Boeing CEO defends transfers; experts question his rationale

By

Published:

 

SEATTLE — Boeing Chief Executive Jim McNerney on Wednesday defended management’s plan to transfer thousands of engineering jobs out of the Puget Sound region, saying it’s aimed at “creating the strongest possible Boeing.”

But aerospace industry experts were skeptical of his rationale for the strategy and warned of risks to the company’s future.

McNerney’s comments came during a conference call after Boeing reported a strong quarterly net profit of nearly $1 billion on sales of $20 billion.

The Boeing CEO acknowledged that the engineering work transfers now in progress — which will result in a loss of more than 4,300 highly paid, white-collar jobs locally — are “controversial.”

But he insisted the moves will “strengthen our company, strengthen our engineering capability.”

He justified the moves as a way to leverage engineering talent available elsewhere in the company.

“As the world’s largest aerospace company, that has been put together out of the cloth of a number of different acquisitions over the years, we have engineering talent around the company that is extraordinary,” McNerney said. “When we place work, there is a tension between engineering work being done next to the product on one hand, and on the other, doing it in the place that has the best engineers for the task at hand, or so-called centers of excellence.”

Most of Boeing’s commercial-airplane engineers are in the Puget Sound region, but last year management announced the establishment of new engineering “centers of excellence” in North Charleston, S.C.; Huntsville, Ala.; and St. Louis, as well as Southern California.

“We’re trying to achieve the right balance between centers of excellence and proximity” to where the airplanes are built, he said.

In the future, McNerney added, engineering will not be in a single location but instead will be located across the different centers.

Experts skeptical

Richard Aboulafia, longtime aviation industry analyst with the Teal Group, dismissed the idea that Boeing is leveraging available talent at other locations inherited in the late 1990s through the acquisition of companies including McDonnell Douglas, Rockwell and Hughes.

Instead, he said, it’s all about cutting costs.

“It’s been a long time since they had a surplus of legacy engineering talent at any of the places they acquired,” said Aboulafia. “They are letting costs drive decisions. You wouldn’t be doing this if it wasn’t for cost.”

Hans Weber, president of engineering-consulting firm Tecop International, concurred that cost-cutting is behind the work transfers and that the result will be damaging to Boeing.

“I suspect the real motivation is to get rid of senior engineers, to weed out expensive people and replace them with junior people,” he said. “The bean counters think they can save money that way.”

Weber said moving engineering work away from the main assembly plants in Everett and Renton “goes against the so-called Toyota principle that you want to keep engineering and manufacturing close together.”

This proximity is especially important in industries such as aviation, he said, because the extended learning curve in building new jets and the continuing need to modify current models over the decades of production mean there is “a constant need for interaction between engineering and manufacturing.”

Toyota’s manufacturing model is one that Boeing management has long aspired to emulate.

Scott Hamilton, Issaquah-based aviation analyst with Leeham.net, said there is some logic in Boeing’s strategy of spreading engineering work around the company.

As the U.S. defense budget declines, Boeing will want to put its military-side engineers to work in order not to lose their expertise. He said that at least partially explains why Huntsville, where Boeing does missile-defense work near the U.S. Army’s Redstone Arsenal and NASA’s Marshall Space Flight Center, is being promoted as a center of engineering.

And because Boeing has already committed to building up North Charleston as a commercial jet-manufacturing complex, it also makes sense to beef up the engineering workforce there, Hamilton said.

But he said that even accepting such logic, the way management is carrying out the transfers -- laying off people here, then inviting some to reapply for their old jobs at new locations -- is counterproductive because it engenders such bad feelings.

“They are doing it in a very callous way,” said Hamilton.

On the earnings call, McNerney barely acknowledged the upswell of bad feeling here in Washington state and said that will be dissipated by future work such as the 777X.

“I realize that moving work around a very large corporation can be controversial at the local level,” McNerney said. “As we see further success in the future, we’ll fight through the dislocations that happen not only in Seattle but in other places around Boeing.”