Boeing's move to South Carolina cuts 787's costs, but risks labor turbulence
Filed under: Boeing
As I posted, Boeing (BA) is opening a plant in South Carolina to help build its 787 Dreamliner -- the up to 330-passenger aircraft whose scheduled delivery date has been delayed six times. BusinessWeek reports that Boeing is investing $750 million in that plant and expects to pay the workers there $15 an hour, 42% less than its unionized Washington state workers get. With 850 Dreamliner orders worth $110 billion on the books, Boeing can hardly afford more problems with this plane. Is this move by the company short-sighted?
The answer depends on whether Boeing can train those South Carolina workers to do what those in Washington can. Lately, things haven't worked out so well for Boeing in its relationship with those Washington workers. About a year ago, Boeing's 27,000-member machinists union there went on strike for 57 days, which contributed to one of those six 787 delays and cost the company $2 billion.
But Boeing has had its troubles in South Carolina too. For example, at one of its 787 suppliers, Vought Aircraft Industries, the 900 workers could not meet Boeing's requirements for the 787's rear fuselage -- so Boeing bought the facility this July. Yet by shifting substantial production to South Carolina, Boeing is giving itself better negotiating leverage with the union in Washington.
And it also will get new supporters in Congress -- South Carolina's House and Senate members, who are always seeking jobs for their constituents -- which could help Boeing win the bid for the Air Force's $35 billion airborne refueling tanker.
However, Boeing's now-angrier Washington workers are the linchpin. BusinessWeek notes that they could decide to slow production there through "work by the rules" actions and by tagging work that comes from South Carolina to Washington as not being up to specifications.
Furthermore, the Washington workers believe they have the edge when it comes to fixing the problems created by the 787's far-flung supplier network. And as Boeing disperses more production, it will either need to find a way to improve the quality of its suppliers' work or depend more on its in-house workers to fix those problems.
Through the shift to South Carolina, Boeing will save money in the short run, and if its workers there gain the technical know-how Boeing needs, they will indeed pose a threat to its unionized Washington workers. But its big South Carolina investment will delay the 787's break-even point.
In the interim, Boeing will be in for turbulent times.
Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
11-09-2009 @ 12:16PM
Alan said...
The honeymoon is drawing to a close!
Black caucus seeks info on Boeing's hiring practices
Charleston Post and Courier 11/09/2009
Author: Yvonne Wenger
South Carolina's Legislative Black Caucus wants to make sure that minorities have a fair and equal shot at the new jobs Boeing Co. is bringing to the Lowcountry, according to letter obtained by The Post and Courier Monday.
Sen. Robert Ford, a Charleston Democrat and chairman of the caucus' Civil Rights and Affirmative Action Committee, wrote Boeing's president Jim McNerney Oct. 30 to ask for information about the company's hiring practices.
Ford, who is running for governor, represents Senate District 42, where Boeing's newly announced Dreamliner production line will be located. He included in the letter the racial makeup of his district and the greater Charleston area, which is 55 percent and 40 percent African-American, respectively, according to Ford. The overall black population statewide is 31 percent, Ford said.
"The African-American community has borne the brunt of the job displacement and as a result has been disproportionately affected," Ford wrote to McNerney about the recession's toll in South Carolina.
The caucus is requesting information about Boeing's job creation plans for the North Charleston facility, employment statistics company-wide for minorities and the breakdown of men and women employed at all Boeing facilities. The caucus also asked for Boeing's minorities contractor politics and procedures and requested meetings with Boeing leadership.
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11-09-2009 @ 1:31PM
sgentilejr said...
Boeing is risking far more than Labor Unrest. Boeing is risking permanently destroying their reputation and bankrupting the company. The executives running Boeing are penny wise and pound foolish. The avoidable strike cost them $2 Billion dollars, probably 5 times more than agreeing to the wage demands would have cost. Now they are spending another fortune again to lower their per hour labor costs. $750 million being spent on a new SC plant already places Boeing out $750 million for NO production yet.
Defects, delays, design flaws can sink Boeing permanently. They are already 2 years behind and betting the companies future existence on their "Hope" that they can at some point___ in some still unknown future date____ train enough new low wage workers to build aircraft that are free of defects and able to stay airborne. How many orders have these delays cost Boeing so far? How much more will it cost in lost orders before even one new aircraft flaps it's wings and flies??
Companies such as IBM, Boeing, HP, Caterpillar built their reputations upon High Quality, not upon CHEAP. US auto makers lost market share because consumers felt the Import were BETTER made and had less problems and defects, not because the imports were cheaper. Reputation is priceless and once the Boeing reputation is lost they have nothing.
