In another boom year for commercial aerospace, Boeing is busy building infrastructure in Washington state — and yet it has also cut its workforce for the third straight year.
By the end of 2015, Boeing’s local assembly plants for the first time will have delivered more than 700 commercial airplanes, propelling Boeing well ahead of Airbus in jet production.
In Renton, the 737 factory has been transformed by millions of dollars of investment in automated equipment, to prepare for even higher production rates.
In Everett, construction is well advanced on a massive new composites plant where the wings of the forthcoming 777X will be fabricated.
But as of Nov. 30, Boeing had 1,424 fewer workers in Washington than it had at the beginning of the year.
Its workforce here is down nearly 7,700 jobs, almost 9 percent, from the most recent peak in October 2012.
Richard Aboulafia, industry analyst with the Teal Group, said he expects Boeing’s job cuts in the Puget Sound region to continue.
“A higher level of automation, greater dispersal of engineering work, coupled with the rise of Charleston as a manufacturing center,” he summarized. “There’s no way to sugarcoat it. It means fewer jobs producing more jets.”
Boeing spokesman Doug Alder said the vast majority of the work moved from the state this year was due to the relocation of Boeing defense work to Oklahoma City and St. Louis, as well as “the continued geographic diversification” of research and technology and airline-support services — to new engineering centers in North Charleston, S.C.; Huntsville, Ala.; Seal Beach, Calif.; St. Louis; and to sites overseas, including Moscow.
The local engineering corps has been hit hardest.
The union that represents Boeing white-collar workers, the Society of Professional Engineering Employees in Aerospace (SPEEA), has lost 1,405 members so far this year.
Some moved to Boeing sites in other states. But many others retired or left the company for work elsewhere and were not replaced. And 417 were laid off.
Alder noted that despite these recent job losses, Boeing’s current Washington workforce of more than 79,300 is still about 26,500 higher than it was at a low point in 2004.
And since then, the portion of Boeing’s almost 162,000-strong workforce that works here has grown from one-third to almost half.
“Over the last 12 years, Boeing has chosen to concentrate jobs in Washington state to a greater degree than any other place in the world,” Alder said. “Our investment in the Everett and Renton sites, as well as our expanded delivery center in Seattle, speaks to our commitment to the Puget Sound region.”
Tax breaks and job cuts
Nonetheless, the continuing job losses this year have fueled a campaign by SPEEA and the International Association of Machinists for a change in state law that would reduce tax breaks for Boeing if there are further significant cuts.
So far, their efforts have gone nowhere in Olympia.
Ray Goforth, SPEEA executive director, is not even optimistic that the imminent start of major development work on the 777X will stem the tide of engineering cuts.
“They are building the 777X factory here. Some of the engineering work will be done here,” Goforth said. “But they have already announced that big chunks of the engineering work for the 777X are being placed in other states.”
In 2013, Boeing said much of the detailed design of the new parts of the 777X airframe — the wings and tail — will be carried out by Boeing engineering teams in North Charleston, Huntsville, Long Beach, Calif., Philadelphia, St. Louis and Moscow.
SPEEA’s bargaining unit has shrunk by more than 3,500 members since the beginning of 2013 to just less than 20,000. In this gloomy context, its existing contract expires in October; next summer it will begin new contract talks with the company.
Boeing management wants to freeze the pensions of SPEEA members, as it has already done for almost all other employees.
It’s clear the 2016 negotiations will be tense.
777 rate cut?
With production lines humming, the machinists have escaped layoffs in the past two years. But they worry about job cuts ahead because of the possibility that production in Everett may dip significantly over the next five years.
The focus of concern is the 777, currently rolling out at a rate of 100 jets per year. Between the second half of 2017 and the end of the decade, a large portion of 777 delivery slots are still open, with no assigned customer order.
It’s not just that the 777 will be superseded by the 777X, making the current model less appealing.
The 777 market is rapidly softening from an influx of used jets at low prices coming from the bankruptcy of Russian carrier Transaero, a restructuring at Malaysia Airlines, and the prospect of many more not-so-old 777s soon coming off lease from premier carriers Singapore Airlines and Emirates.
And the dramatic fall in the price of oil is making it profitable for airlines to hold on to their older, less-fuel-efficient jets or to snap up one of those used jets instead of buying a new one.
“Building hundreds more 777-300ERs would just maybe make sense if oil was at $90 a barrel,” said Teal Group’s Aboulafia. “If it stays at $40, those used planes look better and better.”
