Sept. 28, 2015, (c) Leeham Co.:The move by Boeing to establish a 737 Completion Center in China is only one step in a series of moves to increase its footprint there.
Boeing also said it will join with China’s National Development Reform Commission to develop:
“Boeing and Aviation Industry Corp. of China (AVIC) will broaden their long-term collaboration to support Boeing’s commercial airplane programs,” the company announced last week in connection with the visit to Seattle by the president of China. “In a framework agreement, the companies said they intend to further advance AVIC’s manufacturing capabilities by adding major component and assembly work packages; strengthening leadership; and developing AVIC’s broad aviation infrastructure and business practices, including supply chain management.”
I believe this is only the beginning of a new push of Boeing’s expansion outside Washington State, elsewhere in the US and overseas.
Separately, last week it was also announced that a key supplier is done expanding in Washington State. Future expansion will be elsewhere.
The International Association of Machinists District 751, Boeing’s touch labor union, objected last week to the idea that Boeing will establish a Completion Center in China for the 737. Union leader called on Boeing to “stop using” workers as bargaining chips in this Puget Sound Business Journal article (Subscription Required, but here’s a link to a similar PSBJ story a few days earlier).
Torey Composites America, which as the name says, manufactures composites, is a key supplier for Boeing. It’s located in Frederickson in Pierce County (the Tacoma area, as in Seattle-Tacoma). It’s finishing up an expansion, but told The Seattle Times this will be the last here. Future expansion with be elsewhere, in part because Washington State is getting too costly in which to do business and in part to diversify the risk of having all eggs in one basket (a US analogy).
Boeing’s plan of the Completion Center leaked out a few days before the Chinese State visit. It came shortly after Airbus opened its A320 Final Assembly Line in Mobile (AL). Tom Enders, CEO of Airbus Group, told LNC there that Airbus made the case to its labor unions, and the European politicians, that a US assembly line meant growth. While the immediate 240 jobs on the US assembly line (eventually growing to 1,000) are jobs not in Europe, the growth in the US means that for every one job here there are three jobs created in Europe feeding the US line.
IAM 751, stung in the past by Boeing repeatedly moving jobs out of Washington and battered by an executive war on the labor unions, is less than sanguine, even after Boeing Commercial Airplanes CEO Ray Conner wrote and said no jobs will be lost in Washington.
I’ve not been shy about blasting Boeing’s war on 751 and the engineers’ union, SPEEA, whose members I frankly believe saved Boeing’s ass during the 787 and 747-8 program debacles. These union members figured out how to fix the production and design screw ups by the industrial partners, including non-union workers at Boeing’s South Carolina plant. The IAM 751 members figured out how to increase production of the 737NG and 777 Classic lines to record rates while reducing costs, providing the profits and cash flows necessary to keep Boeing from hopeless sinking under the weight of the 787 and 747-8 programs. For their hard work and dedication, Jim McNerney, former CEO, effectively flipped off his employees.
I’m not unsympathetic to 751’s skepticism and anger. But the world has and continues to change. More work going out of Washington (Seattle) is going to happen. Torey’s announcement is indicative.
Given the current state of the airline industry demand for new airplanes, Boeing (and Airbus) and their suppliers are, to a large degree, suffering from an embarrassment of riches and are victims of their own success. Airbus and Boeing are each studying going to production rates of 60 or more a month for their single aisle products, a move that strikes the proverbial terror in the hearts of suppliers who look at the capital expenditures necessary to ramp up their own rates necessary to meet the demands of their customers–and whether the rates are sustainable once the cap-ex is expended.
Boeing is faced with simply running out of room in the Puget Sound area. The 737 factory in Renton has a physical capacity of 63/mo. Everett is jam-packed with wide-body production as long as Boeing can maintain the 747-8 operation, something of which we maintain will cease sooner than later.
Doing business in China requires Boeing do more than it is today when it comes to providing “benefit” (that’s what the Chinese call it) to China. Airbus already has an A320 assembly line there and agreed a few months ago to open an A330 completion center there. Boeing needs to do sometime similar to win sales. Extortion? You bet, but that’s how it’s done in China.
Hand-wringers think China wants to put Boeing “out of business.” Perhaps, in three or four generations, but if Boeing goes out of commercial aviation business, it will be more because of its own failed product strategies than because of any other reason. But in the meantime, Boeing’s huge backlogs and global realities means more work will have to go outside Puget Sound because of space and political considerations.
I’d add one more reason: Puget Sound is full of earthquake fault lines. One runs near Everett and another runs just north of the Renton plant (and, FWIW, six blocks south of my house–something I didn’t know until years after buying it). If either lets go a major quake, Boeing’s out of the airplane delivery business for a very long time. Having other assembly plants elsewhere is simply prudent. Although the Airbus plants in Toulouse and Hamburg were political decisions in those early days of its existence, natural disaster (or even fire) risks are mitigated. The A320 FALs in China and Mobile were tactical and strategic. Boeing, in my view, has to follow suit.
As for Torey, officials clearly see similar concerns. Diversifying the disaster risk is prudent. As for costly Washington State, it is what it is. And it’s something Boeing officials have been complaining about for decades.