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Although Boeing Inc. (NYSE: BA) won a recent victory in its battle to delay the competition for a $35 billion Air Force airborne tanker, it faces a lengthy strike with its machinists -- one that could last as long as two months. If estimates by BusinessWeek prove accurate, the strike could take between "30 and 65 days" to be resolved. That could cost Boeing as much as "$2.3 billion in revenues this quarter," according to Business Week.
The strike could be costly to workers as well. And a 65 day strike would cost its 27,000 International Association of Machinists (IAM) workers as much as $241 million in lost pay. (This assumes that IAM workers get paid nothing the first two weeks and then earn $150 a week for the remaining 7.2 weeks of a 65-day strike compared to the $56,000 annual pay they would have received had they continued working).
It looks like the IAM's primary bone of contention is Boeing's desire to maintain the flexibility to outsource work. But, as I posted, IAM has six specific complaints. And it does not like what it saw as Boeing's efforts to go over the heads of IAM leadership by communicating directly with workers. But ultimately, it appears that for workers it is about whether or not they will have a job in the future.
Meanwhile, it seems to me that Boeing should grab the rope that IAM has tossed it and get back to the bargaining table. What rope? IAM has proposed that Boeing give IAM a chance to bid on work that it wants to outsource, according to the Wall Street Journal. If IAM can make a competitive bid, Boeing would have the option to accept it. If not, Boeing could go to the best bidder. I like this idea because -- as the lengthy production delay in the 787 demonstrates -- outsourcing can add to a company's cost of coordinating with its partner.
If that coordination cost is greater than the lower prices that partner charges -- compared to in-house workers -- then outsourcing subtracts from profits rather than adding to them. Boeing shareholders would be better off having the option to consider a bid from in-house workers. Obviously, the devil is in the details; however, if such a bid made its customers, shareholders, and workers better off, Boeing could accept it. Otherwise it could outsource.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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