Pontifications: Boeing’s 8,000 employee reduction isn’t nearly enough

Hamilton KING5_2

By Scott Hamilton

April 4, 2016, © Leeham Co.: Boeing’s plans to reduce head count at Boeing Commercial Airplanes by 8,000 jobs this year dominated the news last week. Comparing employment figures with Airbus Commercial shows this reduction isn’t nearly enough.

BCA has 22% more employees per airplane than Airbus. BCA is a bloated organization. Some of this undoubtedly is inherent to being a 100 year old company, compared with Airbus being less than 50. Airbus is more automated than Boeing as well.

In response to The Seattle Times story last week about the Boeing head count reduction, Steve Trimble of Flight International Tweeted that Airbus Commercial employs 55,000 people, compared with 82,000 at Boeing Commercial Airplanes, a 49% difference. The math means Boeing has 107 employees per airplane delivered last year; Airbus has 87. Boeing delivered 762 airplanes vs 629 for Airbus.

Boeing has made a lot of strides in becoming more efficient. As Flight International notes, in 2000 BCA had 93,000 employees and delivered 492 airplanes. This equated to 189 employees per airplane. Lean manufacturing has been a major, long-term initiative that has led to efficiencies. The 777X wing production and assembly will be more automated than the 777 Classic. (It’s also probably why Boeing refused to give Washington State job guarantees in exchange for $8.7bn in tax breaks for the 777X.) The 737 MAX has more automation than the 737 NG. But Boeing still lags Airbus on automation. Three of four A320 plants are highly automated. The A350 is state of the art. The A380 line is far more modern than the 747-8. The A330 line trails the 787, but the latter program was executed so badly that Boeing has $29bn in deferred production costs and the highest program accounting block in aviation history.

Inefficient production is why Boeing discontinued the 757; the last was produced in 2004. A former Boeing salesman told me years ago that it cost Boeing more to build the 757 than it was selling for. This is probably why VP-Marketing Randy Tinseth repeatedly says restarting production of the 757 is off the table. The question of the market demand is probably less the issue when it comes to a 757 restart.

As LNC noted last week, there are many other reasons Boeing’s costs are such as to make it hard to compete with Airbus. One of these is the corporate commitment to billions of dollars a year in share buyback. Steve Wilhelm of The Puget Sound Business Journal noted that last year Boeing spent more in buybacks–$6bn–than it posted in profits at $5.2bn.

In the wake of The Times story, I received emails from former Boeing employees, who left on their own accord, who criticized the bloated organization and government-style of budgeting in which if the departments spent last year’s allocation, they’d get more the next year; and the bloated management in which multi-layers wound up approving the same plan over and over and over. Ray Conner, CEO of BCA, has a well-articulated disdain for these endless meetings and appears frustrated little progress has been made in curbing them.

Airbus is a favorite whipping boy at Boeing (and its outside shills), and Airbus certainly is doing all it can to make life miserable for the 100-year old company. But Boeing needs to look into a mirror for the root of its problems.

737-9 MAX: Richard Aboulafia, the consultant with The Teal Group, published an article with Aviation Week giving his opinion of the issues Boeing faces whether to proceed with the Middle of the Market airplane. What caught my eye, however, was his statement that Boeing has more than 400 orders for the 737-9 MAX. At year end, Boeing confirmed to me that the count was 270–so I asked Rich, where did these orders come from?

Aboulafia wrote back and said Wikipedia assigned all TBD MAX orders for Lion Air to the MAX 9, although he said he knew some were 8 MAXes. Indeed, Ascend shows Lion Air set to receive deliveries of MAXes next year, and these will obviously be the 8 MAX.

I checked the current Lion Air 737 NG operating fleet and order book and the math indicates that the 737-800 comprises 29% of the NG data. On the logical assumption that a similar ratio will be true for the MAX, this means 29% of the 201 orders will be for the 8 MAX and 71% (143) will be for the 9 MAX.

Adding this up to the 270 MAX 9s at year end and this is 413 orders for the 737-9.

This compares with 1,112 for the competing Airbus A321neo. The math then means Boeing has 27% of this market sector, up from 20%.

A400M: More issues arose with the Airbus A400M, according to this report. Airbus probably should rename the plane from The Grizzly to The Albatross.

KC-46A: Speaking of Albatross, the KC-46A Pegasus might also be better named Albatross. The feds note that a key supplier for the refueling system isn’t up to snuff, which could lead to more delays and more costs to Boeing.

104 Comments on “Pontifications: Boeing’s 8,000 employee reduction isn’t nearly enough

  1. More restrictive labor laws in Europe prevent companies from getting rid of employees as quickly as Boeing can. Hence, many people working for Airbus are no Airbus employees.
    Newer aircraft have different make/buy ratio, again making comparison of headcount more difficult. Airbus actually outsourced part of its production (as Boeing did with Spirit).

