Outsourcing focus of Boeing report, but misses bigger picture; IAM vote aftermath; Boeing’s 2013

A long article (10 pages when printed) discusses the pitfalls Boeing had by outsourcing so much work on the 787. This much is not new. The point the article raises–transferring technology and the potential decline of US aerospace dominance–isn’t especially new, either; we’ve written about this in the past.

What the article, however, overlooks is that Boeing isn’t alone in doing this. To certain degrees, Airbus, Bombardier and Embraer also are guilty–as are a number of other OEMs and suppliers. CFM International, for example entered into a joint venture with the Chinese that would help them develop an modern commercial jet engine. Fortunately, CFM pulled back on this over concerns of technology transfer.

Airbus has an A320 assembly line in Tianjin, China, and Embraer had an ERJ-145 assembly line in the PRC. McDonnell Douglas had an MD-80/MD-90 line in Shanghai.

Bombardier contracts with Chinese companies to produce the Q400 and CSeries fuselages, the latter with the advanced aluminum-lithium metals.

The airframe OEMs will tell you that final assembly represents a small portion of the airplane and the risk of technology transfer is minimal. But it’s probably no coincidence that the COMAC/AVIC ARJ21 looks the the MD-80 (but sized like the DC-9-10) or that the C919 looks an awfully lot like the A320.

The article points out that Mitsubishi, which builds the wings for the Boeing 787, is now using this experience to design and build the MRJ-90. True enough, though it should be noted that having experience the composite wing issues associated with the 787, Mitsubishi abandoned plans for a composite wing for the MRJ and is proceeding with metal instead.

Suppliers are basically extorted by China: if you want to sell us your goods, you have to be prepared to transfer technology. Suppliers can’t ignore this huge market, but try to mitigate the blackmail by transferring “yesterday’s” technology or at least developing tomorrow’s technology today while transferring today’s technology to China.

It doesn’t stop with China, of course. Boeing and Airbus have Russian ties with engineers. Bombardier is planning a Q400 assembly line in Russia. Indian engineers work on Airbus and Boeing airplanes and now plan their own turbo-prop.

The days of the Big Two Duopoly are numbered. And it’s not just Boeing that is guilty of aiding and abetting the new competition.

Boeing’s Good Year in 2013

Set aside the disruptive and embarrassing ground of the 787 in January through April, Boeing had a very good year in 2013. It posted a record rate of deliveries, besting Airbus for the second year in a row. It’s order book was the best since 9/11. Here is the press release.

Airbus announces its 2013 production and delivery results on January 13.

Boeing-IAM vote: After-thoughts

We can’t go by this week without a short commentary on the Boeing-IAM vote on Friday, but we’re not going to spend a lot of time on this—we’ve analyzed this issue a number of times and there is little more to say except this:

It was a very tough vote for the union members of IAM 751. Giving up benefits won in previous hard-fought battles is always tough. But the Boeing 777X will be assembled in Washington State, and the composite wings will be built in Washington, too. Our view is that having 80% of something (benefits) is better than 100% of nothing (the 777X).

Boeing, of course, will return to the State and the union for more tax breaks and concessions when the 757 and 737 replacements are designed and a decision is needed about where to build these airplanes. Boeing is now in a position to seem more concessions from labor during a contract that’s in place to September 2024, and the union can’t strike. It’s been significantly weakened, losing leverage ion addition to benefits as a result of Friday’s contract vote.

But this enables Boeing to tell customers the threat of delivery disruptions from strikes is gone, and this will reassure them, which may or may not help sales—thus providing more work for IAM members.

Boeing faces a huge morale problem for the members who feel they’ve been had in this process. IAM members have long, long memories. Although there is no option to strike, members can “work to the rules” or find other ways to decrease productivity. Boeing has some real fence-mending to do. We’ll see whether it makes any effort to do so.

Labor isn’t content with the narrow yes vote, however. Some are calling for a third vote, arguing the January 3 election date was set to deliberately disenfranchise a large number of union members who likely would have voted No. Turnout last week was lower than the November 13 vote because many members were still on vacation from the Christmas and New Year’s holidays.

