Some joy in Olympia despite glum budget news

There is a brighter side to Christmas this year, despite the weak economy and lawmakers bickering over how to patch the $2 billion hole in the state’s budget.

The good news comes from Boeing.

Boeing and its machinists recently ratified a new four-year contract which averts a strike through 2016. Even though the plum in the pudding was the accompanying announcement that Boeing would produce its new 737 MAX at its Renton plant, the agreement has much broader significance.

Early ratification of a labor agreement is hugely important to Boeing, its workers, our state and nation. Boeing is one of the world’s most prominent manufacturers stationed in the Seattle area at a time when manufacturing is shifting around the world.

“It’s not simply any company,” says Harley Shaiken, a labor professor at the University of California at Berkeley. “It’s the largest exporter, one of our high-tech leaders, a pivotal manufacturing firm. What happens here is critical.”

The new agreement was supported by 75 percent of the 28,000 workers at IAM District Lodge 751 — encouraging, because the machinists are considered the linchpin among Boeing’s 80,000 workers in Washington.

The agreement means Boeing and its Washington workers are digging in to compete against aircraft manufacturers in Europe, China, Canada and Brazil.

In the wake of the new agreement, the union asked the National Labor Relations Board to drop its complaint against Boeing. Machinists had said the company’s non-union 787 assembly plant in South Carolina amounted to illegal retaliation against the union. On Dec. 9, the NLRB officially dropped the complaint.

The fact is, Boeing needs production lines in South Carolina and Washington. It has 821 orders for the 787 to fill and a huge investment to recover. Delivering those aircraft on time is important so the company doesn’t accrue late charges and order cancelations. Completing its current order book gets the company most of the way to recouping the plane’s $9.7 billion development costs.

Recovering those costs depends on how quickly Boeing can increase the production rate to ten 787s per month by the end of 2013 and ramp up from there. As with any new product, it takes time to reach peak production efficiency.

Boeing’s revamped 737, known as the 737 MAX, is considered a direct challenge to Airbus’ fuel-efficient A320 NEO. According to the aviation website AirInsight, the NEO is expected to cut operating costs of current models by 10 to 15 percent, and the MAX is projected to come in even lower than that.

Boeing currently has a team of 300 people developing the plane in Renton, a workforce that is expected to expand to more than 1,000 in the next two years. Bloomberg reports that Boeing Commercial Airplane President and CEO Jim Albaugh expects the first firm order for the 737 MAX to be signed by Christmas.

Labor peace is essential if Boeing and the region are to take advantage of a growing demand for commercial aircraft. Globally, some 27,800 new aircraft valued at $3.5 trillion will be required to replace aging fleets and open new routes by 2030. Roughly, 6,000 of those airplanes will be needed in Canada and the United States.

Industry analyst Wayne Plucker of the Texas research firm Frost & Sullivan said the new labor agreement between Boeing and its machinists is good for both sides. Considering the looming Defense Department budget cuts that threaten defense contracts across the industry, Boeing is going to need solid performance from its commercial airplane division.

As Plucker astutely noted, “Boeing needs a peaceful time and their competition with Airbus and their challenges to come on the defense side made it kind of a pivotal thing to have a quiet, peaceful time, labor relations-wise.”

Don Brunell is the president of the Association of Washington Business.