It’s Negotiation Time At Boeing: Plane & Simple

by drjim on October 29, 2008

Boeing And Its Union Can't Seem To Agree On One Key Issue

Boeing And Its Union Can

Even as the rest of the world is going through a financial melt-down, out in Seattle there is still strike going on at Boeing that is costing the company roughly $100M in missed revenue per day. Ouch! Just in case you have not been following this story, the 27,000 members of the International Associaition of Machinists and Aerospace Workers who work for Boeing are out on strike and have been so for since September 6th. Doesn’t this seem like just the kind of problem that a good negotiator could step in and solve?

Currently, both sides are feeling the pain from the strike. On this past Wednesday Boeing had to announce to the press that their 3rd quarter net income sank by 38% due to the strike. Now you’ve got to remember that Boeing is sitting on a stack of orders for their planes right now: they have a backlog of orders for 3,725 planes of which about 900 are for the eagerly anticipated new 787 Dreamliner. Keep in mind that a new airplane costs roughly about $100M to buy and you start to understand that if only Boeing could build new airplanes, then they would be making money hand over fist.

The union folks are also hurting. On average the union workers bring home about $65,000 / year. While the strike is on, they are getting $150 / week from the union in strike pay. This means that everyone is scrambling to pick up part-time jobs in order to stem the bleeding.

The main players in this negotiating drama are well known. On the union side they have Mark Blondin who is a former Boeing machinist who is serving as the lead negotiator for the union. On Boeing’s side, Doug Kight who is Boeing’s lead negotiator. Kight is also Boeing’s vice president of human resources, a position that he took over in late 2006. During previous negotiations, Kight provided legal counsel to his predecessor, Jerry Calhoun, who was formerly Boeing’s lead negotiator.

When we talk about negotiating deals, we often focus on price. However, in this case the price issue is well hidden by another issue: job security. At the heart of the debate is a single question: can Boeing expand the types of jobs that outside contractors perform in assembling airplanes. From Boeing’s point-of-view they are trying to cut costs and reduce the time required to build a plane. In order to do this they are outsourcing jobs to other firms. As a result of the last contract that was negotiated between these two parties, outside firms are now allowed to deliver parts directly to the assembly line. The union is concerned that their members are going to lose their jobs to outside firms if this trend continues. Boeing says that they need to retain flexibility and are unwilling to make any job guarantees. Can you say deadlock?

What can be done to resolve this issue? Remember, the ultimate goal is to make sure that both sides of the table leave the negotiations with a feeling of satisfaction. Additionally, both sides need to give something up in order to feel that they’ve “earned” a negotiated settlement. There are lots of ways that this issue can be resolved. Here’s one that would work for both sides.

I’m sure that there are a lot of other issues on the table like health care, pension benefits, etc. Let’s assume that the core negotiating concept of expanding the discussion has been done and that this issue of job security is really, really a key sticking point. If you focus for a moment on the end game, Boeing really wants to start making planes again so that they can keep their customers and make lots of money. The union members really want to start making planes again because they miss their paychecks and they are proud of their work. This is great news – both sides want the same final goal. Now the trick is to see what can be done in order to get them there.

One thing that makes solving this issue just a bit easier is that Boeing is sitting on a pile of money. Boeing has two issues with the union: the immediate issue of job security for 27,000 workers as well as the long term life of the union itself (will a union be needed in the future?). Both needs have to be met. The union has two issues with Boeing: Boeing wants to lower it’s production costs by using less expensive outsourced labor and Boeing is getting tired of having to deal with a strike and work stoppage every three years. The strikes are playing havoc with Boeing’s ability to compete with Airbus because Boeing can’t honor its contracts to its customers.

So here’s one possible solution. Boeing has 27,000 current employees who basically (just like all of us) only really care about their jobs. What Boeing should agree to is that they will keep these employees working until such time as they no longer need them. At that point in time, Boeing will pay them off to go away. Specifically, Boeing will pay them 1/2 their current salary though retirement age. This will free the worker up to go get retrained and get another job if they want to. Potentially they could earn a great deal of money for the rest of their career. Oh, and they could pretty much pick any job that would make them happy because they would still be getting paid by Boeing. This would cost Boeing some serious cash. If they terminated all 27,000 workers who were making $65,000 / year and everyone was 30 years old, then Boeing would have to pay out $30B over the next 35 years. Now that sounds like a lot of money, but it turns out that it really isn’t. Remember we’re really talking about a long-term solution here. Boeing is going to be paying a lot in salary no matter what. Having the flexibility to further streamline their production process while potentially paying half of that would save the company a lot of money.

Now from the union’s position, they are going to have to change how they operate in the future. Clearly the number of machinists needed by Boeing has been and will continue to decrease over time. However, it can be argued that the remaining machinists will become even more important to the company – they will be doing things that no outsourcing firm can do. The role of the union is going to have to evolve and change. Specifically, over time the machinist union will need to merge with another union in order to maintain it’s bargaining strength. Realizing this earlier than later will be the key to resolving the current issues.

What would your next step be if you were the lead negotiator for Boeing? What would your next steps be if you were the lead negotiator for the union? Who do you think is feeling the most pain right now? Leave a comment and let me know what you are thinking.

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