August 2012

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Outsourcing at the heart of the Boeing/IAM strike

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renton737s.jpgUnfinished 737s await completion at Boeing's Renton, Washington factory this week

With jetliner production frozen, Boeing and the International Association of Machinists and Aerospace Workers, the company's largest union, struggle with the future of the company.

The confrontation centres on the role of outsourced responsibilities once held by machinists inside Boeing facilities.

The outcome of the battle between Boeing and the IAM is likely to have an impact on the company well beyond the troubled early years of the 787 programme.

In a cyclical industry, Boeing's business case for outsourcing pits oversight against stability. The shared responsibility and risk of the programme, Boeing argues, insulates the company from the painful cyclical industry downturns, opting for stability over direct control of suppliers.

Without having to manage a native workforce beyond a core final assembly team, Boeing would need only to specify the rate at which suppliers deliver to the company, maximizing productivity and better managing the aircraft backlog. The responsibility for managing the workforce is the responsibility of the suppliers and sub-contractors, not Boeing, potentially avoiding significant layoffs of its own in the event of a downturn.

The goal is to "get the volatility out of the programme," said Ron Epstein, industry analyst with Merrill Lynch.

Epstein emphasized that the key to success becomes the strategies employed in managing the outsourcing.

Though the underlying business case for outsourcing pre-supposes a supply chain able to meet the demands of its customer.

In the first 16 months of final assembly operations, the significantly outsourced 787 supply chain found itself unable to keep pace with the early and aggressive demands of the programme schedule, forcing at least a 15 month delay in the first delivery to Japan's All Nippon Airways.

Boeing has worked to regain oversight and drill down into its suppliers to regain the stability it had hoped to have.

Both the IAM and SPEEA, the union of engineers readying for a contract battle of its own, contends that the 787 programme would have been able to avoid its early problems had a larger share of work been allocated to Boeing employees.

The IAM and its membership of 26,800 roundly rejected Boeing's best and final contract offer 3 September, which provided an 11% increase in pay over three years, plus bonuses.

Though the Union voted 80% to reject the contract and 87% in support of a strike. The union membership emphasized that it was not the pay increase it took issue with, but new contractual provisions opening the door for expanded outsourcing for the movement of parts to Boeing's legacy programs inside the company's facilities. Currently, that responsibility is sub-contracted solely for the 787 programme.

The strike, which is into its second week has left four 787 flight test aircraft, about a dozen and a half 777s and twice as many 737s, and a handful of 767 and 747s languishing at various states of assembly at three Boeing facilities in Washington State.

There is no sign that the contract battle and strike are nearing a conclusion.

"I think there'll be at least a one-month delay," said James Bell, Boeing Chief Financial Officer at an investor conference. "Right now it's a one-for-one day slip on the 787 and all other programs as well."

On the other side of the picket line, the union appears to be preparing for a prolonged fight, advising its members that, "If you have ongoing prescriptions, fill them NOW and fill them again before the end of September."

The union membership loses it health insurance on 1 October.

As prepared for Flight International Magazine next week. Photo credit: FlightBlogger

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