787 Line 2 aftermath

Update, Oct. 30: We’ll be posting our post mortem Monday, Nov. 2.

This isn’t the post mortem we’re working on but there is a lot of traffic to this site today, obviously looking for some thoughts, so here are a few rapid-fire ones:

  • Boeing says it didn’t go into the labor negotiations with a preconceived decision. But we think if it looks like a duck, walks like a duck and quacks like a duck, it’s a duck. We always felt Line 2 was Charleston’s to “lose,” so to speak, and that Everett was a very, very long shot.

  • But at the same time, the IAM asked for stuff that just had no chance of being accepted. Some of this originated with the IAM national leadership that had nothing to do with the needs of the IAM local. We’ll talk about this more in our post mortem.
  • The successor airplanes to the 737 and 777, with decision timelines we estimate to be in the 2013-15 period, will be Puget Sound’s Rubicon. With the IAM and SPEEA contracts coming up in 2012, the outcome of these will dictate with finality where the successor airplanes will be. We predicted in April that these will not be in Puget Sound. We also predicted in April Line 2 would be in Charleston.
  • Washington State and labor have to decide what they are willing to do between now and 2012-15 to try and keep the successor airplanes. We predict they will all dither away these opportunities through inertia (on the part of the politicians) and resentment (on the part of labor).

This will have to tide readers over until we can fully do our post mortem.

11 comments on “787 Line 2 aftermath

  1. Scott, WRT the successor programs to the 737 and 777, I hope you pound this point home. There are some very angry Boeing employees, and I can empathize with them. However, things can get worse–much, much worse.

    Boeing will survive, make no mistake. Will aerospace in WA state?

  2. I’m now hearing from my Boeing worker bee contacts, including a couple in management.

    The ones in management are mostly ticked off about having their overtime pay drastically cut. There is widespread manager disgruntlement over this as Boeing managers are required to work lots of overtime. They could simply care less about the Charlston episode though one wants to transfer there for golfing reasons. Apparantly the golfs there are more robust.

    The Union types all give me the same responses.

    Dissapointment, but not surprise, and here is a direct quote from one that the others seemed to agree with when I polled them on it:

    “YOU don’t get it. The company’s leaving began with Harry Stoncipher and the move to Chicago. But it didn’t really sink in until 2002, when the company used 9/11 to beat us down. That was the year we wrote off out Boeing jobs. Especially Renton and the 737. That’s already halfway gone. It’s mostly a shopping center already. The rest of you all are behind the curve. Boeing is leaving, and there isn’t anything we, you, or anyone else can do about it, because there will ALWAYS be a cheaper location with cheap labor.

    Everytime the Union asks us to strike for job security, we basically ignore them and strike for money and benefits in the short term. The old guys know nothing can be done, and are planning their retirements around Boeing leaving. Most of the young ones, they never intended to stay here in the first place. Boeing was just a waypoint on the way to something better. Sure, there are some that want to cling for dear life to Boeing, those guys are just SOL, and deep down they know it too. We are going to get what we can and make hay while the sun shines.”

    My investor buddies and I are looking at the measly six cents per share EPS and looking for this to be cut further. There is no way James Bell is going to get past january without having to adjust guidance drastically lower.

    I don’t trade on margin normally but I’m now thinking a sizable short position in BA might be another way to get even.

    Oh, and as an aside, my groups consensus on the idea that carmakers in the south have somehow proven a point:

    The foreign carmakers are in the USA at all not necessarily because of cheap labor, but because of the weak dollar. The same weak dollar that gives Boeing an advantage in overseas sales. If the dollar were to flip, the Japanese and Germans would be gone in a heartbeat. And we note that Some U.S. automakers like Saturn that have tried the south, have still failed. And while we don’t for an instant that southerners are substandard workers, a car and a jetliner are significantly different beasts to slay, and this scratch effort is going to plague Boeing and the 787 for many, many years. There is no evidence at all to believe that Boeing can manage this. Once upon a time it could have, but it has lost significant expertise in the last dozen years, and simply doesn’t have the brain trust to pull it off with any elegance.

    Meanwhile, Boeing allows the mean spirited, union retaliation inviting rhetoric to go on unabated in the local media, and surprisingly, allowing such nasty commentary to stay up on Randy Tinseth’s blog. It’s shameful and unprofessional for that to be allowed on an official company webpage. I guess that’s what Boeing is anymore.

