Boeing Co., working to reach a new contract with unionengineers, says some development work on future airliners may bedone at less-expensive sites outside its Seattle jet-manufacturinghub.

While keeping the renewed focus on engineering championed byformer Commercial Airplanes President Jim Albaugh, Boeing can drawon resources from across the breadth of the company, not just thosein the Puget Sound region, Mike Delaney, the chief engineer, saidyesterday.

“Seattle is a love-hate relationship for me,” he said. “I lovepumping all the money into my team, but now we're in the same placeas southern California and the Washington, D.C., area in terms ofcost to do engineering. Those are the three most expensive placesin the country to do engineering.”

Boeing's engineers not only design new planes, they inspectthose being built and sign off on the work before aircraft aredelivered. That means any labor action would interrupt work flowduring a record production increase, so the Chicago-basedplanemaker must balance that risk with winning cost savings in acontract to replace the one expiring Oct. 6.

“We're committed to the Puget Sound,” Delaney said. “But we alsohave access to the Boeing corporation.”

Talks have been contentious, with disagreement strongest overBoeing's plan to switch new engineers to a 401(k)-style retirementbenefit rather than a pension, according to the Society ofProfessional Engineering Employees in Aerospace.

Speea, as the union is known, represents about 23,000 Boeingworkers, mostly based in the Seattle area. Its 15,000 engineersmake an average of $110,000 a year, while 8,000 technical workersunder the same contract earn an average $79,000.

Other U.S. cities where Boeing has engineering operations areless expensive, Delaney said, including St. Louis, Philadelphia,Houston, San Antonio and Huntsville, Alabama. Boeing also nowbuilds the 787 Dreamliner in Charleston, South Carolina, whereassembly workers aren't in a union, as they are at the company'swide-body plant outside Seattle.

“We're committed to the Puget Sound, to Charleston, to St.Louis,” Delaney said. “But we will do — I've told Speea this — whenwe do the next airplane, I will do and use whatever resources ittakes to launch that airplane.”

Managing Costs

Managing costs is pivotal as Boeing braces for U.S. defense cutsand focuses on productivity after amassing billions of dollars incharges from delays to the Dreamliner and the new 747-8 jumbo jet.The planemaker is bringing some design work back in-house afteracknowledging it outsourced too much on the 787 and lost control ofthe program.

“We're willing to pay a premium to be in Seattle because there'sa base, there's capability, we've got a great team,” Delaney said.“But if you took Speea's proposal,” Boeing's costs would balloonand it wouldn't be competitive, he said.

“No customer will pay that kind of premium,” he said.

Boeing has been able to draw on companywide engineeringresources to solve previous crises, Delaney said. Engineers inPhiladelphia were critical in fixing the 787's problematicside-of-body joint, and Boeing's space team in Houston andengineers in Huntsville helped with the Dreamliner's new electricalpower system, said Delaney, who was the 787's chief engineer.

Speea argues it's crucial to development for engineers to workalongside those who build the planes. Boeing assembles its 737s inRenton, south of Seattle, and its 747s, 767s, 777s and 787s inEverett, to the north, along with the new 787 plant in SouthCarolina.

“Everybody who worked on the 787 will tell you that the vastmajority of problems came from lack of coordination due to theseparation of engineering from manufacturing,” said Ray Goforth,Speea's executive director. “To have Boeing resurrect this failedmodel to threaten employees into accepting pay and benefit cuts isthe most disrespectful thing I've heard yet in thesenegotiations.”

Boeing has already made some shifts from its historical hubs. In2001, the planemaker moved its corporate headquarters to Chicagofrom Seattle, where the company was founded in 1916. Earlier thisyear it decided to shutter operations in Wichita, Kansas, where ithas built military airplanes since 1929.

Speea has struck at Boeing only twice since the union's 1946founding: for one day in 1993 and 40 days in 2000. The issues inthat last walkout were different, and the conflict was overBoeing's direction, not economics, Delaney said.

Different Leaders

“We weren't doing new airplanes,” and the company hadn't yetresponded to the threat to the Boeing 767 posed by Airbus SAS'sA330, Delaney said. “We did have some leadership who did notappreciate and understand the value of engineering.”

He also disputed Speea's characterization of Boeing's proposedcontract changes as cuts, since compensation will increase, thoughthe gains won't be as large as in the 2008 contract that includedannual raises of 5 percent.

Boeing says it's committed to maintaining its reputation as anengineering company after challenges to that status in the pastdecade.

Delaney said he met with Chief Executive Officer Jim McNerneyafter the June announcement that Albaugh was retiring and beingreplaced by Ray Conner, the sales chief. Delaney said McNerney toldhim “that all the things we were doing on engineering excellenceand leveraging our engineering talent in the company” wereunchanged by Albaugh's departure.

“We have a product strategy today,” Delaney said. “We have 15years of incredible product development in front of us.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.