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.
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.