Stakes are high when it comes to risk/reward factors in Boeing battle

Staff writerNovember 17, 2013 

We have had as a country more than half a decade to contemplate the concept of risk-reward calculations and to witness in vivid and painful detail what happens when those calculations and the assumptions behind them are botched.

Now we as a region are about to witness the next act of a continuing drama in which risk-reward is an integral part of the story, and whose resolution could reshape the Puget Sound-area economy for decades to come.

But we don’t know when the curtain will descend on this production, or even if there’s a definitive ending. The players are still writing their lines.

The Machinists’ definitive rejection of Boeing’s proposed rewrite of a labor contract doesn’t automatically mean the 777X will be built elsewhere, or that aerospace is now decidedly on the downward side of the graph charting its influence and importance to the regional economy. Those things might well have happened had Boeing not made the overture to the International Association of Machinists. And things might turn out the way political leaders and Boeing employees here want — with the 777X assembled in Everett — even with the rejection vote.

But those are assumptions, predictions, guesses and gambles, the very elements of risk-reward calculations and the very factors that make risk-reward trade-offs themselves so hard and risky to figure.

Our lives are a constant, continuing parade of risk-reward assessments, starting from the moment we’re supposed to wake up. (Risk of sleeping in just 15 minutes more: I might be late. Reward: Sleep feels good.) Most are mundane, with the outcomes of little consequence should our decision-making prove faulty.

The stakes are much higher for many of the choices we’re confronted with — buy a new car or coax another year out of the one you have, take that job offer or stay where you are.

When you get to the level of the national economy, the risks and rewards are enormous, and as the housing-finance-driven recession has proved, the risks are enormously expensive if the reasoning behind the evaluation proves to be wrong.

So let’s take a look at the risk-reward calculations the parties involved in the 777X made.

For the governor and the Legislature, it wasn’t a tough call to rush through a vote on tax incentives for Boeing. The risks in doing nothing and having Boeing put the plane’s production elsewhere were both political and financial — lose the direct revenue and the echo/multiplier effects of having such a huge industry based here, and be tagged with the blame for doing so. The rewards for doing nothing were meager; extending existing tax breaks only deprives state government of revenue it’s not getting now and might not ever see (besides, if there’s a tax-revenue crunch down the road, that’s some future governor’s problem).

Boeing didn’t have a much tougher time of asking for concessions from the union. Ask and get approval, and the company builds the plane where it has facilities and workforce, and thanks to the revised contract gets the latter at lower cost. Ask and get rejected (which is what happened Wednesday), and now you’ve got the attention of other locales who might be interested in cutting you an attractive deal.

Those are the rewards. The risks? Soured labor relations — but it’s not like Boeing’s never seen that before. Cost reductions for site development and operations? The company is likely to have multiple candidates offering alternatives to Everett. Logistical problems in getting a new model built in a new location? All right, this one is substantial, given the bruising experience with the 787, but Boeing may figure it’s learned a few lessons and can get it right this time. (That, too, is a risk-laden assumption.)

The entity for whom the risk-reward balancing act proved most fraught with peril was the IAM, and here the experience was not uniform, even when broken down between leadership and the rank-and-file membership.

The IAM’s local and national leadership did itself and whatever its strategic goals are (or were) no favors by presenting a split front on the proposal sent to members, not just over the terms but whether it should have been agreed to in the first place. There were big political risks internally whichever course was chosen; having leaders come down firmly on both sides of the question only served to accentuate and amplify those risks.

Even if they could shut out the conflicting messages from management, rank-and-file members had some difficult calculations to make, influenced by such factors as age and seniority. To judge by the announced 2-to-1 vote ratio to reject the proposal, the bulk of the membership decided that the rewards of approving the contract extension proposal, such as they were (a $10,000 bonus, guarantee that the 777X will be built here), did not outweigh the risks (or costs, including major changes to pay structure and pension plans).

Not that rejecting the proposal was an easy call to make. The risk is that Boeing carries through on its threat to take its planes somewhere else, so that there are in the long run no Boeing jobs, never mind what pay and benefits accompany them. The reward would be delivered if Boeing decides to stay, so that workers keep their jobs without givebacks.

The rest of us not directly employed by Boeing or one of its subcontractors and vendors will feel the effects of how the decisions influenced by risk-reward calculations play out, even though we’re bystanders to the proceedings. The lack of influence or direct participation should not preclude watching events carefully, thinking about their ramifications and perhaps doing some planning to mitigate them. There’s no reward in dismissing the matter as just another Boeing-IAM flare-up. The risk? Just a giant hole in the regional economy we wrongly assumed wouldn’t really think would happen, and didn’t prepare for.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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