Odds and Ends: No to 757 MAX; Fallout from Boeing job transfer; 8,000th 737; Fire sale pricing on 777LR

No to 757 MAX: Steve Wilhelm of the Puget Sound Business Journal writes that Boeing has no plans to build a 757 MAX. This refutes the Motley Fool article we linked Tuesday. Then yesterday a different Fool write wrote why Boeing won’t build a 757 MAX. That may be, but as we wrote we had heard rumblings that Boeing was at least talking to the market about the prospect of such an airplane. But this could be nothing more than what we term, “Boeing being Boeing” exploring everything.

Fallout on engineer shift: The Seattle Times wrote that the fallout over Boeing’s plan to shift another 1,000 engineering jobs out of the Puget Sound area is pretty bad among the local work force. The morale at Boeing, The Times writes, is bad among its white collar engineers and technicians. We’re also told the IAM 751 membership continues to have poor morale in the wake of the Jan. 3 contract vote related to the 777X, with a major retirement expected among workers just in advance of the 2016 switchover to the 401(k) style pension plan. There seems to be a growing belief Boeing may face a workforce shortage just at a time when it’s ramping up production the following year on the 737NG, preparing production for the 737 MAX, in the early stages of production for the 777X and ramping up production again for the 787 as it prepares to introduce the 787-10 in 2018–as well as the KC-46A production ramp up and perhaps on the P-8A Poseidon.

And then there is the continued overhang of the potential NLRB action related to the 751 vote. Although a long shot, what happens if the NLRB requires a new vote and this time it fails? Boeing is already committed to building the 777X in Seattle: ground has been broken and the timeline too late to go elsewhere. Bonuses have been paid out. This could become a real mess.

8,000th 737: On the plus side, Boeing delivered its 8,000th 737, to United Airlines this week. It’s quite the accomplishment.

Fire sale pricing on 777-200LR: Air India, a financial basket case, plans to sell three more Boeing 777-200LRs, apparently for whatever it can get, in order to raise cash. It previously sold five 5-year old -200LRs for $335m–an average of a mere $67m each. According to the appraisal firm Collateral Verifications, a five year old -200LR should have a current market value of about $98m.

Inmarsat to offer free tracking: Inmarsat, the satellite company that proved key to tracking Malaysian Airlines flight MH370, will offer free tracking service, The Wall Street Journal writes.

Boeing slammed for moving jobs to Southern California, WA state for naivete

Boeing took two hits over the weekend from Seattle Times columnists for the announcement that 1,000 engineering jobs will move from the Puget Sound area to Southern California.

Columnist Danny Westneat interviewed a “lonely, ignored voice” who predicted Boeing would go ahead and move jobs despite the $8.7bn tax breaks proposed by Gov. Jay Inslee that were then before the Legislature in hearings prior to approval. (SPEEA Executive Director Ray Goforth also warned of the loopholes in the proposed legislation, but he was ignored, too.) Washington State was criticized for being snookered on jobs once again.

Satirist Ron Judd also took Boeing to task in his Sunday column.

We got our knuckles rapped by a state official because we opined our coverage that the “state” tends to sit back and relax after wins.The state official wrote:

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Boeing to move engineering jobs to California

Boeing will move 1,000 engineering jobs from Washington State to  California, The Seattle Times reported today. Predictably, the engineers union, SPEEA, is having fits about this.

Washington State probably won’t be too happy, either, especially after giving Boeing nearly $9bn in tax breaks to build the 777X here.

We’re going to set aside the debate with the union and Boeing and the Washington impact and try to take a larger view.

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Assessing the 777X events for Washington State, IAM, Boeing

Update, Nov. 6, 10:00am PST: A summary by IAM 751 of the contract details is here.

