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--:-- Jessica Mendoza: Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Monday, September 16th.
--:-- Jessica Mendoza: Coming up on the show, Boeing's workers are digging in for a fight. Who will come out on top? To understand the beef between Boeing and its workers, you have to go back to 2008, which is the last time the union negotiated a contract.
--:-- Sharon Terlep: At the time, Boeing was about to put its 787 Dreamliner into production. It had this new plane, and it was deciding where it was going to put work. And in 2008, the union launched a strike that cost Boeing billions and billions of dollars.
--:-- Jessica Mendoza: And so they really had their back up against the wall at that point. The strike helped the union come away with a contract that workers felt happy with.
--:-- Sharon Terlep: The labor group says the new contract protects more than 5,000 factory jobs while preventing the outsourcing of certain positions and preserving health care benefits.
--:-- Jessica Mendoza: But then Boeing pulled a surprise move. A year after the negotiation, the company announced it was moving production of the 787 Dreamliner out of state to South Carolina.
--:-- Sharon Terlep: The airplane maker Boeing announced yesterday that it will build a second production line for its new 787 jet at a facility in North Charleston South Carolina not at Boeing's main factory in suburban Seattle.
--:-- Jessica Mendoza: The move saved Boeing a lot of money because in South Carolina, the workers weren't unionized. This meant the company didn't have to pay the higher union wages and all the benefits.
--:-- Sharon Terlep: It's a right-to-work state. It's not a unionized plant. And ultimately, they would move all the production of the 787 Dreamliner there.
--:-- Jessica Mendoza: Boeing has also said that expanding into another state diversified its manufacturing base and increased capacity.
--:-- Sharon Terlep: But for the union workers in Washington state, this meant not only losing work, but also a lot of leverage when it came to negotiations.
--:-- Jessica Mendoza: So during mid-contract negotiations a few years later, the union agreed to extend the terms of the existing agreement and made further concessions on top of that.
--:-- Sharon Terlep: And so between then and now, there were several waves of concessions that the union agreed to in order to prevent another move of labor like happened with the 787.
--:-- Jessica Mendoza: Some of those concessions were really big. Workers agreed to give up their pension plan.
--:-- Sharon Terlep: And the wage increases the union agreed to fail to keep up with the rising cost of living.
--:-- Jessica Mendoza: Then there are the other issues that have dogged Boeing. First, the MAX crashes.
--:-- Sharon Terlep: And then the incident with the door plug.
--:-- Jessica Mendoza: Workers say this has been demoralizing.
--:-- Sharon Terlep: The argument from workers is like, is you've been cutting costs so we don't have adequate training. We're forced to work too much overtime.
--:-- Jessica Mendoza: And so they very much see it as problems happen because Boeing's not investing in their workforce and that they need to be able to attract and retain people.
--:-- Sharon Terlep: So the quality issue definitely came up. Boeing said that it's taking a number of steps to improve quality, including increased training and hiring new workers.
--:-- Jessica Mendoza: When contract negotiations started again this year, union members were hoping to gain back some of what they'd lost.
--:-- Sharon Terlep: And so what were their key demands this time? Going into union talks, the union leadership said they were demanding a 40% pay increase over four years, much improved retirement benefits, and a commitment that Boeing would build its next new plane in the Seattle area with union labor.
--:-- Jessica Mendoza: Bargaining took place throughout the summer. And last week, Boeing and union leaders reached a tentative deal.
--:-- Sharon Terlep: They just needed to get the rest of the union to sign off too. What were the key features of that deal?
--:-- Jessica Mendoza: It was similar to deals that other suppliers and, for example, autoworkers had reached with their union. It was a 25% pay increase over four years, increased contribution to a 401k plan, and a commitment to build a new plane in the Seattle area.
--:-- Sharon Terlep: But for rank-and-file union members, this contract wasn't good enough.
--:-- Jessica Mendoza: In particular, workers wanted the full pay increase they'd asked for. This 25% was well below the 40%.
