In a significant development, aerospace company Boeing announced on Sunday that it had reached a preliminary agreement with a union representing over 32,000 workers in the U.S. Pacific Northwest region. The potentially game-changing deal could help avert a potentially crippling strike set to begin as early as September 13.
If approved, the proposed four-year contract would entail a general wage increase of 25% and a commitment from Boeing to build its next commercial airplane in the Seattle area. This agreement holds strategic importance for Kelly Ortberg, the newly appointed CEO of Boeing, who has been tasked with improving quality standards at the company. A successful deal with the labor union would contribute significantly to this objective.
The labor agreement, the first of its kind in 16 years, would also include improved retirement benefits and give the union a greater say in the safety and quality standards of Boeing’s production system. The union has praised the contract as the best it has ever negotiated and has expressed its dedication to producing high-quality aircraft.
Boeing has been grappling with a quality crisis, drawing scrutiny from regulators and customers alike, after an incident in January where a door plug on an Alaska Air jetliner blew off while the aircraft was in mid-air. This agreement aims to address these concerns and ensure a better future for Boeing.
The tentative agreement will be put to a vote on Thursday by Boeing factory workers in the Seattle and Portland areas, who are represented by the International Association of Machinists and Aerospace Workers (IAM). The deal could be rejected if it fails to garner majority support from the workers. In the event of a second vote resulting in two-thirds support for a work stoppage, a strike could still occur.
If ratified by the union members, the agreement would bind Boeing to manufacture the replacement for the popular 737 aircraft in its Pacific Northwest facilities, provided the project commences during the contract’s duration. The exact timing of the new jet announcement remains uncertain.
Both Boeing and its rival Airbus are in the early stages of developing strategies for their next-generation single-aisle models, expected to enter service in the late 2030s. Boeing’s decision to commit to its main Northwest manufacturing hub for these new models is a departure from previous endeavors in different locations, which were met with dissatisfaction from the IAM union.
“This would go along with our other flagship models, meaning job security for generations to come,” stated Stephanie Pope, CEO of Boeing Commercial Airplanes, in a message to employees, highlighting the positive implications of the agreement.
Kelly Ortberg, who faces pressure to effect cultural changes at Boeing to improve quality, must also tackle labor relations and steer the company toward a successful future, according to aerospace analyst Richard Aboulafia. Ortberg, a former executive at Rockwell Collins, relocated to Seattle to assume leadership of Boeing.
“Changing the culture starts with a different attitude towards labor and towards the future with new product development,” Aboulafia remarked on Sunday.
Alongside these challenges, Boeing is currently grappling with significant financial pressures as it continues to incur losses. In the second quarter of 2021, the company reported a net loss of $1.44 billion. In a recent report, Wells Fargo predicted a potential delay of about two years until 2027-2028 in meeting Boeing’s annual free cash flow target of $10 billion, indicating the need for the company to raise approximately $30 billion before embarking on the development of a new aircraft. It is worth noting that Boeing currently carries a net debt of around $45 billion, as reported by Wells Fargo analyst Matthew Akers.
An approved labor agreement would offer Boeing some respite amid its ongoing cash burn and efforts to increase production of its popular 737 MAX aircraft to a rate of 38 aircraft per month by the end of this year.
While falling short of its initial target of a 40% raise, the union has nonetheless hailed the agreement as a significant achievement.
“Although there was no way to achieve success on every single item, we can honestly say that this proposal is the best contract we’ve negotiated in our history,” stated the IAM union local that represents the Boeing workers.
The timing of this agreement is opportune, as workers across various industries are capitalizing on the current tight labor market to secure favorable terms. In a similar vein, the United Auto Workers union secured a 25% general wage increase over four-and-a-half years with the Detroit Three last autumn.
The negotiations have attracted the attention of members of the Biden administration, with Acting Labor Secretary Julie Su urging the parties to reach a fair contract during an interview with Reuters last week. Sources revealed that Su had discussions with Boeing CEO Kelly Ortberg and local union head Jon Holden.
The production of Boeing’s widebody 777 and 767, in addition to the MAX, falls under the responsibility of the Boeing workers in the Pacific Northwest region. These workers previously voted in favor of a strike mandate in July, escalating the urgency for a favorable agreement.