Boeing’s turnaround just got even harder. Here’s why
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Problems at Boeing go back years, if not decades. And they just got a lot harder to fix.
In addition to the spate of safety incidents that has undermined the company's public image, raised worries about quality, sparked numerous investigations and led to a shakeup of executives, including a brand new CEO, the aircraft manufacturer is battling a costly and lengthy strike at its Washington state factories.
Members of the International Association of Machinists just rejected Boeing's offer to return to work after a bruising six weeks of strike action.
The strike is costing the company around $1 billion a month, according to an estimate from Standard & Poor's.
Boeing this week reported a $6 billion third-quarter loss, one of the largest quarterly losses in the company's history.
Boeing also warned investors that losses will continue for at least another year.
New CEO Kelly Ortberg said ending the strike, which has brought Boeing's commercial airplane production to a near halt, was a top priority and a key to fixing its financial problems.
But with 64% of IAM members voting no on the company's latest offer, getting a once-great American company back on track appears harder than ever.
Emphasis on profits proves costly
Problems with the quality and safety of Boeing's planes have been well documented over the past five years. Numerous company whistleblowers and outside analysts say those problems came from Boeing cutting corners and putting speed of production ahead of quality and safety.
Now it appears that demands the company made during good financial times that its largest union forfeit a pension plan or risk losing their jobs is spurring backlash from employees and fueling a longer, costly strike.
Volunteers tally votes on a new contract offer from Boeing Wednesday night at a union hall in Seattle.
Lindsey Wasson/AP
The offer rejected in Wednesday's union vote would have provided striking workers with an immediate 12% wage increase, another 23 percentage points of wage hikes over the next four years, a $7,000 bonus upon ratification and improved contributions to their 401(k) plans, as well as some job security guarantees.
But it did not restore the traditional pension plan that union members at the company lost 10 years ago, back when the company was threatening to build new nonunion factories to handle much of their future work. That loss, from when the company was doing well financially but wanted even more from its workers, still feeds an anger that was apparent in the vote.
"This membership has gone through a lot," Jon Holden, president of the IAM's largest local at Boeing and its chief negotiator, said at a press conference late Wednesday just after the vote was announced. "There are some deep wounds that were (caused by) some takeaways and concessions, threats of job loss. Our members haven't forgotten that."
Why traditional pension plans matter
Traditional pensions are what's known as defined benefit plans. They pay a set amount every month to retirees or their spouse as long as they live.
Picket signs outside the Boeing factory in Everett, Washington, on the first day of the strike against the aircraft maker.
M. Scott Brauer/Bloomberg/Getty Images
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Boeing union members are angry they lost their pension plan. They're not likely to get it back
If the assets in the plan lose value due to the market or other problems, it's up to the company to fill the gap. A 401(k) plan, known as a defined contribution plan, puts the investment risk on the retiree. Retirees can even outlive their assets.
The desire to shift risk onto employees and away from a company's bottom line has led most private sector defined benefit plans to vanish over the last 45 years. Defined benefit plans are only available to about 8% of workers at US businesses today, according to data from the Employee Benefit Research Institute, down from 39% in 1980.
Traditional pension plans are "one of the hallmarks of retirement security," Holden said Wednesday night. "It wasn't right to take it away. It's a righteous fight to try to achieve it back."
Tough road to win back pensions
But no union that has lost a traditional pension plan has ever been successful in negotiating a return of the plan. The United Auto Workers union also lost the plans for workers hired at General Motors, Ford and what was then known as Chrysler since 2007.
When it went on strike against GM, Ford and Chrysler successor Stellantis a year ago, one of its demands was a return of those pension plans. But while it won record contracts from all three automakers, it did not win back the pensions. In a press conference during the strike Ford CFO John Lawler called the traditional pension plans being sought by the union "a plan of the past."
A volunteer holds a vote to reject a new contract offer from Boeing during vote counting Wednesday.
Lindsey Wasson/AP
Those three auto companies were reporting record profits. Boeing, however, has reported core operating losses of $39.3 billion since 2019, after two fatal crashes of its 737 Max caused a 20-month grounding of its best selling plane and a losses in almost every quarter since then.
Boeing flatly ruled out a return of the pension plans in a statement last week ahead of the offer that the union members just rejected.
"There is no scenario where the company reactivates a defined-benefit pension for this or any other population," said the company on October 15. "They're prohibitively expensive and that's why virtually all private employers have transitioned away from them to defined-contribution plans."
Is there a solution?
Holden wouldn't rule out reaching a deal that doesn't include a traditional pension plan, saying the company is open to try a hybrid plan that provides some kind of defined benefit for members. But he said so far in negotiations Boeing hasn't entertained any kind of return to a pension plan.
"If they're not willing to give it, then we have to get something that replaces it," he said. "So it does come down to wages, it comes down to 401(k) plans. It does come down to potential other defined benefit options, which we are willing to do. We're going to put all cards on the table, be creative."
Boeing declined to comment Thursday on the union vote. Earlier in the day Wednesday, Ortberg, who only assumed Boeing's CEO job on August 8, said that ending the strike was "first and foremost on everybody's mind."
Boeing's new CEO Kelly Ortberg, left, visits the company's plant in Everett, Washington, in August soon after starting work as CEO, and ahead of the strike by union members that started September 13.
Marian Lockhart/Boeing/Handout/Reuters
The company needs a fundamental change in its culture, he said when reporting third-quarter results but before the final tally of votes, and he again said he wants to "reset" the relationship between the union and the company. But he also admits that change in culture, which he didn't spell out, will be difficult and take years to achieve.
"We're clearly at a crossroads. The trust in our company is eroded," he said. "We're saddled with too much debt. We've had serious lapses in our performance across the company, which has disappointed many of our customers. We have employees who are thirsty to get back to the iconic company they know."
