In 1955, the year test pilot Alvin “Tex” Johnston famously rolled the pioneering Dash 80 707 prototype over Seattle, machinists won the right to a pension plan.
With Boeing's star on the rise as the undisputed leader of the new commercial jet age, the then-20-year-old branch of the machinists union was determined to guarantee that its members reaped the fruits of that success well into their retirement. Having secured a pension and a score of other benefits for its members since it was formed in 1935, the International Association of Machinists (IAM) District 751 went on to become a powerful force within Boeing.
However, while private pensions like the Boeing plan were typical of the great gains made by the U.S. labor movement after World War II, they became increasingly onerous to the companies that provided them. Unhappy confluences were taking place. As more retirees and dependents became eligible for pensions, so grew each plan's total liability—the amount that needed to be added to the assets to fund additional benefits into the future.
On top of escalating health-care obligations, the soaring pension costs became too much for many U.S. companies. In 2005, when the irksome pension plan was again at the heart of a machinists dispute that caused a 28-day shutdown, it was estimated that an increase of $6 per month per year of employment would require Boeing to make a contribution of around $200 million. This was when there were 16,500 machinists in the Puget Sound area of Washington state, or just under half the number of members represented today.
Small wonder, then, that the traditional pension plan has become the focus of many of the disputes between Boeing and the machinists in recent years. These industrial conflicts have also become increasingly frequent, costly and acrimonious. From 1948, when IAM members staged a 140-day strike, to 2008, when they laid down their tools for more than two months, the union has prompted work stoppages that total 405 days. However, while the first four events spanned 41 years, the last three strikes caused 154 lost days of production over just 13 years. The last strike—in 2008—ran 57 days and was estimated to have cost Boeing around $100 million a day.
Since then, fueled in part by dissatisfaction over the large volume of manufacturing outsourced on the 787, the fractious relationship between the company and the increasingly militant union has been an open secret. The development of the, Boeing's next major new, long-range undertaking, therefore, gave the company a rare opportunity to leverage new agreements with the machinists that, according to President and CEO Ray Conner, would “create a competitive structure to ensure that we continue market-leading pay, health-care and retirement benefits while preserving jobs and our industrial base here in the region.”
In return for guaranteeing assembly work on the 777X—and its new, all-composite wing—remained in the Puget Sound area, Boeing sought an extended contract that at its core included the eventual elimination of the “defined-benefit” pension plan. In its place, all workers would pay into “defined-contribution” plans such as 401(k)s. These plans, in which workers contribute to their own accounts, often with matching input from the employer, are preferred by companies because they eliminate long-term liabilities and are cheaper.
However, following the IAM's Nov. 13, 2013, decisive “no” vote on the offer, which was designed to extend the workers' contract from 2016 to 2024, Boeing proclaimed it would solicit bids to build the 777X elsewhere. Beyond Washington, the announcement triggered a massive response from 21 other work-hungry states around the U.S., as well as from Japan, which put forward a proposal to make the 777X wing (AW&ST Dec. 23, 2013, p. 40). As the bids came in, Boeing proffered an 11th-hour improved “best and final counterproposal” that was rejected Dec. 13 by the union leadership. On Dec. 21, in response to calls from some of the membership within District 751, the union's national leaders overruled the leadership of the local branch and scheduled a cliffhanger vote for Jan. 3.
With so much at stake, the key question on the minds of the 24,000 union members who cast a vote was whether Boeing was bluffing about its threat to base the 777X assembly line away from Everett, the home of the company's widebody production. In the event, a very slim majority—just 51%—voted to accept the new deal, indicating they believed the danger was real. Boeing is equally adamant that its search for alternate locations was in earnest. Commenting to Aviation Week after the decision, the company states: “Our plan was to make a final 777X decision early this year. But obviously, being able to end the site-selection process sooner than later is something we are pleased about.”
Beyond the baseline contract extension, the offer includes a 4% general wage increase over eight years, plus cost-of-living allowances. Members will also receive a $10,000 signing bonus with immediate effect and another $5,000 bonus in 2020. Pension-plan accruals will end in 2016 and be replaced with a defined-contribution savings retirement plan. However the contract also retains the current 401(k) mechanism and increases the company match to 6%—a 2% boost—as well as maintaining the system of wage progression known as “zoom.” Under this, new hires can move to the top of their grade's pay scale after six years.
State political leaders, who in November approved up to $8.7 billion in tax breaks for Boeing in return for building the 777X aircraft at or close to its traditional locations, have also expressed approval at the outcome of the vote. “Now that the state and union have delivered, it is time for Boeing to hold up its end of the bargain,” says Rep. Rick Larsen (D-Wash.). “Washington has shown that we stand behind a strong aerospace industry. Boeing should make the same commitment to our state.”
Despite the evident split the 777X site debate caused between the national union and leaders of District 751, as well as the overall weakening of the union's bargaining position resulting from the vote, the outcome was also hailed as a victory for IAM members. “In materials, technology and manufacturing skills required, the 777X represents a quantum leap in aviation history,” union President Tom Buffenbarger said in a written statement. “IAM members have built Boeing aircraft in Puget Sound for more than 60 years. This agreement assures they'll continue building them for decades to come.”
With the success of the new contract vote, Boeing expects to start construction this November on the new 1.1-million-sq.-ft. wing manufacturing site, at a yet-to-be-announced location in the Puget Sound area. The site is expected to require up to $4 billion in new investment and to employ up to 3,000, but beyond that Boeing reveals little else. “We are looking at all options across Puget Sound in regards to where the wing facility will be located. But right now, we aren't disclosing the factors or criteria. There is no timeline on making that decision.”
Expansion at the current Everett site to encompass the 777X final assembly line is also anticipated. The original green-field specification called for a 3.1-million-sq.-ft. facility, at a cost of $4-6 billion, that would house fuselage and final assembly work. However, Boeing has yet to provide details of the cost or space required for the 777X now that it has opted to retain the work at the present site. Production of major parts is due to start in mid-2016, with final assembly beginning in 2017. First flight of the 777-9X is expected in 2018, with first delivery targeted for 2020.