Approval of a new contract by an aerospace workers union that will allow Boeing [BA] to build its new 777X passenger plane in Seattle will save the company hundreds of millions of dollars annually and thereby improve its long-term competitiveness, Jefferies aerospace and defense analyst Howard Rubel says in a note to clients today.
The eight-year contract extension by members of the International Association of Machinists & Aerospace Workers District 751 on Saturday was a “watershed event” for Boeing, Rubel said, allowing the company to trim annual costs for commercial aircraft possibly by between $250 million and $500 million. The contract extends to 2024.
The work that will be performed in the Puget Sound region includes fuselage build, the composite wing, final assembly, and major components fabrication such as interiors and wires.
Rubel also said that by trimming its business costs, the company will also have an incentive to hire new workers and expand its technology base. He also said that the new contract caps its pension liability, which limits risk.
Ray Conner, president and CEO of Boeing Commercial Airplanes, said in a statement on Saturday that the union vote “will put our workforce on the cutting edge of composite technology, while sustaining thousands of local jobs for years to come.”
The vote in favor of the contract was 51 to 49 percent. J.P. Morgan aerospace and defense analyst Joseph Nadol said in a weekly update that the vote, which also calls for Boeing to keep production of its 737 and 767 aircraft in the Seattle area through 2024, “a victory for management.”
The machinists’ union late last year rejected Boeing’s contract terms, prompting the company to open bidding by other states to attract the manufacturing work and the jobs. Rubel said the new vote “reflects the union’s awareness of the nature of global competition and other sources of labor supply.”
Separately, Boeing on Monday said it achieved a record 648 commercial airplane deliveries in 2013 and that its unfilled commercial orders stood at 5,080, also a record. The company had 1,355 net commercial orders last year, the second-largest number in its history.
Boeing’s stock price at the end of trading on Monday was up 79 cents per share, less than a percent, to $138.41.