Original Post:

Here’s our take on the news that the IAM and Boeing reached a tentative agreement leading to the selection of Washington State as the assembly site for the 777X, contingent on contract ratification and the Legislature approving an incentive package:

  1. IAM 751 is both a winner and a loser. Members lose the defined pension plan benefits and pays more for health care benefits. But they keep jobs assembling the 777X, and the siting of the composite wing production here reinforces the expertise of composite development in the Seattle area. These wins outweigh the loss of the benefits.
  2. Washington State is a winner. This is self evident. The fact that a transportation package is a must–one has been stalled for a long time–not only benefits Boeing but it benefits the state as a whole. Let’s hope the “no new taxes under any circumstances” Republican Party finally wakes up and votes for this thing. These extremists could kill the entire deal.
  3. Boeing is a winner. It gets labor peace from the IAM through 2024. It gets an experienced, high quality workforce instead of gambling Boeing Charleston–which remains problematic–would be up to the task in five years, when assembly begins. It gets cost reductions on the pension plans and health care benefits.
  4. Customers are winners. See number 3 re: Everett vs Charleston.
  5. SPEEA is probably a winner. With the wing and airframe coming to Puget Sound, SPEEA engineers here will certainly get its share of the work, despite the recent announcement that Boeing was putting engineering everywhere but here.
  6. Boeing Charleston and South Carolina, the presumptive alternative site, are losers. No explanation required.

A big question mark:

As we previously wrote, extending the 787 tax breaks to the 777X through 2040 (with a value of $8bn, more or less) is problematic. These were ruled illegal by the World Trade Organization in the US (Boeing) vs Europe (Airbus) trade dispute claims and counter-claims. The finding is under appeal, but what happens if the finding is upheld? Then what?

Lots to do:

The IAM membership has to approve the tentative contract; a vote is planned next week. Members will have to get past the benefit reductions, offset to some degree by a generous signing bonus and additional benefits for early retirees.

The Legislature has a lot of moving parts to look at in the next week. The challenges are daunting.

Recommendation:

IAM: Although perhaps painful and anathema, ratify the contract.

Legislature: Approve the package, including the new transportation taxes.

Implications of IAM-Boeing talks on 777X (Updated 11am PST Nov. 5)

Update, Nov. 5, 11am PST: The Seattle Times has this update of the secret talks (well, not secret any more) between the IAM and Boeing over the site location for the 777X. Boeing wants health care and pension costs cut. These were key issues in the SPEEA contract negotiations (in the end, pensions were shifted from defined benefit to 401(k) for new employees but health care cuts were saved for another day).

When the health care and pension plans came under Boeing attack in the SPEEA negotiations, behind the scenes the IAM was said to be already planning to gear up to hold the line when the current contract expires in 2016.

The Seattle Times report also includes some reaction to the leaked terms.

Original Post:

The news that the International Association of Machinists has been engaged in secret talks to win Boeing’s site selection for the 777X for Everett (WA) carries implications beyond the obvious jobs, economic benefits and Washington vs South Carolina rivalry.

Reuters broke the story. The Seattle Times has more detail.

As readers of this column know, we’ve suggested that the Washington Legislature consider making the State a right-to-work state. Understandably, this suggestion hasn’t gone down well with IAM 751, the local here in Puget Sound, with SPEEA, the engineers’ union, or with Gov. Jay Inslee, a Democrat with close ties to the unions.

We have urged this consideration because Boeing has been moving SPEEA jobs out of state and has leveraged South Carolina (a right-to-work state) against Washington.

If the IAM and Boeing reach an agreement to extend the current contract from 2016 to the mid-2020s (we believe 10 years to 2026 seems to make sense), assuring Boeing steady production, many of the issues facing Boeing that enable it to leverage RTW over unionized Washington become moot.

RTW has been a sword wielded by Boeing over the IAM and Washington. It has been a sword of Damocles. The IAM, typically a highly militant union, took an enlightened approach two years ago when it extended a contract in place by four years in exchange for Boeing selecting the Renton (WA) plant for the final assembly line for the 737 MAX. This prospective 777X deal would carry this innovative approach further.