    • That is too much of a generalisation. There is and long has been a wide spread of different employment attitudes/laws/policies among the Airbus manufacturing countries and, in recent years, the Boeing Unions activity has been far more assertive (and so diminishing ‘hire and fire’) than at certain Airbus and Airbus supplier facilities.

      “Hence, many people working for Airbus are no Airbus employees.” is an interesting statement. Could you elaborate please?

  2. Does the total for Airbus inlcude the likes of Stelia (6,000) and Premium Aerotec (8,000)?

  3. The employees per aircraft is quite a shocking statistic. I understood that the direct workers employed in the FAL were more efficiently used at Boeing. In simple terms the benefits of a production line at Boeing over a station by station approach at Airbus. I am also surprised that Renton is unable to compete against Mobile or Tianjin given the concentration of process.

    In terms of production costs the one thing in Airbus’s favour is their willingness to mechanise the process. Again more cost up front but once the jig/ robot/ machine is commissioned it leads to a cheaper and more accurate manufacture.

    It looks like the true bloating is in middle management and other indirect staff. I have had the misfortune of paring staff in 3 tranches over the past 2 years. These indirect staff are always the most difficult to assess. I work on the basis that unless the role has an external focus and leads to immediate and quantifiable benefits it has to go. Otherwise you employ people to write email that has to be answered elsewhere in the organisation.

    • I’d hazard a guess that Airbus labour costs, like for like, fully inclusive and in pretty much every role, are probably lower too (ie there is more than 1 advantage they have in terms of production costs).

      • Woody:

        I believe Airbus said that the US has the lowest production costs in the World ergo the Alabama factory.

        • US does not have the lowest production costs on this planet. If Airbus said that they’d better think again. However, regarding Seattle, WA vs Mobile, AL, the cost of living index in Seattle these days is 154, while Mobile is 99. US average index is 100.

          In addition, AL is a “right-to-work” state where workers don’t have to join a labor union or pay union dues if they don’t want to. In WA, workers have no choice. It’s pretty obvious why Airbus picked Alabama — low labor costs, no unions….. I bet Airbus’ labor unions in Europe are pretty unhappy about Airbus mgmt exporting jobs.

          • “I bet Airbus’ labor unions in Europe are pretty unhappy about Airbus mgmt exporting jobs.”

            Yes, that’s why they’ve all been on strike. Oh wait…

            The FALs in Tianjin and Alabama have caused no issues because no jobs have been lost.

          • @Stealth66:

            Airbus is clearly exporting jobs to lower cost locales. If they had not done that, then jobs would have been added within EU. That the unions did not strike this time does not mean they are happy about it. It is no surprise Airbus mgmt is exporting jobs as bad as things are in EU.

          • Unless you can find sources to support “the unions are unhappy”, then you really have nothing.

            Overall, Airbus work in the EU is increasing. All the components are still built by the same factories, just joined together in different places. Airbus UK still produces all the wings – it doesn’t matter if they’re fitted to planes in Toulouse, Finkenwerder, Tianjin or Alabama. As production rates increase, Airbus UK will need more staff to build the wings. That’s why the unions are perfectly happy.

          • Unless you can show proof that Airbus labor unions are happy about jobs being exported overseas and to China, you really have nothing.

          • Ha, it doesn’t work like that.

            You made the first claim that Airbus unions are unhappy about jobs “being exported” so produce the supporting evidence. Put up or…

            I already explained why the unions are perfectly happy – no job losses and increasing work. You do the math.

          • OK, Airbus labor unions are tickled pink that jobs are exported overseas and to China. Do you believe that yourself??? Only unions with a death-wish would be happy about that.

            No reply needed.

    • Looking at just the number of employees per aircraft built is a little bit too simplistic. It doesn’t take into account how much of the value of the aircraft is built in-house vs being subcontracted out or purchased from suppliers (a much more difficult analysis), and this can skew the picture in a big way. Similarly, in the auto industry VW has considerably more employees than GM, but again subcontract and supplier relationships are not being considered.

      This is not to say that Boeing doesn’t (or does) have too much staff, just that this metric is really too simplistic to give us the answer.

  4. Seems to me that, assuming Trimble’s figures are reasonably comparable (ie after adjusting for direct vs indirect employment), the higher cost base may be the biggest short term concern but the likely siloing and relative sluggishness in decision making is the much bigger long term problem.

  5. Airbus has been investing heavily recently in becoming much more efficient. The planned ramp up for the A320 family from 42 to 60 per month won’t need any more people at its wing factory.

