March 31, 2016, © Leeham Co.: Boeing has to cut costs. So it’s cutting 10% of its work force.
Pricing pressure from Airbus, says Ray Conner, the CEO of Boeing Commercial Airplanes (BCA). The Seattle Times, which reported March 30 that it obtained an internal memo citing the 10% number, quoted Conner extensively from a Feb. 10 internal webcast that Boeing is losing orders to Airbus over price.
Declining market share, especially for the 737, is a major concern, The Times quotes Conner.
“Their biggest weapon that they’re using in the competitions today is price,” Conner told employees. “They are attacking us with price in every single campaign. And as a result of that, you know, we’re being pushed to the wall,” Dominic Gates of The Seattle Times wrote, citing a transcript of Conner’s internal comments.
Gates went on to write that “In justifying the anticipated cuts to employees in last month’s internal webcast, Conner was unusually frank as he invoked a dire threat from Airbus.
“He said that Airbus winning 63 percent of single-aisle sales last year with its A320 jets going against Boeing’s 737 jets was ‘alarming … because the 737 is the biggest contributor to the earnings of the Boeing Company.’”
Gates went on to extensively quote Conner in his article and the defensive posture Boeing is now in vis-à-vis Airbus.
But Conner’s boss, Dennis Muilenburg, the CEO of The Boeing Co., the parent of BCA, disagrees. Shortly after Conner’s internal webcast, Muilenburg appeared at an investors conference sponsored by Barclay’s Bank. Muilenburg volunteered his take on Conner’s comments. According to the transcript of the appearance, Muilenburg had this to say:
“I’ve seen comments out there about are we seeing some significant increase in pricing pressure. Some of those attributed to some comments that Ray Conner had made at his meeting with his team. And I can tell you, as you all know Ray, Ray is a very strong competitor in the marketplace and a great partner of mine. And his message out there is, yeah, we are focused on competing and while we are in a competitive marketplace and we are continually dealing with pricing pressures, we haven’t seen that roll into our booking rates.
“Our booking rates have held up well,” Muilenburg continued. “That’s consistent with what we’ve told you before, and we recognize if pricing pressure is going to be a threat, so our job is to continue to drive cost competitiveness. And I think some of the comments you’ve seen out in the press where our comments about driving cost competitiveness have been interpreted as a defensive move that we have to make in a tough marketplace. It’s quite the opposite. Myself, Ray, our whole team, we are committed to driving cost competitiveness to win in the marketplace, to drive bottom-line performance, to drive the earnings and margins up and to create our investment capacity for the future.”
But using Airbus as the whipping boy, a favorite Boeing tactic, tells only part of the story. Consider:
Conner is right that Boeing is under pricing pressure from Airbus. But this is only part of the story.