Secondly, we have heard–anecdotally to be sure–that customers are concerned over the prospect of Boeing Charleston being selected because of the history of quality control challenges from this 787 assembly site, preferring the proven history of Everett’s quality control.

Next up, SPEEA is now faced with coming to a peace agreement. After a highly contentious contract negotiation last year, culminating in an odd set of ratification votes early this year, Boeing has systematically moved SPEEA jobs out of state. As the weaker of the two unions, SPEEA needs to use the example of the IAM to tone down the rhetoric. We know conversations are underway. We don’t know what direction they are taking, however. But if SPEEA can follow IAM’s example, aerospace in Washington State will be able to look at the future with more confidence.

The trick will be for Washington politicians to avoid becoming complacent, as it has time and time and time again.

Boeing 777X engineering assigned outside Washington State

The Seattle Times, Reuters and others are reporting that Boeing has decided to assign 777X engineering outside the State of Washington.

The news went down like the proverbial lead balloon in Seattle. The fear, of course, is that this is a precursor of locating the Final Assembly Line away from Everett, to either Charleston or the “undisclosed location” that is also said to be under consideration, which is thought to be Texas.

Boeing hasn’t ruled out doing engineering work in Seattle, but Boeing has been moving engineering jobs out of Washington all year as it clearly works to diminish the influence of SPEEA, the engineers’ union.

SPEEA Tweeted in response to The Seattle Times story, “This would appear to be work that had been outsourced on the 787 program…..not work being moved out of Puget Sound.”

We think this is an ominous development for Washington, but at the same time it could well be another of Boeing’s masterful chess game to extract incentives from Washington, South Carolina or the undisclosed state.

Update: The Wall Street Journal has this story. The WSJ broke the news.

This WSJ story from April is worth re-reading.

Right-to-Work, Creepy and Right-to-Worse in Washington State

No column we’ve written has gotten more attention outside the blogosphere than the one in which we concluded that if Washington State is to truly become competitive with the South, it needs to become a Right-to-Work state.

Gov. Jay Inslee responded indirectly to the suggestion, via The Puget Sound Business Journal (it ain’t gonna happen). A leader of the engineer’s union for Boeing, Stan Sorscher of SPEEA, wrote an Op-Ed column in which he linked our column and in the next sentence said it was “creepy.” We exchanged emails with Sorscher, and he said he didn’t mean we are creepy—just the idea. The president of IAM 751, the local for Boeing, Tom Wroblewski, niftily called the idea Right-to-Worse. Several labor websites and newsletters reprinted the Sorscher and  Wroblewski columns.

We occupy an interesting position in our role as an observer and pontificator in aerospace, and in Washington State, where we live. We’re not beholden to any company or special interest here, nor are we any longer on the Board of Directors of any trade group (thus we now can say what we really think). Our only interest is the growth of the aerospace sector here. We consulted to the state Department of Commerce for 18 months, until budget cuts in 2011, recommending strategies and policies. “Beyond Boeing” and seeking a suppliers fair with Airbus for our state’s aerospace businesses were among the recommendations we made.

We watched as the SPEEA and IAM 751 members essentially bailed out Boeing (“saved Boeing’s ass” is how we put it to the Puget Sound Business Journal) during the 787 and 747-8 design and production debacles. We watched while IAM 751 struck Boeing for 58 days in 2008 and SPEEA worked to defeat Boeing’s contract offer this year.

We’ve watched as Boeing placed 787 line 2 in South Carolina (our view is that this was retaliation for the 2008 IAM strike, which Boeing steadfastly denies—and which we don’t believe for an instant). We’ve watched as Boeing cut jobs in Information Technology and with engineers, outsourcing these to non-union states. We firmly believe Boeing Chicago is waging war on the unions, with the weaker SPEEA union firmly in its sights first.

