Is Washington a bad "fit" for Boeing's new "culture"?

The state of Washington has a schizophrenic personality. Much of the outside world see it as “progressive” and the home of three major players on the technology scene (Boeing, Microsoft and Amazon). Yet behind the façade there is a distinctly provincial, even backwater (i.e. the local variety of "redneck") personality; it seems that I “know” more of this type in my daily routine than the other variety, probably due to the latter’s narcissism. Still, I suppose there is that attraction that the region (at least the western half) holds for some people—besides the mild temperatures and natural vistas—that being a sense of separateness from the gray and dingy “old world.” Or maybe it’s about having the best of all worlds; in Seattle, it’s an urban setting amidst mountains, forests and the sea. 

Of course, being an isolated “oasis” like Seattle and its immediate environs does have its drawbacks if you have ideas of “world class.” If you are a visitor, sure you may want to go up the Space Needle, because it looks “cool” and you may never have the opportunity again. But in 22 years I’ve only been up it once, and only because my visiting brother wanted to; after two minutes I was already as bored with it as when I walked past it a thousand times before. And how can it call itself a “world class” city when it doesn’t even have a well-stocked natural history museum? New York or Chicago (or even Los Angeles) Seattle is not. 

And since we’ve mentioned Chicago, we should remember that our fair state is no longer the site of the headquarters of Boeing, but Chicago is. Ever since the Phil Condit era and the acquisition of McDonnell Douglas, something changed from the down-homey relationship between state and company. Stanley Holmes wrote in BusinessWeek “Boeing, the jewel of its hometown of Seattle, had always prided itself on treating employees -- from designers to line workers -- as family. But the values most esteemed at McDonnell were the ability to schmooze with Washington, DC power brokers and win the contract. Building planes sometimes seemed to take second place.” Boeing seem to become more interested in gaining defense contracts than building commercial aircraft, and that thinking “big” like this made Seattle seem small indeed.

Nevertheless, problems involving dealings with Boeing unions has been the rationalization that a new breed of Boeing executive has for transporting production out of the region inch-by-inch, to the point where less than half of Boeing’s total workforce is employed here, with the percentage continuing to go in the wrong direction., Holmes noted that when McDonnell executive Harry Stonecipher was added to Boeing’s management, he quickly set a different tone that set the stage for confrontation with the unions: “The decisive, brutally candid Stonecipher was the temperamental opposite of the aloof, nonconfrontational Condit. Many inside the company came to view him as an enforcer. The relentless bottom-line focus Stonecipher brought to bear during his stint as president antagonized many managers on the Boeing side of the house. Condit's 2001 decision to move the company headquarters to Chicago completed the cultural uprooting, leaving many of those left behind in Seattle feeling a bit like unloved stepchildren.”

Boeing’s alleged cost-consciousness makes current Boeing CEO Jim McNerney’s 2012 compensation of $21.1 million and pension package worth more than a $3 million a year seem beyond outrageous, and this was not customary practice before the extravagant Condit took over; Holmes noted that his underlings took advantage of this new “culture” in Boeing’s upper echelon. “That extravagance soon began filtering into a company culture that had been based on modesty, fiscal restraint, and the single-minded pursuit of building big airplanes. Former CEOs Bill Allen and T. Wilson both eschewed the trappings of corporate privilege. Wilson lived in the same middle-class house during his whole career at Boeing. When Condit succeeded Frank Shrontz as CEO in 1996, Boeing had three small corporate jets, and senior execs were required to fly commercial airlines to stay in touch with their customers. Now, Boeing has a fleet of corporate jets, including a 737 for Condit, done up in English-library style.”

Boeing has had problems before. Between 1968 and 1971, Boeing’s commercial aircraft wing took a hit following slow reception of the new 747, with the workforce reduced to less than 25 percent; there was the infamous billboard: “Will the last person leaving Seattle turn out the lights.” But the latest threats to local jobs is not necessarily all due to down business or union compensation; gross incompetence and greed at the top has played its part. Under Condit, it was one disaster after another. 

