Boeing Needs To Now Decide Where To Build 777X Dreamliner

| About: The Boeing (BA)

Boeing (NYSE:BA) is one of the top names in aeronautical design and manufacturing in the United States and the world. Since its start in the early 20th century in Seattle, Boeing has kept its edge in the competitive world of jetliner manufacture. However, the company's recent troubles with its labor force are just another in a chain of disputes that threaten to hold back its progress and its stock.

Boeing's Labor Problems
Boeing has been embroiled in a number of labor problems during the past few years. While trying to stave off labor problems with the machinist union in both Washington State and South Carolina, where the company manufactures its Dreamliner model. Adding to their problems are ongoing disputes with their engineering staff. The engineers are critical to the company's operations, comprising about 9 percent of their workforce. These disputes have caused periodic drops in the Boeing stock price.

Workers Stand Firm
Negotiations over the current contract have been contentious. At the heart of the 8-year extension is a question of pensions, which union leaders claim is too important to the workers as well as the economy of the state to hand over blithely. The International Association of Machinists voted 67 percent against the contract, putting at risk their participation in the construction of the new 777X on which Boeing is pinning its financial future for the next 15 years. Although the 31,000 Boeing workers could lose jobs because of their refusal to accept the terms, they seemed united in opposing the huge givebacks the contract contained. Washington State Governor Jay Inslee laments the decision of the unions and says it's a setback for the state to risk the loss of jobs to right-to-work states like Texas.

The Fate of the 777X
Boeing is likely to respond by taking the manufacturing process of the 777X to non-union states or even overseas to Japan where the company is being courted aggressively. Mitsubishi has already offered Boeing a detailed proposal for construction of the 777X's wing. However, the strong advantages of keeping the skilled and experience workforce, as well as the many incentives the company was given for coming to the area, may be considerations in determining the fate of the jetliner construction. A move would take about 20,000 jobs out of the area, leaving a large hole in the economy of this growing state

What Investors Can Expect
Boeing's CEO Jim McNerney confirms the possibility of moving the manufacturing operations elsewhere, but shies away from making it an ultimatum for the union. Even if the union were to accept such terms, it would strongly impact worker satisfaction and productivity. It's unquestionable that the company is in a bind with this rejection, one that could impact the smooth implementation of 777X marketing and manufacture.


The Boeing stock has had a tremendous run this year and is up today on the Union rejection of the proposed contract. We recommend a cautious approach until the plans for the manufacture of its new jetliner are settled.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.