3.8 C
New York

Analysis: Machinists Vote Helps Boeing Avoid Hiring Crunch

In clinching a deal with its machinist workers on Friday that will keep jetliner manufacturing in the Pacific Northwest, Boeing Co (BA.N) may not only have secured industrial peace until 2024 and brought its pension costs under control – it has also avoided facing a recruitment nightmare.Machinists vote

Thousands of machinists in Seattle and Everett, Washington, and Portland, Oregon, voted by a slim margin to approve a contract extension that guarantees Boeing’s new wide-body passenger jet, the 777X, will be built by them in the region. The result was announced late on Friday night.

Had the workers rejected the deal, Boeing was considering 54 alternate locations in 22 states for a $10 billion factory that would eventually employ 8,500 people.

But had Boeing moved the location, it would have faced intense competition for workers – chiefly machinists and engineers – that has crimped the U.S. aerospace and defense industry for years.

The shortfall helps explain why Boeing kept negotiating even after an earlier offer was rejected by the machinists and as it courted other states.

The industry is undergoing a historic boom in aircraft production at a time when a major wave of workers is ready to retire. More than one million engineers, for example, about 30 percent of the U.S. industry’s total engineering work force, will be eligible to leave in the next five years, according to a study by Deloitte.

“The number one challenge right now is work force,” said William Hosack, chief executive of Singularity Prime, a Connecticut-based consulting firm that works with aerospace manufacturers and suppliers.

A new jet assembly plant Boeing’s rival, Airbus, plans to open in Alabama next year is adding to the competition. Not only does the Airbus factory need machinists like those Boeing has in Washington state, but the plant’s future suppliers also are looking for workers, he said.

“The Airbus location is sucking up a lot of people from neighboring states like Florida, Louisiana and Mississippi,” Hosack said. “Washington has a surplus, but the South does not.”


Recruitment problems for a new plant could easily raise the cost of setting up new production lines, whether in additional wages paid, training costs or delays in getting planes built.

Boeing also received a package of tax incentives in Washington worth an estimated $8.7 billion to the state’s aerospace industry. While other states made substantial offers of tax credits and grants, the estimated $10 billion cost of setting up a new factory in another state, and the cost of hiring, probably would have outweighed the value of those packages.

In exchange for guaranteed work on the 777X, the machinists agreed to allow Boeing to end pension contributions after 2016, which will help reduce its overall pension costs, estimated at $3.2 billion in 2013. They also agreed to a contract that lasts from 2016 to 2024, virtually guaranteeing they will not be able to strike because under the contract, strikes are allowed only after it expires.

Pensions already earned will still be paid, but no additional money will go into the accounts. Instead, Boeing will pay into a defined-contribution retirement savings account. Boeing’s contributions will start at 10 percent of an employee’s gross earnings and fall to 4 percent by 2019.

Boeing’s move to eliminate the pension was seen by union members as a hardball move. The company is posting healthy profits, its stock price is at record highs and Boeing recently rewarded shareholders by raising its dividend and allocating $10 billion to buy back stock.

Nearly 80 percent of aerospace and defense companies responding to a recent industry survey have already eliminated defined-benefit pension plans.

The 41 companies surveyed range from publicly traded giants such as Boeing, Lockheed Martin Corp (LMT.N) and Northrop Grumman Corp (NOC.N) to smaller enterprises such as Elon Musk’s SpaceX. The annual survey was conducted by Aviation Week magazine in association with the Aerospace Industries Association, the American Institute of Aeronautics and Astronautics and the National Defense Industry Association.


To be sure, the weakness of the U.S. economy in recent years has slowed retirements and automatic cuts in U.S. government spending are curbing defense work, allowing some workers to move to commercial aircraft plants.

Aerospace companies also are using more robots to rivet, paint and assemble, much like automakers did. That makes production more portable and less dependent on machinists.

But Boeing’s 777 is still largely hand-built and its successor, the 777X, will have carbon-fiber wings made with different skills than those used to build aluminum wings.

“What’s broken the fall for the time being is the recession and sequestration,” said Tom Captain, head of the global aerospace and defense practice at Deloitte. “The problem is we’re not bringing in as many new people as are needed,” he said.

This year, for example, aerospace and defense companies plan to hire 17,000 workers, after hiring an estimated 22,000 last year, according to the industry survey.

But roughly one-third of the companies surveyed last year said they had shortages in hiring product development and manufacturing workers. Nearly one-quarter of companies with employee shortages said their production lines were hit most severely as a result, and they ranked hiring as the biggest constraint on their ability to expand.

Hiring pressure is expected to grow as the industry undergoes a wave of retirements. There is a big bulge in the over-50 age bracket, with many eligible to retire.

At the same time, younger workers with software and technical skills are bypassing the industry, and many who have entered have left after a few years for technology, biotech, energy and start-up companies, according to the survey.

Complex new aircraft made with carbon-fiber composites and sophisticated electrical and computer systems need workers who understand those technologies.

But many younger workers best trained for the jobs are leaving, or avoiding the industry altogether. While aerospace salaries are rising, those for the most skilled still lag far below the tech industry.

Starting software engineers in aerospace made about $65,000 in 2012, compared with a base salary of $114,000 at Apple Inc (AAPL.O), the latest figures available, according to the Aviation Week survey.

“There’s a stigma for young engineering grads that says aerospace and defense may not be their best opportunity for a career,” said Deloitte’s Captain.

Instead, they’re going to Silicon Valley or Wall Street, where their skills are transferable and the pay is better.

Said Captain: “If you’re coming out of college and have the opportunity of working for a conservative industry… versus a young, vibrant fast-moving company, you’re going to choose the latter.”

(This story was corrected in paragraph 15 to “eliminated defined-benefit” instead of “eliminated defined-contribution”)

(Reporting by Alwyn Scott; Editing by Martin Howell and Dan Grebler)

Latest news
Related news