CNN reporter breaks down why union members rejected proposed Boeing contract

New York (CNN) — The CEO of Boeing told employees late Friday that the company plans to cut 10% of its total staff “over the coming months.”

“Our business is in a difficult position, and it is hard to overstate the challenges we face together,” said Kelly Ortberg, who started at CEO of the troubled aircraft maker two months ago and has been dealing with a strike by 33,000 hourly workers for half his time on the job.

The announcement is just the latest blow at the troubled planemaker, which has faced losses of more than $33 billion in the past five years; a string of severe, sometimes fatal safety lapses; and increased scrutiny from regulators and law enforcement as a result.

“Beyond navigating our current environment, restoring our company requires tough decisions and we will have to make structural changes to ensure we can stay competitive and deliver for our customers over the long term,” Ortberg wrote in a memo to staff Friday on “positioning for the future.”

Ortberg’s notice did not give the number of jobs that would be cut, although as of the start of the year Boeing had 171,000 employees worldwide, with 147,000 of those in the United States.

Years of problems and losses

Boeing has had more than five years of severe problems, starting with two fatal crashes of its best selling plane, the 737 Max, in 2018 and 2019, which resulted in a 20-month grounding of the jet worldwide. It also suffered massive losses in 2020 when the pandemic caused a near halt in air travel and forced airlines to pull back on their orders for new planes.

Among its more recent problems was a door plug on a 737 Max flown by Alaska Airlines that blew off minutes into a January 5 flight, leaving a gaping hole in the side of the plane.

While the plane was able to land without any serious injuries to passengers and crew, it sparked a new round of federal investigations into the safety and quality of Boeing’s planes. The preliminary findings of an investigation by the National Transportation Safety Board found that the plane had left a Boeing factory two months earlier without the four bolts needed to hold the door plug in place.

Boeing’s space and defense business is also losing money. Its first crewed flight of the Starliner space craft left the two astronauts it carried stranded on the International Space Station for months, rather than the short visit they were supposed to make.

Ortberg on Friday said the company needs to “focus our resources … rather than spreading ourselves across too many efforts that can often result in underperformance and underinvestment.”

Boeing had already announced it was instituting rolling unpaid furloughs for a large share of its nonunion employees to try to save cash during the strike by members of the International Association of Machinists union (IAM). Those furloughs called for the affected employees to be off work one week out of every four. Friday marked the end of the fourth week of the strike.

The layoff decision means the next furlough cycle will not happen, Ortberg wrote Friday. Employees will be informed about the future of their parts of the company starting next week.

“We know these decisions will cause difficulty for you, your families and our team, and I sincerely wish we could avoid taking them,” he wrote. “However, the state of our business and our future recovery require tough actions.”

Losses mount during strike

Losses over the last five years have caused Boeing’s debt to soar, and it is in danger of having its credit rating downgraded to junk bond status for the first time in its history, according to the major credit rating agencies.

Standard & Poor’s said this week that the strike, which has halted most of the company’s commercial plane production, is costing it about $1 billion a month. Boeing gets most of the money from the sale of a plane at the time of delivery.

Despite the dire financial conditions, Boeing had offered the IAM members raises of 25% over the four-year life of the proposed contract. But rank-and-file members of the union nearly unanimously rejected that offer and voted to go on strike starting September 13.

Boeing then raised its offer to increase wages by 30%, but the union leadership said that also was not sufficient. The union argues the company can afford its wage demands, despite its losses, pointing out wages to its members make up only a small fraction of an airplane’s overall costs. It blames the years of losses on mismanagement by the company.

Federally mediated talks between the two sides broke off earlier this week. Boeing said late Thursday that it filed a complaint with the National Labor Relations Board ahead of the layoff announcement, claiming the union is not negotiating in good faith, a charge the union denied after the job cuts plans were announced.

“Bargaining is hard work, and Boeing keeps walking away from the table,” said Jon Holden, IAM president of District 751, which has most of the striking members. “The fact they are complaining about our proposals shows their desperation and only proves to our members that we are fighting for them. Our members will grow more defiant and more united as they see Boeing continually walk away and quit.”

But wages are not the only issue. Union members are still angry that Boeing demanded they give up their traditional pension plans 10 years ago, when the company was doing well financially.

The rank-and-file union members at that time narrowly agreed to the loss of the pensions because Boeing threatened to move jobs away from unionized plants in Washington state to new plants it might build elsewhere. Boeing dropped that threat in return for the loss of the pension plans.

Even with all of its problems, Boeing is likely at no risk of disappearing. The company has only one rival that also provides full-size passenger planes for the global airline industry: Airbus. However, Airbus does not have the capacity to handle Boeing’s orders. That’s because both Boeing and Airbus have order books for their planes stretching years into the future. If airlines that are Boeing customers cancel their order, they would have to wait five years for a comparable jet from Airbus.

Among the programs being cut is the 767 jet, which is now only being built in a freighter version. Boeing will discontinue that plane once its current orders are completed and delivered to customers in 2027. That plane is built by some of the union members now on strike.

The union issued a statement saying the announcement about the plans to discontinue the 767 “is very troubling, particularly given the current state of negotiations.” It said any decision on the 767 years in the future would have nothing to do with the current strike.

“Boeing is attempting to bargain in the press. It won’t work and it is detrimental to the bargaining process,” said Holden. “They are attempting to deal directly with the membership and sow seeds of doubt and division in our union. They hope to drive a wedge within our union. There is no chance of that. We are stronger than ever and united on every picket line.”

Ortberg also said Boeing’s newest widebody passenger plane now being developed, the 777X, will be delayed further. The company had already disclosed it had been forced to halt test flights due to problems. “We have notified customers that we now expect first delivery in 2026,” he wrote.

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