't buy management's view. "The company has been engaged in an unproductive and really inexplicable pattern of negotiation with this union," says professor James Gregory, who directs a labor studies center at the University of Washington in Seattle. "The company seems to push the union whenever it can and comes forward with proposals — and often insists on them — that workers find unfair."

On the other hand, there are plenty of skeptics who say such changes as the shifting of medical costs and the end of traditional pensions are now simply the norm in Corporate America. They argue the union is acting like it's living in the past.

"Who has pensions anymore?" asks Boston lawyer Donald Schroeder, who practices labor law for companies. "Unions have had the Mercedes-Benz of health-care plans, but health-care costs have spiraled out of control. Somebody's got to pay for that."

At the end of the day, Boeing's union feels that it now has the company over a barrel. Boeing can't afford to postpone the Dreamliner any further, since delays may have already cost it some $2 billion or more.

This is a far cry from the hard times of 2002, when the union couldn't muster a two-thirds vote to back a strike, even though a majority of workers had opposed a contract. And the company is better off than in 2005, when the IAM struck for about four weeks and wound up getting no wage hikes.

The question now is whether workers will be so angry that they get a relatively strong offer from management — and still walk.