Odds and Ends: AirAsiaX orders A333; WA and Airbus; Boeing names COO

AirAsiaX orders A330-300s: As forecast earlier this week, the budget carrier ordered 25 Airbus A330-300s. According to reports, AirAsiaX may not be done. Group CEO Tony Fernandes wants Airbus to develop an A330neo. Stay tuned.

Washington State and Airbus: The Associated Press wrote a story about the courtship of Washington State of Airbus, making a link between the Boeing 777X site selection Schizophrenia and the Airbus effort. Some headline writers made an even more direct cause-and-effect link. This vastly overstates what’s been going on. Gov. Christine Gregoire began reaching out to Airbus in 2010, but the effort was stalled by the then-contentious and bitter competition between Boeing and Airbus over the USAF KC-X tanker competition. Gregoire, who was just named chairman of the advisory committee to the US Export-Import Bank, naturally backed the Boeing bid but was wisely measured in her rhetoric when it came to the EADS KC-330 offering. The Washington Congressional delegation, however, was often vitriolic and as a result, Gregoire’s efforts largely stalled.

Once that competition was over in 2011, Gregoire resumed her efforts in the last year of her governorship, meeting with EADS and Airbus officials at the 2012 Farnborough Air Show. The WA Dept. of Commerce had continued efforts throughout. This past summer, Commerce and the Pacific Northwest Aerospace Alliance hosted an Airbus suppliers meeting in the Seattle area, attended by about 120 suppliers (about 30-40 had been expected).

So while the AP story is factually correct overall, any linkage to 777X and the Airbus courtship is overstated. This has been a long-term effort by Airbus, PNAA and it is a concept we called for in October 2009 in a speech before the Governor’s Aerospace Summit just days before Boeing announced it was locating 787 line 2 in Charleston (SC). The Airbus effort, if anything, has more of a link to that event than to the 777X.

Boeing names Muilenberg COO: Dennis Muilenberg, CEO of Boeing’s defense business, has been named COO of The Boeing Co. He is succeeded by Christopher Chadwick. Ray Conner, CEO of Boeing Commercial Airplanes, was named Vice Chairman of the Board and continues in his current position. The press release is here.

McNerney reaches retirement age next year but given the timing, we think he’ll stick around a bit longer to give Muilenberg more time in the #2 corporate position. Since Muilenberg is younger than Conner, we think Muilenberg is the more likely choice for successor.

Another Day, Another 777X story: The obsession continues. Seattle Times columnist Danny Westneat has this commentary worth reading. The Everett Herald has a good wrap up of where things stand in Washington State right now. The Seattle Times looks at Long Beach (CA) in depth and its potential for the 777X.

IAM, Boeing talks fail; 777X site selection evaluation continues; Update: Members to vote on deal

Update, 11:30pm PST: KIRO TV (CBS Seattle) quotes Boeing spokesman Doug Alder as saying the Boeing offer has not been withdrawn, contradicting the IAM 751′s understanding.

Update, 9:10 PM PST: The Seattle Times reports the IAM 751 membership will get to vote on Boeing’s counter-contract offer after all.

Original Post:

Talks between Boeing and the IAM 751 machinists union failed to reach an agreement when Boeing presented a counter-proposal to the union’s offer that did’t budge on the pension issue, according to The Seattle Times.

KING5 TV (NBC Seattle) has this story.

Boeing’s statement is here.

IAM 751′s statement is below the jump (there isn’t a unique link to it).

The Boeing and IAM 751 statements paint a very different picture of the offers.

Our take:

Although both sides now have said talks have ended, we fully expect political pressure on both sides to resume talks before Boeing makes a final decision on the 777X assembly site.

Boeing said it will make a decision early next year; our sources suggest this timeline is the end of January.

This leave a small window for a third try, but we’re not optimistic.

We believe that barring an agreement, Boeing Chicago will elect to put the 777X assembly site and wing production somewhere other than Washington.

We believe that those within the IAM membership who believe Boeing is bluffing are mistaken. One need look no further than the events leading to putting 787 Line 2 in Charleston. Members believed Boeing was bluffing then, and it wasn’t.

As we have written many times, while Boeing Commercial Airplanes is understood to want to assembly the 777X in Everett, headquarters in Chicago has a very different view–and in the end, it’s only that view that counts.

One item in the Boeing statement stands out like Braille to us as well:

In addition, a separate agreement committing final assembly of the 737 MAX at the Renton, Wash. site would have been extended through 2024.