    A spokeswoman said: “Increases in production rates on the A320 Family will be met with the introduction of the Single Aisle Step Change project.
    “This will enable us to streamline our production processes and introduce increased automation which will speed up manufacturing.
    “This will not, however, require an increase in staffing levels.”

    http://www.dailypost.co.uk/business/business-news/airbus-ramp-up-wing-production-10357832

    • The specialisation agenda first pushed back in the 70s is eventually bearing fruit. Having the ‘wing centre of excellence’ and all the other divisions of specific skills gives Airbus an opportunity to become highly efficient at specific tasks.

      Coming originally from Chester I am well aware that this was not the case in the 80s/90s as I had a core group of friends who worked at Hawarden, I say worked in the loosest sense. Things have changed and the integrated manufacturing process (courtesy of Felix Kracht I believe) appears to work well.

      It would be interesting to understand how the production processes differ from Boeing to Airbus (and Embraer, Bombardier) as I understand there are fundamental differences. I feel the A350 programme is a class leader in terms of process and the mechanisation of production but would be keen to know more from those at the coal face.

      • Here’s a fascinating story on how Airbus evolved.

        The Contender
        How Airbus got to be number one.

        http://www.airspacemag.com/flight-today/the-contender-3630193/

        Excerpts:

        In July 1973, Adam Brown, now Airbus’ head of strategic planning, joined the firm directly from Hawker Siddeley’s Hatfield factory, where he had helped sell Tridents. “It wasn’t a very difficult decision, although a lot of people thought we were crazy,” Brown recalls. “But what was there to lose?” “We Germans thought we were coming to a French company, but it was the French who were totally lost,” says Jurgen Thomas, now special advisor to Airbus’ CEO, Noël Forgeard. “The French were hierarchical, with no delegation of power. They weren’t in a position to take a decision in a meeting.” The British and Germans resorted to subterfuge, Thomas recalls. “We let things leak ahead of the meeting, so that the French could propose it as their solution. It was much easier.”

        Thomas admits that some stereotypes of German management proved true: “There was still a Prussian disease. It was formal, the agenda had a time slot for each item, and there were separate paragraphs for everything.” The British encountered a different culture at the Airbus facility. At de Havilland’s Hatfield division there were six levels of company dining. “They had toilets for different levels of staff,” recalls Thomas. Airbus people took lunch in an all-ranks café. “You’d see a vice president having lunch with a secretary,” says Thomas. One senior executive from Hawker Siddeley stomped out in disgust.

        Kracht, who died last year,was instrumental in establishing the technique of assembling large components, fabricated in different countries, at a single location. One of the most expensive mistakes on Concorde had been the use of two final-assembly lines in Britain and France doing exactly the same thing—with an enormous duplication in tooling and overhead.

        “No way,” recalls Beteille. “One line was a prerequisite.” That line would be in Toulouse—and not for French gloire, Beteille maintains. “It’s the only place in Europe with enough airspace to do flight tests,” he says. But he adds that if they’d done everything on an assembly line, hundreds of workers would have had to be transplanted from Hamburg and Manchester to Toulouse. Kracht and Beteille thought the workers would be more productive at home.

        The solution was called “light assembly”: The body and wing sections would be completed in Germany and Britain, with wiring, fluid lines, air ducts, and insulation in place, so fewer people would be needed in Toulouse for final assembly. And that is how every Airbus is built today. Management was organized according to the same principle: Look at Concorde and do the opposite.

        The Airbus partners agreed to delegate all day-to-day decisions to a small headquarters in Toulouse. It would do basic design, assembly, flight test, sales and marketing, and support for the new airplane. It would report to a supervisory board, but would make all decisions autonomously.

        But at Airbus they still worry. “There’s always the danger, for us, to be complacent,” muses Thomas. The motivation that existed when Airbus was a tiny upstart on the edge of a cliff over which so many predecessors had recently tumbled can’t be re-created today. Airbus internally “still tends to work a lot on personalities,” says David Bradley, vice president for customer services. “There’s a network that operates in addition to the formal hierarchy…. Hopefully, it will never become fully organized.” Airbus UK chief Tom Williams calls Airbus “exciting—it maintains the stimulation that comes from having a lot of different cultures working together. It sounds like b.s., but there is a lot of diversity, and people stand up in front of their peers and defend their ideas.”

        Jurgen Thomas cites former German chancellor Konrad Adenauer’s expression “a Europe of mother countries” to explain the philosophy behind Airbus’ cultural mix: “Keep the Bavarians in leather trousers and keep the flamenco in Spain.”

        Nevertheless, Bradley adds: “People here are Airbusiens—you forget if you’re French, Spanish, or Malaysian. You can’t speak your own language anymore—you use French phrasing and German expressions.”

