Outsourcing at the Heart of Strike By McDonnell Douglas Machinists

A massive walkout by machinists at McDonnell Douglas Corp.'s St. Louis headquarters underscores the adversity faced by the aerospace industry in an era of declining defense dollars.

It also points up the depth of the anxiety Big Labor feels about outsourcing - a tool increasingly being used by business in the 1990s to stay competitive.

Indeed, the practice of farming out work once performed by union machinists to cheaper nonunion workers is the major grievance behind the strike. The machinists see outsourcing as a threat to their jobs and point to 1,500 layoffs in recent years at the St. Louis plant - the only one directly affected by the walkout.

"We won't be back until we get our fair share of the pie," Jerry Oulson, president of the International Association of Machinists, said prior to the strike Wednesday.

The 6,700 strikers, nearly one-quarter of the 23,000-member work force in St. Louis, help build five military aircraft, including the F-15 and the F/A-18 jet fighters.

McDonnell Douglas, which earned $707 million in profits last year, says outsourcing is vital to company performance. "Outsourcing is part of the effort to improve competitiveness and if we are to continue to bring business into the plant we have to remain competitive," says company spokeswoman Ellen LeMond-Holman.

Among organized labor, outsourcing is one of the most vilified management strategies. It helped spark a 69-day strike at Boeing last year. In March, General Motors Corp. was forced to shut down several plants and furlough 166,000 workers when labor at an auto-parts factory walked out primarily because of outsourcing.

Compared with their counterparts in other industries, McDonnell Douglas can make a stronger claim that outsourcing helps unionized labor, analysts say. For many of its big-ticket orders with foreign militaries, the company relies on a simple quid pro quo: Sign the contract, and we will turn over some of the production to workers in your country. Such a deal was crucial to the recent sales of the F/A-18 to both Finland and Switzerland.

"Outsourcing is a trend we are likely to continue seeing if we are going to be able to compete price-wise with the rest of the world," says Paul Nisbet at Aerospace JSA Research Inc. in Newport, R.I.

Some industry watchers say Uncle Sam, not outsourcing, retards job growth at McDonnell Douglas and other military contractors. So the strikers might gain more by fighting federal regulations for military procurement that inhibit growth in both jobs and revenue within the aerospace industry. "You have got to see the same kind of reform in the government procurement system that the government expects to see from us in our manufacturing system...." says Joel Johnson at the Aerospace Industries Association in Washington.

Still US aerospace firms rely so heavily on the government for revenues that they can't afford to push their leading customer too hard to streamline procurement rules.

The labor dispute is a symptom of the competitive pressures confronted by the industry, heightened by airline-industry deregulation and federal budget cuts. Federal procurement has shrunk by half in the past decade, compelling aerospace firms to reduce employment from 1.35 million in 1989 to less than 800,000 today.

Analysts say McDonnell Douglas is well-equipped to weather a protracted walkout because its customers - the Department of Defense and foreign militaries - are more willing to allow production deadlines to pass than are commercial buyers of jetliners. The strike also comes at a time when production of both the F-15 and F/A-18 is in a lull. "It would take a couple of months before there is a material impact on McDonnell Douglas," Mr. Nisbet says.