Dec. 12, 2016, © Leeham Co.: Airbus and Boeing continue to cut costs with internal reorganizations.
These are needed efforts. And they trickle down to the supply chain.
The new CEO at Boeing Commercial Airplanes, Kevin McAllister, is expected to ratchet up the cost-cutting at BCA, in part because he comes from the cost-cutting environment of GE Aviation.
He’s got a lot of work to do.
It takes Airbus Commercial about 85 employees to produce one airplane. It takes Boeing about 107.
The Big Two OEMs announced layoffs in the works. Expect more layoffs will be announced next year.
Airbus is consolidating some of its units and cutting jobs beyond this. Boeing, in addition to trimming overhead, is cutting production rates on the 777 Classic. Another rate cut is anticipated.
A huge Boeing supplier, Spirit AeroSystems, continues a long-running negotiation with Boeing over cost-cutting.
Aerospace analysts recently visited Spirit. Bernstein Research had this to say in a Nov. 28 note:
“Boeing negotiations remain a central question for investors. Management says its negotiating position has not changed since the summer CEO transition. Spirit wants to reach agreement with Boeing, but is willing to continue working under the interim agreement rather than accept less favorable contract terms. The fact that Spirit is performing well and now has a strong balance sheet further supports the company’s position that includes life of program contracts.”
CanaccordGenuity gave its take in a Dec. 7 note:
“The primary concern for investors is the potential outcome of the master contract negotiations with Boeing. The key sticking point in the negotiations is derivative program pricing (787-9, -10 and 737MAX). The appointment of Kevin McAllister now as the CEO of Boeing Commercial Airplanes is a positive considering his close working history with Spirit CEO Tom Gentile. It is fair to assume SPR will face some price step-downs, but these are ideally gradual, rather than specific steps, and in the case of the 787 should help with free cash flow in 2017 and into 2018 before the negative impact of the step-downs accelerates in 2019-2020.
“We believe SPR is well positioned due to its aggressive cost cutting, and it is not forced to negotiate from a position of weakness like it would have been just a few years ago.”
I’ve written from time-to-time about how small suppliers are being hurt by Boeing’s Partnering for Success program. Two examples came up in just the last month.
In South Carolina, where Boeing assembles the 787, a company called Impressa is shutting down its operations there by year end.
The Charleston Post and Courier disclosed the move Nov. 2.
At least Impressa has other operations. In Portland (OR), a company with nearly 200 employees is going out of business because it lost a Boeing contract to a cheaper bid. The Seattle Times reports that the winner of the contract is, of all things, a company based in Toulouse, France, where Boeing rival Airbus is headquartered.
The International Air Transport Assn. (IATA) updated its financial forecasts for the global airline industry. It’s maintaining the prediction of record profits this year. But IATA sees smaller profits in 2017.
Rising oil prices will be to blame, IATA says. IATA predicts oil will average $65/bbl next year. This is still way down from the $120/bbl or more at its peak, but it’s far higher than the $40/bbl in recent years.
In a perverse way, this is good news for the aerospace industry. Aircraft orders tapered off on lower oil prices. Perhaps as these creep back up, there will be a recovery in order.
But 2017 isn’t likely to be the year for a burst of new orders. Boeing said on its most recent earnings call it doesn’t see wide-body sales recovering until at least 2020.
Through the third quarter, revenues at the US Big Three airlines, American, Delta and United, are down year-over-year. So are revenues at Southwest.
If the IATA news wasn’t enough of an indicator, LNC learned that one of the low cost carriers in Asia is deferring new airplane orders because excess capacity is pushing down yields.
The carrier plans even more deferrals.
In addition, yields out of Hong Kong within the region plunged by 23% as Cathay Pacific Airways engages in a fare war, one airline told LNC.
We’ve been worried about when a shake-out of the growth in number of LCCs and capacity might begin in Asia. This could be a leading indicator.
