Boeing Thinking Of Saving Money Through No Unions?

As part of their conference call where Boeing revealed that they had lost over $1.5 billion in the third quarter of this year the CEO, Jim McNerney, discussed establishing a new production line for civil aircraft in South Carolina as an expansion of their existing facilities. The impetus for this seems to be based on McNerney’s comments is worries that disputes with the unionized work force of Boeing would lead to disruptions in aircraft development and deliveries.

Boeing has learned a hard lesson of the costs related to these kind of problems. The 787 and 747-800 delays are costing them billions. Most of the charge taken last quarter were due to the inability of customers taking delivery of the 787 aircraft manufactured to date. These are now carried as test assets and their value was taken as a charge.

McNerney stated that management was pursuing a no-strike clause from the unions but they were not receptive. Last Fall the Machinists did go on strike at Boeing halting aircraft deliveries for eight weeks. At that time it was estimated that the company was losing $100 million a day due to this. The company obviously wants to avoid these kind of problems in the future.

If the union cannot agree to provisions preventing strikes then another solution is to establish facilities that are not organized or represented by unions. South Carolina is a right to work state unlike Washington and Oregon although Kansas where one Boeing major facility is located is. Those workers though are represented by the union and did go on strike previously.

Another benefit is that South Carolina like a great deal of states would be able to provide economic incentives to build this facility or reuse and existing one. That is why you see many of the foriegn auto companies build plants there along with EADS targeting Alabama for their tanker plant if they win the contract.

The cost of establishing this new capability would be quite expensive for the company and a severe cost-benefit analysis would have to be completed before it could be executed. McNerney believed that these costs and challenges would be worth doing as they would offset the chance of labor strife in the future. The contract signed last year will end in 2012 and it sounds like McNerney is planning on problems when that is renegotiated based on this proposal.

EADS has faced these kind of problems too increased by the fact that they have to manage a workforce in two different countries and balance out those government’s interests. The company cannot cut back too much on the French or German sides without a big fight. All of the aerospace companies and their suppliers are looking to China and other Asian companies to perhaps transfer some production and assembly. Part of this is the cost of labor and a component of that is the lack of unionization.

Like EADS with the A380 Boeing will find that once the 787 add 747-800 deliveries start occurring the money issues may sort themselves out. The problem the companies must avoid is having a consistent program with issues. EADS fixed the A380 but now has the A400M military transport program still sorting itself out with the chance of major hits to its revenue and earnings if orders are canceled or further delayed.

The idea of moving to a non-union work force in the United States for Boeing is intriguing and certainly seems to have benefits but it will be hard to implement especially under the current economic conditions.