Ending the strike only stemmed the bleeding at Boeing. Now, CEO Kelly Ortberg, just three months into the job, is faced with repairing a divided, demoralized, and drifting American corporate icon.
More than 33,000 factory workers in the U.S. Northwest will trudge back to work over the next week after they voted by a slim margin to accept Boeing’s third contract offer, ending a seven-week strike that brought Ortberg’s honeymoon at Boeing to a shuddering halt.
The strike has exposed divides that run right through the company, not just between the board and machinists, but also rifts within the union membership and resentment between white-collar staff and factory workers, according to interviews with more than 20 people with knowledge of Boeing’s operations, including current and former senior officials, suppliers, union leaders, and plant workers.
These fractures could hamper and delay a host of urgent issues facing Ortberg and his leadership team, including restoring plane production, restructuring Boeing's floundering defense and space business, and shoring up a supply chain creaking under the weight of years of safety and production crises at Boeing and a crippling pandemic, the people said.
That’s before Boeing gets to what could be Ortberg’s defining moment: preparing a successor to the 737 MAX, a jet that has been a best-seller with airlines but has also become synonymous with the company's struggles in recent years. In a memo to staff shared with reporters late on Monday, Ortberg recognized there was much work to do but stressed the company would "only move forward by listening and working together".
Boeing declined to comment for this story, beyond Ortberg’s memo.
Winning back the confidence of workers, investors and customers will be a challenge after weeks of strike negotiations that have been characterized by missteps and miscalculations, according to Boeing managers, union leaders, and factory workers. Boeing's leadership underestimated the anger among its workers who have seen their wages lag inflation over the last decade, overlapping with a period in which the company used tens of billions of dollars for share buybacks and record executive bonuses. Boeing has said in the past that the buybacks were justified by strong demand for its products.
After rejecting two previous offers, only 59% of Boeing union members voted to accept Boeing's latest offer, which included a 38% wage increase over four years, meaning thousands of workers will return to assembly lines unhappy with the new contract.
The machinists "have been there a long time and felt taken advantage of by management," said Bill George, former Medtronic CEO and executive fellow at Harvard Business School. "The number one issue now is separation of management from the people."
It's all the more surprising Boeing was caught on the backfoot by the depth of the discontent, given leaders had begun war-gaming a possible strike by the International Association of Machinists and Aerospace Workers (IAM) at least a year ago when former CEO Dave Calhoun was still in charge, two people familiar with the matter said.
When he joined in August, Ortberg called for a "reset" of relations with Boeing's largest union but was forced to rely at least in part on a negotiating strategy inherited from his predecessor, they added.
"It’s really easy to be critical of the guy, but I don’t think its fair because he hasn’t been there very long," said Ron Epstein, Bank of America analyst. "The negotiations team was working on this at least for months before he showed."
ORTBERG UNDER FIRE
At the outset of the strike, local IAM leader Jon Holden and factory workers were reluctant to lay blame at Ortberg's door, given he inherited a company already in crisis after a panel blew off a 737 MAX jet in midair in January.
Ortberg, 64, had won favor among workers in the Puget Sound region by moving to Seattle and pledging to work more closely with the rank-and-file than his much-maligned predecessors.
But Ortberg, who was later criticized by Holden for being largely absent during weeks of intense strike negotiations, increasingly became a lightning rod for workers' anger.
"He came in and talked about changing the culture. He's not changing the culture at all," said Cory Thompson, a 47-year-old paint-quality inspector in Boeing's vast Everett factory.
"He's no different from the last CEO and the one before."
Last week, Ortberg did personally attend strike negotiations, according to Brandon Bryant, president of IAM district W24, which represents around 1,300 striking Boeing workers who produce flight-critical parts in Portland, Oregon.
Bryant, who was present at the meeting, told Reuters Ortberg’s presence helped clinch the deal during a three-day blitz at the Department of Labor’s Seattle offices.