Let’s see.
Two airplanes may be canceled out of some 900 planned deliveries.
Four billion in potential revenue. Out of $96bn in revenues in 2015, growing to well over $100bn by 2020.
And for this, Boeing’s stock briefly went down last week?
Talk about much ado about nothing.
This was one of the most overblown stories of the year: the Tweet from President-elect Donald Trump that Boeing’s contract for Air Force One replacements should be canceled.
Once again, it just proved Trump shoots from the lip in total ignorance of the subject at hand. These are Trump Force One airplanes. These are airplanes that are flying military command posts that also happen to serve the president of the United States.
With regard to the softening of the wide body market I think we should reflect on the increase in capacity to produce these aircraft in recent years. By my reckoning it has increased by at least 30% in the past 5 years as both Airbus with A330neo/ A350 and Boeing with B787 / B777 have effectively doubled up their capacity to crank out volume. I ignore the 4 pots as being essentially irrevelant over this time period or the future.
Further the selling of A330ceo and B77w at considerable discount to avoid ramp downs must have encouraged airlines to bring forward orders leading to even greater problems going forward. The real sign of weakness will be if white tails start proliferating. Airbus are sitting on 3 x A350 originally assigned to Sri Lankan, they may be paid for by Aercap but it is concerning that they have not yet found a home after 6 months of looking.
Personally I feel that the leasing market has overblown the market as it gorged on free money. This is going to be a painful correction for OEMs in the medium term as we work back to long-term trends.
So, the productivity gap is now down to 26 percent in favour of Airbus?
Pre-911, there was a productivity gap of 48 percent in favour of Airbus (i.e. according to this source: Page 45, Strategic Management — An Integrated Approach (C.W.L. Hill and G.R. Jones) — https://goo.gl/OS8tA5 — ).
I would think that the widebody:narrowbody production ratio would heavily influence those numbers. It takes more people to produce a widebody, does it not?
I’m not updated in this subjet, but there was an old time when Airbus Industrie showed the worksplitting between its European members and USA, the total (SEOO) man-hour input being some 180,000 manhours for an A321. The shares ownership split was 4 % (Spain) – 20 % (UK) – 38 % (France) – 38 % (Germany) or close (?) but there was close to 35 % man-hours originating in USA (Vendor equipment, Powerplants, avionics and systems …). Airbus was proud of this and used the info to retaliate against BUY AMERICAN attitude. But the point here is that 35 % of 180,000 man-hours = 63,000 man-hours, or 1,575 man-weeks or 394 man-months “made in USA” so I don’t see how this can pan out with your 85 employees ? Where’s the catch ?
Using employee numbers per product produced is an old fashioned way of describing productivity. As of course one company may have its product made mostly in house while another has a big subcontractor. The real comparison is ‘man-hours’ per plane, which includes that from the subcontractor.
180,000 manhours distributed over 85 employees is 2,118 “hands on” manhours/employee … say we’re counting employee-YEARS, rather than “employees” ? Then an employee produces 222 man-days of activity per annum so each employee needs to work 9.5 hours a day ? We’re extending ourselves. If now then we assume Scott’s 85 employee(-years ?) to be a recent re-evaluation of Airbus productivity, this would mean that Airbus is coming down on their A321 learning curve to around 125,000 man-hours per each A321 … whch could well be the case : my Airbus Industrie data above is # 25 years old ?!
180k hour must include subcontractors as airbus did not produce in the US at the time of the datum given.
… and no idea about how far manufacturing depth is included in this number.
180kh / 1700h/a ~= 105 man year. for Airbus and subcontractors and for one A321 xyz years ago 🙂
Airbus internal hours is unknown.
Can you keep the political screeds toned down a bit? Or are you going to be like the other butthurt liberals who will blame the inevitable rises in interest rates and oil prices on Trump? Barry is leaving just in time to maintain his halo. And President is usually capitalized, no?
