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March 20, 2014 at 07:34 AM
Its bald-faced, bare-knuckled display of corporate muscle shocked and infuriated many, but ultimately it worked for Boeing Co. With the willing assistance of Washington state political leaders, the highly profitable aerospace giant shamelessly bullied Machinists union members into a corner and twisted their arms into accepting a new contract that ends their traditional defined-benefit pension.
The sad truth is that Boeing’s successful strategy will become a template for other private sector companies offering defined benefit pensions, no matter the size of their profit margins.
It’s not that the members of the International Association of Machinists and Aerospace Workers caved, exactly. The contract was approved by a razor-thin margin – 51 to 49 percent. And it’s not that their contract was about to expire – this is an eight-year extension of a pact that runs to 2016. And it’s not that Boeing – a manufacturing marvel that’s one of the world’s two dominant aerospace companies – is in trouble and needed the workers’ concessions to survive.
Quite the contrary. Boeing’s decision to play hardball comes at a time of unprecedented prosperity for the company. Its 2013 net income is expected to be a record $5 billion. It closed the year with its shares up nearly 81 percent, by far the biggest gainer among the Dow Jones Industrial Index’s top 30 stocks. In December, Boeing raised its dividend on shares by 51 percent – which will put about $2.2 billion into the pockets of its shareholders next year. The company also announced a $10 billion stock buyback, further enriching shareholders.
Boeing’s strategy was to issue the kind of threat that could only be made in the current economy. It was a threat that made Washington state officials tremble and Boeing employees fear for their jobs.
Without concessions from the machinists and tax incentives from the state, Boeing said it would move thousands of jobs out of Washington to a new plant elsewhere to assemble the next generation of passenger jet – the 777X – and to construct an advanced, composite airplane wing.
So state lawmakers approved a stunning $8.7 billion in tax breaks – thought to be the largest corporate incentives package on record – to ensure that 777X production stays in Washington. And at a news conference shortly before the machinists’ vote, a half-dozen elected officials publicly urged the machinists to agree to concessions and sacrifice their DB plan for the “good of the community and our economy.”
The pressure mounted when no less than 22 states jumped at the chance to land the Boeing 777X facility, even though the demands in Boeing’s RFP (which was leaked to the media) were formidable. The company wanted land, building and facilities estimated to cost $10 billion – but it expected that site to be provided at “low or no-cost.” Boeing wanted infrastructure improvements, tax breaks and other incentives as well.
