Boeing's misfortunes never come singly. While the 737 Max is frequently outsourced, the company is facing labor disputes, with the largest union demanding a 40% salary increase within three to four years. The union said: "We will not strike lightly, but we are willing to do so." Boeing, which is still mired in the investigation of the 737 Max, is facing internal problems. The company's largest union is demanding a 40% salary increase within three to four years and has threatened to consider a strike.
According to media reports, this labor dispute has been brewing for ten years. The International Association of Machinists and Aerospace Workers (IAM), Boeing's largest union, has been bitter about Boeing's 2014 collective bargaining agreement that sacrificed pensions, locked in minimum wage increases, and restricted the hands of labor rights activists.
Buoyed by a resurgent U.S. labor movement, a scarcity of qualified aerospace workers and pressure to stabilize factory jobs at Boeing, union leaders will demand a 40% pay increase over three to four years. “Our goal is to negotiate a contract that is acceptable to both union leadership and members,” said Jon Holden, president of IAM Region 751, which represents 32,000 Seattle-area Boeing machinists. “We don’t strike lightly, but we are willing to do so.”
Holden said in an interview that he saw a path to a deal with Boeing. But even so, he said he was ready to strike, following the example of auto workers in Detroit, screenwriters and actors in Hollywood, and Kansas-based Boeing supplier Spirit Aero Systems Holdings Inc. of fellow machinists, each of the above trades achieved major improvements in wages and other labor contract terms after last year's strikes.
If the strike begins, Boeing may shut down factories in Washington state and Oregon, including assembly lines for its cash cow 737 passenger aircraft, and reduce production after the current IAM contract expires in September. As negotiations begin on March 8, labor tensions will increase pressure on Boeing Chief Executive Dave Calhoun, who is already facing pressure from regulators and investors over quality issues with the 737 Max.
"We remain focused on working with our teams to improve the quality of our operations," Boeing said in a statement. "We believe there is a path to a new contract that addresses the needs and concerns of our employees while maintaining our ability to compete in the global marketplace."
Boeing's stock price rose 0.9% to US$208.48 on the 6th. Boeing's shares have fallen 21% this year, the worst performer among the Dow components.
Media analysts believe that Boeing has no new aircraft to use as a bargaining chip in preparation for the upcoming negotiations, and with the unemployment rate near historical lows, the company cannot threaten to move production to the southern United States. Boeing is struggling to stabilize its factories and suppliers and return to steady and reliable production, at a time when the company cannot afford disruptions.
Analysts say unions have the upper hand and now is the time for unions to reach a deal that is best for them and will be very active. Boeing last week declined to provide a financial outlook for this year, although it stuck to its goal of achieving $10 billion in free cash flow by 2025 or 2026, a goal that is at risk of being undermined by the recent Boeing scandal.
Analysts said the labor agreement could also be costly, with each 10% increase in machinist wages reducing free cash flow by about $260 million in 2026, regardless of the impact on price and productivity.