At first, Ortberg played hardball, telling the union to vote again on the same contract offer that 64% of members had already rejected, Bryant said. After Bryant and Holden refused, Ortberg agreed to up Boeing's wage increase to 38% over four years, compared to 35% previously, and increase a ratification bonus to $12,000.
Ortberg hinted that if this offer was rejected then the company would do "something different", which Bryant said he took as a threat that Boeing could start making its offers worse.
Holden warned members ahead of the latest successful vote that Boeing could start taking things away in the next offer if they didn't accept this one, an echoing ultimatum that some workers said eroded trust in the union leadership itself.
"They undermined us from the beginning," Andre Johnstone, a materials manager at the Everett plant, told Reuters shortly after voting against the latest contract.
Raw feelings are not uncommon in the immediate aftermath of a labor dispute and Ortberg hopes the company will now re-unite.
But the rancorous relationship between Boeing's boardroom and its factory workers in Seattle now risks seeping through other parts of the company, current and former staff said.
The return to work of machinists in Seattle contrasts with thousands of layoff notices due in the coming days after Ortberg announced last month plans to cut Boeing's workforce by 10%. A non-union Boeing employee waiting for the outcome of a ranking exercise known as "rack and stack" called the IAM members' hard line on the strike "gut-wrenching".
"Do they want to sabotage the company’s future? Are they pushing Boeing into bankruptcy?" he said.
Others say the IAM deal could start a cascade of salary claims from other production workers, and rekindle union efforts to sign up support in South Carolina, where Boeing set up a 787 factory following the previous 58-day IAM stoppage in 2008.
"It clearly puts pressure on management in other parts of the business because the workforce will look at what IAM is achieving as a result of being unionized," another Boeing insider said, asking not to be identified on internal matters.
Internal distractions also risk delaying important decisions as Boeing aims to sell some loss-making units of its space and defense business, two sources with knowledge of the matter said.
During the strike, Reuters reported that Boeing's executive suite was too busy and understaffed to speed up the divestitures in the space and defense unit. PRODUCTION TEST
The union deal came days after Boeing raised an unexpectedly hefty $24 billion to prop up its depleted finances.
But a longer-term fix such as renewing the all-important 737 franchise to close a gap with Airbus's hot-selling A321neo may need a deeper effort.
"Effectively, remaining in business has consumed their ability to raise capital and they have not been left with much leeway to raise more to develop a new airplane later," said Nick Cunningham, an analyst at investment research group Agency Partners.
Winning the space to generate or raise the funds for a new jet is Ortberg's medium-term challenge, he said. "The nearer-term one is making factories work more efficiently and safely."
In the meantime, it urgently needs to start bringing cash back into the business, and that means ramping up production of the 737 MAX, Boeing's cash cow.
Boeing has signaled it will move at a deliberate pace. It is anxious to avoid any mishap that might rock the confidence of investors, regulators or the public following the litany of setbacks it has suffered during a wretched year, sources said.
The timing is mired in uncertainty after dozens of companies that make parts for the plane furloughed or laid off staff during the strike. "It’ll be a good test of our new CEO,” said Bartley Stokes Jr, 40, a second-generation Boeing mechanic who works on 767s at the Everett factory.
"I’m worried they aren’t going to have a good plan."
Factory workers at Boeing have voted to accept a contract offer and end their strike after more than seven weeks, clearing the way for the company to restart idled Pacific Northwest assembly lines.
But the strike was just one of many challenges the troubled U.S. aerospace giant faces as it works to return to profitability and regain public confidence.
Boeing’s 33,000 striking machinists disbanded their picket lines late Monday after leaders of the International Association of Machinists and Aerospace Workers district in Seattle said 59% of union members who cast ballots agreed to approve the company’s fourth formal offer, which included a 38% wage increase over four years.
Union machinists assemble the 737 Max, Boeing’s bestselling airliner, along with the 777 or “triple-seven” jet and the 767 cargo plane at factories in Renton and Everett, Washington. Resuming production will allow Boeing to generate much-needed cash, which it has been bleeding.
“Even for a company the size of Boeing, it is a life-threatening problem,” said Gautam Mukunda, lecturer at the Yale School of Management.