42 Comments on “Outsourcing focus of Boeing report, but misses bigger picture; IAM vote aftermath; Boeing’s 2013

  1. The number of complaints files with the NLRB seattle office in relation to this debacle now stands at five, two having been added Monday. 4 filed against the union, and one against Boeing. NLRB Seattle reportedly doing land office business with phone and in-person requests for assistance in filing complaints.

    I seem to remember ONE individual filing a complaint back in late November/early December. The media went ape covering this one complaint, which was withdrawn.

    Now we have five, and the number will no doubt grow, and the media is hardly to be seen, Perhaps they know the fix is in, or maybe they just dismiss these complaints. In a saga with all sorts of peculiar twists, they do so at their peril. Either way, the media seems content with the drama they have helped generate so far. Perhaps the drama queens have fainted from exertion.

  2. I assume you meant to write Boeing is in a position to “seek” more concessions from labor?

    Two questions I have are:
    1. Why would they need to seek more concessions?
    2. Do they believe they can once again successfully negotiate a new extension so far in advance?

    The reason for question 1 is that presumably the pensions issue is what was seriously harming Boeing’s bottom line (and not the serious mismanagement and delays on the 787-8 and 747-8 as well as the penalties paid for said delays, nor the seriously high salaries, bonuses etc. that the higher ranked execs receive). Since that has now been resolved, Boeing should be quite happy with their knowledgeable, experienced, dedicated and now tamed labor force. Unless there is something else lying behind Boeing’s strategy and tactics.

    As for the second question , I believe they might be playing with a very hot fire if they try that again. In fact it might haunt them far earlier than this next round of negotiations (coming in 2016?). Scott has mentioned work to rule but if some hotheads really feel they have been totally mistreated, they could use other methods to show their displeasure, in a much less than organized way. Such behavior could be more disruptive than any labor stoppage or work to rule action.

    Additionally, the risk of the work being farmed out is that much less if labor feels that the threats from Boeing management is all hot air. They can throw out as many RFPs they want and labor could theoretically merely say, big deal, they did that before and still stuck with us. Additionally, all of the states, districts and townships that bent over backwards to fulfill Boeing’s RFP might be that much less interested in doing so if they also believe that Boeing is only using them as a stick to keep their labor force in line.

    • To answer your first question, it’s not a matter of need. They WILL do it because they CAN.

      As to the second, they have done it twice now, and been successful both times. Would you drop a winning tactic?

      • Tamed labour force doesn’t sound good at all, they are no beasts, but human beings trying to make decent living, unlike their obscenly overpaid employers.

      • successfull tactic?
        They way their recent programmes have run would imho indicate differently.

  3. What we have here is a failure to communicate





    Some estimates are 2 to 3 months to resolve

    RE the ” Negotiations ” re the 777Xtortion

    NLRB extract re good faith bargaining


    How is “good faith” bargaining determined?

    There are hundreds, perhaps thousands, of NLRB cases dealing with the issue of the duty to bargain in good faith. In determining whether a party is bargaining in good faith, the Board will look at the totality of the circumstances. The duty to bargain in good faith is an obligation to participate actively in the deliberations so as to indicate a present intention to find a basis for agreement. This implies both an open mind and a sincere desire to reach an agreement as well as a sincere effort to reach a common ground.

    The additional requirement to bargain in “good faith” was incorporated to ensure that a party did not come to the bargaining table and simply go through the motions. There are objective criteria that the NLRB will review to determine if the parties are honoring their obligation to bargain in good faith, such as whether the party is willing to meet at reasonable times and intervals and whether the party is represented by someone who has the authority to make decisions at the table.

    Conduct away from the bargaining table may also be relevant. For instance if an Employer were to make a unilateral change in the terms and conditions of employees employment without bargaining, that would be an indication of bad faith.


    And one state legislator is making noise re filing against BA on the bargaining, intimidating or extortion issue.

  4. Obviously with 98 orders booked in Dec, Airbus has the orders race sewn up. Boeing should win the deliveries race and at least continue doing so till about 2016 I imagine.