        Nobody at Airbus has the word “diversity” in his or her job title, and Thomas notes, “A reporter once asked me what we were doing to ensure integration within the company. I said ‘Nothing’ and he would not believe it.”

        Beteille sums up the history simply: “We didn’t make any serious mistakes.” Although he was the one who advised Pierson to go for a 50 percent market share, he observes today, “I never thought it would end up like this.”

        • It wasnt just the Brits who had multiple levels of company dining. I remember GM in the late 80s, had 3, and that was a distant outpost with maybe 800 employees. You probably added one more level for the country HQ and closer to Detroit could have been more.
          But remember in those days there wasnt open plan offices ( except for draughting) so you had no idea what was was going on around you. Lunch time was the place to catch up but you wouldnt necessarily want accounts and payroll to hear about the wing design.

        • As soon as I saw the thing going on and on I said, that much be OV99! Scrolled back and darned if I was not right.

          I know, its profiling………

  6. Boeing has higher staff count than Airbus and according to this article, always has done. How long will it’s superior profit margin over Airbus last, now that it’s losing sales to its rival?

  7. Making Airbuses in China and USA from ready made and stuffed sections put on boats is marketing. It is much quicker and cheaper to to snap the expensive sections together in Germany. The boat has barly reached the Red Sea when the HAM A320 is out the door. But without a Chineses FAL the Airbus sales in China would not be the same.

    • It’s also sensible business planning.

      A320 production growth was needed and (looking at it brutally) this was a way of doing it without creating future problems of having too many staff at the next down turn. This way Airbus can easily sack a load of workers in China and the US before it has to start cutting it’s harder-to-sack European staff count.

      Plus there simply isn’t enough qualified people available on the European jobs market, or the physical space to expand. Production will go where the right people for the job live who also have a large space to build on too. There’s plenty of good people looking for jobs and space in the US and China.

      And if it helps sales, why, so much the better. The way Boeing are heading there’s going to be people gratefully moving to Mobile.

  8. I don’t think the employee count ratio between Airbus and Boeing really matters for much. For instance we know the 747, 767 and in part the 777 classic production facilities have all been paid for, so the higher employee count to a degree is offset by the lower production overhead costs.

    For example, with the latest decrease in production the 747 has just gone into a forward loss position. In comparison the A380 with an (assumed) lower ratio of employees has been in a loss making position for the majority of its manufacturing life. Even though it is now cash flow even, a further reduction in production could quickly see it back in the red.

    We know Bowing is currently producing cash with operating margins close to 9%. Airbus on the other hand has only just turned the corner and is now starting to produce cash.

    I think we also have to remember production rate increases normally come with lower overhead and facility costs. I think Boeing could be using the current situation to further politically help its cause in reducing costs.

    If we consider Boeing have been receiving orders for the current generation 737NG and the 737MAX will enter service approximately two years latter than the NEO, the market share will split ultimately end up being around 54:46 if Airbus end up with 60% of deliveries from 2025 on-wards. If we consider new narrow bodies will be entering the market in the 2025-2030 period the advantage for the NEO may be more of an algae bloom rather than a structural change in the market.

    • I think what has changed for Boeing is that it is under much greater price pressure now than before. It had two cash cows – the 737 and the 777 – that carried it through the 787 debacle. The 737 is up against a much improved A320, which means they need to discount its plane steeply. It supposedly sold the latest batch to United Airlines at half the previous normal price. The old 777 has come to the end of its sales life and the new version hasn’t reached mature and profitable sales. The 787 is what it is – and won’t make any money overall.

      • I think the days of the 777 being a Boeing Cash Cow are over (and I don’t expect the 777x to change things, either). However, the 777 is relatively cheap to produce (so I read) and it is still making money despite the deep, deep discounts for which it is being sold (or so I read). As a result, the A350-1000 still faces some very stiff competition against the discounted 777-300ER, so I am not surprised that the 777-300ER outsells it.

        Nevertheless, the 777’s Halycon Days have come to a close and I don’t think they are ever coming back. And, to a lessor extent, I think the same is starting to apply to the Boeing 737 – which is being outsold 60% -to- 40% by the Airbus A320 despite deep discounts offered by Boeing. And…the 787? Forget about it. The 787-8 is dead, and the 787-9 and 797-10 are facing extreme competition from the A350-900, A350-900R and the A330/A330NEO.

        In short, the only “Cash Cow” Boeing still has in hand is the 737-800 – and even that is looking “iffy”. So…it is time that Boeing makes a move – a BIG move. An NSA is a must and Boeing should have started 3 years ago. Instead of all the stupid stock buybacks and dividends, Boeing needs to start investing money in the 737 follow-on at an unprecedented rate, while continuing to heavily invest in the 787-9 to insure it stays competitive.