Boeing insists it can win enough new orders to fill the order gap before the 777X comes online in 2020.
Randy Tinseth, vice president of marketing, concedes that “we’ve got challenges on 777.” But he points to the robust health of Boeing’s customers: Airline passenger growth is strong this year, at nearly 7 percent, and the airlines are seeing record profits.
“When they have the money, they do buy new airplanes,” he said.
Yet Wall Street analysts don’t believe Boeing sales can fully plug the order gap. They almost uniformly project the 777 rate will have to drop to about 60 planes per year.
Aboulafia more pessimistically predicts a 777 rate cut in 2016 and again in successive years, down to as low as just 50 jets in 2018.
Halving the production rate could mean cuts among the more than 10,000 assembly workers who build the 777 today. About twice that number work on the program in total.
However, the start of initial, labor-intensive 777X production work in 2017 could blunt the impact of any decrease in the current 777 rate.
Jobs lost, threatened
The job cuts this year have hit those still at the company as well as those who’ve left.
Brian Metz developed multimedia graphics used to train pilots and mechanics for about 15 years at Boeing before his group’s work in the local Commercial Airplane Services division was outsourced last year to third-party contractors in Texas and Florida.
Unemployed since April, at 56 he’s reaching for a new career by earning a communications degree at Washington State University’s Everett campus.
Metz said people he knows still working at Boeing feel “under siege, horrified by what’s going on.”
Mike Gardner is luckier; he still has a job at Boeing. But now he’s in the IAM instead of SPEEA.
His job as a maintenance analyst writing instructional repair manuals for airline mechanics was moved to Seal Beach, Calif. With kids and family ties here, he didn’t move.
Instead, he — along with more than 10 others he knows of — switched jobs within Boeing to become a factory quality inspector.
That meant joining the IAM and losing most of his seniority because he is now in a different bargaining unit.
Though he worked 27 years at Boeing in a white-collar job, at 57 he’s now on the graveyard shift and has lost accrued benefits, including three weeks of vacation a year.
A third CAS employee, who asked not to be named because he’s one of the few still there as an engineer supporting the 787s flown by airlines, said his work will eventually move to Seal Beach, too. He’s looking for something else within Boeing.
“It’s a time of much churn and turmoil,” he said.
Boeing’s fierce competition with Airbus is what has led management to cut costs at every turn, despite the boom in business that’s swollen profits.
Through the first nine months of the year, Boeing had more than $4 billion in net profit. It has projected a full-year profit of about $5.4 billion.
And for now, Boeing remains the world’s top manufacturer of commercial airliners.
With all the airplanes rolling out of Everett and Renton, and an additional 40-plus jets from Boeing’s plant in North Charleston, S.C., its deliveries will far outpace those of Airbus this year.
Through the end of November, Airbus had delivered 556 airplanes to Boeing’s 709. And Boeing’s clear lead in the more expensive widebody-jet market meant its deliveries had a much higher dollar value.
According to market-pricing data from aircraft-valuation firm Avitas, Airbus’ deliveries were worth about $36 billion after typical discounts, compared with about $58 billion for Boeing’s.
On the other hand, Airbus will win the yearly sales race by a big margin, which might seem worrying for the future.
Through the end of November, Airbus had net orders for 1,007 jets valued at about $58 billion after discounts, while Boeing had only 568 net orders valued at $44 billion. A flurry of late orders lifted Boeing’s total as of Dec. 23 to 743 planes; final 2015 order tallies for both manufacturers will come next month.
Boeing’s Tinseth betrays little worry, pouring scorn upon the Airbus order list. He points out that nearly half the Airbus sales through November came from just three relatively small airlines placing outsized orders: Indigo of India, Wizz Air of Hungary, and Avianca of Columbia.
Indigo, for example, today flies just 100 jets and already had 180 Airbus orders waiting to be filled when it purchased 250 additional planes in August.
Such ambition certainly could be reined in over the years to come. The jets actually rolling out of factories now are a more secure measure of success.
“It’s really all about deliveries,” said Tinseth.
And yet, the potential future threat from Airbus clearly rattles Boeing management. It drives them to try to produce more airplanes at ever lower cost, and ultimately to build more airplanes with fewer people.
Which means that though Boeing’s local employees still work for the top aircraft manufacturer in the world, a company pouring investment into equipment and buildings all over the region, many of them feel no job security.