Contract negotiations resumed January 9 between Boeing and its engineers’ union, SPEEA. The outlook is dim and the prospects of a strike are high. The gap between the SPEEA “wants” and the Boeing offer is too wide and talks are expected to break down almost immediately.

Furthermore, if a strike occurs, a long run appears in the making.  At least that’s is the view of SPEEA.

Boeing, on the other hand, seems a bit bewildered at this characterization. SPEEA at one point offered to extend the current contract with 5% annual wage hikes; Boeing is offering 4.5%, a difference of one-half of one percent. (SPEEA’s counter offer, however, contains 6% wage hikes.)

Boeing argues that for a SPEEA member earning an average of $100,000 a year, its wage offer provides $17,000 over four years in guaranteed wage hikes plus the prospect of profit sharing equal to 4%-7% depending on the annual results in any given year.

SPEEA counters that the demands by Boeing for increased employee contributions on medical co-pay and changes to the retirement program for new hires means compensation is going backward, not forward. Boeing disputes this. Citing its analysis for a family of four, Boeing figures additional medical costs will equal $5,000 against the guaranteed wage increases of $17,000 but not allowing for the profit sharing.

Boeing also wants to switch future employees from a defined benefit pension plan to a defined contribution plan using a 401(k). The company match would be 75% of the 6%-8% employee contribution. SPEEA is currently on a defined pension plan. Non-union Boeing employees are generally on the 401(k).

Boeing’s strategy in making its offer last year is to narrow the gap between its costs and those of its peers and the aerospace supply chain.

Wage costs in the Seattle area, where the bulk of SPEEA engineers and tech people are located, are higher than the national average. Boeing’s thinking is that it is willing to live with this 7% Puget Sound premium but not go higher, and that medical and pension costs need to be reduced.

Boeing believes SPEEA members would not gain enough to make a strike worthwhile because the gap between the current contract and Boeing’s wage offer is only a half-percent apart. A month-long strike would cost the average SPEEA member $10,000, according to Boeing’s analysis.

We’re not optimistic at this stage that a strike won’t happen. We sense the mood at SPEEA is similar to the mood at IAM 751 in 2008, when 751 struck for 58 days and cost Boeing $1.5bn in profits. Members rejected the first contract offer by a 96% vote, and we certainly don’t sense that there’s been a meaningful shift in sentiment.

SPEEA’s last significant strike, in 2000 for 42 days, led to delivery delays of 50 aircraft at a time when production rates were sharply lower than today.

Boeing has notified suppliers to continue shipping product in the event of a strike, vowing to maintain deliveries. SPEEA believes that new deliveries will immediately grind to a halt because engineers must sign off on any work other than, for example, painting the airplane.

Talks resume tomorrow at 1pm, picking up where they left off when the federal mediators ended the talks last month. Boeing doesn’t plan to drop a new contract offer tomorrow.

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