--:-- Sharon Terlep: And when they agreed to put more money into the retirement fund, they also did away with an annual bonus.
--:-- Jessica Mendoza: And one of the benefits that workers gave up in these contract talks between now and 2008 was a pension.
--:-- Sharon Terlep: And so the union president said that's a wound that may never go away or that may never heal.
--:-- Jessica Mendoza: So the loss of the pension was so big for these workers, the additional money to a 401k plan just was not meaningful to them.
--:-- Jessica Mendoza: On Thursday union members had to vote on the tentative deal their leadership had reached with Boeing.
--:-- Sharon Terlep: Sharon was outside the hall where union members were showing up to vote. She says the energy was high as workers were casting their ballots.
--:-- Jessica Mendoza: It was a union hall in Renton, which is where Boeing builds the 737.
--:-- Sharon Terlep: There were traffic cones. There were so many people showing up to vote. There were people directing traffic, the halls in kind of a neighborhood, so there were cars lining the street.
--:-- Jessica Mendoza: And people came and they voted and they stuck around. So there was a lot of shouting out to one another, talking to each other.
--:-- Sharon Terlep: Union members overwhelmingly voted to reject the contract and to go on strike.
--:-- Jessica Mendoza: And I talked to dozens of people. I did not find a single person who was voting for the contract.
--:-- Jessica Mendoza: So how'd you vote? I voted for the strike, rejected the contract.
--:-- Worker: Excited to be here, following the crowd. Tell me what you guys are striking for, what this is about for you.
--:-- Jessica Mendoza: They're not really helping much on health insurance like they said they were. It's about getting more. We're trying to get a boost on today's numbers, not numbers from 10 years ago, 14 years ago. Not enough for this economy.
--:-- Worker: The thing that was striking talking to members is they had so many different reasons. You know, they all mentioned the affordability and needing to live and needing to pay their bills.
--:-- Jessica Mendoza: But for some workers, it was the pension.
--:-- Worker: For some workers, they were angry over, you know, the pay that Boeing has given its executives.
--:-- Jessica Mendoza: Some felt they were being unfairly asked to sacrifice because the company made mistakes.
--:-- Worker: Some had very pragmatic reasons.
--:-- Jessica Mendoza: But among older workers, there was a very deep sense of anger and pent-up frustration and of feeling like they had been taken advantage of for a long time.
--:-- Jessica Mendoza: Boeing said that it's working on a new contract offer to address the union's concerns, and that the company's CEO was working on, quote, resetting the relationship with union members.
--:-- Sharon Terlep: The CEO also acknowledged in a letter to union members that Boeing's mistakes contributed to its current situation.
--:-- Jessica Mendoza: Boeing also pointed to a disconnect between the union and its members.
--:-- Sharon Terlep: The president of the union chapter said that union leadership is working to reach a deal that reflects its members' priorities.
--:-- Jessica Mendoza: Now, the workers are behind their picket line, and they're waiting to see what Boeing has to offer them.
--:-- Jessica Mendoza: Boeing and the union are scheduled to restart negotiations tomorrow.
--:-- Sharon Terlep: But because of Boeing's current financial problems, the company doesn't have a lot of room to maneuver.
--:-- Jessica Mendoza: Boeing burned through a billion dollars a month in cash at the beginning. in the first six months of the year, they have $45 billion in debt when the cash that they have is factored in.
--:-- Sharon Terlep: So financially, they don't have a lot of runway to not be building planes.
--:-- Jessica Mendoza: And then in terms of just their customers, the airlines are quite frustrated that they haven't been able to build planes quickly enough and that there have been these quality issues.
--:-- Sharon Terlep: And it's not good for suppliers when production starts and then stops and starts and stops because they have to lay off people and get those people back.
--:-- Jessica Mendoza: So, you know, they have all these problems that are exacerbated when they have to shut down their factories.
--:-- Sharon Terlep: It estimated that the strike could be costing Boeing as much as a million per week.
