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Tuesday, March 19, 2024
March 19, 2024

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Boeing will cut jobs to help rein in costs

Plan that may include layoffs spurred by competitive pressure

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SEATTLE — Fierce competitive pressure is forcing Boeing Commercial Airplanes into a new cost-cutting push that will include eliminating jobs, BCA Chief Executive Ray Conner announced at a senior leadership meeting Wednesday morning and in a webcast to all employees.

No details were given on the timing or scale of the job cuts, but the tone of the announcement suggests a significant impact across BCA.

“We will start reducing employment levels beginning with executives and managers first,” said company spokesman Doug Alder. “We will also use attrition and voluntary layoffs. As a last resort, involuntary layoffs may be necessary.”

“The overall employment impact will depend on how effectively we bring down costs as a whole,” Alder added.

At the beginning of this year, Boeing employment in Washington stood at 79,238.

That’s down almost 7,800 jobs from the most recent peak in the fall of 2012 of 87,023.

The gloomy announcement came on the same day that leading aviation expert Richard Aboulafia, speaking at an area conference, expressed concern over the sustainability of the long-running airplane industry boom and skepticism that Boeing will reach the high production rates it’s already announced.

Last week, Boeing approached the International Association of Machinists union to discuss a voluntary layoff program.

The union was not given specific information about impending layoffs at that time, and on Wednesday union spokesman Bryan Corliss said the company had still provided no details.

“They haven’t told us anything,” said Corliss.

Alder said Boeing must “reduce the cost of designing and building our airplanes” in order for the company “to win in the market, fund our growth and operate as a healthy business.”

European rival

The impetus for the move is clearly the intense competition from European rival Airbus, which is putting significant financial pressure on Boeing that’s likely to increase between now and the end of the decade.

Boeing’s 737 narrowbody jet and its 777 widebody jet programs have been the two cash cows for the commercial airplane unit for years.

However, Airbus’s A320 last year won a 60 percent share in the narrowbody market against the 737, forcing Boeing to reduce pricing and profit margins on that program.

And 777 production is set to dip this year from 100 jets to more like 70 aircraft.

The 787 Dreamliner, though now delivering at a rate of ten airplanes per month and soon to go up to 12 per month, is far from making up the difference in incoming cash.

The 787 is close to the point where it is no longer losing money on each jet delivered, but it’s not quite there and certainly won’t be making significant profits for a long time.

At the Pacific Northwest Aerospace Alliance’s annual suppliers conference, Teal Group analyst Aboulafia said that to cover the recurring cost of producing all its 787s and eke out an overall profit, Aboulafia Boeing will have to build future 787-9s at an average cost of about $91 million each — compared to an estimated cost of $140 million each in the fourth quarter of 2015.

“That’s a real problem,” he said.

More generally, Aboulafia also cast doubt on the viability of the production ramp-ups planned by both Airbus and Boeing. Combined, the companies between now and 2019 project a 13 percent growth in narrowbody jet production and a 9.4 percent growth in widebody jet production.

“Man, that’s ambitious,” Aboulafia said, pointing out that this assumes the booming aircraft industry growth that hasn’t flagged since 2004 will continue through the end of the decade.

In the past, the airplane industry has typically gone through boom and bust phases in roughly six-to-eight-year cycles.

“We’ve had a 12-year super-cycle. We’re floating in space here,” Aboulafia said. “I’m very concerned about that.”

Plenty of macroeconomic factors could bring the current boom to a halt, he said.

For more than a decade, airlines have been ordering new fuel-efficient jets because of high oil prices, with low interest rates offering easy capital to do so.

Now the price of oil has sunk from more than $100 a barrel to below $30 a barrel, while interest rates have begun to rise.

And in the emerging markets that have driven airplane orders to record highs, the rise of the dollar makes jets more expensive.

Aboulafia pointed to the large outflow of investment dollars from emerging markets last year. He said airlines in those countries that have placed huge orders based on debt and external capital may face a reckoning that could bring company failures, and order cancelations for Boeing and Airbus.

Even China, the biggest growth market in the airplane business, is fragile, he said. Jet deliveries to China have continued to climb steeply even as its gross domestic product figures moderate.

Yet much of Boeing’s financial strength in the next few years depends on ramping up production. Management said last month it plans to build 57 single-aisle 737s starting in 2019.

“I don’t see that as sustainable,” said Aboulafia.

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