For those who think it impossible Boeing wouldn’t start another 737 assembly line elsewhere, we understand from two sources close to Boeing that a study is underway about opening a 737 assembly line in Charleston. Some 737 MAX work has already been assigned there, and Boeing continues to buy land there.

We firmly believe that the industrial logic–and all other logic–demands that the 777X (and the 737 MAX) assembly be in Puget Sound. But Boeing CEO Jim McNerney is clearly intent on moving work away from the unions (and from Washington State) absent dramatic changes in contracts and the cost of doing business.

Boeing offered terms and conditions in the IAM contract that were sure to be rejected.

The PR war of who is responsible will continue for some time to come. But just as we firmly believe the 777X should be built in Washington, we also firmly believe it won’t be without some last minute agreement.

Washington politicians need to step up their effort to look Beyond Boeing for the future of the state’s aerospace industry.

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IAM 751 head faces critics, appears to tamp down some dissent

The head of the IAM 751 union, Tom Wroblewski, faced tough questioning at the District’s regularly scheduled meeting last night and appears to have calmed at least some dissenters who were sharply critical of his actions in connection with the controversial Boeing contract offer earlier this month that was voted down by a 2-1 margin in a hasty balloting.

Members of the 751 District provide the touch labor for all 7-Series Boeing Commercial aircraft except those 787s built in Boeing South Carolina. Boeing offered a contract to 751 that provided for steep concessions in exchange for locating the 777X assembly in Everett (WA) without a competition for the work. After the contract was rejected, Boeing immediately began talking with other states and has since issued Requests for Proposals to 15 parties. The deadline for response is mid-December, followed by a decision early next year.

The turmoil within IAM 751 and between 751 HQ and IAM International, which led the negotiations that crafted the controversial contract proposal, has raised questions about who is in charge at the IAM: International or 751. Boeing said it has “no plans to re-engage” 751 before the current contract expires in 2016, but observers of Boeing note that the company is very careful about parsing its word. “No plans” isn’t definitive, like “it will not.” “Plans” can change, observers note.

Ray Conner, CEO of Boeing Commercial Airplanes, was quoted from the Dubai Air Show that “the ball is in IAM’s court.”

Observers believe the “no plans” and Conner’s “court” statements leave plenty of opportunity to new negotiations. Washington Gov. Jay Inslee is urging both sides to resume negotiations.

The scenario that is viewed as most likely is Boeing won’t talk with the IAM until after the RFPs are submitted–assuming there isn’t some blow-out deal offered by some state that tops Washington’s $8.7bn deal.

McNerney may seek retirement waiver: our view

Boeing’s Jim McNerney may seek a waiver to the mandatory retirement age of 65–he’s 64 this year–to continue as chairman and CEO.

As soon as the news was out, we got a call from one Wall Street analyst who opened the call by saying, “Short the stock.” We initially thought this was some solicitation call.

We’re not that pessimistic but we do have these observations:

  1. McNerney staying beyond 65 is good news for Charleston, where Boeing is increasing its presence at a rapid rate. McNerney has a clear affinity for South Carolina: its local, county and state governments seem to have an open check book for Boeing. And it’s non-union and has lower wages. As long as McNerney is CEO, Charleston will continue to grow rapidly.
  2. It’s bad news for the unions. He just doesn’t like them. We don’t really need to pontificate on this point. Boeing is cutting back on union jobs here and transferring the work to non-union locations.
  3. It’s generally bad news for Washington State. It’s pretty clear that McNerney isn’t a fan of this state, given it’s costly to do business here, wages are higher, environmental rules are stricter and the State hasn’t exactly been innovative when it comes to thinking up stuff with which to incentivize Boeing. Gov. Christine Gregoire, like Gary Locke before her, pretty much took Boeing for granted until the company used the proverbial 2×4 upside the head to get their attention. Gov. Jay Inslee, Gregoire’s successor, so far has offered up more of the same to “win” the 777X assembly: more workforce training, better infrastructure and faster permitting–all-in-all, not at all innovative or outside-the-box thinking.
  4. More blackmail for Washington: Boeing has always been good at prying concessions out of states and local jurisdictions. McNerney has elevated this to an art. Assemble the 737 MAX derivative in Renton? Of course, said Jim Albaugh, CEO of Boeing Commercial Airplanes. Not so fast, said McNerney, in a highly public and humiliating rebuke to Albaugh (who was gone within the year after this faux pas). Assemble the 777X derivative here? Don’t count on it, says McNerney. Assemble the 787-10 derivative here? Don’t bet on this, either. In the end, the MAX was located here, but we think that was payoff to labor (which also gave in return) in exchange for dropping the NLRB 787 lawsuit. Without this card, it’s up to the State to be blackmailed for more incentives (we really don’t think Inslee’s package is worth much on 777X).

