Boeing Says Survival Requires Cutbacks; Union Isn't Buying It

Lump-sum bonuses paid just in time for the Christmas holidays. Fully paid health-care benefits. High-skilled, high-wage jobs.

These have been a part of Boeing's legacy for most of its history as the world's most successful aerospace company. Members of the Machinists, the largest union at Boeing, have contributed to the company's success and have shared in the perks that go with it.

Now, The Boeing Co. says the marketplace has changed, and to survive, it has to cut costs and some of the perks.

For 32,000 Boeing Machinists, that reality has hit home in the form of a three-year contract offer that calls for lower wage increases and fewer medical benefits. Boeing likely will seek similar concessions with other bargaining groups.

If the Machinists union's response is any indication, Boeing is going to have a fight on its hands.

The leadership of the International Association of Machinists and Aerospace Workers has recommended that members not only reject the proposal tomorrow, when the current contract expires, but also that they vote to strike. If they do strike, pickets could go up within hours - by midnight Friday - in Seattle, Portland and Wichita.

Boeing officials insist their proposal is a fair one that reflects the realities of selling commercial aircraft in a global market that shows no allegiance except to the lowest price.

Boeing says it needs to slash overall costs by $600 million to remain competitive. It also must have a more flexible work force, which includes the freedom to subcontract work to low-wage regions in the South, Mexico or Asia.

"What Boeing is looking for is even more flexibility of outsourcing work and keeping costs to a minimum," said Peter Jacobs, an aerospace analyst for Ragen MacKenzie.

All of this remains the underlying reason why the membership may strike. A simple majority is all that's needed to reject the contract, but a two-thirds vote is needed to walk.

"We can negotiate a good benefits package, good working conditions, a good wage package, but it doesn't do us any good if we don't have jobs," said Bill Johnson, district president of Local 751, which represents 23,000 Machinists in the Puget Sound area. "Job security is the number one concern among the membership."

Boeing modified its final offer Monday and withdrew its most controversial proposal: a severance package for laid-off workers in return for eliminating their seniority rights in rehiring.

Under Boeing's offer, a Machinist making $20.37 per hour in base wages could expect $22.16 per hour at the end of three years when cost-of-living raises estimated at 2 percent a year are factored in. The worker would also collect more than $3,400 in lump-sum payments.

Boeing officials maintain that its wage package still makes the Machinists among the highest-paid factory workers in the country, although compared with three years ago, the increase is less.

Medical benefits remain a major sticking point. Union members are used to Boeing paying nearly all their medical costs. That amounts to $6,000 a year per employee. Now, Boeing is asking union members to pay a percentage of their premium for most but not all medical plans.

Boeing officials say the company has no choice but to lower costs.

"Our discussions with the IAM centered on the fact that all of us at Boeing are standing at a crossroads," wrote Larry McKean, a senior vice president for human resources, in a memo to managers. "No matter how much we have accomplished in the past, we face serious new challenges today. The competitive environment has changed dramatically."

Boeing took out full-page newspaper ads today explaining details of its contract offer.

The union blames subcontracting for its declining ranks. Since 1989, the union has lost nearly a half its members in the Puget Sound area, from 40,000 to 23,000. Boeing disputes that, saying a decline in aircraft orders reduced the entire work force by one-third over five years.

Production is expected to bottom out next year at an 11-year low of 210 planes, down from a peak of 446 in 1992. Boeing has cut its work force by 16 percent in the past two years alone as it seeks to reduce costs aggressively in the face of strong competition from Europe's Airbus Industrie.

The union points out that Boeing's stock has soared, aircraft orders are picking up, and top executives are earning multimillion-dollar bonuses from lucrative stock options pegged to Boeing's stock price.

"We look at the compensation package of (Chairman) Frank Shrontz and we're not outraged by it," Johnson said. "But what we are upset about is that we're not sharing in Boeing's success."

---------- KEY ISSUES ----------

The major issues in the contract dispute between The Boeing Co. and its 32,000 Machinists:

Wages - Boeing is offering lump-sum payments of 5 percent and 3 percent in the first and second years of the contract, and a 3.5 percent general wage increase in the third. Cost-of-living adjustments, estimated at 2 percent per year, are also included. The union has not disclosed what it is seeking.

Health care

-- Boeing proposes boosting deductibles for individuals to $150, from $75, and for families, to $450, from $225.

-- Boeing proposes to raise total annual out-of-pocket expenses for major medical to $2,000 for individuals and $4,000 for families - up from $1,000 and $2,000, respectively.

-- For the first time, Boeing proposes that individuals pay $15 a month in medical premiums; an employee with a spouse or child would pay $30 a month; and families $45 a month. Boeing currently pays the union's medical premium. It is still offering one plan that requires no monthly contribution.

-- The union seeks to maintain the current level of benefits.

Job security

-- Boeing says it will provide the union with more information on subcontracting, including two briefings a year. The union could make proposals to keep work in-house.

-- The union wants to have a say on work subcontracted outside, to establish a minimum number of workers who cannot lose their jobs to subcontracting, and to let workers bid on work the company intends to send outside.