After a 52-day strike, Boeing Co. (NYSE: BA) has reached a tentative deal with its 27,000 member machinists union. Tentative details suggest that workers will get a 15% wage increase over three years, an $8,000 bonus over four years, and a freeze of medical costs at 2005 levels. Furthermore, the new contract limits the amount of work that can be outsourced and will last a year longer than the previous pact. But even though the contract has not been ratified, this is good news for Boeing and its workers.
Limiting outsourcing could be good for Boeing and the workers depending on how it's accomplished. One of the reasons for the delay in delivering its very popular 787 aircraft was that Boeing outsourced the majority of the design and manufacture of the components and later discovered that it was not doing enough to manage those subcontractors. As a result, Boeing suffered unpleasant surprises in its delivery schedule.
If Boeing and its machinists agreed to give the union a chance to bid on work under consideration to be outsourced, then both parties might be better off. That's because if the union offered a competitive price and excellent quality, Boeing would likely find it easier to manage its union workers than those of a subcontractor located half way around the world.
The strike has cost Boeing about $100 million a day -- which will total over $5.2 billion by the time workers go back to their jobs. And those workers who average $56,000 a year got only $150 a week during the strike -- costing them an estimated $200 million in lost wages -- ($1,077 average weekly pay - $150 weekly strike pay) x 8 weeks on strike x 27,000 workers. And now Boeing faces another labor challenge -- its 20,000-member engineering union, the Society of Professional Engineering Employees in Aerospace (SPEEA's) contract is due to expire on December 1.
Meanwhile, Boeing stock has fallen 52% this year, under-performing the S&P Aerospace Index which fell 44%. Unfortunately, it is likely that the strike will add months to the already 16-month delayed 787. If Boeing can avoid a new strike with SPEEA, maybe its stock will begin to recover the lost ground.
With Boeing up 9% in early trading, I think its CEO, Jim McNerney, should make a big buy of Boeing stock today to show his confidence in the company's future.
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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