September 6, 2012

Boeing May Use Engineers Outside Seattle If Union Balks on Wages

Boeing Co. says it may rely more on engineers at less-expensive sites outside its Seattle jet-manufacturing hub unless it wins competitive labor costs in union contract talks.

Boeing Co. says it may rely more on engineers at less-expensive sites outside its Seattle jet-manufacturing hub unless it wins competitive labor costs in union contract talks.

While the planemaker is keeping a renewed focus on engineering supported by Jim Albaugh, the former commercial planes chief who pushed to empower the group after delays on the 787 Dreamliner, the core doesn’t have to be in Puget Sound, Mike Delaney, the company’s chief engineer, said Wednesday.

“Seattle is a love-hate relationship for me,” he said. “I love pumping all the money into my team, but now we’re in the same place as southern California and the Washington, D.C., area in terms of cost to do engineering. Those are the three most expensive places in the country to do engineering.”

Boeing’s engineers not only design new planes, they inspect those being built and have to sign off on the work before aircraft are delivered. Their contract expires Oct. 6, and any labor action would interrupt work flow during a record production increase, so the planemaker must balance that risk with negotiating cost savings.

Talks so far have been contentious, with disagreement strongest over Boeing’s plan to switch new engineers to a 401(k)-style retirement benefit rather than a pension, according to the Society of Professional Engineering Employees in Aerospace.

Speea, as the union is known, represents about 23,000 Boeing workers, mostly based in the Seattle area. Its 15,000 engineers make an average of $110,000 a year, while 8,000 technical workers covered under the same contract earn an average $79,000.

Other U.S. cities where Boeing has engineering operations are less expensive, Delaney said, including St. Louis, Philadelphia, Houston, San Antonio and Mobile, Ala.

Managing costs is important to Boeing as it trims expenses in its defense business amid Pentagon spending cuts. In the commercial division, the planemaker is trying to improve productivity after racking up billions of dollars in extra charges from delays to the Dreamliner and the new 747-8 jumbo jet.

Boeing is bringing some design work back in-house after acknowledging it outsourced too much on the 787 and lost control of the program. The company has been working to revert to a more vertically integrated system like the one with its original 777 program, said Delaney, who was the 787’s chief engineer.

“We’re committed to the Puget Sound,” he said. “But we also have access to the Boeing corporation.”

Engineers in Philadelphia were critical in fixing the 787’s problematic side-of-body joint, and the company’s space team in Houston and engineers in Huntsville, Alabama, helped with the Dreamliner’s new electrical power system, he said.

Speea argues that having engineers working side-by-side with assembly-line workers is crucial to development. Boeing assembles its 737s in Renton, just south of Seattle, and its 747s, 767s, 777s and 787s in Everett, to the north, along with a new 787 plant in South Carolina.

“Everybody who worked on the 787 will tell you that the vast majority of problems came from lack of coordination due to the separation of engineering from manufacturing,” said Ray Goforth, Speea’s executive director. “To have Boeing resurrect this failed model to threaten employees into accepting pay and benefit cuts is the most disrespectful thing I’ve heard yet in these negotiations.”

Delaney said compensation will be higher than it is now, though the gains won’t be as large as in the last contract in 2008.

Speea has gone on strike at Boeing only twice since its founding in 1946: for one day in 1993 and 40 days in 2000. Goforth has said Boeing was more accommodating last year in negotiations with the Machinists, who have walked off the job four times since 1989.

Following the last strike, in 2008, the planemaker decided to build a commercial-jet plant outside the Seattle area for the first time. It chose South Carolina, a state that forbids requiring union membership as a condition of employment. The new factory rolled out its first 787 five months ago.

Boeing has also made other shifts away from its historical hubs. In 2001, the company moved its corporate headquarters to Chicago from Seattle, where the company was founded in 1916. Earlier this year it decided to shutter operations in Wichita, Kan., where it has built military airplanes since 1929.

Delaney says he’s looking 10 to 15 years ahead and wants to ensure his engineers are still competitive in the defense market in particular. Other defense contractors such as Lockheed Martin Corp., Northrop Grumman Corp. and United Technologies Corp. have restructured and cut costs, he said.

“It sounds like what he means is ‘cheapest,’” Speea’s Goforth countered. “That’s different from ‘competitive.’ ”

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