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Boeing ( BA ) faces new crunch talks this week to end strike

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Details of collapse of pay deal reveal scale of task

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Executives had hiked offer at 11th hour - sources

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Yet management underestimated depth of worker anger

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Trust between Boeing ( BA ) and union leadership eroded

By Joe Brock, Allison Lampert and Matt McKnight

SEATTLE, Sept 16 (Reuters) - Boeing ( BA ) bosses are staring

down the barrel.

The twists and turns of the past week paint a picture of

managers badly wrong-footed by the depth of fury among workers

who tossed out a 25% pay rise deal and launched strike action.

"They probably didn't think that we had enough people for

the strike," Kushal Varma, a Boeing ( BA ) mechanic, told Reuters. "But

this is a movement of people who are willing to put their

livelihoods on the line to get what's fair."

With little time to regroup, and pressure mounting,

management enters a fresh week of talks to contain the crisis at

the $97 billion U.S. aerospace champion.

A week ago, Boeing ( BA ) executives believed they'd done enough to

secure the pay deal with around 33,000 workers in Washington

state, the heart of the company's global manufacturing

operations, according to two people directly involved in the

talks that have played out at Seattle's upscale Westin hotel.

The company's initial pay rise offer had been about 12%,

said the people, who requested anonymity to discuss confidential

and unreported details about the horse-trading, though that

number gradually crept up during the weeks of negotiations.

But in an 11th-hour concession on Saturday, Sept. 7 to

clinch the support of union leader Jon Holden and seal what they

expected to be a swift resolution to the dispute, Boeing ( BA )

executives hiked the offer significantly to 25% and pledged to

build the company's next commercial jet in the state, the people

added.

"Much of it came together in the last four or five hours,"

Holden told Reuters after the tentative agreement was announced

on Sept. 8, adding that he and Boeing ( BA ) management had worked

until "the wee hours".

Boeing ( BA ) and the union hailed the deal as "historic" because

of the record headline wage hike for the company and the

first-of-its-kind plane commitment. It was a spectacular

failure.

Three days later, 94% of members of Holden's International

Association of Machinists and Aerospace Workers (IAM) rejected

the offer and 96% voted to strike.

Reuters interviews with more than 20 people, including

Boeing ( BA ) officials, union leaders and factory workers, show how

badly the U.S. aerospace champion underestimated the scale of

the resentment felt by workers over cost-of-living pressures and

pay agreements of previous years.

Boeing ( BA ) and the IAM declined to comment for this article.

The details of the deal's collapse also reveal how trust

between Boeing ( BA ) and union leadership has eroded, complicating

talks due to resume in coming days.

Two days after Boeing ( BA ) announced its offer, as union member

frustration seeped into the media, commercial planes chief

Stephanie Pope wrote an open letter to workers, saying the

company had held nothing back and this was the best deal they

would get.

CEO Kelly Ortberg followed up with an open letter the next

day, telling workers that voting against the deal would send

them down a path "where no one wins".

Rather than rallying the troops, the letters backfired,

according to four workers who said many union members saw them

as ultimatums.

"I thought they were unprofessional and threatening," said

Josh King, a quality control inspector at a Boeing Seattle

factory.

Boeing ( BA ) finance chief Brian West acknowledged the disconnect

with staff.

"We had an unprecedented temporary agreement that was

unanimously endorsed by union leadership. And over the last few

days, it became very clear, loud and clear, with our union

members that that offer didn't meet the mark," he told a Morgan

Stanley conference at the beachside Ritz-Carlton in Dana Point,

California on Friday.

In a conversation with a small group of investors on the

sidelines of the event, West added that while Boeing ( BA ) had focused

on the future plane pledge, workers were more concerned about

their current wallets, according to a person who was present and

requested anonymity as the discussion was private.

Reuters was unable to reach West for comment.

The 25% general wage increase offered was in line with gains

won by other sectors such as autoworkers. Nonetheless, many

Boeing ( BA ) workers have struggled to make ends meet over the years;

since the last full wage deal in 2008, factory wages have lagged

inflation, while healthcare and living costs have leapt.