  5. Yes, some fence mending is in order. That is to both sides advantage.

  6. The lengthy article cited from “Sandcastle Empire” is a very interesting piece and describes the additional damage that was incurred through outsourcing. I too thought that outsourcing and globalization was inevitable and a way to disperse risk, however it weakened our “industrial enterprise” .

    It was also thought that trade and production partnerships would lead to stronger alliances and increase economic growth for the participating parties..

    Instead , the article revealed that countries had long term “industrial policies” to benefit by these technological transfers and ultimately become competitors or contributed to the competition. Perhaps this was all inevitable but there were warnings by many that US was not being protective enough. Maybe these developments are only realized in retrospect.

    In capitalism, the drive for lower costs and increased profits is an essential character of its organization. Perhaps countries cannot maintain monopolies and internationalization of competition will foster benefits by distributing wider opportunities and promoting unexpected innovation.

    This article highlights the changing nature of the shifting and competitive economic world

    • Out ‘ cheap labor ‘ issues re outsourcing. many years ago ( about 1992-93) an economist ( lester Thrurow ) dean of MIT sloan school of management published a book called “head to head ” about the coming economic battle amoung Japan, europe and america .

      Well worth reading if one wants to delve into background behind the recent ( last decade or so ) push for outsourcing to the cheapest labor areas,

      And before that in the late 80’s- Lester also co authored a book on ” made in America” for even more background.

      And to add insult to injury – a former BA board member named Donald PetersEn ( ex CEO of Ford ) had the audacity to suggest that a key to labor issses was to “treat people well ” Imagine that !! Of course he was also known as ” the smiling Cobra “( circa 1991) –

      i doubt that any of the above would even be admitted into the BA executive suites.

      • Don,
        BA was not outsourcing to the “cheapest” labor but to an “industrial partner” who was “investing” large amounts of capital that Boeing did not have to expend and was also committing to purchase the planes for its fleets. It was seen as a way of shifting risk ( so it was thought). If BA management had supervised the project better, it would have been a successful endeavor.

        The transfer of technology would still have occurred . Just pointing out that quest was not for the cheapest labor

        • I probably should have used cheapest COST. Result was some of the partners folded or had so many problems that BA had to buy them out. For example Alenia and Vought. Vought ( in texas – grand Prarie ) was/is/a long time quality supplier but went to SC why ?? And BA had to buy them out ,etc
          Now the other vendors can hold a gun to BA and in time raise prices to recover…

      • FOR those who might wonder how BA makes money on pensions when they layoff relative short term employees ( 10 yeas ) I have prepared both a pdf view plot and a spreadsheet which works for 10 years of service ending in 2016 per the IAM ‘ contract:

        It is an close estimate- and is interactive for starting pay, average annual increase, interest on boeing contribution during and after 2016 and pension pay at age 60 ending at age 92 Also the estimated percent contributions by boeing as a percentage of salary.

        Anyhow the pdf files which has a link to the spreadsheet which can be downloaded is below

        its my version per BCERP of layoffs of newbies for fun and mostly profit – the gift that keeps on giving



        I have put together a 3 page pdf file ( ITEM 22 ) which shows the profit involved when freezing pensions per BCERP in 2016. The alternate of course is for an Insurance company to BUY the pensions a bit after the freeze, and guarantee to provide an annuity for the values. My plots show typical values for ‘ sale ‘ in late 2016-early 2017 for three cases. A five year employee, a 10 year employee and a 20 yar employee.

        The Sale price shows as BA CONT W INTEREST. This is the sum of payments to employee over the 5, 10, or 20 years based on 6 to 7 percent of contributions. I have run the numbers out to age 92 starting the pensions at age 60 and using spousal benefits. So either BA could make or breakeven at 2016-207 by selling, and dropping risk, or keep it and make even more over the years.

        The point is that the BS re ‘ cost of pensions ” is just that.

        There are other issues for BCERP relating to ‘ TOP HEAVY” under ERISA-IRS rules and waivers which come into play within the next two years. They are complex, and it really takes an SME/Consultant/Actuary to do a precise job and explanation. Bluntly, there is NO union staff capability in this area.

