Thoughts on the Boeing-IAM deal

We couldn’t be more delighted.

The agreement announced Nov. 30 between the IAM 751 local and Boeing is an outstanding development.

Who wins? Basically, everybody.

The Company gets:

  • Production stability through most of 2016 without the pain and agony of protracted negotiations and all the uncertainty associated with this process;
  • No-strike through most of 2016;
  • The NLRB case goes away., by all indications. How this specifically relates to Charleston and the Surge Line remains to be seen;
  • A contented workforce; and
  • Stability for ramping up production of all the 7-Series, most particularly the 737.

The union gets:

  • The 737 MAX;
  • More work on the KC-46A tanker if Boeing Wichita closes;
  • An economic package with no apparent “take-aways;” and
  • No stress over contract negotiations or a strike.

Customers get:

  • No strike;
  • No interruption of deliveries; and
  • Certainty over deliveries.

Suppliers get:

  • Pretty much the same thing as customers.

Washington State gets:

  • The 737 MAX and all the jobs and supply chain benefits there from.

Losers:

  • Everybody else who salivated over the prospect of winning the 737 MAX, but more or less you don’t miss what you don’t have; and
  • Airbus: it can ‘t play on the uncertainty of a Boeing strike and delivery reliability.

We’re delighted management and labor set aside the antagonism of the decade-and-a-half and all the testosterone that went with it and realized that a partnership is more beneficial than being in their corners ready to fight.

A note of interest: Boeing Commercial Airplanes CEO Jim Albaugh was asked at the Credit Suisse conference Wednesday morning about the prospect of labor negotiations next year. (This during the 8am hour, EST.) Albaugh, in his characteristic understated way merely opined he was optimistic a successful negotiation could be achieved.

Six hours later, the deal was announced.

American bankruptcy may prompt US Airways bid

American Airlines’ bankruptcy filing may at long last prompt a bid by US Airways to make a bid for the carrier.

Doug Parker, CEO of US Airways, has a long history of bidding for Chapter 11 carriers. He was successful when, as America West Airlines, he bid for US Airways. He was unsuccessful as US Airways in bidding for United Airlines and Delta Air Lines. He is on record as saying a bid for American made no sense without a bankruptcy by the Ft. Worth (TX)-based carrier.

We won’t be surprised in the slightest if Parker makes a bid

Boeing, IAM 751 reach labor agreement, settles NLRB case, MAX stays in Seattle

Seattle Times story.

IAM press conference 11am PST. Live video KIROTV.com.

IAM press release.

Boeing press release.

