SEATTLE — Though no Boeing representatives attended the annual gathering of aerospace suppliers in Lynnwood last week, the deep troubles at the region’s giant jet-maker were a major focus of attention.
“The state of the industry depends on Boeing,” said Kristine Liwag, an industry analyst with Morgan Stanley, speaking on a panel at the Pacific Northwest Aerospace Alliance conference. “If Boeing is not healthy, the industry won’t be.”
As the pandemic downturn eases and air traffic bounces back, local aerospace companies have reason for optimism after two bleak years.
Yet Boeing’s distress ripples around the industry.
The manufacturer is loaded with $41 billion in net debt, inhibiting investment. Its slashing of jobs during the pandemic caused an outflow of experienced engineers and mechanics.
Most worrying for its suppliers, Boeing’s production rates remain very low and the company has not provided them clear guidance as to when 787 deliveries will resume and when 737 MAX production will ramp up.
An executive at one mid-size Boeing supplier of metal parts, who asked not to be named to preserve the relationship with its major customer, said “that makes it difficult to create long-term agreements to procure raw materials and to forecast the budget for raw materials, equipment and labor.”
The other worry dogging most companies at the conference is that as demand recovers coming out of the pandemic, many firms are desperately short of workers and finding it hard to hire people.
Aerospace recovery depends on supply chain
Certainly there was optimism at the Lynnwood gathering that the gloom of the pandemic downturn is lifting.
In his keynote address, Richard Aboulafia, industry analyst and managing director at consulting firm AeroDynamic Advisory, remarked how government financial support had kept many suppliers in business and that as a result, “the damage from this terrible pandemic has been a lot more isolated than I feared.”
Scott Lathrop — president of Exotic Tool Welding, which provides precision welding to the aerospace, defense and other sectors — said federal Paycheck Protection Program loans allowed his firm to hold onto all of its skilled employees in Everett, about 20 people.
Now, said Lathrop, “Things are ramping up. It seems like it’s coming back.”
Paul Dolan — CEO at major airplane modification, repair and overhaul company Aviation Technical Services — said the operation is down to about 75 percent to 80 percent of its pre-pandemic size, with about 800 workers in Everett and about 1,300 in total including its facilities in Texas and Kansas City, Mo.
Now the airlines are bringing planes back into service, and demand for airplane overhauls is rising. Eager to grow, ATS is hiring again.
Dolan has increased wage rates to attract workers and toward the end of last year restarted its apprenticeship program that trains young people over 18 months to achieve an airplane mechanic license.
“Our success depends on our ability to recruit, to train and to retain,” Dolan told the conference.
Kevin Michaels, founder of AeroDynamic Advisory, said the pace of the overall aerospace industry recovery will depend on how smoothly the supply chain can ramp back up.
At Boeing, demand for its single-aisle, shorter-haul 737 MAX jet has come roaring back. But the market for Everett-built twin-aisle jets that serve international, long-haul routes is very depressed. Aboulafia projected that won’t return to its peak until after 2031.
Given the uncertainty about Boeing production rates, there was much talk of suppliers diversifying into the burgeoning defense and commercial space markets.
With multiple companies planning to launch thousands of satellites in the next few years, Michaels said suppliers who can cater to the demand for specialty satellite components will have plenty of work.
“These are golden businesses,” Michaels said. “They’re extremely well positioned.”
Ron Epstein, an industry analyst with Bank of America, offered that suppliers now dependent on Boeing have to consider switching production to growth areas such as satellites.
“Is it a choice to maybe pivot to supply that industry?” Epstein asked. “If you have large customers today that are unreliable and won’t tell you what production rates they build at, maybe that’s a choice.”
That assessment was echoed by Logan Coutts, who works on business development at Metaltech, a manufacturer in Sumner employing about 62 people making metal components for aerospace and other industries.
“We will do less work with Boeing and more with the commercial space industry,” Coutts said. “There’s a lot more funding involved.”
Uncertainty at Boeing
Boeing chose to boycott this year’s Pacific Northwest Aerospace Alliance conference because of a rancorous lawsuit, settled in June, that alleged a culture of discrimination against women within the organization’s leadership last year.
