Boeing machinists strike, halting aircraft production

James Gunsalus

Friday, Sept. 2, 2005 | 9:31 a.m.

Boeing Co.'s 18,300 machinists went on strike for the first time in 10 years after rejecting the company's wage and benefit offer, shutting down production at the world's biggest aircraft maker.

Boeing's offer of a 10 percent increase in pensions was "dead wrong," said Mark Blondin, an official at the International Association of Machinists and Aerospace Workers in Seattle. The union had demanded 33 percent more, and also opposed a proposal for higher employee health-insurance costs.

The strike may cost Boeing as much as $70 million a day in lost revenue, according to Morgan Stanley analyst Scott Babka in London. Chicago-based Boeing in May surpassed Airbus SAS in orders this year for commercial jets. The union says Boeing's resurgence gives it money to spend on workers.

"The longer the strike, the worse it will be for Boeing," said Norbert Kretlow, an analyst in Frankfurt with Independent Research, which doesn't rate Boeing shares.

Shares of Boeing fell $1.41, or 2.1 percent, to $64.58 at 9:34 a.m. in New York Stock Exchange composite trading. Before today, they had risen 27 percent this year.

The strike, the first against Boeing since engineers walked off the job in 2000, includes workers in Seattle; Portland, Ore.; and Wichita, Kan., with most located in the Seattle area, Boeing's original home. The company moved to Chicago in 2001. Machinists last went on strike in 1995, when they were out for 69 days.

"This strike did not have to occur," Blondin, president of Machinists District 751, told workers at the union's Seattle headquarters. "We made our top issues clear months ago and simply asked Boeing to do the right thing for their workforce."

The strike was approved late yesterday by 86 percent of its membership, Connie Kelliher, a union spokeswoman, said in an interview from Seattle.

Boeing said this week that the walkout may cause delivery delays that would give Airbus an advantage in its marketing campaigns for new jet sales.

The 40-day strike by engineers cost the company about $2.6 billion, or $60 million to $70 million day, Morgan Stanley's Babka said in a telephone interview. "An extended strike would have an impact on this year's numbers," he said.

Boeing's shares dropped as much as 32 percent in 2000 when the 19,000 engineers staged one of the largest white-collar walkouts in U.S. history.

"While a strike of a couple of weeks might be doable, some kind of accommodation would have to be reached," said Richard Aboulafia, an aerospace analyst at Fairfax, Va.-based Teal Group. "If Boeing does cave and give them something like what they want, it will be a bit of a hollow victory because in the long run it will probably result in increased outsourcing."

"We don't intend to assemble airplanes during this strike, yet we will continue focusing on support for our customers and their in-service fleets," Boeing spokesman Charles Bickers said in an e-mailed statement.

Hainan Airlines Group Co., China's fourth-largest airline group, expects to take delivery tomorrow of the first of six Boeing 737-800 planes on order.

"It is stated in the contract that Boeing needs to compensate us for losses if there are delays," said Ren Weidong, purchasing manager at the carrier, of which U.S. financier George Soros owns 14.8 percent.

Chinese President Hu Jintao plans to make a speech at a Boeing factory in the Seattle area Tuesday as part of his first U.S. visit as president, according to China's Foreign Ministry.

Boeing offered to pay retirees $66 a month for each year they worked at the company, while the union had demanded $80. Under the expired contract, retirees got $60.

Boeing "could easily afford a $20 increase," union leaders said in a statement to members, whose average age is almost 50. Higher medical premiums and drug costs and revised rules allowing for fewer workers also led to the strike.

The company offered workers four health-care plans with premiums costing between $20 and $210 a month for families and between nothing and $70 a month for individuals. Workers enrolled in a preventive-health program would get a $20 monthly discount. New hires wouldn't get retiree health-care benefits.

Machinists paid 4.5 percent of their monthly health-care premiums under the old contract, according to Boeing.