In this totality and context, we came to the conclusion that Washington State needs to make some major revisions in its approach to labor—if it wants to be competitive with non-union states. Boeing has made it abundantly clear it will move jobs from unionized Washington State—the fourth-most unionized state in the nation, IAM 751 boasted in advance of its 2008 strike.

Unions would rather have no jobs than non-union jobs. Our basic view is that nobody should be forced to join any group in order to have a job. If a work force in any company votes to organize, fine. But anyone who wants to work should be free to work. Here in the Seattle area, unions are working against two projects valued at close to $1bn because they fear non-union jobs will be attached to the businesses or construction. We think this is just nuts. This is another reason Washington State needs to become Right-to-Work. These economic-drivers will create direct and indirect jobs (some of which will almost certainly be union, since at the least garbage collectors are unionized). To actively lobby against these projects and deny jobs to those who want them and positive economic impact for the Seattle area is simply an eye-rolling moment.

Aerospace jobs are moving out of the state because Boeing is moving them to non-union areas. This State lost attracting companies in the past because the State is the fourth most unionized state in the nation.

The IAM’s Tom Wroblewski pointed to Idaho as having lower wages because it’s non-union. We think Idaho has lower wages because…it’s Idaho. There isn’t a lot there to recommend it, really, despite some truly attractive areas. Among the detriments: it’s long been a pocket for neo-Nazis and skin-heads. (We are braced for the hate mail on this one.) And unionization isn’t a guarantee the state’s education system is going to be funded as it should be, as Wroblewski infers. Washington, the fourth most unionized state in the nation, has been underfunding education for decades. Former Boeing CEO Frank Shrontz was complaining about this in his day, in the early 1990s. Only this year, after the State Supreme Court, ordered the Legislature to more properly fund education did it step up and do so.

We acknowledge the sterling work of SPEEA and IAM 751 members—as we said, they saved Boeing’s ass—but Washington has to compete with the Southern States. Being the fourth most unionized state in the nation isn’t the way to do it.

Odds and Ends: Boeing moves jobs from WA State; CSeries FTV 1; A350 power up; 787-9 assembly; 777

Moving jobs out of Washington: The Seattle Times has a story about last Friday’s announcement that Boeing is moving more engineering jobs out of Washington.

CSeries: Airliners.net had this photo over the weekend. The first flight is expected after the Paris Air Show.

Bombardier CS100 Flight Test Vehicle #1.

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Airbus has powered up the engines on the A350 for the first time. First flight is expected within weeks, likely before the Paris Air Show.

A350

Airbus photo.

Smaller jet demand: The smallest Airbus and Boeing jets have weak demand, reports Aviation Week. And we’re not just talking about the A319 and 737-700/7.

787-9 Assembly begins: It was a busy weekend, with all of the above and capped by the start of 787-9 assembly. The first three 789s will be built on the Surge Line at Everett.

777 Painting: We linked two stories last week, to KING 5 and to The Seattle Times, about the robotic wing painting for the 777 line. Here is a photo:

777 Automated Spray Method

Boeing photo

Boeing currently is only robotically painting wings going on even-numbered line numbers. Wings going on the odd-numbered lines are still painted by hand for now. Because the program is new, the programmers continue to adjust the software between the even- and odd-numbered line wings, and eventually all the 777 wings will be painted robotically.

The paint shop is big enough to accommodate 777X wings, including the folding wing tips. This, of course, implies the 777X will be assembled in Everett. It’s unclear where the wings will be built.

The robotic painting is part of the 777 Lean manufacturing begun in 2005, which in the entire process has enabled Boeing to boost 777 production to 8.3 a month within the same assembly line space.

While this is the highest twin-aisle rate Boeing has produced to-date, Airbus has been assembling A330s at rate 10/mo for some time and is considering going to rate 11. Boeing, of course, will be at rate 10 for the 787 by year end. Airbus long ago announced plans to go to rate 10 for the A350 four years after EIS, but John Leahy is already pushing for a second assembly line to accommodate A350-1000 demand.