  3. Unless I just landed in an alternate reality, as I recall the foreign car makers have been here since the 1980s. The dollar was hardly weak when they started. Why does airbus want to set up a plant here?

  4. In the 80′s the dollar wasn’t weak globally, but it was against the yen, and the Japanese were first in.

    http://www.yen-to-dollar.com/yen-to-dollar-history/

    The airbus move is all politics. Thye knew they would never sell a tanker here without an American partner, and and American offset agreement that would give it some political clout.

    And a word to the wise:

    When Boeing is involved, you are always talking about an alternate reality. Since about 1997 anyway.

  5. As I said before – The so called negotiations at the last minute – blah blah was a smoke and mirrors game – the real decision had been made months ago. Boeing used it to get SC to sweeten the pot.

    Historically, boeing has for several decades had a bribe em or bust em view re unions.

    And there is wayn to much blather about the direct wages being an issue. What is a real driver is the overhang of past pension and medical promises made decades ago.

    The folks in SC will have a chance to find out what happens to employees without any contractural protections at all. Not that unions are blameless – the IAM really screwed up in SC with a phony contract agreement – which while fair regarding wages, was done in a underhanded manner- leading to decertification. I’m sure Boeing helped.

    requiring secrecy in the talks had the desired effect – leaving the local members in the dark.

    And one can be sure that Chris G and Frank Chopp did NOT really help regarding union v company.

    BA has assumed the McDummy mantra re unions, as long evidenced by stonecipher, mcNerney, etc all GE jack welch rejects.

  6. If I were a Charleston Boeing worker I would have voted down the union when they did just to give Boeing another reason to expand there. Then once they build the new plant I’d reorganize in a heartbeat.
    For those of us who build things for a living, the differences between a non union shop and a union shop are like night and day.

    As optimistic as I was regarding predicting the location of line 2, the reality is that you just need to take what makes sense and do the opposite. Thats the Boeing way!

    I almost can’t help but feel sorry for the citizens of South Carolina. They got duped into paying 170 million of dollars for 3800 jobs. Not necessarily jobs that will go to S. Carolinians though. They probably didn’t even have to pony up all those incentives.

    In the end, I feel like Boeing has challenged us. It is up to us to build these planes cheaper, faster, and with higher quality than those in S. Carolina. That way, the customers will demand “Everett 787s,” because they only want the best.

    • “Everett 787s” are made in Charleston, Wichita, Foggia, Grottaglie, and Nagoya, among other cities worldwide.

      Fully stuffed fuselage barrels, nose/cockpit sections, wings, and tails (once full rate production is achieved) are mated in Everett.

      It’s an oversimplification, to be sure, but that plug-and-play can occur almost anywhere in the world. The quality of the underlying fully completed subsections is what counts.

      Since major components of the 787 are already being made in Charleston, what is to distinguish an Everett assembled 787 from a Charleston assembled 787?

      • This is true, but it’s the same approach that got the 787 program into so much hot water. The system Boeing wanted to set up is one in which much of the design, development, financing, and production is outsourced to other companies. In some ways, Boeing was looking to become more of a marketing entity than an airplane builder. That would have resulted in fewer workers to pay, and more profits for the executives at the top.

  7. Everyone seems to be making this much more mysterious than it is. It’s all in the math.

    In the past, labor accounted for the lion’s share of production expenses. The cost of a strike to a business was largely negated by not having to pay wages to idle workers. Strikes were commonplace, and accepted.

    This is no longer the case. Machinist labor now accounts for less than one-sixth of the cost of an airplane. Therefore, the cost of a strike today is four or five times higher than in the past, because the entire facility is idled, but the other five-sixths must still be paid. This is financially intolerable for to any company that is financed by debt, like Boeing.

    The adverse financial leverage exerted today by the IAM is vastly higher than in the past, to the point that Boeing can no longer accept the financial risk.

    While the skill of the Seattle machinists has been, and will continue to be a significant factor in the success of Boeing, the IAM has become an antiquated vestige of the past, and is facing extinction like a dinosaur unless it adapts to the changing business and technological environment.

    Boeing is merely doing, however ineptly, what it must.

Leave a Reply: Note Reader Comment Rules

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s