Boeing's turnaround just got even more difficult. Here's why

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CNN
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Boeing's problems go back years, if not decades. And it has become much more difficult to repair them.

In addition to the spate of safety incidents that have tarnished the company's public image, raised quality concerns, sparked numerous investigations and led to a reshuffle of executives – including a new CEO – the plane maker is grappling with a costly and protracted strike at factories in Washington state .

New CEO Kelly Ortberg said ending the strike, which has brought production of Boeing commercial jets to a near standstill, is a top priority and a key to resolving the company's 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 more difficult than ever.

Problems with the quality and safety of Boeing aircraft have been well documented over the past five years. Numerous company whistleblowers and outside analysts say these problems resulted from Boeing cutting corners and prioritizing production speed over quality and safety.

Now it appears that the company's demands in good economic times that its largest union forego a pension plan or risk losing their jobs are sparking backlash from employees and fueling a prolonged, costly strike.

The union rejected the offer on Wednesday The vote would have given striking workers an immediate 12% wage increase, additional wage increases of 23 percentage points over the next four years, a $7,000 bonus upon ratification and enhanced contributions to their 401(k) plans, as well as some job security guarantees .

However, the traditional pension plan that union members at the company lost a decade ago was not restored when the company threatened to build new, non-union factories to handle much of their future work. That loss, at a time when the company was doing well financially but still wanted more from its employees, still fuels the anger that was evident in the vote.

“This membership has been through a lot,” Jon Holden, president of the largest IAM local group at Boeing and chief IAM negotiator, said at a news conference late Wednesday, shortly after the vote was announced. “There are some deep wounds (caused by) some takeaways and concessions, threats of job loss. Our members have not forgotten that.”

Traditional pensions are so-called defined benefit plans. They pay a fixed amount every month to retirees or their spouses for as long as they live.

If the assets included in the plan lose value due to market or other problems, it is the company's responsibility to pick up the slack. With a 401(k) plan, called a defined contribution plan, the investment risk lies with the retiree. Retirees can even outlive their assets.

The desire to shift risk to employees rather than a company's bottom line has led to the disappearance of most private sector defined benefit plans over the past 45 years. According to data from the Employee Benefit Research Institute, only about 8% of workers in U.S. companies have benefit plans available today, down from 39% in 1980.

Traditional pension plans are “one of the hallmarks of retirement security,” Holden said Wednesday evening. “It wasn’t right to take it away. It’s a fair fight to try to get it back.”

But no union that lost a traditional pension plan ever managed to negotiate a return of the plan. The United Auto Workers union also lost plans for workers who had been employed by General Motors, Ford and what was then Chrysler since 2007.

When it went on strike against GM, Ford and Chrysler successor Stellantis a year ago, one of its demands was the return of those pension plans. But even though the company won record contracts from all three automakers, it failed to recoup the rents. In a press conference during the strike, Ford Chief Financial Officer John Lawler called the union's proposed traditional pension plans “a plan of the past.”

These three car companies reported record profits. However, Boeing has reported core operating losses of $39.3 billion since 2019, after two fatal crashes of its 737 Max led to a 20-month grounding of its best-selling plane and losses in almost every quarter since.

Boeing flatly ruled out a return of pension plans in a statement last week ahead of the offer, which union members had just rejected.

“There is no scenario in which the company reactivates a defined benefit pension for this or any other population,” the company said Oct. 15. “They are prohibitively expensive and that is why virtually all private employers have switched from them to defined benefit pensions. Contribution plans.”

Holden wouldn't rule out striking a deal that doesn't involve a traditional pension plan, saying the company is open to trying a hybrid plan that offers members some type of defined benefit. However, he said that Boeing had not considered a return to a pension plan so far in negotiations.

“If they’re not willing to give it, we’ll have to get something to replace it,” he said. “So it comes down to wages, it comes down to 401(k) plans. It depends on possible other performance-oriented options that we are willing to pursue. We will put all our cards on the table, be creative.”

Boeing declined to comment on the union vote Thursday. Ortberg, who only took over as Boeing CEO on August 8, said earlier on Wednesday that ending the strike was “very much on everyone’s lips.”

The company needs a fundamental change in its culture, he said while reporting third-quarter results but before the final vote, and he said again he wanted to “reshape” the relationship between the union and the company. But he also acknowledges that a change in culture, which he has not outlined, will be difficult and take years to achieve.

“We are clearly at a crossroads. Confidence in our company has been shaken,” he said. “We have too much debt. We experienced serious performance deficiencies across the company that disappointed many of our customers. We have employees who are eager to return to the legendary company they know.”