Boeing has a big NLRB issue. Consider the latest problems they've gotten themselves into:
Boeing decided to expand their construction capacity in South Carolina - a 'right to work' state - and put the construction of a new aircraft there. A few years ago, workers at the plant in South Carolina voted to kick out the International Association of Machinists (IAM) union hierarchy. Now, at the request of IAM union bosses in Washington State, the NLRB's Acting General Counsel is attempting to force Boeing to take away the jobs of the South Carolina workers and give those jobs to new union workers in Washington State.
This issue isn't even over a choice between existing union workers being replaced by non-union workers. No one in Washington state is being laid off.
American Federation of Labor founder Samuel Gompers once wrote of workers who choose to refrain from union membership, "It is his legal right and no one can dare question his exercise of that legal right."
Craig Becker, NLRB board member and former lawyer to the SEIU and AFL-CIO, has questioned whether employees should have "the choice to remain unrepresented." In his radical worldview, workers could only choose which union to join.
Obviously, a company that allows a trade union in, is simply committing long-term suicide.
As we saw in the case of GM and Chrysler, trade unions are willing to kill the goose that lays the golden egg. A trade union strategy is to ask for more than the company can possibly give them and survive. But if they get what they ask for and then the company fails, they blame management for being spineless.
What public company manager is going to be strong enough to withstand the criticism of mutual fund manager screaming in his ear to get the earnings going again and end the crippling strike? If the fund managers sell off, the stock goes down, the manager gets fired by the board and everyone learns the lesson: stock investors are short term investors and will not abide a shock to short term earnings. The unions get it. The managers get it. And so it goes.
If I decide to invest in a company that has trade unions representing the workers, I can not invest in it for the long term. If I do, I may live to regret my partnership with a trade union. The union leaders are likely to burn my investment to the ground no matter the cost to their members. But then again, GM set another precedent.
As the company approached bankruptcy, it issued bonds to many pension funds to get the capital to survive. The bonds had risk and therefore carried two qualities to offset that risk: 1. A higher interest rate to attract capital and 2) the loan was secured with all the net assets of GM. What that is supposed to mean is that if GM went bankrupt, all the shareholders would lose all of their investment but all the bond holders would get their money back from the sale of the GM assets - things like the Chevy brand, fabrication plants and so on. That is not, however, what happened. GM did go bankrupt but instead of the bankruptcy court ordering the sale of the GM assets to pay the bondholders, President Obama ordered the court to simply discard the bondholder claims, get rid of the debt owed to the bondholders and allow the company to survive. This, of course, saved the union jobs. The bondholders got screwed, plain and simple. And interestingly, the biggest bond holders were pension funds like the Minnesota Fire Fighters pension fund. They lost $16 million of firefighter retirement money to protect the jobs of union workers in Michigan thanks to the President of the United States.
So now, I can't in good faith, put my money in a bond of a US corporation with any expectation that the assets of the company are there to secure the bond. If the King (Obama or the next President from whichever party) of the US decides it, those assets won't be available to me no matter what the contract says. The 100 year old rule of law that encouraged and protected loans to corporations has just been nullified and once that happens, it can never be said that it can't happen again. Once that horse left the barn, there is no getting it back.
That's sad and all but it is what it is and investors will do what they've always done - adjust for it. Now you don't lend to a corporation unless the interest rate is so high it covers your downside risk. Therefore expect borrowing costs to eventually rise to meet the new reality.
The combination of trade unions, NLRB union support and Obama's disregard for established business law means there is no place in my portfolio for Boeing until I see that it is getting itself out of Seattle and the union demands there.
Now go play.