        Boeing does not need to build a “Carbon-Fiber, Titanium-laden, High-Tech, Miracle-plane of the 23rd Century” as a 737 follow-on, they just need to build something better and easier to build than the A320/A321NEO – and that can be expanded in the future (and that’s actually built by Boeing and not a bunch of Subs!). They can do this if they focus – and they can do it with the money on hand. If Boeing doesn’t, then they become irrelevant – a MacDac Part II.

        Boeing knows what they need to build and how they need to build it – and they know they need to start NOW! And… everybody else knows this, too. So, let’s see if Boeing will pull the trigger and do the right think, or be satisfied to consign itself with being Number 2, forever.

    • Incidentally, Airbus operating margins are similar to Boeing’s these days – about 4% to 6%. The two companies have got more similar to each other. Airbus is a bit more commercial; Boeing taps more into corporate welfare.

      • I think Boeing has gone into a league of its own when it comes to welfare.

        Airbus at least pays some of theirs back, Boeing takes the money and runs.

        • On the other hand, maybe that the logo for the new single aisle, ie.. a Chicken?

  9. The comment by Woody regarding decision making brings to mind having a beer with the then Cebu Pacific manager who ran the evaluation of the 737 v. the A319.
    There was very little between the offers but Cebu requested an armoured cockpit door from Boeing and Airbus, which was not a standard item.
    By the time Boeing responded the contract with Airbus had been signed. Cebu had lost patience waiting on Boeing for what should have been a price list item..
    It has turned out to be a huge loss of business.

    • Thanks for the anecdote. To be fair, Cebu has been a majority mainline Airbus customer since 2007. The last major aircraft order for them was in 2011–to AB. How do we know Cebu wasn’t just using BA as a “stalking horse” against AB?

      • I find that hard to believe.

        Ak Airlines designed an amroed door fo the 737 before 9-11 but could not get an ok to put it in.

        right after they cut metal and put them in, gave the FAA a raspberry and said, sue us. FAA caved in and accepted it .

        They also gave away the design to anyone who asked.

  10. If you’re going to compare profit margins at Airbus and Boeing, then it should be compared like for like by using the Boeing unit accounting figures available on their website. Those figures tell a very different story to the one Boeing tells though its use of Program Accounting.

    Some additional clarity on employee numbers would be good as well. For example, does the Boeing figure include Spirit who produce 737 fuselages amongst other things.

    • Why bring up Spirit? Aren’t they a supplier that were once a Boeing subdivision?
      It’s the same as bringing up Premium Aerotec in Augsburg, Diehl Air Cabin in south Germany or any of the former subdivisions in France that have long been sold off.
      These people no longer count as employees of the OEM these companies once belonged to.

      • Spirit was just an example – a good one in as much as they supply both OEMs. My point was to try and understand if the quoted employee numbers were comparing like with like – folks directly employed by the OEM. It would also be helpful to have an insight to ‘casual employees’ that are contracted directly to both OEMs.

        • Agreed.

          And in an interesting note Boeing is taking parts making away from Spirit. In a terse battle with Spirit on contract terms (can you say cuts?)

          A Spirit excec was quoted, we participated in Boeings Partners for success.

          We have Partnered as much as we are going to.

          I would read that as get your own act together, not cut us on an already cut rate contract.

          I guess that’s what happens when you outsource, they may rebel.

          Kind of hard to fire the operation that is making ALL your fuselages for your ONLY Single Aisle aircraft.

  11. It would be very interesting to know how much value is brought by each company from suppliers. E.g. an aircraft manufacturer could also produce the engines. Even with the same performance this company would employ more people.

    Boeing buys wings in Japan. Many factories owned by Airbus were sold but still just produce parts for Airbus.

    Just counting the workforce is to simple.

    • And of significant interest, Ak Airlines and Virgin USA are merging (AK buying out)

      That makes a very interesting subject with the Airbus A320 series and now AK has access to the A321.

      So move AK from a Blue Chip Boeing to a Blue Chip both and they get hands on experience with the A320 series and be interesting to see where that goes.

      I think it opens a lot of doors if they do nothing but just keep the A321NEO and any options.

      • They seem to be all leased A320s, so are easy to offload. If they want to operate as one airline and not two airlines just sharing a colour scheme, standardisation of planes, where possible, is very important.

        • Given the fleet sizes of both airlines, standardisation is not the big deal that many make it out to be. There are plenty of airlines out there operating A32X and 737 families.

