Commentary
Boeing is hitting rough weather.
Not least of its problems is its union, which, despite the company’s financial stress, decided to go on strike for 53 days. The strike shut production lines in Oregon and Washington, and the union did not negotiate in good faith, according to Boeing, which cost the company and suppliers $9.7 billion. Boeing is so important to U.S. national security that taxpayers could ultimately foot the bill. Given the U.S. national debt, it is critical to start thinking about ways to make that bill smaller.
The strike ended on Nov. 4 with the union imposing additional costs in the new contract when, from a free-market perspective, the union and its members should have paid for the damage already done. The union deal, negotiated by the Biden administration, included a 38 percent wage hike and a $12,000 ratification bonus for each worker.
This is way above U.S. market rates and even further above what China pays its aircraft workers. That matters because if current trends continue, China’s aircraft manufacturers will eventually outcompete Boeing in global export markets. Future U.S. workers who would like to work at Boeing will not be able to because Boeing will not have the exports due to the artificially high union wages that were only agreed under the duress of the strike. This dynamic deindustrialized the United States from the 1970s to the present, and it is continuing against Boeing now.
China’s aerospace companies will also have an edge against Boeing because Beijing subsidizes its aerospace industry, and the regime protects the Chinese market. Without reasonably-priced U.S. labor and being barred from the biggest export markets, Boeing would have a hard time selling aircraft and could be driven into bankruptcy. Since 2018, its debt ballooned to more than $57 billion, and industry analysts note that its investment-grade credit rating is at risk.
After the first month of the strike, Boeing was forced into major cost-cutting measures, such as the announcement of plans to lay off 17,000 workers, including engineers, and a potential delay of research and development funding. Meanwhile, the aerospace companies of the Chinese Communist Party (CCP) have soaked up technology from Boeing and its European competitor Airbus through forced technology transfers.
Boeing builds more than civilian aircraft. It is a major U.S. aerospace-defense contractor critical to U.S. national security, just as Airbus is vital to European security. Both are key to NATO’s success against military threats like Russia and its allies China, Iran, and North Korea. Boeing manufactures and supports the B-52 bomber, F-18 fighter jet, and Chinook helicopter, among other critical defense needs. The Boeing strike was, therefore, not just a non-market imposition against Boeing shareholders, many of whom are retirees (this author does not hold Boeing stock). It was a threat to U.S. national security and a drain on the U.S. taxpayer.
Boeing and Airbus typically compete with each other for contracts in China. As part of that pursuit, they can lobby their governments to go soft on China so Beijing does not retaliate against their exports. Boeing CEO Kelly Ortberg spoke with President-elect Donald Trump recently, noting that a new trade war with China would likely negatively impact Boeing’s business there.
However, going soft on China is unacceptable because that, too, is a threat to U.S. national security. The better option, despite too many subsidies generally, is for the U.S. government to make it up to Boeing, which, for the same national security reasons, cannot be allowed to fail.
The same goes for Airbus in Europe. Each of the two biggest democratic allies needs its own government-guaranteed defense aviation industry to maximize their respective sovereignties. The United States cannot depend on foreign manufacturers for its defense or civil aviation requirements, so Boeing and national security companies like Boeing cannot be allowed to fail.
The U.S. Air Force did lend a helping hand to Boeing on Nov. 21 when it contracted for another 15 KC-46 tankers for $2.4 billion. However, the profit from that sale is only a fraction of the losses from the strike. We must do better.
Boeing is not always perfect when it comes to providing the U.S. taxpayer with value for its money. According to the Pentagon’s Inspector General, Boeing recently charged the United States a 7,943 percent markup for soap dispensers. That is unacceptable, as will become abundantly clear when the new Department of Government Efficiency sinks its teeth into the government budget. But other times, Boeing gets burned by losses from U.S. contracts, including nearly $3 billion from the Air Force One fleet and more than $7 billion from the KC-46 tanker.
Boeing and Airbus could be encouraged to cut costs and increase margins by selling more technology to each other, engaging in more joint research and development, and jointly bidding for contracts when it comes to adversary countries like China. There is no reason for the United States and Europe to let China benefit from market competition between the United States and the European Union when China is not a market democracy. We should not allow the CCP to divide and conquer us to the point of driving Boeing or Airbus into bankruptcy or even losing their good credit ratings.
Other policies that could be implemented include strengthening the hand of Boeing’s management in its negotiations with the union. This could be done through new legislation that makes it easier for Boeing to hire and fire workers. Boeing should also be empowered to hire temporary workers, who could be trained for permanent employment, when its workers go on strike. It is unacceptable from a national security perspective that a company so central to U.S. economic and military power should ever be idled due to a strike. Greater limits should be imposed on unions that operate in such industries so that the costs of a strike always outweigh the benefits.
Finally, the U.S. government can do more to promote Boeing’s military and civilian aircraft exports. The last two administrations did this in the past with Saudi Arabia, Ethiopia, Egypt, and Jordan, for example, and the new administration will surely do the same as a way to keep Boeing afloat during rough times. Our allies can help defray the U.S. provision of global security by supporting our defense contractors with their defense budgets. Our national security and democracies around the world depend on a robust U.S. defense sector, and closer U.S. government cooperation with Boeing will be central to that effort.