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11-09-2009 @ 1:52PM
boxertwin said...
We betcha the Carolina people will outperform as they have done with BMW, Michelin, Caterpillar, Toshiba, etc. The labor unions are just too powerful and can spin the situation most any way they would like. But the improved quality coming from the south will shine and hopefully lead the way in demonstrating what non union labor can do. Industry will be clamoring to get in down here where the evil unions can do no harm to profit and productivity. Its just amazing that a union can hold the political clout it does and can actually hinder business in the ways described in the article, causing delays, and lying.
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11-09-2009 @ 2:18PM
Sonny said...
Why should unions hold corporations hostage.........it simply amounts to extortion and what is worse, this practice has the current administrations blessings. I say, go South Carolina and take advantage of the greedy union's demands in Washinton State.........Teach them a lesson.
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11-14-2009 @ 5:37AM
Bubba said...
Why should corporations hold the American Public hostage.........it simply amounts to extortion and what is worse, this practice has the current administrations blessings.
same sh!t, different day.
11-09-2009 @ 2:39PM
will said...
Thank you Boeing for taking your business back. And making the unions get real. If you want to get paid like a doctor go back to school. Give us back our country.
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11-09-2009 @ 2:54PM
Frequent Flyer said...
So the highly trained and skilled workers in Washington wanted a pay raise and the Executives at Boeing decided to save money and break the unions back by moving across the country to allow underpaid and UNSKILLED workers to build AIRPLANES. For God's sake, people. These are AIRPLANES. Not toilet seats. If the toilet seat doesn't work you fall in the toilet. If the AIRPLANE doesn't function properly, there is not enough left of you to put in a toilet. Am I the only one who hopes his pilot is highly trained and skilled flying a well maintained aircraft built by highly trained and well skilled workers? I bet the boeing executives will get HUGE bonuses for saving that cash on the skilled workers.
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11-09-2009 @ 3:16PM
Charles said...
Unions have been using this same old argument for over 75 years. S C workers will do just fine. Ask BMW!!!
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11-09-2009 @ 6:57PM
jesusjammer26 said...
Agreed. Boeing is not stupid enough to risk using unskilled workers to do the job of Washington state workers. The Carolina's are full of high skilled workers and many more are finding the wealth that is to made there every day. They will be fine BMW moved there and they are having no problems
11-09-2009 @ 4:52PM
Bill said...
Boeing is making a good long term decision, the Washington Unions have shown they will sacrafice Boeing's reputation for their own demands. This decision should help protect future negotiations, The Steel Indusrty and Auto Industry allowed the union demands yo ruin both of these industries by not taking strong action.
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11-09-2009 @ 4:56PM
Joe said...
Now is a chance for the Washington workers to prove that being part of a union is good for Boeing by outperforming everyone else. But I fear they will prove the opposite that a strong union will be the death of the company. Look how many other industries they killed. Greed versus performance.
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11-09-2009 @ 5:11PM
bvob said...
The Unions will never learn. There killing themself like that are killed themselves in the auto industrie. Good for Boing I I did the same thing with my company and saved big time money and the men work as hard and are more pleasureable and have a better moral.
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11-09-2009 @ 6:52PM
FSR said...
You get what you pay for! What kind of employee long term commitment and wormanship quality does Boeing expect at $15/hr? Boeing, get ready for a constant turn over in employees and shooty wormanship!
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11-09-2009 @ 8:18PM
Smokey said...
Unions are nothing more than legalized extortionists that promote lazy work practices (do only enough to get by, make the job last longer.) Here in the south, there are PLENTY of skilled workers capable of producing a quality product. The people are friendlier here, value their jobs, have pride in their workmanship, and the cost of living is lower because we are not strangled by Blue State nonsense regulations that cripple production. Unions killed Detroit, Pittsburgh, and many other former industrial meccas. Good on ya, Boeing. This move is smart business.
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11-09-2009 @ 8:27PM
williamg said...
the unions have outlived their usefulness, at one point in time they were necessary but no longer..They think they are the companies and the real companies should kiss their ass.
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11-13-2009 @ 6:59PM
summerof69 said...
So Billy Bob and his redneck scab brothers are gonna attempt to build passenger aircraft now?? Looks like i will only fly Airbus from now on !! If you want to live, you will do the same !!!
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11-16-2009 @ 7:56PM
Ed said...
I think I will move to SC and apply for one of these good Boeing jobs. Unions are for uneducated losers who are too stupid to see what is going on. How many industires must they destroy before these idiots figure it out. The next step is to break all of the unions tied to Federal, state, and local governments. They are soaking the taxpayer dry....Time to live like the rest of us!
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