By Allison Lampert and David Shepardson
(Reuters) – Boeing said on Sunday it had reached a tentative agreement with a union representing more than 32,000 workers in the U.S. Pacific Northwest, in a deal that could help avert a potentially crippling strike as early as Sept. 13.
If approved, the proposed four-year contract, which includes a 25% across-the-board pay increase and a commitment to build the next commercial jet in the Seattle area, is a major victory for Boeing's (NYSE:) new CEO Kelly Ortberg, who took over last month with a mandate to improve quality at the planemaker — an issue a deal with workers could help with.
The first comprehensive labor agreement in 16 years would also include improved retirement benefits and give the union a greater say in the safety and quality of the production system. The union called it the best contract it had ever negotiated and described unionized workers as committed to building quality airplanes.
Boeing is grappling with a quality crisis and facing scrutiny from regulators and customers after a door stopper on a nearly new MAX jet broke off. Alaska Air (NYSE:) passenger jet in the air in January.
The deal would have to be approved Thursday by workers at Boeing factories near Seattle and Portland, Oregon, represented by the International Association of Machinists and Aerospace Workers (IAM). Boeing workers could reject the deal if it does not win majority support. A strike is possible if two-thirds support a work stoppage in a second vote.
If ratified by union members on Thursday, the agreement would commit Boeing to building the 737 replacement at its Pacific Northwest facility if the project gets underway during the life of the contract. However, it is unclear when the planemaker will announce its next plane.
Boeing and rival Airbus are in the early stages of drawing up strategies to replace their best-selling single-aisle models, which are expected to enter service in the late 2030s.
Boeing's decision to commit early to its main Northwest aircraft manufacturing hub for new models contrasts with previous efforts to compete across different locations, which has rankled the IAM.
“This would be in line with our other flagship models, meaning job security for future generations,” Boeing Commercial Airplanes CEO Stephanie Pope said in a message to employees.
Ortberg, who is under pressure to change Boeing's culture and improve quality, also needs to address labor relations and the company's future, said aerospace analyst Richard Aboulafia. Ortberg is a former Rockwell Collins (NYSE:) executive who moved to Seattle to run the company.
“Changing culture starts with a different attitude towards work and towards the future with the development of new products,” Aboulafia said on Sunday.
At the same time, Boeing is facing significant financial pressure as it continues to lose money. In July, it posted a second-quarter net loss of $1.44 billion.
Last week, Wells Fargo said Boeing's annual free cash flow target of $10 billion could be pushed back about two years to 2027-28 and that the company may need to raise $30 billion before developing a new plane. Wells Fargo analyst Matthew Akers said Boeing has net debt of about $45 billion.
An accepted deal would ensure labor peace for Boeing at a time when the planemaker is burning through cash and trying to ramp up production of its best-selling jet, the 737 MAX, to a target rate of 38 planes a month by the end of the year.
The union fell short of its initial goal of achieving a 40% raise, but still praised the deal.
“While there was no way to achieve success on every point, we can honestly say that this proposal is the best contract we have ever negotiated,” the local chapter of the IAM union representing Boeing workers said in a statement.
The deal comes at a time when workers are taking advantage of labor shortages to reap profits. The United Auto Workers union secured a similar 25% across-the-board wage increase over four and a half years with the Detroit Three last fall.
The talks had been observed by members of U.S. President Joe Biden's administration, and Acting Labor Secretary Julie Su last week urged the parties in an interview with Reuters to secure a “fair contract.”
Su had spoken to both Ortberg, a source familiar with the matter said, and to the union's local boss, Jon Holden.
Boeing workers, who make the 777 and 767 wide-body jets in addition to the MAX, had voted in favor of a strike order in July.
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