        I’m sure a few will be picky picky re my starting numbers, Butg how many realize that minimum starting pay for IAM was about $9.50- $9.75 in 1995-96? and that the annual increase in progression re 6 month increment pay averages around 7 percent.

        Rather then complain about the accuracy, pay attention to the concept. And Most large pension/insurance funds over time can meet or beat 7 percent, while the average Joe/Mary typically is closer to 3 to 4 percent.

        See item 22 at https://sites.google.com/site/baunionhelp/home

        The pdf file is at http://tinyurl.com/FREEZE4PROFIT

    • Innovativeness is a fountain. constantly giving.

      In contrast in the US this is viewed as a box of limited resources.
      ( Which jibes with the way a lot tech foundation found its way to the US .
      Look at how movies present inventions which can be stolen and thus are “lost”
      or inventors killed leading to the same outcome. This presents the view of an essentially uninventive culture of retailers or thieves)

    • Years ago McDonnell Douglas thought they’d get a leg up on the competition by building planes in China. Where are they now? Believe it or not, the USA government took an interest in this, and tried to stop this technology transfer. Again, where are they now?

  7. I hope cooler heads prevail and no work slow down or by the book delay tactics are used. To cut ones nose to spite one’s face is childish and counter productive.
    Its time to move ahead and realize having a job in today’s economy is a good situation to be in.
    Ranting about what should have been, how much Boeing exec’s make, will accomplish nothing at all but embitter and dampen a persons outlook.
    It is what it is and no amount of debate will change it.
    I was at Usairways during its 2 trips through chapter11 and the volume of negative comments was staggering, but it had absolutely no effect on the airlines operations. CEO Dave Siegal left with 4.5 million for a job NOT well done.
    With the strong appeal and orders for the 777X and the 787, jobs should be secure for many years and in the end, its having a steady job that pays the bills and gives workers a sense of pride. I can say from experience, Been there,Done that.

    • UNFORTUNATELY- the ranting about high CEO wages etc is just following the past and current class warfare of the administration today in the WH and our newly elected admitted Socialist Seattle city council member sworn in today.

      With all the news coverage- what else could you expect ??

    • The only power the workers have is to work to rule and no overtime. They are entitled to use that power as the company is with threatening their livelihoods. Neither can exist without the other especially in high tech jobs. I am sure the workers would have accepted cutbacks had the company been in dire straits, but that was not the case, on the contrary. A decent management could have sweetened that bitter bill by taking some pro forma pay cuts that would not have hurt them at all, but that would have been too humane I presume.

    • The very symptomatic thing in this play is the combination of Boeing having a (very) good year while pushing the cuts for the labour force. It’s, literally, in the same news.

      To be fair, that’s not a trend being exclusively bound to Boeing but to applaud to it or even sticking to resigning via “what can you do?” not only seems backwards but also increases the pressure on other participants and future negotiations. Agony.

      We are not looking at companies trying to survive but at ones increasing the margin, again. The collective notion may indeed render a picture of normality but if even the high-tech workers can’t break that cycle, what’s next?

      Playing one state off against the other, you won’t cure that with complying. Quite the opposite.

      • Thanks! What the story about these “Very Early Build (LN 7 – LN 19)” ?

        • LN7,8,9 have been delivered in 2011/2012 ~6 month apart,
          LN1-6 are scrapped or “finstored”
          LN24..LN21 have been delivered, 21 recently, 22 is missing.
          The terrible teens have not been visible.

          In 2013 about 20+ deliveries have LN numbers significantly below the fastest deliveries ( about 1/3 ).

      • About 20..30% of deliveries appear to be significantly delayed.
        ( i.e. I would expect a well working production process to keep LN ordering in final deliveries : now plot delivery dates over LN nos :: jumps up and down like mad 😉
        my guess would be that ~4 frames per month run through a deterministic delivery process.

      • “What the story about these “Very Early Build (LN 7 – LN 19)” ?”