The union said its workers can return to work as soon as Wednesday or as late as Nov. 12. Boeing CEO Kelly Ortberg has said it might take “a couple of weeks” to resume production in part because some workers might need retraining.
As the machinists get back to work, management will have to address a host of other problems. The company needs to get on better financial footing. But while doing so, it also needs to prioritize the quality of its workmanship and its relationships with employees and suppliers, analysts said.
Boeing has been managing itself to meet short-term profit goals and “squeezing every stakeholder, squeezing every employee, every supplier to the point of failure in order to maximize their short-term financial performance,” Mukunda said. “That is bad enough if you run a clothing company. It is unacceptable when you are building the most complex mass-produced machines human beings have ever built.”
Above all, Boeing needs to produce more planes. When workers are back and production resumes, the company will be producing about 30 737s a month, and “they must get that number over 50. They have to do it. And the people who are going to do that are the workers on the factory floor,” Mukunda said.
Another challenge will be getting the company’s fragile supply chain running again, said Cai von Rumohr, an aviation analyst at financial services firm TD Cowen. Suppliers that were working ahead of Boeing’s schedule when the strike began may have had to lay workers off or finance operations on their own.
“There are lots of nasty questions in terms of complexities that go into revamping the supply chain,” he said.
One way Boeing could generate cash would be to sell companies that don’t fit directly in the business, such as flight information provider Jeppesen Sanderson, which it bought in 2000 for $1.5 billion, von Rumohr said.
“They’d lose some earnings but they’d get a lot of cash to reduce their debt,” he added. “They really need to get to a more stable position where they have a solid credit rating.”
Ortberg acknowledged the challenges ahead in a message to employees after they voted to end the walkout.
“There is much work ahead to return to the excellence that made Boeing an iconic company,” he said.
The average annual pay of Boeing machinists is currently $75,608 and eventually will rise to $119,309 under the new contract, according to the company. The union said the compounded value of the promised pay raise would amount to an increase of more than 43% over the life of the agreement.
Reactions were mixed even among union members who voted to accept the contract.
Although she voted “yes,” Seattle-based calibration specialist Eep Bolaño said the outcome was “most certainly not a victory.” Bolaño said she and her fellow workers made a wise but infuriating choice to accept the offer.
“We were threatened by a company that was crippled, dying, bleeding on the ground, and we as one of the biggest unions in the country couldn’t even extract two-thirds of our demands from them. This is humiliating,” she said.
For other workers like William Gardiner, a lab lead in calibration services, the revised offer was a cause for celebration.
“I’m extremely pumped over this vote,” said Gardiner, who has worked for Boeing for 13 years. “We didn’t fix everything — that’s OK. Overall, it’s a very positive contract.”
Along with the wage increase, the new contract gives each worker a $12,000 ratification bonus and retains a performance bonus the company wanted to eliminate.
President Joe Biden congratulated the machinists and Boeing for coming to an agreement that he said supports fairness in the workplace and improves workers’ ability to retire with dignity. The contract, he said, is important for Boeing’s future as “a critical part of America’s aerospace sector.”
A continuing strike would have plunged Boeing into further financial peril and uncertainty. Last month, Ortberg announced plans to lay off about 17,000 people and a stock sale to prevent the company’s credit rating from being cut to junk status.
The labor standoff — the first strike by Boeing machinists since an eight-week walkout in 2008 — was the latest setback in a volatile year for the aerospace giant.
Boeing came under several federal investigations this year after a door plug blew off a 737 Max plane during an Alaska Airlines flight in January. Federal regulators put limits on Boeing airplane production that they said would last until they felt confident about manufacturing safety at the company.
The door-plug incident renewed concerns about the safety of the 737 Max. Two of the planes crashed less than five months apart in 2018 and 2019, killing 346 people. The CEO at the time, whose efforts to fix the company failed, announced in March that he would step down. In July, Boeing agreed to plead guilty to conspiracy to commit fraud for deceiving regulators who approved the 737 Max.
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