Outsourcing at Crux of Boeing Strike

Seattle – At the heart of the union machinists' strike against Boeing Co. is a high-stakes showdown over something the aerospace giant once touted as a manufacturing innovation: Its effort to outsource key roles in producing its new 787 Dreamliner jet.

Nearly 27,000 machinists walked off the job at 12:01 a.m. Saturday after last-ditch talks for a new three-year contract failed. While wages and health-care costs are big issues, job security has emerged as perhaps the most crucial one, with both sides signaling that the new contract represents a major crossroads.

Boeing says it needs flexibility in its manufacturing to avoid the problems that have befallen other big industrial companies, while the union is fighting to keep as many jobs as possible.

The flashpoint in that debate is Boeing's troubled 787 Dreamliner program, which striking workers point to as Exhibit No. 1 in their case against outsourcing. Boeing extolled the business virtues of having suppliers from as far away as Japan and Italy build much of the fuel-efficient new jetliner, with Boeing performing final assembly.

But the plan backfired when suppliers fell behind in getting their jobs done, and the 787 program is now more than a year behind schedule. Boeing was forced to turn to its own union work force to piece together the first few airplanes after they arrived at the company's factory in Everett, Wash., with thousands of missing parts. That fueled both anger and anxiety among union workers.

"If Boeing had let us build that airplane in the first place, it would be in service today," said Dale Flinn, a 20-year veteran on Boeing's 767 assembly line.

According to people familiar with the situation, negotiators for Boeing and the International Association of Machinists and Aerospace Workers were unwilling to budge significantly on how much say the union should have on when Boeing is allowed to ship work out to contractors. The two sides also remained apart on traditional economic issues, such as pay and pensions.

Resentment over outsourcing has been festering since the mid-1990s, when Boeing began a sweeping campaign to modernize its factories. The company has relied increasingly on contractors across the world to build larger and larger sections of its airplanes.

By adopting many of the methods pioneered in the automobile industry, Boeing has been able to reduce the time it takes to build some of its jets by more than 50%.

In recent years, Boeing has sought greater freedom in deciding when and how to outsource work. One of the most contentious provisions was inserted into the contract in 2002, allowing non-union contractors to deliver parts directly to the assembly line.

The contract was put into effect despite union opposition because the union failed to gain enough support to call a strike.

Striking workers this weekend pointed to the 2002 contract as one of the reasons that they were still seething.

"We want this company to be extremely successful, but it seems like every time we make a big leap forward in efficiency, Boeing finds a way to send more jobs to outside contractors," said John Jorgensen, who has worked on Boeing's assembly lines for 43 years.

Their fear is that Boeing will eventually seek to allow contractors to go one step further and install their components directly on the airplane.

Boeing officials insist that they have no plans to do this, but at the same time, they have refused to give the union blanket assurances in writing.

According to people familiar with the situation, Boeing had hoped that IAM President Tom Buffenbarger would help break the impasse with local union officials over the job-security issue.

The final round of negotiations was held at a Walt Disney Co. resort in Florida in order to be near Mr. Buffenbarger, who was preparing for a major machinists convention this week.

Instead, Mr. Buffenbarger agreed that job security was one of the union's priorities. "It's time for Boeing to listen to us on this," Mr. Buffenbarger said in a phone interview from Florida.

Mr. Buffenbarger says he warned Boeing Chairman and Chief Executive Jim McNerney months ago that the issue would be important during the 2008 negotiations. "Jim said, 'I hear ya, I hear ya,' '' Mr. Buffenbarger recalled.

After talks failed on Friday, Mr. Buffenbarger said he left a voice message for Mr. McNerney urging him to take an active role in reaching an agreement on the issue.

"Jim ran General Electric's engine business, where the machinists have a great partnership with the company, so he knows how to do it," Mr. Buffenbarger said.

Mr. McNerney said in statement Sunday that he was disappointed with the union's rejection of "what was by any measure an outstanding contract offer."

Mr. Buffenbarger said the union isn't looking for absolute protectionism. "The union just wants to be able to have a shot at making the case that our workers can do those jobs competitively before Boeing ships them out," he said.

Mr. McNerney said Boeing is "always open to discussions that provide our employees an opportunity to compete for work while also maintaining our flexibility to operate our business efficiently and respond quickly to changes in the aerospace market."

Boeing said the existing contract contains language that gives the union 180 days to make a bid to keep work that might be shipped out, but the union points out that clause applies only to existing projects. For new programs, such as the 787, Boeing has much greater leeway.

The problems with the 787 have become a rallying point for union workers. While the jet has been a runaway best-seller, garnering 900 orders from airlines world-wide, it has slipped more than 14 months behind schedule.

The strike will only prolong those delays, threatening Boeing's ability to begin delivering the jets in late 2009 as promised.

Despite the setbacks, Mr. McNerney has repeatedly insisted that the 787 business model is "absolutely the right way to go," although he acknowledges that Boeing might "redraw some of the lines" next time when deciding how much of any new jet programs to outsource.

With the stakes so high, union officials believe they have the leverage to make Boeing blink on the job-security issue.

With a backlog of more than 3,600 airplane orders, many customers are already facing waits of five years or more for their airplanes.

"This time around, the work force is angry enough at Boeing that they have told us they're willing to stay out until 2009," said Mark Blondin, the union's lead negotiator.