          Who knows, one AS find out how good the A32X is, they might change their mind and become “Proudly all Airbus!” 😉

          • Which ‘plenty’ is that. Were they recent mergers too? Airlines is a tough business without mixing it up where it can be avoided

          • Off the top of my head, airlines that have ordered both A320 and 737 families (not inherited them via M&A, or transitioning from one family to another):

            American
            Delta
            Turkish
            SAS
            South African
            Korean
            ANA
            Air China
            China Eastern
            China Southern
            Hainan

            I’m sure there are others…

          • Stealth66:

            Ak will obviously continue to be a Boeing customer, far more invested in 737s and infrastructure based on it. 737-800/8 works well and will be fine, the 900/9 fills in an area above that.

            They will not divest that fleet or the orders and options.

            They may also be an Airbus customer in the future, particularly the A321NEO.

        • Current yes, but they have orders for 40 NEO. 30 A320 and 10 A321.

          I can see them shifting to the A321 from A320NEO as the 737-800/8 is a tad better, but nothing close to the A321 which would give them all sorts of good returns.

          which engine?

          • Stealth66:

            Considering there are some 400 commercial operators, the number of airlines that operate both 737 and A320 types are an exception to the rule. The most successful and profitable airlines fly all 737 fleets, such as Southwest and Ryanair, to mention only two. SW has some 700 737s.

          • I think we can say the successful and profitable airlines are the LCCs.

            Single fleets helps early, when you get big enough, its far less.

            And keep in mind, Ryan Air got rot gut low deal from Boeing. One way to be profitable I guess.

            At some point adding other aircraft may be needed and it does not have to be from your current provider.

            Or a smooth work in with a second fleet type.

    • “Many factories owned by Airbus were sold but still just produce parts for Airbus.”

      Incorrect; the whole point of the sell-off of these factories was to enable them to produce parts for other companies in addition to Airbus and so increase efficiency, reduce costs etc.

  12. How come Boeing still makes more money than Air Bus?
    Last year BA’s operating cash flow is 14 B and AB’s is 4 B. As a result BA’s market capitalization is much higher than AB. In other words, BA is worth much more.

    Have you considered AB is under cut BA in prices to gain market share?

    • @Peter: Boeing’s use of program accounting allows it to post higher profit numbers than Airbus, which uses unit accounting.

      • Said profits then going right out the door of course, not invested in product!

      • Boeing’s financial statements are based on GAAP, which is all that matters. (GAAP=Generally Accepted Accounting Principles).

        • Yes, nobody disputes that.

          However, if one wants to compare profits and margins between Airbus and Boeing, then one has to use the unit accounting figures that Boeing provides on their website.

          Boeing’s own figures show profits would have been over $26 billion lower during 2011-15 with unit accounting.

          No wonder the SEC wants to understand a bit more.

        • @Andy: True enough but if you also look at the non-GAAP accounting Boeing lists in the SEC filings and on its website, the unit accounting paints a very different picture. It’s this data that provides apples-to-apples with Airbus.

          • Andy:

            As I recall Prime Mortgages were also approved.

            That does not mean they were good business practice, any more than spending all your development moneys on shareholders and execs and leaving your product portfolio bare.

          • The numbers depend very much on which accounting principles are used. Does Airbus use GAAP? I doubt it.

          • Does Boeing have a competitor for the A321?

            I doubt it.

        • Andy, you asked what accounting methodology Airbus uses – it’s IFRS.

          https://www.airbusgroup.com/dam/assets/airbusgroup/int/en/investor-relations/documents/2015/General-Meeting/Airbus-Group-N.V.-Financial-Statements-2016/Financial%20Statements%202014.pdf

          Also worth reading this article. A nice chart near the end comparing Boeing and Airbus margins using program and unit accounting.
          http://www.bloomberg.com/gadfly/articles/2016-04-14/boeing-s-32-billion-accounting-question

          • Stealth66:

            Thanks much for info. Airbus uses IFRS, Boeing uses US GAAP. The SEC requires that US companies use the US GAAP, which is fine with us. So one would have to be very, very careful when comparing numbers between Airbus and Boeing. By the way, did you see the Q1 2016 numbers for Boeing and Airbus? Boeing outsold and outdelivered Airbus many times over, and the overall corporate results, no matter which accounting system is used or which time period is compared, show that Boeing is the world leader hands down.

          • Denial is not a river in Africa!

            The figures clearly show Boeing has not been the financial leader for the last five years. Basing such a claim on a three-month period is both short-sighted and foolish.

          • Stealth66: Feel free to check the total revenue figures for Boeing and Airbus. :-).

            Boeing is 90+ B$, Airbus is 60-70 B$. Any other questions?