Boeing, SPEEA in-fighting continues

Boeing yesterday said it would be cutting more engineer jobs. Boeing’s engineers’ union, SPEEA, was quick to fire back.

Boeing’s message:

The following message was sent today from Mike Delaney, VP of Engineering for Commercial Airplanes, to all engineering managers.

Employment actions being taken to meet the challenges ahead

My message today provides context and background on actions we are taking regarding the employment level in BCA Engineering.

As we move from a lengthy period of non-recurring development efforts, BCA Engineering will require fewer employees by year-end. Overall, we must reduce our Engineering employment level by 1,500 to 1,700 positions during 2013.

We have already taken action. During the past year, we significantly scaled back external hiring to maximize redeployment opportunities across the function. Since last fall, we also have steadily reduced use of contract employees. Almost 700 contract employees have left the payroll since October 2012, and we will continue that effort where appropriate. Additionally, attrition associated with retirements and other departures has reduced employment. That, too, will continue.

Unfortunately and unavoidably we must take additional actions that will impact some direct employees. Beginning tomorrow and through the rest of 2013 we will issue 60-day layoff notices to as many as 700 employees in our function. On Friday, approximately 100 individuals in the Manufacturing Engineering (ME) skill in the Puget Sound region will receive notices. Those employees are the first to receive layoff notices because they directly support the production system, which has been stabilizing in parts of our major development programs. You may recall that several hundred hourly employees in Manufacturing & Quality also received notices.

This has been a difficult decision. We know layoffs impact individuals and families.

We are taking these actions now for two reasons. First, completion of non-recurring development work on the 747-8, 787-9 and the KC-46 Tanker will result in lower overall Engineering employment requirements. But also, potential development programs for the 787-10X and 777X, which might have provided opportunities to avoid these layoffs, have not been formally approved and launched.

I realize this news may be surprising. Commercial Airplanes has been on an upswing for several years. We continue to ramp up production on our major programs, and the prospect for future development work is very positive. The challenge we are facing is that those yet-to-be-launched programs are too far out for us to maintain present levels of employment.

We hope to mitigate the number of layoffs through the reductions we are making in contract labor, by natural attrition and by not filling many open positions. As we have always done, Boeing will support employees with layoff benefits and career-transition services.

We regret the disruption this situation may cause for some employees and their families but the prudent actions we are taking now will position us to remain competitive and provide future opportunities.

As our management team, please make yourself available for questions and conversations with your team about this situation.

Thanks for all you do for Engineering and Boeing.

Mike

SPEEA’s response:

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McNerney on unions and other stuff; where will 777X be built?

Note to Readers wishing to comment: See this article and our Comment #35 and be forewarned.

Boeing CEO Jim McNerney is cited in the Puget Sound Business Journal on labor unions, China and other stuff from his appearance at an aerospace summit.

In the article, McNerney tries to take a moderate stance on unions. But just this week Boeing announced it is moving SPEEA and other union jobs out of Puget Sound, here and here. The moves resulted in a blast from Seattle Times columnist Jon Talton here, and our response here.

Production is booming in Seattle’s Puget Sound, but it’s clear to us that Boeing is engaged in a long-term strategy to build up Charleston as a major, second production plant–not just a 787 production line. We see Charleston-as-to-Seattle as Hamburg-is-to-Toulouse some day. We don’t see Everett shutting down (at least not in our lifetime) because there is too much there. We think Renton is more at risk, once there is a New Small Airplane finally designed to replace the 737–but this is well into the next decade.

The question over where the 777X will be be built is, to us, a little more vexing. Logic says build it here, given the similarities between the baseline 777 and the derivative 777X. This is no different in principal than the 737NG and the 737 MAX–it would have been silly to build it elsewhere.

But McNerney’s comments about labor in the Business Journal notwithstanding, the anti-union sentiment at Boeing Corporate is obvious for all to see.

The future of the 747-8 is in jeopardy. Boeing said as much in its 2012 10K:

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