We were pretty happy with McNerney’s ascension to chairman and CEO after the disastrous rule of Phil Condit and Harry Stonecipher. But McNerney’s performance throughout the 787 and 747-8 debacles was wanting, we (and many others) concluded. We think McNerney was slow to make changes in these programs, and he was on the Board of Directors who signed off on the McDonnell-Stonecipher-driven outsourcing approach on 787 that proved so disastrous. McNerney has been at war with the unions, who saved Boeing’s bacon during these programs. We certainly understand the need to control costs and we opined a lot on the medical and pension cost issues, generally coming down on the side of the company. But we can’t help but sense ingratitude from Chicago for all the hard and dedicated work performed here in Puget Sound.

Most significant, perhaps, is the thin bench there is to succeed McNerney. Shortly after he became CEO, McNerney said one thing that was his priority personally and professionally was to create a good succession plan. Who is there from within to possibly succeed McNerney in a year or 18 months? The answer is, at this point, nobody.

Ray Conner is well regarded, but he probably needs a couple of more years than a McNerney retirement timeline suggests. Pat Shanahan hasn’t any commercial sales experience. Dennis Muilenburg has no BCA experience.

McNerney may well have to get a waiver because so far he has utterly failed to have a succession path.

Boeing’s webcast from Japan on 787 battery fix

Here is the PDF presentation.

Ray Conner, CEO of Boeing Commercial Airplanes, Mike Fleming, VP and Chief Engineer for EIS of the 787 and Mike Sinnett, vice president and chief project engineer for the Boeing 787, provided an update on the battery fix during a visit to Japan today (or tomorrow, Japan time….)

The webcast will be archived.

Here is a running brief of comments:

RC Ray Conner

MF Mike Fleming

MS Mike Sinnett

RC: US FAA has a comprehensive process we must follow to get airplanes into the air for testing and for re-EIS.

We’re here this week to discuss our solution and to take feedback from Japanese authorities, The solution is the result of thousands of hours of tests within Boeing and with other agencies.

We acknowledge the work of the Japanese regulators and GSD Yuasa and have been a tremendous partner throughout this process. I speak for the 170,000 employees of Boeing when we say that the safety of our product is the #1 priority of the company, ahead of everything else we do.

We have three layers of solutions and we are confident these are the right ones.

MS: (Going through the PDF slides linked above.) We understand that we do not have a business if we don’t have safety. Safety is the number one thing we think of in designing an airplane.

With 100 years of experience, we apply these lessons to each new airplane. We stand behind the integrity of each Boeing airplane.

The battery is only a backup in flight. It operates on the ground. The 787 is an electric jet, using two generators in combination producing one megawatt of electrical power. The APU also has two generators associated with it.

If in the unlikely event all generators and batteries fail, the Ram Air Turbine deploys. We don’t need the main battery in flight or the APU battery in flight for safety. The batteries operate the brakes on the ground and other ground-based functions.

The Li-Ion batteries technology was already mature technology for many applications, including aerospace (not commercial aerospace).

[Note: Bombardier reached a different conclusion, telling us that in 2009 when it had to make a decision on batteries that it was not satisfied with the Li-Ion technology, and therefore selected nickel-cadium.)

Li-Ion technology earned its way on to the 787.

We work very hard to design a system that will not fail Then we assume it will fail and provide redundancies or backups. We apply this design philosophy to every system on the airplane.

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Odds and Ends: Setback on 787 ETOPS; Ray Conner profile; 777X ATO near; CSeries

Since we were in transit yesterday, here are a number of articles that are a day late in being posted here.

Boeing 787: New York Times: Setback in Boeing’s Hope for Longer Range

Puget Sound Business Journal: Steve Wilhelm has a looonnngg profile of Ray Conner and the 787 crisis.

Boeing 777X: Upgrade urged at Boeing names new program chief. Note: Tim Clark of Emirates is previously quoted as saying Boeing will begin offering the 777X within two-three weeks. We confirmed this with a second airline fleet planner during our trip this week.

Airbus A350-800: We checked with a customer, who tells us it hasn’t heard anything from Airbus about canceling the program.

