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Boeing’s offer of a contract extension for 777X work at Everett has been rejected by the IAM (67% No to 33% Yes). In its response, BCA boss Ray Conner noted he is “very disappointed”. Boeing now has no choice but to open the 777X production location process competitively and pursue all options.

The Seattle Times reported yesterday that Boeing is looking at Long Beach, CA (C-17/Douglas facility), Salt Lake City, (UT) and Huntsville, AL as potential production venues for the 777X. In all three cases, Boeing could operate without union restraints. There would be other start up costs though; more Capex than Everett and certainly more staff training. There could even be more supply chain risk, but South Carolina probably taught Boeing how to avoid or minimize those elements.

The IAM itself was split, with the International calling for a vote on the proposed contract, and local 751 being quite militant against it, not even wanting to bring it to a vote.  It now appears that the IAM has some internal issues to reconcile, with differing viewpoints among its leadership at various levels.  The International, which overruled the local that did not want to call for a vote, may have a better perspective on the competitive environment.

So now what?

Boeing is not under any real pressure to stay in Everett. It has options, but the IAM does not have the same flexibility.  And there’s the rub. The other locations Boeing is considering at are chomping at the bit to win this work. The chance to acquire high skill jobs is tantalizing enough for those locations to offer all sorts of tax holidays and incentives.  Nobody is going to offer the IAM anything, except lower benefits to reduce costs to the equivalent of “right to work” states.

Complicating the issue in the background is the aid offered by the State of Washington, which is identical to the type of aid judged illegal by the WTO, but currently on appeal.  Had the IAM approved, Boeing would have faced another hurdle to keep operations in Puget Sound, likely needing to restructure the type of aid from the State to avoid a second judgment against it.

However one cannot think this is making life easier for Boeing. The next big air show starts on Sunday in Dubai.  There are a five customers ready to announce more than 250 orders for the 777X.  These customers are keenly aware of what the IAM vote means, as it adds to program risk in a way that could potentially impact them.  Potential delivery delays, or quality issues, are not what airlines want to hear about, as nobody in the industry wants to see a 787-like introduction ever again.  The IAM decision means Boeing now has an extra element of program risk, the need to train new workers.  The good news is that they have six to seven years to solve the issues prior to EIS for the new airplane, and can leverage their South Carolina experience in that regard.  The bad news is that the traditional civil aerospace capital around Seattle will soon resemble auto industry and Detroit, still with a major presence but with new production moving south to lower cost communities.

With a contract expiration in 2016, the next negotiations between Boeing and the IAM should be quite interesting.  The bottom line is that producing the 777-X in Everett has become much less likely as a result of the Union’s rejection of the proposed Boeing offer.

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