Brothers and Sisters,
In late October, senior executives from Boeing approached us to ask if we could get together to talk about issues that were going to come up in the 2012 contract talks. We agreed to meet with them to hear what they had to say. What resulted was an ongoing dialog and a series of meetings that ended with a proposal by the Company to extend the current contract with some changes in certain areas — but a huge improvement in job security, which was your No. 1 issue in our first survey for the 2012 contract negotiations.
For these meetings, we pulled together our union negotiating teams, who have experience dealing with the various topics the Company wanted to cover: Health and Benefits, Job Security, Pay, Pension and Incentives. Although we had an idea the Company might want to extend the existing contract, we had to wait until they confirmed it in writing that this was their intent.
We did not publicly announce these talks, for reasons we know you understand. In the past, we’ve gone through negotiations with media, politicians and bloggers second-guessing our moves and trying to determine the outcome while we work against a looming deadline. To make a big public splash this time would have undermined what we were doing and would have gone against the reasons why we agreed to meet with the Company in the first place.
We now know this was the right decision. What has resulted is an unprecedented commitment by Boeing to Puget Sound and Portland for the 737MAX and the related manufacturing that’s currently being performed here. This will generate long-lasting security for our members. It also resulted in a Boeing commitment to the success and continuation of the other airplane programs where our members have shown time and again their expertise, productivity and quality, resulting in increased profits for the Company.
Based on many factors – the current economy, the state of affairs at Boeing and our ability to secure unprecedented Job Security for our members — we unanimously recommend you vote to accept this proposed contract extension.
We need to be clear: this proposal does include some sharing in the increases in Health Care costs, with the amount varying, depending on the plan you choose. Negotiations are about give and take and to achieve gains in Job Security, Pension and Wages, we had to be willing to compromise elsewhere. However, in doing so, we were also able to increase benefit levels in dental and vision, and win protections that cap the amount you will be paying, including guarantees that you won’t have to pay any future federal taxes on health-care plans. In the end, we’ll still have health care benefits far superior to those earned by most workers in our industry, and our nation.
On the plus side, there are some significant improvements, which are outlined on these pages. This should be considered as a full package as you discuss this proposal with your family.
If approved, the proposed four-year extension would be in effect upon ratification through September 8, 2016.  Highlights of the offer include the following:
JOB SECURITY
• We were able to secure the future of the 737MAX for Puget Sound, including  current parts manufacturing,
  assembly and supporting shops, such as the Wire Shop & Interior Shop in Everett.
• Continuing a firm commitment to widebody production in Everett.
• Securing a firm commitment to tanker manufacturing for Puget Sound.
• Securing a firm commitment to P-8 manufacturing for Puget Sound.
PENSION
• Preserved pension for new hires.
• Pension benefit increases each year of $2 up to $91 per month per year of service as of Jan. 1, 2016.
• Boeing VIP savings plan remains intact, along with Company match.
GENERAL WAGE INCREASES/COLA
• General wage increases of 2% each year of the contract.
• Quarterly COLA formula remains the same.
INCENTIVE PAY
• New program intended to pay bonuses from 2 to 4 percent of annual gross pay (including overtime, shift
  differential pay, team leader pay, etc.), based on achieving easy-to-understand safety, quality and productivity
  metrics.
RETIREE MEDICAL
• Preserved retiree medical benefits for all workers, including future hires – something virtually no other group
  at Boeing has done. The same changes that apply to the plans for active employees apply to retiree medical
  (excluding monthly premium language).
HEALTH CARE
• Members will pay more, with the amount of increase depending on the plan you pick. In the end, we will still
  have health care benefits far superior to those earned by most workers in our industry and our nation. Current
  medical plans in all locations continue to be offered.
• Annual out-of-pocket costs are capped.
• New generic drugs and voluntary health screening programs can reduce increased costs in 2013.
• Machinists won’t pay any federal health care “Cadillac taxes.”
RATIFICATION BONUS:
• $5,000, to be paid within 30 days of ratification.
Ultimately it is up to you as members to vote whether to accept this contract extension proposal or reject it. Summaries of the proposed contract extension will be available at all Union Halls, and a complete text of the Company’s proposal will be available online (www.iam751.org). We urge you to study them carefully.
Taken as a whole, we think you’ll like what you see. This proposal addresses what you told us was important to you; therefore we recommend you accept it by voting yes.
In Solidarity
Your Union Negotiating Team
Mark A. Blondin
Aerospace Coordinator
Tom Wroblewski
District 751 President/DBR
Robert C. Petroff
Assistant Directing Business Rep W24
Steve Rooney
District 70 President/DBR

China won’t be competitor for 20 years: Leahy

China’s emerging commercial aerospace industry won’t be a viable competitor to Airbus and Boeing for 20 years, predicts John Leahy, COO Customers of Airbus.

Speaking at the Credit Suisse Aerospace conference in New York, Leahy noted the challenges COMAC has with the ARJ21 regional jet; and the development of the C919 mainline aircraft, neither will commercially be an effective aircraft compared with today’s aircraft from Western companies.

Boeing’s Jim Albaugh, CEO of Commercial Airplanes, speaking separately at the same event, agreed. He also said Boeing has erected “high walls” around its technology, and will maintain its lead over China by building “tomorrow’s airplane” while China is building “today’s airplane.”

Albaugh acknowledged there is some technology transfer of today’s generation.

Boeing looks at improving 737 production rate efficiency

Boeing is considering how to make the already-lean 737 production line even more efficient with an eye toward increasing rates beyond 42 per month, the commercial airplane division CEO said today.

Jim Albaugh, speaking at the annual Credit Suisse Aerospace conference, said the demand is here for a higher rate.

“We went into this year wanting to reduce the backlog and we failed miserably,” he said, referring to record orders and commitments for the 737NG and 737 MAX.

The challenge of going higher is that the Renton 737 plant is nearing capacity. A solution may be to further increase efficiency of the facility.

“If you go back two years with the 777 program, the maximum rate we had was seven per month in the factory.  With lean manufacturing and engineering, we were able to take that up to 8.3 per month with very insignificant investment. It is my hope that as we continue to lean-out the 737 program, we could be in a similar position where we can go even higher than 42 if we chose to,” Albaugh said.

“We don’t have to make a decision on going higher than 42 for a while. We’re going to go to 42 in 2013. We’ll look at the market, we’ll look at the demand…and probably in late 2012, late 2013, if we can go higher we’ll make that decision.

“The other thing that we have to do is really think about how we transition from the 737NG to the 737 MAX. Regardless as to where we are going to build the 737 MAX, you don’t want to get into a situation where we aren’t delivering narrowbodies. We have to build a bridge to the 737 MAX.”

The 42 rate is sustainable, Albaugh said. “As we look at the skyline, the demand is there. We’re basically sold out through 2015. We can sustain them.”

