Boeing pays belated price for shareholder primacy

Strike a balance. Boeing keeps losing essential parts. About 33,000 of its unionized workers rejected a proposed 25% general increase in wages, with 96% of them voting to strike. The work stoppage adds to a long list of woes at the $100 billion jet-maker. After squeezing labor for the last half century, the bill is coming due.

Machinists at Boeing are highly skilled and hard to replace. They tried to use their clout to down tools seven times between 1948 and 2008. Despite applying such pressure on management, however, wages have stagnated.

Under the recently lapsed contract, workers in the highest Grade 11 group earned between $26 and $51.30 hourly. The midpoint of the range is roughly the same inflation-adjusted $40 as their peers were making in 1976. Moreover, Boeing, like many other U.S. companies, has replaced employer-provided retirement benefits with 401(k) plans largely funded with tax-deferred employee contributions.

Other capital allocation choices also have short-changed labor. In the 1970s, Boeing boss Thornton Wilson generated headlines with his $1 million payday. Flash forward to 2023 when former Chief Executive David Calhoun’s package added up to more than $30 million, a six-fold increase after adjusting for inflation. Executives in between also were richly rewarded for slashing costs and returning the spoils to shareholders. Between 2003 and 2019 alone, Boeing devoted $80 billion to stock buybacks and dividends.

Bigger forces also were at play. Healthcare costs have soared. As a percentage of U.S. GDP , they tripled between 1960 and 2010. As a result, the value of insurance provided to employees, and the related costs to Boeing, grew rapidly. And the development of manufacturing in formerly rural states such as South Carolina and places like China encouraged companies to relocate plants.

All those decisions have come back to haunt Boeing, and new CEO Kelly Ortberg. Airlines angered by persistent delivery delays, government-capped production, market-share losses, and nearly $60 billion of debt will make it hard to withstand any protracted idling at factories. It took a while, but shareholders are now paying a price for their primacy.