UNION LEADER IN SPOTLIGHT

Boeing ( BA ), which dominates the global planemaking market with

European rival Airbus, has been wrestling with

production and safety crises since two deadly 737 MAX plane

crashes in 2018 and 2019.

The latest upheaval was sparked by a door panel flying off a

near-new 737 MAX plane in midair in January, prompting the exit

of former CEO Dave Calhoun and a 30% drop in the company's share

price this year.

As the new crunch labor talks loom, union chief Holden also

finds himself under the microscope.

On the Boeing ( BA ) side, boardroom trust in the IAM leader has

been knocked by the reversal, which saw his members roundly

reject a contract he negotiated and supported, according to the

two people involved in the talks. His endorsement had appeared

to be a much-needed win for Ortberg and Boeing ( BA ), whose shares

jumped almost 4% on Monday, Sept. 9 as investors cheered.

Holden and Boeing ( BA ) chief negotiator Michael Fitzsimmons and

their respective teams of about a dozen apiece had spent several

weeks since July broadly discussing terms, the people said.

In the last three weeks, the negotiations accelerated and

intensified with the two teams moving into rooms at the Westin

Hotel and holding talks several times a day, they added.

Ortberg dropped in to the hotel on the evening of Saturday,

Sept. 7 to confirm the details with Holden, according to the

sources. The deal was finally agreed shortly after 2 a.m. and

announced hours later.

On the union side, Holden also faces opposition from within

his ranks, with some hardline members furious at him for

endorsing an offer that most workers opposed, opening a rift at

a critical point in the talks, five IAM members told Reuters.

"You know, you don't trust him. You put faith in the guy ...

and then we pretty much feel like he's failed you," said Mike

Toman, a striking worker protesting outside a factory making

Boeing's ( BA ) best-selling 737 jet.

It was the first time in three decades that the IAM's local

leader had recommended accepting a contract, raising the ire of

many workers. Posts on union social media channels described him

as a "sellout" and called his negotiation "shameful".

Two union organisers told Reuters the bulk of the workforce

remained loyal to Holden. The lion's share of the blame is being

placed at the feet of Boeing ( BA ) leaders past and present, 10

employees including union organisers and factory workers said.

'THAT WAS A FAKE OFFER'

Many older Boeing ( BA ) workers have been deeply resentful since

their defined-benefit pension was taken away a decade ago in

exchange for Boeing ( BA ) keeping production in Washington state,

while their standard of living has slowly deteriorated.

Equity research firm Melius Research found median employee

compensation for the aerospace and defense firms it monitors

grew 12% between 2018 and 2023, while at Boeing ( BA ) it fell 6%.

"While there were many important things in this offer, it

didn't bridge the gap for 16 years," Holden said at a media

briefing following the vote announcement. "Our members spoke

loud and clear tonight."

Other factory employees told Reuters they were furious about

the removal of a performance bonus in the latest negotiations,

which took a bite out of the headline 25% pay rise spread over

four years.

Workers were also suspicious about Boeing's ( BA ) commitment to

build its next commercial jet in the region because it came with

a clause: it was contingent on the plane programme being

launched in the next four years, something that isn't

guaranteed, the factory staff said.

"That was a fake offer," said David Hu, a 35-year-old

quality inspector.

Boeing ( BA ) workers told Reuters that there was lingering anger

about gains secured by former CEO Calhoun, who was re-elected to

the board and received almost $33 million in 2023 compensation.

Ortberg, brought in to replace Calhoun and restore faith in

the planemaker after the panel blowout, has acknowledged that

Boeing's ( BA ) planemaking heartland has been neglected.

Unlike his most recent predecessors, Ortberg has bought a

home in Seattle to be closer to the factory floor.

Many union members said they were willing to give the new

CEO a chance, raising hopes that he and Holden might be able to

get a new deal agreed.

"Mr Ortberg was in a tough position coming in," Holden said

at a media briefing on Thursday.

"It's hard to make up for 16 years," he added. "So this

isn't necessarily a reflection on him."