First it was the attempt to ramp-up production that instead led to production chaos. Outside of the McDonnell acquisition, attempts to diversify in other areas (like commercial satellite systems) were abject money-losers. Thanks largely to production snags and underestimating Airbus, within a decade Boeing’s share of the commercial airplane business went from 70 percent to 50 percent. And then there was the Air Force tanker scandal. After Condit was fired, he was replaced by Stonecipher who brought the commercial side back to life by approving the 787, but soon succumbed to a public sex scandal that the womanizing Condit somehow managed to avoid. Boeing management has also refused to acknowledge that it was a mistake to outsource the building of the 787 all over the world without proper quality control.

For his part, McNerney claims he isn’t anti-union, but “pro-growth.” In 2011 he wrote an op-ed in the Wall Street Journal defending the building of a 787 plant in South Carolina, “Eighteen months later, a North Charleston swamp has been transformed into a state-of-the-art, green-energy powered, 1.2 million square-foot airplane assembly plant. One thousand new workers are hired and being trained to start building planes in July.” Not mentioned that today, the South Carolina plant is barely able to produce one plane a month. 

McNerney also defended the “capitalist” principles he serves. “Our union contracts expressly permit us to locate new work at our discretion. However, we viewed Everett as an attractive option and engaged voluntarily in talks with union officials to see if we could make the business case work. Among the considerations we sought were a long-term "no-strike clause" that would ensure production stability for our customers, and a wage and benefit growth trajectory that would help in our cost battle against Airbus and other state-sponsored competitors.”

Back then, McNerney said the “Despite months of effort, no agreement was reached. Union leaders couldn't meet expectations on our key issues, and we couldn't accept their demands that we remain neutral in all union-organizing campaigns and essentially guarantee to build every future Boeing airplane in the Puget Sound area. In October 2009, we made the Charleston selection.” What he said then is exactly the same threat he is making now tying production of the 777x to the latest labor” deal: We’re going to stuff this contract extension down your throats, or else.

The fact is that McNerney was playing this to work out exactly as he planned it then, and we are seeing the same dynamic at work now. Instead of trying to work out a deal with local machinist representatives, McNerney chose to “negotiate” with national union leaders who are far from the scene and failed to take the pulse of what was happening here. Whatever decisions were made wouldn’t affect them anyways. It was like Howard Beale in Network after his “talk” with corporate baron Arthur Jensen, going from “I’m not going to take it anymore” to “Yes, master.”

To be fair, as aviation analyst Scott Hamilton pointed out, Boeing has been here for a century, and every few years it has been one new labor contract after another, one layer upon another that has added to labor costs without really taking into account changed economic circumstances. Boeing’s recent “take-it-or-leave-it” contract extension offer is actually more in line with other businesses, in moving to 401k retirement plans and employees taking a greater share of health insurance costs. One percent pay increases plus cost of living isn’t all that terrible considering how other workers are compensated; the average wage of a Boeing machinist is at least $70,000 a year. 

There are some things in the rejected contract that at first glance seem hard to swallow, mainly concerning health insurance. The annual deductible for “traditional” plans will double by 2020 for those in network plans, and nearly quadruple for non-network plans, for essentially the same coverage. Premiums paid by the employee will rise to three times current payments by 2024, but from my experience they will still be getting a good deal. Employees still will only pay 16 percent of insurance costs. 

I suppose that when you are used to paying little or nothing out of your income for benefits, it is kind of tough to accept. But it is hard for me to sympathize on the ground level, because things could be a whole lot worse—and for some workers this would be “normal.” What the machinists think is fair would seem like hitting the lottery to others. 

But on the other hand, it is difficult to reconcile the fact that the people who are insisting that these changes need to be made or else are also making obscene amounts of money that only continue to increase as if the company was made of money, and it couldn’t just let all that extra cash lay around doing nothing. If things are so bad as he says, McNerney might provide an example to employees by taking a cut in his own lavish lifestyle. Instead, he treats the job like a cash grab. Credibility issue, maybe?