With the rejection last week by the International Association of Machinists Local 751of the Boeing contract offer that would have located the 777X airplane assembly and wing production in Puget Sound (Seattle), the inevitable question arises: What is Boeing’s future here?
Seattle media and state elected officials are worried that if Boeing locates the 777X outside Washington State, and given the toxic relationship between the machinists and Boeing as well as within its own union, that this could be the start of an exodus from the state.
We agree, although we believe it will be a slow, downward spiral, not a rapid exodus–unless something dramatic changes with the current situation.
The chart illustrates our forecast of Boeing’s gradual departure from Puget Sound based on the current set of circumstances.
Click the chart to enlarge.
The chart is based on backlogs, production rates, entry-into-service dates of the 737 MAX and the 777X, an assumed two year overlap of the 737 NG and the 777 Classic, potential order for USAF tankers based on the KC-46A and the 777, the anticipated program termination of the 747-8, Boeing statements and other factors.
Here’s a program-by-program rundown.
737NG, 737 MAX and 737RS
Boeing has targeted entry-into-service of the 737 MAX in July 2017. It has said there will be a two year overlap of the NG and MAX production times, meaning the 737 NG production ends in 2019.
We expect a clean-sheet replacement for the 737 family (called Y1 internally by Boeing and 737RS here) to enter service around 2028, somewhat ahead of the 2030 timeline commonly discussed by Airbus and Boeing for the next, new airplane to succeed the A320 and 737 families. A two-year overlap then suggests the 737 MAX is discontinued in 2030.
We expect the 737RS to be assembled outside of Washington State; none of our peers believes it will be built here.
We have market intelligence that Boeing is considering a replacement for the 757 as early as 2025. This is not reflected in the chart, but our intelligence also tells us it could be from this design that the 737RS will flow. We don’t believe the 757RS would be assembled in Washington, either.
We’ve previously written on many occasions that the 747-8I is essentially already a dead program. The official launch of the 777-9 seals the 748’s fate. But the USAF wants to replace the presidential fleet of 747-200s with another four-engine jet, and it won’t be the Airbus A380. The public timeline is EIS in 2021, although it could be advanced. But going with the announced date, Boeing needs to keep the line alive until 2021, at which point it terminates. The 747-8F’s life depends on recovery of the global cargo market. Boeing expects recovery beginning next year. We’re not so sure.
At October 31, there was one passenger 767-300ER remaining to be delivered and a shrinking backlog of the 767-300F. Our forecast of program termination is based on the existing -300F backlog. After that, the 767 line at Everett remains based on USAF KC-46A tanker orders. Although Boeing doesn’t actually have in backlog the 171 tankers in addition to the four flight test vehicles contracted, we assume these orders come through and forecast production accordingly.
The USAF plans to proceed with the second tranche of the KC-135 replacement (the KC-Y procurement) but the public timeline is beyond 2030. We hope this is advanced to provide seamless production between KC-X (the current, in-production program) and KC-Y. If not, production of the KC-46A tanker ends by 2022.
With the launch of the 777X and a 2020 EIS (the 777-9), program termination of the 777 Classic now in production should end in 2022–unless extended by a freighter, which is entirely possible. The 777-8 is supposed to follow the 777-9 EIS by about a year, or 2021. The 777-8 is envisioned to become a freighter, but no timeline has been indicated. The 777-200LRF may remain in production until the 777-8F enters service.
The 777-200LRF could also get new life if the USAF proceeds with the KC-Z KC-10 recapitalization, but the public date for this is 2040, and we don’t expect the 777 Classic to survive anywhere close to this date. Thus, unless the USAF advances this timeline significantly (and assuming Boeing wins any competition), we see the 777 Classic program terminating as early as 2022 but possibly a few years later.
With the contract rejection by IAM, we believe 777X will be assembled outside Washington State.
We see the 787 in production well into the 2030 decade, but if any production cutbacks are necessary (as they inevitably will be), we believe they will come at Everett, not Charleston. The 787-8 has probably already had its principal sales run, with airlines transitioning to the 787-9 and 787-10. Market intelligence tells us the 787-10 will be assembled exclusively at Charleston, which also will assemble 787-9s. Everett will assemble 787-8s and -9s; -8 production will decline. Economic conditions will inevitably mandate production adjustments, and Everett will take the brunt, in our estimation.
We paint a bleak picture for Puget Sound. We believe Boeing CEO Jim McNerney will continue his drive to diversify work from unionized Washington State into non-union or Right To Work states. Although he is approaching the Boeing retirement age of 65, we fully expect him to seek a waiver (he has already indicated interest in doing so). We expect him to stick around through 2016, Boeing’s 100th Anniversary.
Whether his successor–who will be the one to make the decision for the assembly site for the 757RS and 737RS–has a different view of unions and Washington State business climate, we don’t expect the path that has become so clear to change.
Note that our forecast is 10-15-20 years in the future. There is time to change for the better. There needs to be a will.