        LN-7 through LN-19 require a very significant amount of change incorporation and rework, not as much as LN-4 through LN-6 but less than LN-20 through LN-29. Boeing has been working backwards through the frames that require extensive rework and delivering them as they become ready. LN-7 through LN-9 have been delivered and the rest of them will get reworked and delivered in the order in which customers will take them. ANA has swapped several of these frames for later, lighter frames and Boeing has found customers for these deferred frames.

        The test airplanes are actually LN-1 through LN-6, but Boeing has written off LN-1 through LN-3 as not being worth reworking to bring up to certification standard. All those non-aerospace fasteners deeply embedded in the assembly are deemed to time consuming and risky to replace. However, LN-4 is still part of the active flight test program supporting 787-9 certification, and will be reworked and eventually sold. LN-5 and LN-6 are currently being reworked and will also eventually be sold. I don’t think Boeing has any customers lined up yet for LN-4 through LN-6, although I also don’t think there is a rush because Boeing could still likely use one or two of these frames in future flight testing.


  8. A United States Air Force Pave-Hawk helecopter has crashed this eveing on the north Norfolk coast in the U.K four crew have died pray’s for crewmen & family’s.

  9. The early LN rework is definitely ramping down. There are less airplanes parked outside the hanger (south end of PAE) and the parking lots are no longer overflowing.

    • 114 delivered, highest LN
      142 would show
      28 undelivered. with LN below 142. substract 6 undeliverable prototypes
      22 frames. including
      ?11? terrible teens

      • 22 – 3 (787-9s) – 5 (LN126 or greater w/one ready for delivery) – 4 (LN20’s w/one being reworked, two in preflight, and one ready for delivery) = 10 (LN10-LN19 w/three being reworked and seven in storage)

      • There are only 3 prototypes that will be written off. Boeing plans to rework LN-4 through LN-6 and eventually sell them.
        Only 14 undelivered 787-8 frames remain that require any sort of rework, with 6 of them undergoing rework right now.
        The remaining 13 undelivered 787-8 frames are either in various stages of production flight test preparations, for example; paint, fuel system wash, fueling tests, nav system calibration, etc. (7), or in various stages of flight testing (4), or ready for delivery (2).
        LN-149 is the latest frame to roll out.
        I’m not sure where you are getting your 22 from.

      • “I’m not sure where you are getting your 22 from.”

        catching up and some simple arithmetics 😉
        I created the scope by going from LN1 to the lastest _delivered LN ( 142 as of dez. 31)
        I took the prototypes out of the delivery game ( pot. 3 more frames )
        and omitted to account for -9 prototypes ( -2 frames), a wash.

    • There are only 14 remaining 787-8’s that require rework including LN-4 which is still part of the flight test program. Of those 14, 6 are currently undergoing rework and only 7 remain in storage on runway 11-29. So much progress has been made and Paine Field is way less cluttered as you already pointed out. However, I think rework activities at the EMC will be going strong throughout 2014 and well into 2015 to work through the “terrible teens” (LN-10 through LN-19).

      Boeing has made much progress on the 787-9 as well. Four 787-9’s have rolled out of the Everett FAL already (LN’s 126, 133, 139, and 146). The first 3 are all flying and Boeing has earned type inspection authorization (TIA) from the FAA on both the RR and GEnx versions. The flight test program has been in the certification phase for 4 weeks now.

  10. I guess there will be a huge sigh of relief when the book can be closed on the early 787s.

    • Boeing will still have to wait a while for that sigh of relief. I don’t think Boeing will be able to rework all 10 “terrible teens” (LN-10 through LN-19) by the end of 2014. IIt will take longer based on what I’ve been observing. Also, LN-4 through LN-6 will take even longer per frame to rework to a deliverable state, which, as far as I can recall, is Boeing’s intention.

  11. Accepting the IAM & Boeings posturing may well be an emotive local issue & accepting it was internationally aeronautically newsworthy, one might well conclude here that the degree of attention to it here is un-proportionate.

  12. Knowledge without buyer worths nothing. Knowledge transfer and offset negotiations are reality on the aviation global industry.

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