Boeing says the Nov. 13 decision by the International Association of Machinists & Aerospace Workers (IAM) to reject a long term contract extension deal gives it “no choice” but to look at alternate sites away from the Seattle, Wash., area to assemble the 777X and its composite wing.
The ‘no’ vote is a setback for the company which expects to officially launch the 777X at the Dubai air show early next week. Boeing had hoped to cement a deal in advance of the program go-ahead, and the contract rejection adds a new level of complication and uncertainty to the planning process for the re-engined, re-winged 777 derivative.
Although the vote was substantially against the deal by a margin of 67% to 33%, the IAM is expected to seek further talks with Boeing over a compromise deal as part of further efforts to retain the work in the Puget Sound area. However, the rejection of the deal, which would have extended the IAM contract from 2016 to 2024, means that any revised contract must now compete with financial packages designed to lure production of Boeing’s largest ever twinjet to alternate sites.
Although the list of options was originally expected to be led by Charleston, South Carolina, where Boeing has developed a 787 assembly line and engineering center, reports from Seattle suggest front runners are now considered to be other Boeing sites in Huntsville, Alabama and Long Beach, Calif. In addition Mitsubishi Heavy Industries (MHI), the current manufacturer of the 787 composite wing, has reportedly proposed a plan to manufacture the 777X wing in Japan and transport them via sea to a final assembly line in the U.S.
In a statement on the IAM decision, Boeing Commercial President and CEO Ray Conner says the company is “very disappointed in the outcome of the union vote. Our goal was two-fold: to enable the 777X and its new composite wing to be produced in Puget Sound and to 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. But without the terms of this contract extension, we’re left with no choice but to open the process competitively and pursue all options for the 777X.”
Boeing plans to retain a far greater proportion of the design and development of the 777X in-house. As a consequence the company says it needs to find cost savings that otherwise might have been gained by out-sourcing. The negotiations with the unions have therefore focused on reducing the cost base including changes to health and other benefits. Under the terms of the provisional agreement voted down on Nov. 13, the eight-year contract extension would have frozen pensions for current employees and established instead an alternate company funded retirement plan. Had the new terms been agreed, all members would have also received a $10,000 bonus. The deal was designed along the same lines as the agreement between Boeing and the unions in 2011 which helped retain work on the 737 MAX at Renton, Wash.
In parallel with the union agreement, Boeing had sought support from Washington State as part of efforts to keep the wing and final assembly work in the Puget Sound area. A deal was hatched which would have seen the company benefit from up to $8.7 billion in tax breaks through 2040. Conner comments “I’d like to thank Governor Jay Inslee and the Washington state legislature for all their efforts in this process. We had hoped for a different outcome.”