Aerospace & Defense

Could Union-Busting Save Boeing?

Last Friday, Boeing Co.’s (NYSE: BA) largest union sent a letter to its members pointing to press reports that the company wants to talk to the union about consolidating 787 Dreamliner assembly at one location. The company currently assembles the 787 in Everett, Washington, and North Charleston, South Carolina.

The International Association of Machinists and Aerospace Workers (IAM) Local 751 represents roughly 17,000 members in Washington and none in South Carolina. The union contract expires in 2024 and there’s virtually no chance that Boeing will let the “opportunity” presented by the coronavirus pandemic pass without taking another swipe at the union.

In the letter to its members, IAM 751 president, Jon Holden, accuses Boeing of “attempting to align the politicians and the media in order to exert maximum pressure [on the union].” Holden goes on to say that Boeing is not talking to the union but that the company’s history with Local 751 since 2003 has not been entirely friction-free.

In February, Boeing helped write legislation to void tax breaks it had been granted by the state of Washington beginning in 2003 to support the 787 program. The state, in 2013, added more incentives to keep the 777X program in Washington.  Those tax breaks were declared illegal by the World Trade Organization (WTO) in 2019, and the state passed the legislation repealing the tax breaks in March of this year. This could close the WTO case if that body accepts the repeal.

That still leaves Boeing with more production capacity than it can use, at least for the next two or three years.

Boeing employs about 35,000 people at its Everett location building 747s, 767s, 777s and 787s. The company currently builds about six of the 747s a year, with production expected to end in 2022. Between Washington and South Carolina, Boeing is cutting production of the 787 from 10 to six per month beginning next year. Production of the 777s, including the new 777X, is being lowered from three to two per month next year, while 767 production is increasing slightly from 2.5 to three per month.

Once the 737 Max is recertified for flight, Boeing will continue to build those planes at its Renton, Washington, plant but at a rate of around 31 per month by the end of the year, a far cry from the 52 per month the company had once expected to be building by next year.

Employment at Boeing’s Puget Sound plants is virtually certain to come under pressure

In April, Boeing announced that it would reduce its workforce of around 160,000 people by 10% through a combination of voluntary layoffs, natural turnover and involuntary layoffs “as needed.” Early last week, Reuters and others reported that Boeing was working on a plan to extend the voluntary layoff program even further as a response to “employee feedback.”

In July, Boeing CEO David Calhoun announced that the company was conducting a study to consider consolidating the two 787 assembly lines into one. Most analysts believe that single line most likely will be in South Carolina.

The study Calhoun referred to is expected to be concluded next month, according to Scott Hamilton at Leeham News and Analysis, who expects Boeing to announce in late October that it will consolidate 787 production in Charleston.

While Local 751 officials have not yet been contacted by Boeing, a development that comes as no surprise to union president Holden: “In typical Boeing fashion, they are talking to everyone else but the Union. It is what they do in these situations.”

In Monday’s premarket trading, Boeing stock was up about 1.4%, at $169.80 in a 52-week range of $89.00 to $391.00. The stock’s consensus price target is $173.50.