After-thoughts of Qantas 787 cancellation, SPEEA and Boeing
A day after it became public Qantas Airways canceled 35 Boeing 787-9s, it might be worthwhile giving a thought or two.
The Wall Street Journal has a good story (unfortunately, paid-subscription, though it may show up via Google News) looking at the impact. We also received some media calls on the topic.
We’re not nearly as gloomy as the general reaction. In fact, we sort of shrug about it. The cancellation is because of Qantas’ own problems, not because of anything with the 787 program. QF’s issues have been a long-time coming, in much the same way as US legacy carriers.
QF’s cancellation gives Boeing two choices with these slots: resell them to an important, strategic customer or “close up” the production line and reduce some delays to other customers. Either is an acceptable alternative.
Had these been 737 or 777 cancellations, nobody would have blinked an eye. But because it is the troubled 787 program, a lot of hand-wringing goes on. We think it’s overdone.
Doug Harned at Bernstein had this to say in a note issued today:
Questions about the strength of the 787. The Qantas cancellation should not be taken as any indication that 787 demand is weaker. At planned production rates, it appears that there are few slots available for 787 deliveries until 2019, which makes these earlier slots very valuable. We understand that Boeing has been looking at approaches to raise production rates for the 787, given the strength of demand – not something Boeing would be doing if it saw the production ramp as at risk. Because we believe that Boeing originally priced its 787s too low, we expect that the Qantas slots will be taken by other airlines, potentially at higher prices. There have been comments in the press (e.g. WSJ) that this cancellation is a blow to the 787-9 (as distinct from the 787-8). We do not believe that is the case, as we have found customers more interested in the 787-9 than the 787-8, although its availability comes later in time.
SPEEA and Boeing: charges and counter-claims
As the dates nears for the contract expiration next month between SPEEA and Boeing, the rhetoric heats up. SPEEA recently made the following statement; Boeing’s response follows.
SPEEA charges Boeing with Unfair Labor Practices
SEATTLE – Unfair Labor Practice (ULP) charges were filed against The Boeing Company on Tuesday (Aug. 21) after company officials told employees they are prohibited from saying negative things about their employment. Such discussions by union members are protected by the National Labor Relation Act (NLRA). Employers’ efforts to curb these discussions violate federal law.
The charges were filed by the Society of Professional Engineering Employees in Aerospace (SPEEA), IFPTE Local 2001, after representatives from Boeing Ethics made the comments to new employees during the weekly orientation meeting on Friday (Aug.17).
In addition to this obvious violation of labor law, SPEEA has received numerous complaints from employees about managers telling them to remove and not display union material at their personal workstation. Employees also report finding union-related items removed from individual work areas when they arrive at work to start a new work day.
SPEEA is gathering additional information and has asked members to document and report any such conversations with managers or the removal of items from their desks.
SPEEA is presently negotiating new contracts with Boeing for 23,000 engineers and technical workers, primarily in the Puget Sound region. The union presented its full proposal to Boeing on June 15. The company has refused to present its offer to the union. Existing contracts expire Oct. 6.
Boeing, from lead negotiator Mike Delaney:
Our approach to negotiations with SPEEA
I thought I would take the opportunity to share my thoughts regarding the current negotiations with SPEEA.
First, as a member of the Boeing engineering team, my objectives are pretty simple. I want the engineering team in place to complete the 787 family, to invest in the 737 and 777, to continue to provide world class support and services to our customers, and to be able to start the long-lead research and development of the next new airplane. I want my engineers and technical team to be rewarded with market-leading total compensation. And I want my engineering team to be competitive now and ten years from now, so we have the opportunity to capture new work and achieve the long run of product development and production our customers desire. I also believe you expect me to help find the balance between market premium and the future competitiveness of our team.
Contrary to what you may be hearing or reading in the news or through other sources, Boeing has been engaging and will continue to engage in meaningful negotiations with SPEEA. This is a process and I, along with all members of the Boeing negotiating team, take it seriously. A portrayal of the company’s negotiations approach as focused on “takeaways” is misleading. For example, the characterization of where the market movement for engineering or technician compensation is relative to the previous contract as a takeaway is at best “new math.” When Boeing lays its final proposal on the table, the value of the total compensation for our engineering team will continue to be market-leading.
Last week during negotiations with SPEEA, we shared information on the competitive market dynamics for the commercial and defense businesses. Some members of the SPEEA negotiating team said they didn’t care about our views of the market or how we fit in that market — just drop an offer. But we feel it’s critical for them — and you — to understand the reasons behind any proposal. In that regard and despite the union leadership’s objections, we intend to follow our process for providing the data that underpins every proposal. The reason I feel so strongly is that, like me, you are engineers or technicians and will want to “pressure test” the assumptions and data.
We engaged early with SPEEA leadership and we are, in fact, ahead of where we would normally be in the negotiations process compared to previous negotiations. This early engagement was based on discussions I had with Tom McCarty (SPEEA president) last year where we talked about addressing the most critical issues early. We knew that a change on how we offer retirement benefits for future hires was going to be a hard discussion. Therefore, Boeing teed-up retirement benefits for new hires first in an effort toward complete transparency about the important interests for the company.
You are now seeing individuals characterizing our actions as a “respect issue” reminiscent of the year 2000 timeframe. I couldn’t disagree more. Today, engineering is more valued by our company from top to bottom than at any time in my career. And I will stand behind my own words when I say, “Engineering is the center of all value creation” and “We are an engineering company that builds really cool products.”
In closing, I encourage you to engage in the process. Read all the information provided by SPEEA, from Boeing and from other sources you trust. We have set up a special webpage 2012 SPEEA negotiations where you can find detailed information on the negotiations and proposals. I hope you read it, digest it, analyze it and run the numbers for yourself. I realize there are a lot of nuances in any contract of this complexity. If you have questions or concerns, talk to your manager or Human Resources. In the end, when the time is right, please vote. Don’t let others decide your future. When available, judge the contract proposal based on your self-interest and vote.