Rolls-Royce, union strike deal as competition looms

Competition from a new, state-of-the-art Rolls-Royce factory in Virginia drove contract talks in Indianapolis between the company and a union representing 1,700 of its workers here.

Rolls-Royce and UAW Local 933 on Wednesday reached tentative agreement on a new three-year contract. Bargaining Chairman David Atwood could not discuss specific terms, but he believes the contract will make the Indianapolis operation competitive with the Rolls-Royce facility coming online in Virginia.

"Any new work, they were going to filter to Virginia," Atwood said. Union members could vote on the proposed contract May 4.

Talks had been under way since the previous contract expired in February, and the threat of missing out on new work caused anxiety among Rolls-Royce employees.

“The union has been told to either accept concessions, or the plant will only be employing 500 people by the end of the new contract,” one employee said in an e-mail to City-County Councilor Angela Mansfield, a Democrat. Mansfield provided the e-mail to IBJ without revealing the identity of the employee.

Rolls-Royce has about 4,000 employees in Indianapolis. Last month, the company struck a deal to move 2,500 office workers downtown from various locations, including the main manufacturing campus on South Tibbs Avenue.

Mayor Greg Ballard’s office offered Rolls-Royce a $21 million tax abatement for the South Tibbs Avenue property because the company says it plans to invest $190 million there over 10 years. Rolls-Royce is not planning to add any employees as a result of that investment, but city officials feared losing existing jobs.

“It looks like jobs are going to be leaving, even with the abatements,” said Mansfield, who questioned the deal struck by Ballard, a Republican. 

A Rolls-Royce spokeswoman at the North American headquarters in Reston, Va., could not be reached for comment. Rolls-Royce also has declined to talk about how it will spend the $190 million.

Rolls-Royce’s first factory in Virginia is close to starting production under the leadership of Thomas Loehr, who previously was vice president of purchasing in Indianapolis. Calls to Loehr were referred to spokeswoman Mia Walton, who could not be reached for comment.

Rolls-Royce decided in 2007 to put its new manufacturing center on 1,000 acres in Prince George County, Virginia. The first of three planned phases of the Crosspointe division is a 180,000-square-foot building that will employ about 140 people making discs and other parts for commercial airline engines, The Progress-Index in Petersburg, Va., reported last fall. (The engines go in Boeing’s 787 Dreamliner and the Airbus A350 and A380, the paper reported.)

A second Virginia plant will employ about 140 people making “blisks” for fighter jets. Much of the work in Indianapolis is around military aircraft, but the local plants don’t make blisks, which are a relatively new technology where rotor discs and blades are machined from a single piece of metal.

Rolls-Royce wants to build an assembly and engine-testing facility for the third phase, the Progress-Index reported, but “its ultimate decisions will be driven by market demand and order backlogs at the time.”

Assembly and engine-testing are key capabilities for Rolls-Royce in Indianapolis, said Mike Hudson, a former Rolls-Royce Corp. president who is still active in the aerospace industry.

“They’re moving to an approach that says we want to do what we can do best in each location,” Hudson said. “Those are the things that fit this operation.”

It makes sense that Rolls-Royce would keep at least some assembly and testing in Indianapolis because this is home to high-tech test stands for turbo-prop and turbo-shaft engines. Indianapolis also has the only test stand for the Joint Strike Fighter LiftFan, which makes the Marines’ version of the new fighter plane hover. Turbo-props go in aircraft such as the C-130J transport plane, while turbo-shaft engines go into helicopters.

“You’re not going to pick up that test stand that cost millions of dollars and move it to Virginia,” Hudson said.

Yet most local jobs aren't tied to assembly and testing. Most of the local production workers – about 1,000 of the 1,700 that UAW represents – make or inspect engine components, said Bob Woodcock, a retired union officer.

Woodcock said he never felt threatened by the addition of manufacturing in Virginia. “Rolls-Royce as a total company worldwide has a pretty steady order board. I think there’s enough work for Virginia and Indianapolis.”

But in the past 18 months, the Rolls-Royce managers have made it clear that components could be outsourced, or the work shipped to Virginia, said one former union officer who asked not to be named because he still works at the company.

In small-group meetings with hourly employees, managers relayed the message that “if we’re not competitive, you’re going to see work trickle out,” the former union officer said. “You’re not going to get new work.”

Among the issues in the recent talks were a long-standing profit-sharing plan, health care costs and the use of skilled tradesmen, the former union officer said. Rolls-Royce wanted to reformulate profit-sharing, which provides year-end bonuses to hourly employees; cut its health care expenses and bring outside contractors to work on manufacturing equipment, he said.

The union refused to budge on those issues in 2008 because management had failed to bring substantial new work to Indianapolis over the prior three years, the former officer said.

“They told us there was a lot of work out on the Rolls-Royce network they wanted to find a home for. We could never get anything in writing,” he said.

The real cost problem for U.K.-based Rolls-Royce is the dollar’s low value relative to the pound, said Richard Aboulafia, an analyst at the Teal Group in Washington, D.C.

“This sounds like more of an opportunity for the Virginia facility to take work from the U.K. than Indianapolis,” Aboulafia said.

Another advantage to manufacturing in Virginia is the creation of research partnerships with Virginia Tech and University of Virginia. Rolls-Royce is a partner in the Commonwealth Center for Advanced Manufacturing, which will open next door to the Crosspointe plant next year.

With those relationships, Aboulafia said Indianapolis should be more concerned about keeping engineering work. Indianapolis is the home of LibertyWorks, the top-secret technology division, plus teams that developed the alternate engine for the Joint Strike Fighter and the LiftFan for the JSF II.

“In the long run, there is going to be competitive tension for [research and development] work between the Virginia facility and Indianapolis,” Aboulafia said.