Will Boeing Blink in Labor Battle?

EVERETT, Wash. ( TheStreet) -- Boeing ( BA) could resolve a conflict with the National Labor Relations Board if it built 10 787s a month in Everett, but the company has already invested $750 million in a new 787 line in South Carolina.

But compromise is possible in the festering conflict over the NLRB general counsel's April 20 ruling that Boeing's decision to build in Charleston, S.C., represented an illegal retaliation for a 2008 strike by the International Association of Machinists. The general counsel said Boeing should put the work in Everett.

In a recent interview with TheStreet, NLRB spokeswoman Nancy Cleeland clarified that the ruling, which has provoked a hysterical reaction reflecting intense competition between states for manufacturing jobs, is limited in scope. She said it relates specifically to the production of three airplanes a month, the initial quota in Charleston.

Boeing already has the capacity to build up to 10 787s a month in Everett, seven on a regular line and three on a surge line. At the company's investor day presentation on Tuesday, Jim Albaugh, CEO of Boeing Commercial Aircraft, said the company is potentially looking beyond its planned ramp to production of 10 787s aircraft a month by 2013.

"If we get to 10, we can probably get to 11, and if we can get to 11, we can get to 12," Albaugh said. "We're probably not done on this program yet."

Also at the investor day session, CEO Jim McNerney said Boeing and the IAM are engaged in a relatively high level of early meetings preceding a Sept. 8, 2012, contract expiration. "Believe it or not, I'm hopeful we can find a way to avoid a work stoppage," McNerney said. "We're not going to try to squeeze the union to death and hope they don't try to do the same with us."

The NLRB ruling followed a complaint filed by the IAM, which represents about 35,000 Boeing workers. On Wednesday, IAM spokesman Frank Larkin said, "It's premature to discuss specifics, but we've always been willing to discuss possible remedies with Boeing."

Meanwhile, The Seattle Times reported Sunday that Washington Gov.r Chris Gregoire "pointedly chose not to take sides, saying she hopes Boeing and the union can settle it out of court."

Referring to the barrage of politicians who have denounced the NLRB ruling, Gregoire said: 'The politicians ought to get out of the way and be quiet -- the politicians are becoming the problem."

Over 90% of the cases the NLRB chooses to pursue are settled, spokeswoman Cleeland said. In the Boeing case, she said, before the complaint was issued, the NLRB general counsel invited representatives from Boeing and the IAM to Washington for settlement talks, but no agreement was reached.

Boeing spokesman Tim Neale said he won't speculate beyond Boeing's plan to get to 10 787s a month by the end of 2013, within seven produced in Everett and three produced in Charleston. Neale said Boeing has invested $750 million in the Charleston plant, where production is scheduled to begin July 10.

"Building 10 a month in Everett would leave nothing for Charleston because our supply chain can support a total of 10, at least for the forseeable future," Neale said. "Whether we could, or would, do more someday is a speculative question that we're not going to answer. We have a long ways to go just to get to 10."

Neale said the surge line in Everett is "intended to help us get up to rate and is not designed for long-term use." Adding additional, permanent 787 capacity would be costly and, in the short term, would duplicate costs already incurred in Charleston, he said. Boeing has hired 2,000 new workers in Puget Sound, to work on a variety of aircraft, since it made the decision to build 787s in Charleston.

"We like to keep the communication lines open with the union, but it is not clear to us at this point what a reasonable settlement would look like," Neale said.

Aviation consultant Scott Hamilton said the NLRB's charge that Boeing linked construction of the South Carolina plant to its conflict with the IAM is accurate. During the time Boeing was making the decision on where to add 787 production, Washington officials tried to convince the company to put the work in Everett, "All (Boeing) said to the state and to others was 'there is nothing Washington can do to keep us here (because) it's all about labor,'" Hamilton said. "Now they say it was business climate and incentives. Come on Boeing, you don't think we have a memory?"

Still, Hamilton said, the NLRB ruling comes at an unfortunate time, because the relationship between Boeing and the IAM appear to have improved recently. "Clearly Boeing has recognized that Local 751 members are producing airplanes at an unprecedented rate with top quality, and then this thing comes up -- it's just a real setback in terms of the larger picture," he said. Significantly, the IAM lobbied side-by-side with Boeing in its successful bid to win the $35 billion contract to build aerial refueling tankers for the Air Force.

With Boeing eyeing the possibility of increasing 787 production beyond 10 a month, an obvious solution to the NLRB problem is to build 10 in Washington, and then to build additional airplanes in Charleston, Hamilton said, adding: "I know they are talking about 17, although they haven't acknowledged that yet." Nevertheless, Hamilton said he believes Boeing would prefer to pursue the case to the Supreme Court, where anti-labor sentiment seems to dominate, than to reach a compromise. "To settle would be to admit they were wrong, and Boeing doesn't do that," he said.

-- Written by Ted Reed in Charlotte, N.C. .

>To contact the writer of this article, click here: Ted Reed

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