10/06/2008

By TIM KLASS  / Associated Press

A Machinists union strike has hurt The Boeing Co.'s reputation and threatens the nation's aerospace industry with a fate similar to that of automakers in Detroit, chief executive W. James McNerney said Monday.

In a memorandum to all Boeing employees, McNerney noted that leaders of the International Association of Machinists and Aerospace Workers have recommended strikes four times and have shut down Boeing's commercial aircraft assembly plants three times with walkouts in the past 13 years.

"While we've disappointed customers for other reasons in recent years, too, we believe this track record of repeated union work stoppages is earning us a reputation as an unreliable supplier to our customers, who ultimately provide job security by buying our airplanes."

Union representatives did not immediately return a telephone call to The Associated Press.

The Machinists union represents about 25,000 electricians, mechanics, painters and other hourly workers in and around Seattle, 1,500 in Gresham, Ore., and 750 in Wichita, Kan. The last two strikes were in 1995 and 2005, and union members narrowly failed to ratify a leadership recommendation for a strike in 2002.

Pickets and union leaders alike say many of the "other reasons" for delivery delays are the result of outsourcing, especially pre-strike foul-ups by subcontractors that have postponed testing and production of the new 787 jetliner.

Before the latest walkout, which began Sept. 6, Boeing was scrambling to meet a revised schedule for test flights of the 787 to begin late this year. With the walkout in its fifth week and no talks scheduled, that timetable has become virtually impossible to meet.

Boeing stock plunged to a four-year low of $47.92 Monday in the widespread market sell-off before rebounding slightly to $48.01.

Earlier in the day, JPMorgan analyst Joseph Nadol reduced his aircraft delivery and 2008 earnings estimates because of the strike but raised his third-quarter profit forecast, saying the delivery of 84 planes in the period was four more than he expected.

McNerney's note, released by Boeing, referred in passing to three of the top four issues in the dispute — pay, retirement benefits and medical care — focusing instead on the fourth, outsourcing and job security.

U.S. auto manufacturers undermined their world dominance in past decades by agreeing to "unsustainable wage and benefit levels and by agreeing to contract conditions (including job guarantees) that limited their flexibility to run their businesses in the face of intense global competition," he wrote, including the material in parentheses.

"The ongoing turmoil in the financial markets provides a timely reminder of why it would be gravely unwise for Boeing to agree to terms in any contract that would fundamentally restrict our ability to manage our business," NcNerney added. "Markets and business conditions can change quickly and dramatically. And we need to be able to react just as fast."

Besides increasingly tight competition from Airbus SAS, the other leading manufacturer of large commercial jets, "other nations _including Russia, Japan, Canada and Brazil — either already produce or are developing the capability to produce airliners that approach the size of Boeing's smallest and best-selling 737," he wrote.

"If our collective Boeing team — with both nonunion and union-represented employees — cannot reliably supply our customers, other competitors will do so."