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Originally published September 27, 2005 at 12:00 AM | Page modified September 27, 2005 at 12:27 AM

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Boeing says strike changed nothing, but analysts foresee more outsourcing

The Puget Sound region has already lost some Boeing work because of the Machinists strike. Last week, the company's fabrication division...

Seattle Times aerospace reporter

The Puget Sound region has already lost some Boeing work because of the Machinists strike.

Last week, the company's fabrication division sent out short-term work making parts for two freighter programs from Auburn to its nonunion facility in Salt Lake City.

The loss of fabrication work — even temporarily — raises a troubling question about the strike: Having apparently won this contract battle, will the Machinists lose the long-term war?

Will Boeing react to paying higher benefits and health-care contributions by outsourcing even more work in the future?

Labor leaders hope not. The company said no. Analysts differ.

Boeing cautions not to read too much into its transfer of low-quantity work to Salt Lake City. The small plant there specializes in urgent work and parts needed for short runs.

"This is work we needed done to protect the schedules, and it is temporarily moved out," said Boeing spokesman Charles Bickers. "No decision has been made for a permanent movement."

But, he said, some of the work may be completed in Utah before the company has a chance to move it back. The work includes producing parts for three large cargo freighters — converted 747s that will ferry the big pieces of the new 787 jet around the world. A delay to that cargo program threatened to delay the new jet entering service.

Also shifted was parts work on another high-priority air-cargo development program, the 747 converted freighter. Boeing has 30 orders for that plane.

Salt Lake City is taking over fabrication of initial production parts for converting these used 747 passenger jets into freighters, work originally intended for Auburn.

Most of the later production work on both programs has long been earmarked for overseas suppliers.

Taikoo (Xiamen) Aircraft Engineering in China will modify the converted freighters. Evergreen Aviation Technologies in Taiwan will modify the three large cargo freighters.


"[The work moved to Utah is] for the first few runs and then it goes out to the regular supply chain," said Bickers. "It's not work that the fabrication division was slated to do long term."

On the broader question of long-term outsourcing, Bickers said the monthlong Machinists strike would not affect company strategy.

"There are no new plans" for outsourcing, he said.

The end of the strike could come as soon as Thursday, when 18,400 union members vote on the tentative three-year agreement. Union leaders interviewed Sunday hope the end of the strike may even shift the strategy away from outsourcing by discouraging a continued adversarial relationship between the company and union.

"I would hope Boeing would seize the opportunity to make strides working with the union to stay competitive," said Tom Buffenbarger, national president of the International Association of Machinists (IAM).

"Outsourcing isn't always the answer," said IAM District 751 President Mark Blondin, who led the settlement talks. "We've shown them that isn't the answer on many occasions."

Many industry analysts accept Boeing's claim that the tentative agreement is a reasonable compromise but they differed on what it means for the future.

Adam Pilarski, an analyst with Avitas, said the union's rejection of extra money tied to performance is a serious setback to management. The union's insistence instead on guaranteed pension and health benefits, he said, won't make the company more competitive and will encourage outsourcing.

He described management's likely reaction as: "Give them now what they want, as long as it doesn't cost too much, because in the long run, I really don't want to deal with them."

J.B. Groh, an analyst with D.A. Davidson, also forecast a speedup in outsourcing overseas.

The Machinists "have won the battle. I don't think they'll win the war," said Groh. "This is just one more reason to look toward more outsourcing."

Glenn Engel of Goldman Sachs expects a more pragmatic response from Boeing. Outsourcing will continue on schedule, he said, but the Machinists claims won't speed it up.

The company offered more to the union to keep airplanes rolling out and revenue coming in, Engel said. The ultimate cost of the settlement will depend upon how fast Boeing can deliver airplanes.

"It's a bet on the good times continuing," said Engel. "If deliveries are rising, the economies of scale will allow [Boeing] to hold the line on costs."

Howard Rubel of Jefferies Group agreed that Boeing could remain competitive with rival Airbus with this settlement.

Through August, Boeing had delivered 211 airplanes this year; Airbus had delivered 240. Both companies were then gearing up as production orders flowed in.

At the beginning of September, Airbus had 326 firm orders. As of last week, Boeing had 605 net firm orders.

"It's a high settlement if the Machinists aren't productive and don't put their heart and soul into getting this company back into the position it could be in," Rubel said.

"It's now a joint show to see how competitive the workers and the enterprise can be."

Dominic Gates: 206-464-2963 or

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