The announcement last week that Boeing once again is planning to ramp up production of its venerable 737 line show confidence on a number of levels:
The recovery in the global economy has been inching along for several months, with Airbus and Boeing indicating in their annual market forecasts that things have been getting better. Boeing, in advance of the Farnborough Air Show, noted that cargo traffic–always a leading indicator or recessions and recovery–was coming back fast than previously forecast. (IATA also noted premium traffic is returning far more rapidly than once thought). At the Air Show, Airbus likewise noted global recovery and John Leahy, COO-Customers of Airbus and one never shy about expressing an opinion, declared that the recession is over. So Boeing’s decision to further up production supports this thesis.
The backlog, or skyline, is also strong. Airbus and Boeing routinely overbook sales, expecting cancellations and deferrals. This was true is 2009 and 2010 but is proving less so now. Without boosting rates, Boeing would be forced to involuntarily “bump” some customers, just as some airlines do when oversales occur and volunteers don’t step forward–only the penalties to Boeing would be far greater than some voucher issued by the airlines.
The Lean Production line at Renton (WA), where the 737 is built, continues to be the under-appreciated story of The Boeing Co. The 737’s Lean principals have been copied into the 777 line and are being incorporated into the 767 line. Boeing has the ability, with some rejiggering of P-8A Poseidon work which is partly shared in the 737 commercial building, to take 737 production to 42 a month (also under consideration).
Which brings us to the unions. The confrontations between Management and Labor need no recounting here. But increasing production recognizes the unions’ expertise. Certainly Boeing has no choice but to increase production at Renton if an increase is to be made–there won’t be a second 737 line somewhere. But without recognizing that the IAM 751 is up to the task, there wouldn’t be a production increase, either.
The news September 9 that Boeing is expanding 787 work in Puget Sound (Seattle) is also recognition that the labor here knows its job and can do it efficiently and with quality. They may have higher wages and benefits than Charleston (SC) (but certainly not Japan and Italy) but the efficiencies and quality of their work is unsurpassed. Now if only a long-term labor contract for production stability can be achieved, “all will be right with the world.”
It is clear IAM 751 has been finding and fixing many of the problems in the 787 program that should never have left the shop. It is clear that 751’s performance on the 737 and 777 lines are providing the profits and cash flow necessary to see Boeing through the 787 and 747 program difficulties. Management clearly recognizes this. The 751 clearly knows this. Let’s hope the belligerence on both sides ceases to be a macho thing when contract negotiations start for the 2012 amendments. Management has to accept that low costs don’t automatically translate into high quality. Labor has to accept that a long-term contract might mean some changes in the sacred cows of health care and pensions.
Boeing’s CEO, Jim McNerney, and other executives like to point to China, Japan, Russia, Canada and Brazil as emerging competitors requiring lower costs at Boeing.
With respect to China, Japan and Russia, they should be more concerned about technology transfers in the form of contracts. The efficiencies and work quality of American workers generally and Puget Sound workers specifically can’t be matched in this generation or maybe even the next.
The Canadian and Brazilians certainly know how to produce quality airplanes efficiently but so far remain in markets below those that interest Boeing most. But Boeing is clearly worried about Bombardier’s CSeries, despite McNerney’s declaration that the Comac C919 is the greater threat. Jim Albaugh, CEO of Boeing Commercial Airplanes, said at Farnborough a 737 rate hike was also needed to avoid “driving” orders to the CSeries, and we’re told part of the strategy in going to 42 737s a month is to “flood the market” with 737s before the CSeries and C919 can make much of a dent.