Boeing strike strategy ‘baffles’ top aviation analyst. Where do talks go next?

Simone Del Rosario

Boeing and machinists are back at the negotiating table Monday morning after more than a week at a stalemate. The International Association of Machinists said Boeing’s last offer disrespected the entire union after the company released the terms to the public before the union had responded. 

Even then, 80% of machinists rejected the offer that included 30% raises and doubling the ratification bonus to $6,000. 

IAM says Monday’s meeting is another critical opportunity to push for the priorities of their membership, while Boeing’s new CEO told employees getting to a resolution is a priority. 

Non-striking employees are also taking hits. Tens of thousands are facing rolling furloughs as Boeing bleeds cash from the strike and lack of production. 

The 737 MAX is a big revenue driver for the company. Deliveries are already behind schedule and the strike is halting all progress. 

On the fourth week of this strike, I want to bring back top aviation analyst and Managing Director of aerodynamic advisory, Richard Aboulafia. Richard, we spoke when the strike had pretty much just started, and you know, maybe I do want to put you on the spot here, but you thought that it would be pretty quick, obviously, entering our fourth week now, are you surprised at the length of the strike?

Richard Aboulafia: Yeah, I really am, and I feel a little embarrassed because I did indeed say this would be brief. I thought the arrival of new management, new management with a lot of experience and understanding in the industry, would make things different, but that doesn’t appear to be the case at all, I’m afraid.

Simone Del Rosario: Yeah, I guess understanding in the industry doesn’t necessarily equate to being very good at labor relations. I’m curious your opinion on this, based on your comments and other people’s comments about Kelly Ortberg, really thought that this would be someone who would be able to bring these two groups together, but it appears that the company made a huge misstep in the last offer after they, you know, sent it out to the public before hearing back from the negotiating team. Do you think that that was something that was ortberg’s decision, or do you think that he was influenced by the long standing culture that we’ve seen at Boeing.

Richard Aboulafia: You know, I wish I knew for sure the first time around. Of course, it was perfectly understandable, because they did have an agreement with the I am 751, management, and it appeared everybody kind of underestimated the level of grievance and and hostility in in the rank and file, the understandable grievances that have built up over a decade and a half or more of mistreatment. But the second time was a complete Baffler. It really was. It’s possible that, you know, Ortberg just comes from a very different culture, or just doesn’t quite understand what’s going on here? Or it’s possible that he was blindsided by the institutional, confrontational approach that Boeing management has taken, maybe even the board. You know, it’s just impossible to say at this point, I’m afraid.

Simone Del Rosario: But what happened really did feel like Boeing culture of old, when I know that they’re trying to move into a different direction now that both parties are back at the negotiating table after more than a week at a stalemate, and they’ve got federal negotiators there in the middle of it, do you think that the next contract that we see, the next contract offer, will be the winner? 

Richard Aboulafia: I sure hope so. I mean, that’s the thing this. This is absolutely not something that should be stuck. You look at the role of what we call touch labor in the manufacturing process, it’s maybe five 6% of the cost of an aircraft. And not only that, but there are various inflationary pass through provisions in sales contracts. So even if they did boost wages by 40% or so, this wouldn’t really show up in terms of commercial competitiveness. The only possible area of the only possible sticking point is if Boeing absolutely doesn’t want to provide a structured pension program, and the workers insist upon it, that’s about the only thing I could think of that would prevent two sincere parties from reaching a relatively quick agreement.

Simone Del Rosario: But that demand is one on the labor side that they haven’t had success in in other industries. You know, Boeing employees lost their pension a decade ago to be able to get it back when pensions are, you know, largely a thing of the past. Less than 10% of workers have one today. Do you do envision that Boeing would come to the table with some sort of pension agreement?

Richard Aboulafia: No, you know. I think you know. The problem, of course, with a pension is that in the cyclical industry, you have all these big costs you have to keep paying. And as the car companies found out, that can be disastrous. On the other hand, if you really do believe, as I hope Boeing management would, that there is a pretty strong long term future for this industry without maybe some of the crazy cycles we’ve seen in the past. And you also believe that good labor relations and talent retention are a strategic priority. You might even regard a structured pension program as a form of competitive enhancement for the company, but that would require a big leap of faith, if you will.

Simone Del Rosario: How much longer can Boeing withstand this strike?

Richard Aboulafia: You know, they’re burning through a lot of cash, right? Yeah. The talk right now is whether or not they’ll do a ten billion equity raise, as some people have posited they should. It. They probably could do that. It might not be the easiest sell for investors, but Well, Boeing is, Boeing is a blue chip, so they could probably pull it off. Other than that, you know, I can’t imagine any thing that would prevent the company from going the full, I don’t know, two months that you’ve seen for the maximum duration of a strike at this time. But then again, given all the cash that’s not coming in and all the pain they’re causing their suppliers, you have to ask, Why? Why can’t this be settled? 

Simone Del Rosario: And you’re talking about the financial situation you mentioned, the possibility of a stock sale. And, you know, I think the company would want to have a resolution to the strike before raising that type of capital. Um, you know, what about their credit rating? What about what else is going on behind the scenes? I mean, this is there’s a lot at stake here with Boeing as it continues to bleed cash and 10s of 1000s of workers not affiliated with the striker also being furloughed.

Richard Aboulafia: Yes, that’s right, because, of course, when they stop ordering things and halt the production ramp that somebody at their suppliers had been facilitating for and taking out, you know, loans for and hiring people for, it’s extremely damaging to an awful lot of companies and jobs in the industry, you know, it’s, it’s not a it’s, it’s not a happy story, I think, you know, from Boeing’s standpoint, just looking at their own concerns, you know, the cost of any increase in wages and whatever else, nothing like the damage in cash that’s not coming in from from deliveries.

Simone Del Rosario: Yeah, well, we’ll continue to watch this closely. It doesn’t sound like we have enough of a resolution or confidence right now, Richard, that you know an agreement will be reached soon, but certainly hope that there will be one, right? 

Richard Aboulafia: Yeah, we certainly do, you know, and the mistakes made with the last offer were so obvious. Yeah, you know that hopefully, if they do things different this time, that can all be avoided and maybe get to a quicker a quicker resolution.

Simone Del Rosario: Yeah, it is strange, the timeline we’ve gone through right now, from a negotiated offer being put to the workers that the union agreed upon to that turning into a strike, to turning into, you know, a lot of animosity toward the next offer and what happens there. So now they’re back at the table, and we’ll just have to follow it really closely. Managing Director of aerodynamic advisory, Richard Abu Lafia, thank you so much for your expertise. 

Richard Aboulafia: My pleasure. Thank you.