Dear Fellow Aero-Artifact Collectors.
Despite what my wife might say, I’m not a hoarder. I just like things. Things acquire meaning over time. Example: the shirt you see here. Boeing friends sent it and others like it to me ten years ago, after then-CEO Jim McNerney informed the world that he wouldn’t retire after turning 65, and that “the heart will still be beating, the employees will still be cowering.” There was much less cowering than he craved, but at the end of the day the workers didn’t have the power to keep their pension or to avoid myriad indignities and stagnant wages.
The long-term effects of McNerney’s mismanagement speak for themselves. I won’t focus on that. Rather, consider how the world has changed and how labor-management relations have changed too. The recent 53-day strike at Boeing’s commercial unit and the missteps taken by the company during and after the strike show that management needs a new mindset.
When I joined the industry in the late 1980s, the power balance between management and workers was changing, fast. The post-Cold War defense downturn coincided with the early ‘90s recession, creating the first simultaneous civil/military downturn in decades. Companies were merging, exiting, rationalizing, and the industry was shedding workers, who bore the brunt of these market changes.
Case in point: McDonnell Douglas. Industry veteran and friend Adam Pilarski told me, “The Total Quality Management System (TQMS, or ‘time to quit and move to Seattle’) adventure was like the Cultural Revolution in China. All management was fired at one gigantic meeting and we all had to re-apply for our job which included explaining why our jobs were needed and why we were the right people for the job. We had revolutionary guards (young folks running the exercise) and total chaos.”
Civil markets recovered from this early 1990s low, but until recently defense didn’t. Since there were plenty of workers relative to demand, muscling down their wages and terms and taking their pensions wasn’t hard at all. McNerney, in short, might have been a jerk, but his “cowering” comment and broader approach to management reflected economic reality: for decades, aerospace workers, and workers in general, were in a weak position. But recently there have been four very big changes:
1. Defense. Thanks to geopolitical tensions, budgets around the world are way up. The US procurement budget is well over twice what it was at the 2000 low point, even adjusted for inflation. Ex-Boeing folks used to flee to Microsoft or Amazon. Today, Northrop Grumman, RTX, GE, Bell, or Lockheed Martin will eagerly recruit them. Ironically, fired Boeing workers in Seattle might consider moving to southern California – TQMS in reverse.
2. Supply-demand imbalance. Airlines wants more jets than they’re getting. Workers, the most important input in building jets, have a stronger hand as a result. That’s true for defense customers too, and Boeing management had previously blamed labor resource shortages for program delays and overruns. An ambitious production ramp requires more people, not fewer.
3. Trump and the demise of free trade. As Pilarski notes, protectionism and deglobalization produce greater demand for manufacturing at home, and therefore greater demand for US workers. Trump’s promised tariffs would supercharge this, producing wage inflation and inflation in general. Deporting millions of illegal immigrants (whether or not you agree with it) will also constrain the labor supply, giving workers that much more negotiating leverage.
4. Macroeconomic factors. Unemployment remains near record lows, while the economy continues to be strong. Population growth is slowing. Two years ago, economist Mohamed El-Erian wrote in Foreign Affairs that for decades the world economy was defined by levels of adequate or inadequate demand; it is now increasingly defined by levels of supply. Thus, even if free trade were to continue unhindered, labor has more power. Also, as countless sociologists have commented, there’s been a generational shift, and employees have much less loyalty than in the past. They’re now as transactional as management has become.
McNerney’s world view, where your workforce is merely a large ATM and workers can only fight back with T-shirts, worked fine in 2014. But Boeing and other companies continue to act like nothing has changed. Not only did it take way too long to end the strike – needlessly costing billions of dollars to reach the same result that could have ended it after a few days – but during the strike, CEO Kelly Ortberg announced the literal decimation of the workforce, eliminating 17,000 out of 170,000 jobs.
Not only will most of these former Boeingites be quickly absorbed by other aerospace companies, but many of their colleagues will get their resumes out there too. Since those 17,000 positions weren’t well-defined from the start, the more competitive people have every incentive to consider leaving. The A&D world today is their oyster.
The Wall Street Journal this week reported Ortberg saying, “We spend more time arguing amongst ourselves than thinking about how we’re going to beat Airbus…Everybody is tired of the drumbeat of ‘what’s wrong with Boeing?’ I’m tired of it and I haven’t been here that long.” I’m not sure what his message was, aside from trying to galvanize the 90% of the workforce that wasn’t fired.
Reality check: Ortberg and his predecessor had just gotten rid of a lot of people who were focused on beating Airbus. The company doesn’t even have a strategy department, or a competitive intelligence unit. Some of the workers recently fired were focused on supply chain analysis, verifying that aircraft can be built on time. All of this sounds useful to me for a company that wants to win against a competitor.
Given the changed labor dynamic, those ex-Boeing people aren’t coming back. And I’m starting to wonder if the odds are now against Boeing coming back, too.
Yours, ‘Til I Retire and Start a Museum of Aerospace Esoterica,
Richard Aboulafia