Exclusive - Union leader: Boeing eyes fast 777X output due to fears of Airbus jet

NEW YORK Fri Nov 15, 2013 11:14pm GMT

(L-R) Union leaders Mark Johnson, Tom Wroblewski, Susan Palmer and Rich Michalski announce the results of a union vote while speaking at the International Association of Machinists District 751 Headquarters in Seattle, Washington November 13, 2013. REUTERS/David Ryder

(L-R) Union leaders Mark Johnson, Tom Wroblewski, Susan Palmer and Rich Michalski announce the results of a union vote while speaking at the International Association of Machinists District 751 Headquarters in Seattle, Washington November 13, 2013.

Credit: Reuters/David Ryder

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NEW YORK (Reuters) - Boeing wants to speed up production of its newest jetliner because of the success of a rival plane from Airbus and sought to nail down a Seattle labour deal to help advance that aim, the machinists union chief said in an exclusive Reuters interview on Friday.

The fears prompted confidential meetings between Boeing Co (BA.N) officials and the union, first reported by Reuters, that sought to clinch an eight-year contract extension with the International Association of Machinists and Aerospace Workers in exchange for building the 777X jet in Washington state, IAM President R. Thomas Buffenbarger told Reuters.

Buffenbarger's remarks are the union's first public statements on the talks, and its first comments on prospects for future negotiations since its members rejected the extension by a 2-1 margin on Wednesday.

In a lengthy interview, the union leader defended the decision to put Boeing's offer to a vote and voiced concern that aerospace work in Washington state will dwindle sharply if the 777X is built elsewhere.

By rejecting the contract, the machinists opened the door for Boeing to consider building the jet outside the state, and prompted numerous states to work on proposals.

Now 31,000 machinists and thousands of other Boeing employees face potential job loss because the 777X is the only jet Boeing is likely to launch for the next 15 years.

"We're in a precarious situation," Buffenbarger said.

But Buffenbarger said the union doesn't plan to make a counter offer. He also praised local IAM President Tom Wroblewski for putting the proposal to a vote because it showed what Boeing needs to offer to extend the contract and avoid the risk of strike when the current labour deal ends in 2016.

"It was a test and we had a structural failure," Buffenbarger said, using industry jargon for a test of limits.

"If Boeing wants to do a retest, talk to us. The ball is in their court."

Many investors still expect a labour deal, because it is far easier logistically to build the plane in Washington, where Boeing already builds the 777.

Buffenbarger acknowledged that Boeing Chief Executive Jim McNerney is serious about considering alternatives and may not allow further talks with the union on building the 777X in Everett.

"I know Jim McNerney," Buffenbarger said. "I don't think Jim's a bluffer."

"STIFFER COMPETITION"

Talks between Boeing and the union began in the second week of October, Buffenbarger said. Officials met every few days at a neutral spot in Seattle, not at Boeing or the union offices.

Talks were "on a very fast timeline that was being driven by the Boeing board making a decision to expedite development of the 777X," he said.

Boeing Commercial Airplanes Chief Executive Ray Conner and Stan Deal, vice president of supply chain management, represented Boeing. The union side included Mark Johnson, aerospace coordinator; Richard Michalski, a recently retired general vice president; and Wroblewski.

Buffenbarger said Conner and Deal expressed the Boeing board's view that launch of the Airbus A350 went "a lot more smoothly than was anticipated. So they see stiffer competition now arriving earlier rather than later."

Customers such as Emirates airline, which are big buyers of the current 777, are clamouring for the 777X to replace jets they plan to retire later in the decade. Emirates is expected to announce an order for at least 100 777X jetliners in the next few days at the Dubai Airshow, where Boeing is expected to formally launch the jet.

But despite the sales success, Boeing has felt intense competition from Airbus in recent weeks.

In September, the A350 won part of a major order from Deutsche Lufthansa (LHAG.DE) that had been expected to go to Boeing. In October, long-time Boeing customer Japan Airlines ordered the A350 over Boeing's competing bid with the 777X.

Buffenbarger said those concerns weigh into the timing and urgency for speeding up the 777X.

"We know we've got a horse race here," he said.

Boeing's effort to speed up the new jet marks a shift from its earlier aim of delivering the jet by 2020 or later.

To help attract the 777X, Washington state lawmakers passed an $8.7 billion package of tax breaks and other incentives that Boeing said also was necessary to bring the 777X to the state.

"WRESTLING" WITH VOTE

The contract vote on November 13 pitted the promise of the 777X for at least 20 years against a number of contract changes union members found hard to accept.

Buffenbarger said there was give-and-take in the talks. Boeing initially sought to extend the contract for 18 or 20 years, he said, but reduced that to eight years.

But other issues proved intractable. Higher health care costs in the deal were not popular with members, but are in line with increases other companies face, he said. While they are steep compared with what machinists now pay, they might look competitive in coming years.

One big sticking point: the offer would have increased the number of years required for workers to reach the top of the pay scale to 16 from six. That would slow pay increases.

But it was Boeing's offer to replace the union pension with a 401(k)-style savings plan that drew strong objections from members who said their predecessors fought for that benefit.

"None of us like it," Buffenbarger said of the plan. "But when you put a pencil to it, money wise, it was equivalent."

Buffenbarger said it was fairest to take Boeing's best offer and let members decide.

He stopped short of calling the vote a victory.

"I'm still wrestling with the ramifications," he said, adding that other planes built at Boeing's massive Everett, Washington, factory are winding down and "you can only keep them on life support for so long."

(Reporting by Alwyn Scott; Editing by Ken Wills)