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Originally published October 6, 2008 at 12:00 AM | Page modified October 6, 2008 at 9:32 PM

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Boeing CEO in no hurry to settle strike

Boeing chairman and chief executive Jim McNerney told employees Monday that stakes are high in the current Machinists strike, and warned that "repeated union work stoppages" are "earning us a reputation as an unreliable supplier to our customers."

Seattle Times aerospace reporter

Boeing chairman and chief executive Jim McNerney sent a memo to employees Monday that was also a firm message to the Machinists union: Though the ongoing strike is now into its fifth week and all commercial jet production is halted, Boeing won't scramble to settle on the union's terms.

McNerney warned that the International Association of Machinists' (IAM) "track record of repeated union work stoppages" is "earning us a reputation as an unreliable supplier to our customers."

The memo did not address the gap between the two sides on compensation issues, instead focusing on the union's insistence that Boeing reduce outsourcing of work and offer workers some guarantees of future jobs.

He also alluded to the disastrous long-term outcome that past labor settlements by the Detroit auto companies had on that industry, and raised the specter that competition emerging in the American south would use cheap labor to undercut commercial jet manufacturing in the Puget Sound region.

"It would be gravely unwise for Boeing to agree to terms in any contract that would fundamentally restrict our ability to manage our business," McNerney wrote. "U.S. auto companies, for one, all but fatally wounded themselves years ago by promising unsustainable wage and benefit levels and by agreeing to contract conditions (including job guarantees) that limited their flexibility to run their businesses in the face of intense global competition. Today, their market shares continue to fall, and their layoffs have grown by the thousands."

"We want this strike to end," said McNerney. "But we cannot sacrifice our long-term competitiveness for expedience in a short-term agreement to end the walkout."

McNerney's message will reinforce a growing perception that both sides are digging in for what could be a prolonged and damaging stoppage.

Goldman Sachs analyst Richard Safran lowered his profit forecast for Boeing Monday on the expectation of a long strike.

"Our new working assumption is that the strike lasts through November," Safran wrote in a note to clients published before McNerney's memo. "We also believe there is risk that the strike lasts into December. We do not believe there have been any new proposals put forth by either party, nor any sign of flexibility on key issues."

The company's shares dropped to $48.45 in early afternoon trading, down as much as 10 percent, before rebounding somewhat to close at $51.29, down $2.54, of 4.7 percent, for the day. Its decline was sharper than the general Wall Street market plunge.

In his message to employees, McNerney talked about how "the duopoly between Boeing and Airbus in supplying the world's large commercial jets will come to an end — probably sooner rather than later — as other competitors enter our markets."

He listed the Chinese ambition to build large commercial jets, as well as similar efforts in Russia, Japan, Canada and Brazil.

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He said also that Airbus is growing stronger as it dramatically restructures and cuts costs.

And in a detail aimed directly at the Puget Sound area workforce, he said the plan by Airbus parent EADS to build the Air Force tanker in Mobile, Ala. — stalled for now until the next president takes office — is a move "to establish a beachhead for producing commercial airplanes in the United States — and in a very low-cost location."

"The issue of competitiveness as it relates to this strike is a big deal," the memo said, with the last two words underlined.

That's why, McNerney said, the company won't rush to settle.

"History, and every group with a stake in our future, would judge us poorly if we were to do so," he said.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Copyright © 2008 The Seattle Times Company

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