The Boeing Machinists Say No

The Boeing Machinists Say No

 

A case study of a union trading away jobs for retirement benefits.

From the Wall Street Journal

One reason for the decline of private union membership is that labor chiefs are willing to trade away jobs for retirement benefits. Witness the Boeing machinists in Seattle last week who shot down a contract that would guarantee 20,000 jobs, which might now take flight to more business-friendly destinations.

The International Association of Machinists and Aerospace Workers rejected the contract despite warnings from Boeing that pension and wage concessions are a precondition for manufacturing the new 777X in Puget Sound. The company has assembled its 777 commercial jets there for two decades, and Washington state lawmakers had cleared the runway for the 777X with $8.7 billion in tax breaks and other incentives.

Even the union's national leadership had nudged the local to approve the contract for the greater good of the labor movement. Private union membership in the U.S. has declined to 6.6% of workers from about 35% in the mid-1950s as companies have moved union jobs to right-to-work states and overseas.

Boeing's eight-year contract offer included a 1% wage increase every other year starting in 2016 on top of annual cost-of-living increases. Pension accruals would be frozen, and traditional defined-benefit plans would be replaced with 401(k) accounts with a generous employer match.

In return for these changes, Boeing offered to sweeten the basic pension benefit multiplier to $95 per month from $85, yielding an additional $2,400 annually for a new retiree with 20 years of service. Upon approving the contract, workers would also receive a $10,000 signing bonus and an effective job guarantee for the next two decades.

These pay and benefit modifications would save Boeing about $2 billion over the eight-year contract and help the company compete with the Airbus A350 that has been a hot ticket with international carriers. Settling the contract in advance of the current labor agreement's expiration in 2016 would also assuage concerns about future strikes, which contributed to the company's 2009 decision to build its 787 Dreamliner in right-to-work North Charleston, South Carolina.

Boeing warned the union that rejecting the contract could jeopardize 20,000 jobs. Local machinist president Tom Wroblewski responded by saying this risk is worth taking to preserve the union's "sacred" traditional pension, though a pension won't amount to much if workers lose their jobs.

Perhaps the machinists figure they can count on intervention once again by the National Labor Relations Board. After Boeing announced production of its 787 in South Carolina, the labor board filed charges against Boeing for illegal retaliation. The agency's acting general counsel Lafe Solomon withdrew the charges in 2011 only after Boeing agreed to generous wage increases and to build its new 737 MAX in Washington. The NLRB's new general counsel is longtime labor friend Richard Griffin.

But relying on politics to save jobs is risky business in a world of competition. Boeing executives are trying to avoid becoming the next GM or U.S. Steel, X in Your Value Your Change Short position and they'll build aircraft elsewhere if the Seattle union stays trapped in a nostalgic past of lifetime guarantees and 30-year pensions. Politicians may pander to unions but they also can't defy business reality.