Boeing Caught Up in FedEx Labor Spat

FedEx has said that if a bill related labor organizing is approved, it will not take delivery of 30 Boeing 777 freighters it has conditionally ordered.
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FedEx (FDX) - Get Report is challenging Congress, and Boeing (BA) - Get Report is caught in the middle.

In a filing this month with the

Securities and Exchange Commission

FedEx -- concerned about

pending congressional legislation that could alter its legal status relative to labor organizing

-- said that if the bill were approved, it will not take delivery of 30 Boeing 777 freighters it has conditionally ordered. The order is worth $6.75 billion, estimates Avondale Partners.

It's not the first time that aircraft orders, at both Boeing and


, have been held hostage to labor issues, although the disputes have typically involved pilot contracts. In 1983,



linked orders for McDonnell Douglas MD-80s to creation of a B-scale for pilots. In 1997,

US Airways


linked orders for up to 400 new Airbus jets to contract changes. The airline is still taking deliveries.

In the case of Air Canada in 2005,


(DAL) - Get Report

in 1999 and American today, pending orders for Boeing aircraft have been predicated on agreements on rates to fly the aircraft type.

It is rare, however, for a commercial aircraft order to be contingent upon an act of Congress.

Most organizing at FedEx currently falls under the Railway Labor Act, which requires companywide employee voting, which is challenging for unions. By contrast, organizing at competitor


(UPS) - Get Report

falls under the National Labor Relations Act, which allows workers to organize on a location-by-location basis. The pending legislation would place much of Fed Ex -- the part not directly connected to its airlines -- under the NLRA.

That would make it far easier for unions to get a foot in the door. The Teamsters represent 240,000 UPS workers and have sought for years to organize at FedEx.

Enhanced organizing could subject FedEx to "local disruptions which would stop the flow of interstate commerce, which is contrary to the Railway Labor Act," says spokesman Maury Lane. "As responsible business managers, there's no way we can enter into an agreement (without) certainty about our ability to fully utilize these aircraft."

Boeing declined to comment for this story. But Tom Buffenbarger, president of the International Association of Machinists, which represents 27,000 Boeing workers, said those workers and Boeing should not be drawn into this fight.

"Why throw us under this bus?" he says. "We have nothing to do with the Teamsters and FedEx."

Buffenbarger says FedEx ordered Boeing planes because those planes "offer the best value for the dollars they have to spend. If I were on the board of FedEx or an investor in FedEx, I would want to know what is the best business decision and isn't that what FedEx should concentrate on?"

If it doesn't order from Boeing, Buffenbarger says, FedEx would have to order from Airbus "and those airplanes would be made in Toulouse (France)," where Airbus is based.

Lane says FedEx has already "made a choice to buy the U.S. airplane, to buy the 777 rather than the (Airbus) 380s," and in fact is taking 15 aircraft starting this year. The 30 airplanes in question -- half on firm order, half on option -- would be delivered between 2012 and 2017.

Cancellation would likely deal a blow to Boeing's 777 production line. The company delivered 83 aircraft in 2007 and 61 in 2008, when it was shut down for 58 days by an IAM strike. It has a backlog of 330 aircraft.

Avondale Partners analyst Donald Broughton calls FedEx's action "a deft political move that aligns the interests of Boeing and (engine maker)


(GE) - Get Report

with FedEx, and pits the interests of the Teamsters against the interests of the machinist and several other trade unions.

"We believe this significantly reduces the potential of FedEx Express being moved from under the National Railway Labor Act to under the National Labor Act," Broughton wrote in a recent report. "For those who doubt that FedEx would shop around for planes from different sources," Broughton added, it should be remembered that FedEx ordered the 777 only after delays in developing the A380, which it had initially ordered.In fact, FedEx -- at one time the launch customer for the A380 -- flies more wide-body Airbus aircraft than any other airline. Airbus makes the case that it spends $10 billion annually in the U.S. and is "the single largest export customer for U.S. aerospace manufacturing."