Where will MAX be built?

“We are looking at quite a number of things. We’re taking a long-term view of what makes sense. How complicated can we be. The business climate. The environment. The assurity of delivery. We’ll make a decision when we have the facts.”

Odds and Ends: Wait a minute, we’re No. 2

We’re at the Credit Suisse aerospace conference in New York. Occupy Wall Street is demonstrating outside and passed out a flier criticizing defense spending. Boeing is listed as the number 5 defense contractor.

Jim Albaugh, CEO of Boeing Commercial Aircraft, looked at the flier and with his ever-present sense of humor said, “That’s wrong. We’re number 2. Take this out and have them retract this.”

Stay tuned for updates throughout the day.

Odds and Ends: Sharklets, CAPA analyzes the Middle East

A320 Sharklet: Jon Ostrower has a detailed piece about the wing work needed to retrofit the A320 with sharklets and some thoughts about what this means for the neo.

Dubai Air Show: The Center for Asia-Pacific Aerospace (CAPA) does an analysis on the orders placed at the Dubai Air Show and what these mean. CAPA has a couple more links within the article that are worth clicking. One link is about Bombardier and its CSeries progress.

Middle East: More on the region: Bloomberg has this report in which Emirates Airlines is considered a safer investment than the sovereign risk of Dubai.

Bernstein Research, meanwhile, issued a note today (Nov. 28) on the Middle East. It writes:

Long term strategies at Boeing and Airbus for long haul aircraft need a special focus on Middle East airlines. We see growth at the big three Middle Eastern airlines (Emirates, Qatar, Etihad) as a trend that will not end any time soon and will come heavily at the expense of European and Asia-Pacific airlines (e.g. Lufthansa, Air France, British Airways, Thai, Singapore, Qantas). The big three airlines are all now among the fifteen largest long haul airlines in the world in terms of widebody fleet plus backlog (Emirates is the world’s largest and Qatar the third). Compared to other regions, the Middle East is an outlier in that planned fleet growth is much larger than could be justified by the region’s GDP growth alone. But, this fleet growth is all about acting as a “sixth freedom” hub for long haul traffic, particularly connecting the Asia-Pacific region with Europe and Africa.

Pratt & Whitney: Time magazine named the GTF one of the top 50 inventions in 2011. The Montreal Gazette has this take on the Time honor. (We’d link directly to Time’s article, but it is for paid subscribers only at this point.)

Air India: The airline is now apparently planning to sell its new Boeing 787s and lease them back, thus neatly avoiding the controversy over export financing.

Boeing Wichita: News broke last week that Boeing is studying closing its Wichita operation, which is dedicated to military business. With the defense budget under attack, Boeing is finding it hard-pressed to keep Wichita open, according to news reports. The news sent Kansas politicians scurrying and set off some irate comments because Boeing promised Kansas 7,500 jobs in the KC-X tanker competition if it won (as it did). The politicians say Boeing promised Wichita the tanker finishing business and it better keep its promise. The Wichita Eagle has this latest article, which also has some interesting history of Wichita’s role in aerospace.

KC-46A Tanker: Speaking of the tanker, DOD Buzz and Bloomberg News have reports that Boeing is likely to lose money on its initial contract with the tanker. This is not particularly new; this was first reported earlier this year. But the amount has grown from a $300m loss to $500m on a $4.8bn contract.

787: Breaking Even, Operating Costs and Worldwide tour

The Everett Herald Nov. 27 had an interesting article assessing the break-even of the Boeing 787. The article neatly summarizes what Boeing CFO James Bell described on the 3Q earnings call. The Herald’s article is slightly out of date, not accounting for the cancellation of 24 airplanes by China Eastern and dropping the firm orders to just under 800.

Graphic (would not load in our Firefox but did load in Chrome).

Separately, the company that created PIANO–the cost-analysis tool to determine aircraft operating costs–published an assessment of the 787′s operating costs and related CO2 emissions reduction. The results were surprising.

Boeing found a way to utilize one of the first three test airplanes longer-term. These airplanes won’t be sold and have been written off. The company took #3, painted it up in the Boeing colors, outfitted it with the full interior and embarked on a world tour as a marketing and sales tool. It’s a highly creative solution to what to do with the test airplane now that testing is over. It’s only a six month tour but it’s a good move.

Bankruptcy fears swirl again around American Airlines

With bankruptcy fears swirling again around American Airlines, some questions arise what happens to the orders AA has with Airbus and Boeing if the carrier goes into Chapter 11.

This hand-wringing piece paints a dire picture for Boeing. There is a lot to argue with over this particular writing, but the piece’s headline is particularly off-the-mark. (Note that the writer of the piece and the headline writer may not be the same person.)

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