      • Hi Scott. I believe program accounting only affects earnings, not cash flow. Cash flow is what matters most as far as investors are concerned, since it allows for dividends and share buybacks. Boeing’s operating earnings are much lower than actual net cash flows, meaning that there are a lot of “non cash” costs that are being counted against Boeing. In the same way that profits are boosted by program accounting, they are also dragged down by these non cash costs, like facility depreciation and amortization.

    • “Have you considered AB is under cut BA in prices to gain market share?”

      – Something BA also does to AB too to gain market share? Boeing was extremely aggressive with their 787 pricing initially and sold them for as low as 65.7 million a pop.

      • @Transworld

        What have prime mortgages to do with this forum? You sure you have not missed something?

        • I explained the connection, you obviously do not want to get it.

        • @andy

          You have much faith in a specific practise allowed under GAAP. This practise has been open to considerable criticism and is progressively being limited in its application and will be closed as part of harmonisation of accounting rules worldwide. Program accounting can be used to create profitability in the short-term when no such profits exist and risks being used to massage the financial performance.

          In Boeing it allows them to book profits early but critically it acts as a break or impediment to future investment as it separates the performance of individual programmes from the overall performance of the company. It specifically encourages the company to act as a series of programmes rather than considering the adverse financial impact of not maintaining the capability of the company to start new programmes through lack of technical capability. In recent years Boeing has looked to pimp its existing line up (737, 747, 777) when most observers see the glaring need to invest on new platforms for the future.

          • As usual, Aboulafia makes the school-boy error of comparing the profit margins of two companies produced using incompatible accounting methodologies.

            If one compares them using the unit accounting numbers kindly provided by Boeing on their website, one sees that over the last five years it is Airbus that has higher margins and greater profit.

          • Stealth66: Can you kindly provide a link to Airbrush financial reports that clearly defines which accounting methods they use. I have not been able to find that info anywhere.

            Thanks

  13. emplyee/airplanc without the adjustment of the size of the airplane is meaningless. It takes much more man power to build 777 than 320.

    • Both are making aircrafts in roughly the same sizes in not that different amounts …

      • Selling price of a 777 is 5x that of a 737, but they are the same as cars in that extra price is for mostly empty space. But the wing isnt 5x as big and the engines arent 5x as big ( but probably are still 4x the cost of 737 engine)

  14. Excuse me, but as the son of a deceased Grumman employee, I take exception to your appropriation of the name “Albatross” for the A400M. The Grumman Albatross was a fine aircraft; many are still in service. The Albatross was just one in a long line of outstanding aircraft produced by the legendary “Ironworks” (the affectionate nickname given to Grumman by grateful aviators because Grumman built ’email better than they had to). My dad worked on the Albatross, and he, like every other Grumman employee of the time, had enormous pride in what rolled.out the doors of the factory on Lon Island.

    • @George, I was thinking of the Gooney Bird, not the Grumman airplane.

      Hamilton

      • A bit sensitive me thinks. We affectionately called them the Al batruss. Great aircraft, not to be mixed up with the bird.

      • A gooney bird is a generic name for a type of albatross. So its still an albatross.
        Well named in my opinion, as they are magnificent fliers, just a struggle to take off.
        The Lockheed C130J had all sorts of grief for a while ( RAF again) but their new engine was already flying in Saab 2000. So not sure what they got wrong but it cant have been for lack of experience.

      • I was being somewhat facetious, although my comments about the pride of “Grummanites” of my father’s generation are entirely serious. Back in the day (or more accurately, until the founders died off and were replaced by the bean counters) it was said that if you pricked a “Grummanite” with a needle, he (or she) would “bleed Grumman Blue,” such was the loyalty of the workforce toward a management group that treated its workers like an extended family. Once the accountants took over, workers became nothing more than disposable parts, and the demise of this once-proud company and its almost complete departure from Long Island became inevitable.

        • Gerome M:

          Almost all of us live in that world now and its a very very sad thing.

          Grumman was a big part of our life as was Boeing and to a lesser degree Douglas, Pan AM.

          All run into the ground, gone etc and whats replaced it is not for the better.

  15. There is much more to it than a simple comparison of number of employees per airplane delivered. This shallow piece is not worth paying attention to. Boeing is the leading aerospace company with an annual revenue that well exceeds that of Airbus.

    • Really?

      I think it is relevant. As long as its apples to apples.

      How many jobs does Spirit add, the Japanese mfgs and that Italian upstart?

      How long do those revenue continue when your product is not longer top of the line?

      The revenues are not going to any productive purpose, they are shucked out the window as that allows exec to get big bonuses on stock price.

      It may look good but it has serious issues.

      I still love Boeing the company, I don’t love what they have done to her.

      • Considering the enormous complexity of developing, testing and building commercial airplanes, with lots of subcontracted work, this shallow comparison is never ‘apples to apples’.