As for toning down one’s political beliefs, isn’t “Barry” a typical right-wing derogatory nickname for Obama?
Yeah, can’t edit it though. Please sub in “President Obama” which is what the edit would say.
“the Tweet from President-elect Donald Trump “.
What is your issue?
“These are airplanes that are flying military command posts that also happen to serve the president of the United States.”
Now I have to go back to my English that the girls always were better at than I am (did I say the right?)
As I recall, if we said ocean (noun) then there is no capital
If we say Pacific Ocean that is a name that gets a capital.
Not sure where PUTUS in generic sense falls in on all that, inquiring minds of course await breathlessly.
Unless we preserve him like Lenin, the PE is not going to fly AF1 NAO (new aircraft offering) . I am sure Putin would be happy to share the tech with us so we can preserve the nations oldest white fossil ( I assume Scott and I are not included in the to be preserved club)
The general rule is not to use capitals with the office or position itself but when using the title with a name, then it is capitalized. This is exactly what Scott did.
Just one example I found on the internet:
http://www.economist.com/style-guide/capitals
See how biased the liberal media is? They publish Trump’s Tweets verbatim. The also show video clips of him saying things, he later denies saying. How unfair!
where is your flapper when you need him?
http://www.gradesaver.com/gullivers-travels/q-and-a/what-do-the-flappers-represent-227933
At some point integrators are going to realise reliability of supply is worth more than shaving a few cents off the price of a widget. I guess they are not at that point yet.
Who knows. Airbus are having a lot of supply problems getting the A350 production rate up to plan. Toilets. A320neo, engines. Apparently they’re getting back on track, but when I was at Toulouse a few weeks back there seemed to be a lot of airframes parked up, waiting…
I always say, never beggar one’s suppliers. Contracts aren’t worth a damn if they’ve walked away from your business.
Takata shaved a few cents off their airbag inflators. That sure worked out swell for them…
“It takes Airbus Commercial about 85 employees to produce one airplane. It takes Boeing about 107.”
I would be interested in seeing the methodology behind arriving at these numbers. A question that I have is how does the productivity of suppliers factor in?
AF1: My $6.4 billon dollar question.
Why not upgrade current AF1(s)?
1. It is EMP protected and may be more survivable due to the older control systems (hard logic vs computer aka fly by wire)
2. Has the refueling system
2A: Furnishings are like new and lightly used.
3. As Trump will not fly it (other than as a preserved fossil) it will not need Gold knobs and such in the bathroom
4. The UV entry will not be needed to kill all the Germs.
5. There are endless amounts of spares and engines around
6. Kallita is flying two of the 200 and seems to be doing fine.
7. Airframe has very few hours on it.
8. New Hangars are part of this, longer wing, keep the old AV! and the same hangars.
They’re talking about keeping B52s in the skies for decades to come, and they’re even older!
On the other hand, given the strategic role AF1 plays (it’s part of the nuclear command and control system), it’s not something that you’d ever want to be caught short on at anytime in the future. At some point they will have to be replaced. Dunno when that is, but it’s not something one would want to establish by running them into the ground and finding that they’re suddenly unavailable.
I gave up counting how many USAF aircraft were older than airforce one when I got to 1500,A10,T38,B1,hurcules, KC135 KC10,etc.Theyare 1/4of a century younger than any B52. Inflation adjusted the current planes came out at $800 million. Trump has had a go at the F35 today as well. The real damage from the F35 is operating cost. This has been stitched up within the world’s most complex logistics system.It took some of the most cunning and devious grafters and politicians decades to come up with the interleaving treaties and deals. I don’t think Trump is going to get very far with a tweet and forgetting to pay the final instalment.
There is an economic of scale. 500 KC-135, 59 KC-10, … but just two VC-25A. Development costs for add ons can only be spread over two aircraft.
On the other side German government ordered two used A340-313 (~ 10 years old).
