Boeing's Free Labor Union Battle Rages On...

by Ryan Cole

Boeing's Free Labor Union Battle Rages On...

by Ryan Cole, Investment U Research

Thursday, May 5, 2011

Are labor laws undergoing a dangerous redefinition?

Boeing thinks so.

In 2009, Boeing (NYSE: BA) was firming up plans for a second plant to build its newest jet, the 787 Dreamliner. Although not required, management sat down with union representatives to discuss how to bring the new plant online amicably.

Perhaps in a conciliatory mood after a 58-day strike the year before - one that contributed to the Dreamliner's three-year delay - management wanted to take care of negotiations before they could reach a head this time...

Boeing Balks at Unions Pie-in-the-Sky Demands

The negotiations didn't go well. The biggest sticking point: The union wanted a contractual guarantee that Boeing would build all Dreamliners in Puget Sound, in the same area as the current plants Boeing uses for its commercial airplanes.

Management balked, and rather than giving in to this demand, Boeing began searching for another place to put its second plant.

The company decided on a right-to-work state - South Carolina. Right-to-work states don't allow unions to require membership from fellow employees. In theory, this should simply give more choice to workers, but in practice, unions are more rare in right-to-work states, and those that exist are generally weaker than unions in other states. There are 22 right-to-work states in America.

The union lodged a formal complaint with the National Labor Relations Board (NLRB), saying that the move was punitive, and designed to discourage strikes and keep workers in line.

In past years, such a complaint wouldn't be given much chance - companies, by and large, are allowed to build plants wherever they see fit. This time was different...

A New NLRB Precedent With Far-Reaching Implications

The NLRB ruled in favor of the union and stopped work on the non-unionized plant in South Carolina. Boeing is currently appealing the decision.

With the 2012 elections just around the corner, politicians on both sides of the aisle are taking shots at each other over this issue - and there's no doubt that politics are involved - but this case contains a few more shades of grey.

Boeing management rather foolishly mouthed off a good bit when putting the second plant in South Carolina, saying that they can't be worried about strikes all the time, among other similar comments.That left them wide open to the charges that the NLRB just reviewed and - given the make-up of the five-person appeals board - will likely uphold.

While the particulars of the case are more complex than either party would like to admit, the repercussions of this test will be far reaching.

  • Should the NLRB uphold the ruling, the flight of manufacturing from America to other countries with cheaper workforces and fewer worker protections may very well accelerate.
  • Perhaps more significantly, new manufacturing plants in non-right-to-work states will probably die on the vine.
  • Companies want flexibility, and if unions can hold them hostage, they just won't work with unions at all.

Should the decision be overturned, we might see a steadier flight of manufacturing jobs to right-to-work states, with the result being unions falling farther towards irrelevance.

Boeing's Union Headaches May Hurt Airbus Competition

In Boeing's particular case, union headaches may hurt the company in its competition with Airbus. Airbus, which has plants throughout the world - including in America - still has most of its workforce in Europe.

While Europe's airline industry tends to have stronger unions, they've been more flexible in recent years. When Boeing workers struck in 2008, Airbus employees didn't - mostly because Airbus was already losing money - and they thought the situation too precarious.

Today, Europe is in a belt-tightening frame of mind; it's unlikely Airbus will face the same headaches that Boeing is now dealing with.

Legislation won't solve this dilemma before 2012 - the Republican house and Democratic White House will counter each other. This is in the hands of the NLRB - and, whatever their decision, the effect could be profound on the company's bottom line.

Good investing,

Ryan Cole

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