--:-- Jessica Mendoza: Given the state of its business how long can Boeing afford for the strike to go on?
--:-- Sharon Terlep: So it really depends. One of the questions is are they going to raise money? Are they going to borrow money?
--:-- Jessica Mendoza: You know, there's a question as to, you know, are they going to try to cut other costs?
--:-- Sharon Terlep: So it depends.
--:-- Jessica Mendoza: I think if you look at what analysts are saying, they're saying that anything longer than a week or two could be very bad for Boeing.
--:-- Sharon Terlep: And that probably if it's a strike that lasts within a week or two, then they could deal with it.
--:-- Jessica Mendoza: Earlier today, the company said the strike was jeopardizing its recovery and announced a slew of cost-cutting measures.
--:-- Sharon Terlep: Boeing is going to freeze hiring and is considering temporary furloughs for its employees and executives.
--:-- Jessica Mendoza: It's also going to cut back orders from suppliers for several of its jets.
--:-- Sharon Terlep: The company has also said it's eager to get back to the negotiating table.
--:-- Jessica Mendoza: So does that mean that Boeing will give workers what they want?
--:-- Sharon Terlep: The consensus is certainly the union seems to have more leverage than Boeing at this moment for that reason.
--:-- Jessica Mendoza: Because like it sounds like they can't afford not to give workers what they want at this point. Like they're sort of stuck between a rock and a hard place.
--:-- Sharon Terlep: Yeah. Arguably they can't afford to not right now.
--:-- Jessica Mendoza: So Boeing is in bad shape, but it's also one of only two major plane makers in the world.
--:-- Sharon Terlep: Is Boeing too big to fail?
--:-- Jessica Mendoza: Yeah, I mean, this is certainly different than, you know, what you would have seen in other industries where a company, you know, had even two or three really strong competitors.
--:-- Sharon Terlep: Boeing is the only American aircraft maker right now.
--:-- Jessica Mendoza: Whenever Boeing has issues, one of the things you hear is you can't really, there's not going to be no Boeing.
--:-- Sharon Terlep: I mean, Boeing is going to be here. It's unlikely that we'd see a company like this, you know, disappear or go bankrupt.
--:-- Jessica Mendoza: All that said, they do have a competitor.
--:-- Sharon Terlep: And this competitor is Airbus in Europe.
--:-- Jessica Mendoza: And in the very long run, there are other countries, China included, that are trying to get into the market and make this so it's not, you know, just a duopoly.
--:-- Sharon Terlep: In the long term, there's some fear within the next, you know, they have a backlog, which is planes that, you know, airlines have bought, but they haven't yet made yet that lasts years and years.
--:-- Jessica Mendoza: So there's no danger of Boeing going out of business in the, you know, in the next year or the next two years.
--:-- Sharon Terlep: But certainly they're concerned about a long-term erosion of their position in the world.
--:-- Jessica Mendoza: So Sharon, what's your takeaway? Could this become an existential threat for Boeing?
--:-- Sharon Terlep: You know, it depends on how long it lasts.
--:-- Jessica Mendoza: You know, if this is something where they can't get the union back to the table and this stretches on and on, and they can't find something that is palpable to both the company and the union, it certainly could be.
--:-- Sharon Terlep: I think this is just Boeing's history coming back, and, you know, it's really haunting it.
--:-- Jessica Mendoza: I think, you know, these workers have so much pent-up anger and frustration, and it's really coming back at Boeing right now.
--:-- Jessica Mendoza: This episode has been updated. A previous version incorrectly said that Boeing had stopped production altogether because of the strike.
--:-- Sharon Terlep: The company has only stopped production of its best-selling jets.
--:-- Jessica Mendoza: That's all for today, Monday, September 16th.
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--:-- Jessica Mendoza: The Journal is a co-production of Spotify and The Wall Street Journal.
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--:-- Jessica Mendoza: We're out every weekday afternoon.
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--:-- Jessica Mendoza: Thanks for listening. See you tomorrow.
