The Boeing Machinists have a point

One of the main gripes of the Boeing machinists who voted “no” on Boeing’s offer to keep the 777X work in the Puget Sound, is that at the same time the company is ending the traditional retirement plan, it’s also making enough money for a big stock buyback – and is increasing the shareholder dividend by 50 percent.

Chris Hill, host of the Motley Fool radio show says these Union Machinists have a point. “It’s really hard to argue, if you’re Boeing, that you’re looking through the seat cushions in your sofa for loose change because you’re having trouble making ends meet.”

Usually a stock buybacks happen when a stock is depressed and it’s a bargain for the company to buy it back. Hill says that with stock at an all-time high, raising dividends, and Boeing buying back the stock that is not cheap – the machinists have a pretty good case on their hands.

But Boeing has argued that one of the reasons they’re being hard-nosed in these negotiations is that they’re looking at the company’s future in the long term. Boeing expects competition from Brazil and China, both of whose labor costs are vastly lower than what they are in the United States.

“It’s absolutely true that if you’re a U.S. company you are facing competition on a number of fronts and one of them is that labor is cheaper in other parts of the world,” says Hill. “Boeing absolutely has to be concerned about cheap labor around the world – but they are in a business that is really tough to compete in.

Hill says that the cheap labor argument must be countered with the fact that there are very few places able to do what Boeing needs, and that’s a major part of what the Machinists Union is basing their argument on.

So if Boeing is bluffing like the Machinists believe, there is no way they would close down their huge investment in the Puget Sound region and move to a different state, or, god forbid, move it overseas. But I’ve been kind of skeptical about that argument because Boeing did move to South Carolina, and they have a lot more leverage than they did before.

“I think that this is one of those situations where you want to be careful how far you push this,” explains Hill.

The Union Machinists believe they will have more leverage in 2016 two years from now when their contract is finally up.

The way I see it however, Boeing will have more options – not just in South Carolina but very likely in one of the 20-odd states that submitted applications for these new facilities to build the 777X.

“I think that any time you’re in a bargaining situation – the sooner you can reach a deal the better,” says Hill. “It’s tempting to think we’re going to be in even better shape three years from now. Three years is a really long time in politics and in business.”

MyNorthwest.com’s Alyssa Kleven contributed to this report.