The interim CEO of the Pacific Northwest Aerospace Alliance, Nikki Malcom, who had firmly denied the allegations, was appointed permanent CEO at the conference.
Despite Boeing’s absence, the company’s problems were a focal point of discussion.
Deliveries of Boeing’s 787 have been largely halted by manufacturing defects for over a year, and there’s no clear indication of when the Federal Aviation Administration will give approval for them to resume. Some conference attendees hope for April, but many others don’t expect a resumption until the second half of this year.
Meanwhile, the MAX is ramping up, with production getting closer to a target of 31 jets per month, but with no definitive information about production rates beyond that.
For companies that make parts for the 787 or the 737 MAX, the uncertainty is a real problem.
At the conference, Aboulafia laid out the larger strategic vacuum at Boeing. Its leadership is not talking about future airplanes, which has allowed the Airbus A321neo to run away with orders in the large single-aisle market.
“I still think Boeing could come up with a killer product that really does great,” Aboulafia said. But Boeing, hunkering down to fix its problems and low on cash, won’t commit to launch one.
The company’s spending on research and development fell by 30 percent in 2020 and by an additional 20 percent last year, Aboulafia told the conference.
It’s been 18 years since Boeing last launched an all-new airliner design. Such launches decide the future shape of the industry and of the region’s airplane manufacturing base.
“Something has to happen this year,” Aboulafia said. “If it doesn’t, then the market-share situation just gets much worse, and you can expect this to be a 70/30 market (split in favor of Airbus) in, say, a dozen years. It then just becomes a question of time before someone replaces Boeing in 20 or 30 years, or whatever it takes.”
And Aboulafia added another worry: The outflow of machinist skills and engineering talent in the downsizing of the past two years will be difficult to reverse in the post-pandemic labor market.
Innovation beyond Boeing
The growth of tech, space and defense companies pouring money into satellites, innovative space vehicles, new urban air taxi concepts, and all-electric or hybrid-electric airplanes has raised demand and wages for engineers in this region and beyond.
When Boeing does launch a new airplane, Aboulafia said, the demand and funding for aerospace and software engineers outside the commercial airliner business “fundamentally jeopardizes any chance Boeing has to resurrect its design teams.”
“Boeing really needs to rethink its relationship with its engineers and its people, because otherwise they’re going to be outcompeted by so many other different sources of demand for talent,” he said.
Coutts, 26, of Metaltech — who grew up idolizing Boeing, with stickers of the 787 on his bedroom wall — said young people coming out of engineering schools watch the growth in the commercial space industry, the salaries offered, and the media coverage of Elon Musk and Jeff Bezos, and see that as their future.
“They don’t see that same excitement with commercial aerospace in Washington,” Coutts said.
At the conference, Omer Bar-Yohay, CEO of electric airplane startup Eviation, offered a sleek example of the innovative aerospace engineering opportunities in the region. He showed video of Eviation’s nine-passenger, two-crew Alice all-electric commuter airplane taxiing on the runway outside its assembly facility in Arlington.
“We expect to start flying within weeks,” Bar-Yohay said. He projected that eventually, production of the Alice airplane could go to “many hundreds if not a thousand airplanes per year in a reasonable time.”
Exciting as that is, though, such new ventures cannot replicate Boeing’s gigantic impact on this region’s aerospace manufacturing.
Bill Alderman — president of Alderman & Co., an investment bank specializing in mergers and acquisitions among smaller aerospace suppliers — acknowledged the importance of Boeing and expressed confidence that eventually its trajectory will turn upward again, as it has after past crises.
“Boeing is in a bad place right now, and we’re all suffering,” Alderman said on one conference panel. “Boeing, I think, will come back.”
In case there’s not enough to worry about from Boeing, suppliers at the conference heard that Airbus wants a 15 percent price cut by 2025 from its global suppliers — mirroring a Boeing mandate that squeezed supplier profits in previous years.
Airbus on Friday confirmed the 15 percent price-cut target will accompany the increased work volume from its production ramp-up.