The F-35 is the bubble jet printer of all jets except that the jet consists only out of expensive cartridges and the up front price is even higher than for any faster color laser printer. Finally the current version only can print in yellow. The other colors will be available some day.
Please keep commenting on President-Elect [edited]. This guy can’t open his mouth, or his phone, without [edited]. Arrogance and willful ignorance is a dangerous combination.
Look a the attention distribution between his “chicken screamers” /90+%)and who he designates for his administration(10–%). What will have more impact on things in the next 4 years?
Bush43 already had a good hand at keeping his more breathtaking decisions out of public notice.
Actually IMO the comparison how many persons build an airplane is actually weighted against Airbus. Yes, Airbus is building a higher percentage of narrow bodies. But on the other hand Airbus does not outsource as much as Boeing.
All wings are build in house at Airbus, all fuselages, but one part of the A350 fuselage. Production depth is deeper on average compared to Boeing.
Trump does shoot from the hip a lot. But my impression is that these actions are not in ignorance, but calculated. In the case of the Boeing tweets, to emphasize what got him elected, which is his refusal to be identified with the mainstream establishment narrative. In the case of the Taiwan call, it was certainly calculated to demonstrate to China that he is serious about resetting the relationship. He’s not stupid. One of the reasons he got elected was that he was not taken seriously by his opposition.
Of course he’s not stupid. He knows more about fighting ISIS than the generals do!
He doesn’t need national security briefings, because knows more about intelligence than the CIA!
Touche. I guess he is a stupid buffoon after all. I feel better now that I understand. The first politician in history to disrespect the advice of the experts.
I’m not saying he’s right or that I agree with him. But the man is not stupid and his adversaries only hurt themselves when they dismiss him without taking a shot at serious evaluation of his motives and intentions.
He’s definitely better at gauging the public mood than most politicians. He’s right about airforce one and the F35 as well, hit LM just as the financial pages were starting to salivate about huge profits from the programme. If Loren J Thompson and his paymasters don’t like it, Trump is probably right.
Motivation -he’s 71 and has always been an arse so he’s unlikely to change.
Intention -doubt he can do much, all these contracts are carefully spread around for political reasons and impossible to get out of.
Good points. By motivation, I mean, just what is his long term objective when he challenges entities like Boeing and China. I believe there is something more behind the tweets than an ignoramus taking pot shots from the hip just to score political points.
And even if it is primarily intended to score political points, that is something that the most gifted politicians do every day, in fact, it’s their daily bread in many many cases on both sides of the aisle. They are just better at making their pronouncements sound well reasoned and objective.
Boeing just announced rate reductions for the 777 line, down to 3.5/month in 2018, so I guess that’s a few less employees they’ll need.
http://www.seattletimes.com/business/boeing-aerospace/boeing-will-cut-777-production-in-everett-next-summer/
The same 777 production people will be needed as they turn on the 777-9 production. Building the prototypes starting next year and staffing wing production will need some, the rest will come after first flight when they turn on production of subassemblies to go full stream 2020. So Boeing will RIF them 2017, rehire some 2018 and start looking for the rest 2019, finding 50% and hire fresh staff 2019 to get them trained on the old 777 line to be ready 2020 for the 777-9 and the fresh hire will maybe be as good as the old ones 2025.
Don’t count on that, @Claes. Automation, automation, automation.
Overly optimistic view, IMHO.
Boeing’s priority is spending billions on share buy-backs to keep the price high and exec bonuses rolling in. Keeping workers employed is WAY down the list.
How many people it takes to build something is a silly number. Person hours or days, months, years is a meaningful number but given the complex production systems nothing short of a long complex analysis would mean much.
What it costs B or A to build an airplane and what the costs are, capital, subcontractors, direct labor, R&D, management, etc. etc. is the point.
Boeing’s share buybacks sad to one who would like to see amazing new products but clearly they are highly financialized.
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