The Machinists union filed a lawsuit against Spirit AeroSystems in federal court Friday over Spirit’s plans to outsource union jobs by selling its entire fabrication operation and using outside contractors.
According to union officials, Spirit plans to sell off its fabrication unit — a major manufacturing operation — and use outside contractors in tool supply, shipping, paint stores and other support functions.
As a result, at least 1,400 union-represented employees are in “imminent danger” of losing jobs, alleges the complaint that was filed in U.S. District Court in the District of Kansas.
Spirit’s actions are a breach of its labor contract with the Machinists, the lawsuit said.
Spirit spokesman Ken Evans said the company does not comment outside of the legal process regarding pending litigation.
“We certainly understand the obligations in our labor agreements, and believe we are in compliance,” Evans said in an e-mailed statement. “As we have stated consistently and as recently as our 2nd quarter earnings call last week, Spirit is constantly evaluating the strategic vision for our company — what is core to our future growth, what are we best at, what differentiates us in the marketplace? That evaluation is ongoing and we have made no decisions.”
The union’s action follows months of speculation about Spirit’s plans to sell or spin off certain parts of its business.
The company has “repudiated and are continuously breaching material terms of the contract by colluding to sell the entire fabrication operation, failing to require prospective purchasers to retain (union) employees or apply the (contract) as conditions of sale, refusing to disclose information pertaining to the planned sale, and refusing to engage in discussions with union officials to consider options for maintaining workforce levels in Wichita,” the lawsuit claimed.
With its actions, Spirit is engaging in a campaign to dismantle the bargaining unit, according to the suit.
The union filed two grievances with the company earlier this month.
The Machinists union is asking the federal court to issue an injunction to prevent a sale, as well as to bar Spirit from bringing in employees from outside companies or laying off union-represented workers pending arbitration of the union’s grievances.
Spirit wants to consummate a sale before the matter can be heard by an arbitrator, the lawsuit said.
“We’re going to do what we’ve got to to do to take care of the members in Wichita and protect, really, that plant,” Machinists union International president Tom Buffenbarger said.
Spirit employees in Wichita build fuselage sections for all current Boeing programs, which includes the 737, 747, 767, 777 and 787 aircraft; nacelle, strut and pylon components for the 737, 747,767 and 777, the 787 pylon and the BR725 nacelle; as well as components for the Bombardier C Series and the Mitsubishi Regional Jet.
In 2010, the Machinists and Spirit began negotiations on a new contract and agreed to follow “a groundbreaking new approach,” the union said.
At the time, Spirit and the union were aware that contentious labor relations between the Machinists and Boeing had led to four strikes over 20 years, the lawsuit said.
Spirit and union contract negotiations began soon after a Boeing strike had affected many customers and suppliers. As a result, the two parties sought to establish a more cooperative and productive relationship.
Job security was the first priority of union workers, a union survey showed; Spirit’s main objective was to guarantee labor peace for many years.
Among its concessions, the union gave up its right to strike, accepted lower general wage increases totaling 4 percent over 10 years, and in some instances accepted lower wages, the union said.
In exchange, Spirit agreed to maintain all major manufacturing operations in Wichita, preserve or expand all of its bargaining unit work, maintain or increase the number of union employees and engage in open dialogue about any decisions affecting union employees throughout the life of the contract, it said.
The parties signed a 10-year contract that remains in effect until June 27, 2020.
Rumors of sales
Union officials met with Spirit executives to address widespread rumors that Spirit intended to sell off all or part of its operations.
According to the lawsuit, Spirit officials told the union that the company planned to sell its fabrication operations, which would lead to 1,200 job cuts.
The company would provide additional information on the condition the union sign a non-disclosure agreement, the lawsuit said.
The suit also contends that Spirit concealed its plans from the union even though it had already engaged consultants and financial advisers to pursue a sale, which the union contends violates the contract.
“At all times Spirit has sought to cloak its egregious violations of the (collective bargaining agreement) in secrecy,” the lawsuit said.
In another meeting, the company told the union that it planned to outsource more than 200 union jobs in shipping, tools supply, paint stores and other support functions and lay off the employees.
Spirit officials told Machinists officials that the company “just didn’t want to do the work,” and that outsourcing would not lead to cost savings, the lawsuit alleges.
The labor contract prohibits the company from subcontracting work unless it’s necessary for financial reasons or to make room for more work, it said.
“By disclosing that outsourcing certain support functions would not reduce costs, Spirit conceded that the decision breached the (contract,)” the lawsuit said.
Spirit must notify the union when it plans to outsource work that could impact union jobs and give it a chance to propose competitive alternatives, it said.
Its plan to outsource the work is a “patent breach” of the contract, the lawsuit alleges.
In the long run, Spirit’s plans will hurt the company, Buffenbarger said.
“The new leadership at Spirit AeroSystems is embarking on the same misguided approach that caused customers to wait an extra two years for Boeing 787 Dreamliner deliveries,” he said. “IAM-represented employees have shown time and again that they are the best aerospace workers in the world. They are the right choice to make Spirit AeroSystems successful for customers and shareholders.”
Spirit wants to move quickly, Buffenbarger said.
‘Organic value of scale’
Last week, Lawson told analysts on a conference call that Spirit is evaluating whether to move work from inside Spirit to outside suppliers. He said that no decisions had been made.
“We’re working very, very hard not just on individual product negotiations but on the overall strategy as it relates to who we’re going to do business with (and) how we’re going to do business,” Lawson told analysts on a conference call last week about the company’s second-quarter financial results. “I’m a believer in the organic value of scale. We’d like to aggregate what we do and find out how to get some leverage out of that scale as we pass it on or potentially offer it up to the supply base.”
The effect would be to lower costs, Lawson said.
“We’re in the phase of going out and testing the market, is what I would say,” Lawson said. “We’re out there looking to see what the economics look like overall.”
He would not describe the scope of the changes under consideration.
But “it’s a healthy piece of the business,” Lawson told analysts.
The question is how it would work out, he said.
For Spirit, “for sure, it would be lower capital requirements and certainly would require less management on our part,” Lawson said.
The most important factor is making sure Spirit doesn’t risk execution of its programs.
“We can never, ever, ever, ever put any of our customers at risk,” Lawson said. “We will not let that happen.”
Buffenbarger said that the management-union dynamics have changed since Lawson took over as CEO in the spring of 2013.
“We were part of the program,” Buffenbarger said of the way things used to be. “(Former CEO) Jeff Turner always operated that way. ... We have a contract in place. Our contract, we think, is very strong.”
In past negotiations, investors and company officials called the contract a new model of working together, he said.
“We have worked very hard to live up to that new model,” Buffenbarger said. “We have made great progress. We do great work. ... Larry Lawson is a throwback to another time where it’s top-down management, and that’s not the contract we signed.”