By William Patalon III
Executive Editor
Money Morning/The Money Map Report
Just one day after The Boeing Co. (BA) was notified that a multi-billion-dollar U.S. Air Force tanker competition has been put on hold, the embattled aerospace firm said it was steeling itself for a long strike by its hourly work force.
Boeing's commercial aircraft production areas were quiet Monday after the manufacturer's 27,000 machinists walked off the company's jetliner assembly lines to protest a proposed labor contract they contend falls far short of what's fair in terms of health-care benefits and job security, MarketWatch.com reported.
On Wednesday, Boeing Chief Financial Officer James A. Bell said the company expects the strike to last at least 30 days and said the job action will cause additional delays in its vaunted 787 Dreamliner commercial jet, the Seattle Post-Intelligencer reported.
"I think there'll be at least a one-month delay," Bell said Wednesday at a Morgan Stanley (MS) conference Webcast from Dana Point, Calif. "Right now, it's a one-for-one day slip on the 787 and all other programs as well."
The International Association of Machinists and Aerospace Workers Union continued its tough talk.
"We will continue this fight 'one day longer' than the company can afford until they meet our demands," the union told its members via a late-Sunday posting on its Web site, the P-I reported.
Tom Buffenbarger, the union's national leader, told The Seattle Times that if the strike costs Boeing $100 million a day in lost sales, as many Wall Street analysts predict, it will take strikers one month and a week to drain the company's $10 billion cash reserve.
As of now, no new talks have been scheduled.
With the Dreamliner program already 14 months or more behind schedule, the strike now puts in jeopardy Boeing's plans to test-fly the jet in November and to start deliveries in the third quarter of 2009. Parts shortages and supplier issues have created delays. Boeing has distributed production of the airplane throughout the world.
While conceding that there are still "significant issues" between Boeing and the union, Bell, the company CFO, said "we'll never get to a complete impasse."
Although the dispute over the use of outside contractors to perform work that union workers have done in the past is the main sticking point, Bell noted that it's also "not the only issue we're apart on."
On Aug. 28, Boeing offered the employees who make parts and actually assemble the jet aircraft a wage-and-benefits package that includes an 11% raise over three years, bonuses, and a 14% improvement in retirement-pension payments. Boeing also shifted healthcare costs to workers via higher co-pays and medical deductibles.
But the union wanted a 13% raise.
Tanker Deal Shelved
The U.S. Defense Department this week shelved the competitive bidding on the aerial refueling tanker contract, a move that enables the incoming presidential administration to choose the winner of the $35 billion contract. The competition pits Boeing against a team consisting of U.S. defense contractor Northrop Grumman Corp. (NOC) and Airbus SAS parent European Aeronautic Defense and Space Co. NV (PINK: EADSF).
Airbus, a pan-European maker of commercial jetliners, is Boeing's archrival and nemesis in that business.
The bidding process for the tanker deal - which could have an ultimate value of $100 billion if all the tankers are built - has been riddled with controversy from its very start. This "cooling-off period" will allow the award to be made objectively, U.S. Defense Secretary Robert Gates said in a statement.
"Over the past seven years the process has become enormously complex and emotional - in no small part because of mistakes and missteps along the way by the Department of Defense," Gates said. "It is my judgment that in the time remaining to us, we can no longer complete a competition that would be viewed as fair and objective in this highly charged environment."
Back in February, the Air Force awarded the contract to the Los Angeles-based Northrop Grumman/EADS NV team. But after protests from Chicago-based Boeing and a report from the Government Accountability Office that ripped the Air Force for its management of the bidding process, the government reopened the bid on an expedited basis.
An earlier contract that would have had the Pentagon leasing the new tankers from Boeing was permanently grounded after criticism from U.S. Sen. (and current presidential candidate) John McCain, R-Ariz., and investigations that lead to guilty pleas from a defense official and some Boeing executives, Bizjournals.com reported.
Boeing said it welcomed the Pentagon's decision to cancel the competition for now, stating it would allow more time for the complex repeat run-off to be conducted. As Money Morning reported, even after the Pentagon decided to redo the competition, Boeing had threatened to withdraw if it did not get six months to submit a revised bid.
"The Boeing Company welcomes the Defense Department's decision and believes that it will best serve the war fighter in allowing the appropriate time for this important and complex procurement to be conducted in a thorough and open competition," spokesman Dan Beck said.
News and Related Story Links:
-
Seattle Post-Intelligencer:
Boeing sees at least 30-day strike. -
MarketWatch.com:
Boeing machinists strike; no new talks scheduled. -
Bizjournals.com:
Boeing-Northrop air tanker bids put on hold. -
Forbes.com:
EADS Aided by Strong Dollar. -
Money Morning News:
Boeing Threatens to Pull Out of $35 Billion Air Force Tanker Program. -
Reuters:
Boeing hails U.S. decision on tanker competition.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.