While The Boeing Company (NYSE:BA)’s 787 Dreamliner was facing a serious technical issue, the company was also facing another threat—labor strife. The later issue threatened to materially delay the company’s 787 dreams. Instead of caving in to the unions to get its new plane back on track, The Boeing Company (NYSE:BA) dug in on a key issue. What issue could possibly be more important than getting the 787 back in the air?
The Boeing Company (NYSE:BA)’s 787 Dreamliner was built from the ground up, using new and better technology than what underpinned aircraft before it. While it may be overkill to say this, but the plane was nothing short of revolutionary when it finally hit the tarmac. The materials it used and the benefits it promised, such as notably reduced fuel consumption, were massive issues for its customers.
Unfortunately, very public production delays were a black eye for The Boeing Company (NYSE:BA) as it worked the “kinks” out of the new plane. Still, the benefits that the new plane would offer were huge and airlines lined up to place orders. There are currently more than 800 such orders.
Nothing New is Flawless
One of the big changes in the plane was the use of high-tech batteries. The lithium-ion batteries used in the plane, which can be a fire hazard, saved weight and improved performance. However, after a fire on a Japan Airlines 787, luckily while it was on the ground, and a battery related issue on an All Nippon Airways flight shortly thereafter, have left the company’s 787s grounded until a fix is found.
While The Boeing Company (NYSE:BA) clearly has other priorities, fixing the battery problem has to be among the highest on the list. So when its workers took to the ballot box to vote on new contracts, the company was clearly in a weak bargaining position. Boeing offered what some consider fairly generous wage concessions. However, it also included company friendly changes to its pension plans and healthcare coverage for retirees. The unions weren’t happy.
That The Boeing Company (NYSE:BA) is willing to take on these issues when it doesn’t have the upper hand at the bargaining table shows how big they are. Indeed, the company expected to pay $2.8 billion in pension benefits in 2012, with that number steadily increasing to over $3.4 billion by 2016. And that doesn’t include escalating healthcare benefits. Since the majority of the company’s 170,000 or so employees are within the company’s defined benefit plans, this issue is big.
Pensions, the Big Fight
Any company that has been around long enough likely has pension and medical benefit issues hiding in its annual reports. Some are more open about the problems than others, but all will have to face the issue eventually.