Bombardier CSeries: Several articles following the “reveal” of Flight Test Vehicles 1, 2, 3, 4 on Thursday.

Bombardier takes on Airbus, Boeing

Analysts react to CSeries roll out. (This story has several links of its own.)

CSeries targets big rivals

Boeing’s Ray Conner speaks to JP Morgan conference

Ray Conner, CEO of Boeing Commercial Airplanes, appeared today at the JP Morgan aerospace conference.

Here is a running synopsis:

Ray Conner (RC)

Joe Nadol (JN) of JP Morgan:

RC: It’s important to recognize that batteries are not used in flight. They are back-up to start the APU and for the systems. After events, put together 200 engineers. Have done 200,000 hours of analysis. Have come up with comprehensive solution and presented to FAA on Feb. 22 and last week to Japan.

  • This is not just a Boeing-type of solution. We’ve worked with a number of people outside Boeing to ID causal factors and run by them and did the same with potential solutions.
  • That’s what we presented to FAA.
  • We’ve provided different layers of protection for fixes.
  • Hope to see approval of certification plans and then move into certification testing.
  • We would not go forward unless we thought we had it nailed.

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SPEEA vote due tomorrow

As if the Boeing 787 problems weren’t enough of a headache for the company, the second vote by its engineers will be counted tomorrow on a contract offer.

SPEEA members rejected the first contract offer from Boeing in October with a 96% vote. Boeing subsequently agreed to extend the current SPEEA contract provisions except for all issues related to the pension. The headline issue on this section is that Boeing wants to shift from a defined benefit retirement plan to a defined contribution plan. SPEEA says this results in a 40% reduction in benefits; Boeing says it’s less than that but still significant.

Boeing points out that all non-union employees are on a defined contribution plan and new hires for the unions should be, too. Current members would retain the defined benefit plan.

Boeing hopes this split approach will be enough to win approval for the new contract offer.

Also being voted on: whether members will grant SPEEA negotiations authorization to call a strike should the contract be rejected. Executive Director Ray Goforth has already said negotiators would not call an immediate strike, but they will seek a return to the bargaining table.

[Reuters has this article profiling Goforth.]

The hazard is that Boeing could withdraw its “Best and Final Offer” on all the other issues it agreed to and seek to renegotiate the entire contract rather than just the pension issues. Of course, this would incense union members and make a settlement ultimately that much more difficult.

Boeing needs the engineers to resolve the issues surrounding the 787, and to return the plane to service–the number one priority of 2013, says CEO Jim McNerney. The development programs of the 787-10 and 777X can wait (and, according to our information, these have been pushed to the right as a result of the 787 issues). Management’s lead engineer, Mike Delaney, basically said SPEEA members aren’t needed–that Boeing can rely on other engineers to resolve the 787 problems, a statement that went over like the proverbial screen door in a submarine.

In a webcast for SPEEA, Ray Conner, CEO of Boeing Commercial Airplanes, played the patriotic card, according to those who listened to it, by saying a strike would hurt customers and aid Airbus. (Boeing traditionally doesn’t comment on internal employee communications.)

We think the vote will be close, though we don’t know how to define it other than we don’t expect margins to remotely reflect the 96% rejection last October or the 85% rejection by IAM 751 in 2006 (and a similar strike vote). As we’ve talked to people, the sentiment seemed fairly evenly split with a tilt toward rejection and a strike vote.

Unlike IAM 751, which needs a two-thirds vote to strike, SPEEA needs only 50% plus one.

Votes will be counted tomorrow, Feb. 19; results will be known tomorrow night.

FAA launches 787 system review

The Federal Aviation Administration today launched a review of the Boeing 787′s electrical system.

We start our coverage with a running synopsis of the press conference at 9:30am ET. Presenting are

Michael Huerta, director of the FAA (MH);

Ray LaHood, US Transportation Secretary (RLH); and

Ray Conner, President and CEO of Boeing Commercial Airplanes (RC).

RLH:

  • #1 priority is protecting the safety of the traveling public.
  • We go the extra mile when it comes to safety.
  • Today we are conducting a comprehensive review of the design and production of the 787, covering critical systems of the aircraft, including design, production and assembly.
  • Will look for the root causes of the recent issues be sure it doesn’t happen again.
  • FAA spent 200,000 hrs in advance of certifying aircraft.

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2012′s Most Influential Person in Commercial Aviation

In 2011 John Leahy of Airbus was voted the most influential person. Who do you think is the most influential this year? We’ll hide the results until the voting is complete.