        • Well then lets see the Apples!

          I assume you then mean BCA should not be firing all those people?

          • Nobody in this forum has enough insight or data from either Boeing or Airbus to make all adjustments required for an ‘apples to apples’ comparison, so this discussion is rather meaningless. Just a simple thing like more subcontracting will reduce inhouse labor requirements. There is no doubt that Boeing is doing the right thing, no matter what the reason is. The idea for any well run company is to have as few employees as possible. Variations in R&D, product demand, learning curves, efficiency gains, etc, result in variations in headcount requirements that the company has to deal with. That’s all there is to it.

  16. Doesn’t the A400 Atlases’ engine issues raise the question of it having “weak hands”? (And how do its crews–and a320 neo crews for that matter–like being end user test pilots?)

    • Not sure what you are getting at but on the A400 wasn´t the engine choice due to German political pressure, or have I gotten that wrong? Sort of a case of the hens coming home to roost. In the end Europe is gaining turboprop know how in a class of engine a bit bigger than anybody else has, and the military is bearing the brunt of early service issues. A sort of subsidy Boeing has long had.

      • The A400 engine choice was due to French pressure.
        “The US Congress and United Technologies (UTC) are outraged at EADS’s selection of Europrop International (EPI) rather than Pratt & Whitney Canada (P&WC) to power the Airbus Military A400M transport. They claim the decision was politically rather than price-based after Airbus had earlier stated the PW180 offer was 20% cheaper.”
        “US anger is directed at French President Jacques Chirac and his alleged insistence on a European engine being selected. UTC chairman George David believes the PW180 was Airbus’s first choice. “We had a compliant, solid, really good winning proposal, where Airbus seemed like they wanted to select us and where it got deselected at the 11th hour and 59th minute,” says David.” Flightglobal

  17. What production advantage will the A320 have over the 737 in five and ten years. 55/45 in five years, 60/40 in ten years. Sure they have an edge, but it still has not developed into a clearly superior product yet, vis a vis the A346 to 777-300ER situation.

    • Ted:

      That is the interesting aspect of this, A321 clearly has a huge advantage over Boeing.

      Still the production numbers are equal.

      What it does do currently is give Airbus a pricing advantage in that they can sell the many more A321 for a much better margin that Boeing can the 737-9/900.

      Right now the 737-8 looks to meet its goals, but it cost a lot more to get there, ergo less profit.

      So rather than a dramatic loss, its the death of a thousand cuts, slow and painful.

      If the P&W gets good fuel efficiency boost over the LEAP, that will tell as well.

      If Boeing has to cut back on production, then the shift become real numbers as well. Airbus making more aircraft and at better profits.

      Its going to take a while to play out.

  18. The relevant metric here is earnings (or cash flow) per unit. This shows Boeing earning much higher margins per aircraft on average (with or without program accounting). Employee numbers are very misleading because they depend on the relative value of aircraft production that the OEM makes in-house.

    Also, Boeing has a large ($5B+) services business CAS that of course has its own employees.

    • @RationalObserver:

      Fully agree. Headcount depends on factors such as % in-house/subcontract work/type of work, economies of scale, product mix, automation, learning curves, org structure, etc. Without detailed insight no meaningful conclusions of Boeing and Airbus headcounts can be made. To only look at headcount and number of airplanes produced is sandbox level.

      Also, like you say, the relevant financial comparison is earnings/unit.

  19. “The relevant metric here is earnings (or cash flow) per unit. This shows Boeing earning much higher margins per aircraft on average (with or without program accounting).”

    RationalObserver, is their any source for this? Over the last few years I’ve started to doubt particularly the Boeing numbers, because they proved radically incomplete..

    People celebrating earnings/unit, but ignoring future profits are pulled into current quarterly results while non recurring costs are pushed far out over non sold aircraft are probably more interested in short term results then the real situation of product lines.

  20. This 8,000 reduction is not that big deal for a huge company like Boeing. A measure of productivity/efficiency is % over time. If no over time then headcount can be reduced. If too much over time then headcount should be increased. A rule of thumb is that about 5% overtime is about right. What can also happen is empire building and additional mgmt levels that add costs but not productivity, so a clean-up is beneficial once in a while. I’m not saying that was the case at Boeing, but it happens. Anyway, Boeing knows better than any one of us what they are doing and by eliminating unnecessary cost elements there will be more money for R&D, new product development, payback of debt, etc. More power to them.

  21. It took Boeing 42 years and 1 month to deliver its 10,000 eries aircraft (October 1958-November 2000) and, 42 years and 5 months for Airbus to achieve the same milestone (May 1974-October 2016).
    By the way! The best essay writing service – https://www.easyessay.pro/
    And Happy New Year!

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