The Boeing machinists' strike ends, paving the way for a lengthy recovery

On the eve of the country's presidential election, another important contest was decided, which was also marked by sharply divided camps. Fifty-nine percent of members of District 751 of the International Association of Machinists voted to accept Boeing's recent offer of a 38 percent wage increase along with other concessions and return to work.

The 53-day shutdown closed Seattle-area factories that assemble Boeing 737 and 777 planes and halted deliveries along the industry's complex supply chain. Workers will begin returning Nov. 6, but it will be months before aircraft deliveries resume in any meaningful way. Even then, Boeing will continue to lag behind rival Airbus in delivering aircraft variants for years into the future as regulators have imposed production and certification restrictions after years of accidents and quality incidents.

In addition to a wage increase, workers received a $12,000 ratification bonus, a 13 percent wage increase beginning immediately, a guaranteed 4 percent annual bonus, and enhanced health insurance and 401k contributions. This last point presented a major obstacle to an agreement, as the union demanded a return to the performance-based program it had enjoyed until the last contract in 2014.

Why had the union accepted the loss of this rare survivor benefit? Few companies still offer defined benefit plans to their employees for the simple reason that they are very expensive and the costs are borne by the employer, while the profits in 401K programs come from the market.

The 2014 agreement was narrowly approved by the union in return for Boeing agreeing to build its next plane in the Puget Sound area. In the early 2000s, Boeing had decided to move assembly of its then-new 787 aircraft to a non-union plant in Charleston, South Carolina, following a pattern of automakers moving production from Detroit had relocated to the southeast for similar reasons.

The concession made sense at the time, but over the past decade two key factors have changed the landscape. First, the cost of living in the Seattle area skyrocketed with the rise of Amazon and other tech giants. Second, Boeing's next new aircraft, the 777X, has been hampered by ongoing delays in development and certification. Originally scheduled for initial delivery in 2020, Boeing announced in late October that certification would occur in 2026 – a forecast that few in the industry believe can be met.

Therefore, in recent negotiations, one side was adamant about the need for wage reimbursement, while the other side suffered from the existential challenges that began in 2018 with the double 737MAX crash that killed everyone on board. Instead of quickly responding to demand in mid-September, Boeing went through a series of offers, from a 25 percent increase to the 38 percent accepted on November 4th – burning through over $2 billion in cash large airline customers such as B. Southwest and Ryanair have created a gridlock that will impact the supply chain for months or longer.

Not surprisingly, the union also demanded a commitment to build the next new aircraft in the Seattle area, if it happens within four years.

Nevertheless, the decision is an important basis on which the new CEO Kelly Ortberg can move forward. In late October, the company raised $25 billion in new credit and debt agreements to ease a liquidity crisis that will last at least a year. With a backlog of more than seven years and airlines clamoring for planes to meet resurgent demand after the pandemic, the strategy is clear: produce planes, make a profit on every unit delivered and get out of the financial hole in which Boeing is located.

And along the way, Mr. Ortberg must realign the company's culture so that quality, not profit, comes first, while reducing the number of 170,000 employees by 10 percent. One of the means to achieve this goal is to return the company's primary focus to its core business of developing and producing aircraft that will successfully compete with those of Airbus and China in the long term.

Many of the aviation services companies acquired in the early 2000s when Boeing tried to diversify are expected to be sold. Due to the lack of new aircraft in the system, older aircraft that would normally be retired are now being forced to fly longer, resulting in increased maintenance, repair and overhaul costs. This market is booming and Boeing will be fortunate to be a seller in a seller's market.

It is important for the country and the global economy that Boeing succeeds in this endeavor. Yesterday's resolution was the first decisive step on this path.