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Seven-week Boeing ( BA ) strike ended on Monday after tight union

vote

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Strike exposed divides throughout troubled planemaker

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Rifts threaten to distract from CEO's mounting challenges

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Ramping up production of 737 MAX jet is top priority

By Dan Catchpole, Allison Lampert, Tim Hepher and Joe Brock

SEATTLE, Nov 5 (Reuters) -

Ending the strike only stemmed the bleeding at Boeing ( BA ). 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 ( BA ) third contract offer, ending a

seven-week strike that brought Ortberg's honeymoon at Boeing ( BA ) 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 ( BA ) 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 ( BA ) floundering

defense and space business, and shoring up a supply chain

creaking under the weight of years of safety and production

crises at Boeing ( BA ) and a crippling pandemic, the people said.

That's before Boeing ( BA ) 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 ( BA ) 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 ( BA ) managers, union leaders and factory workers.

Boeing's ( BA ) 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 ( BA ) 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 ( BA )

union members voted to accept Boeing's ( BA ) 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 ( BA ) 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 ( BA ) 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 ( BA ) 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 ( BA )

workers that produces 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 ( BA ) 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 ( BA ) could start making its offers

worse.

Holden warned members ahead of the latest successful vote

that Boeing ( BA ) 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 ( BA ) 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 coming days, after Ortberg

announced last month plans to cut Boeing's ( BA ) workforce by 10%.

A non-union Boeing ( BA ) 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 ( BA ) 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 ( BA ) 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 ( BA )

insider said, asking not to be identified on internal matters.

Internal distractions also risk delaying important decisions

as Boeing ( BA ) 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 ( BA ) 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 ( BA ) 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 ( BA ) cash cow.

Boeing ( BA ) has signalled 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 ( BA ) mechanic who works on 767s at

the Everett factory.

"I'm worried they aren't going to have a good plan."