Boeing Loses $150M Fight With Spirit Over Pension Benefit Costs

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By Carmen Castro-Pagan

Boeing Co. couldn’t persuade the Delaware Supreme Court to reverse a ruling that left it on the hook for about $150 million in employee benefit costs in a long-running dispute with Spirit Aerosystems Inc.

Under the parties’ purchase agreement, Spirit never agreed to assume Boeing’s liability for pension and retiree medical benefits, a three-justice panel held July 12. Spirit agreed only to credit the Boeing employees’ past service with Boeing for the purpose of determining their eligibility for benefits under Spirit’s own benefit plans, the justices said in affirming a lower court ruling.

The dispute between the parties stems from the 2005 sale of a number of Boeing manufacturing facilities to Spirit. The sale led to multiple lawsuits, including one by union employees who started working with Spirit and were denied collectively bargained benefits they claimed they were entitled to because they were laid off by Boeing. That lawsuit was settled for $90 million in 2015. Boeing lost another lawsuit involving similar allegations.

The manufacturers agreed during the sale to allocate responsibility for the benefits of those Boeing employees who would keep working with Spirit. Shortly after the sale, Boeing announced that it would deem any workers taking positions with Spirit to have been “terminated” instead of laid off. Under Boeing’s collectively bargaining agreements, if employees over the age of 49 with sufficient seniority were to be laid off, they would be entitled to special early pension and medical retirement benefits—perks that weren’t available for terminated employees.

Boeing alleges that it is on the hook for about $150 million in employee benefit costs and argues that Spirit should pay for it.

Spirit’s promise to credit employees for their past service was a promise to treat the incoming Boeing workers like their Spirit peers under its own benefit plans and recognize the early retirement benefits they had accrued at Boeing in the event Spirit were to lay them off, the justices said. But Boeing, not Spirit, laid off the workers before they started working at Spirit and participating in Spirit’s plans, the justices said.

The justices also sided with Spirit on the early retiree medical benefits, holding that the manufacturer didn’t agree to directly assume Boeing’s liability to the ex-Boeing workers.

Justices Karen L. Valihura , James T. Vaughn and Gary F. Traynor joined the opinion.

Morris Nichols Arsht & Tunnell LLP represents Boeing. Potter Anderson & Corroon LLP and Connolly Gallagher LLP represent Spirit.

The case is The Boeing Co. v. Spirit Aerosystems, Inc., 2018 BL 247346, Del., No. 5,2018, order affirming district court judgment in favor of defendant 7/12/18.

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