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Pontifications: History is repeating itself

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By Scott Hamilton

Sept. 5, 2023, © Leeham News: Decades after US airline unions were on the decline, some are making big gains in restoring wages, benefits, and strength.

Pilots at American, Delta, United, and Alaska airlines (among others) won big wage increases under recent contract negotiations. Pilots at Southwest Airlines are aggressively seeking more money and revised work rules. Flight attendants at American just approved a strike authorization by a wide margin.

Drivers at UPS Airlines, the package-freight carrier, won a generous new contract. Pilots at rival FedEx also became more militant in recent months.

One can hardly blame the unions for seeking dramatic wage hikes and work rule changes. Labor has been under constant pressure since the 1970s. Unions probably reached their peak strength in 1966, when five US airlines were struck at the same time by the International Association of Machinists and Aerospace Workers (the IAM). Sixty percent of the capacity was grounded for 43 days. Eastern, National, Northwest, Trans World and United were affected.

The industry was highly regulated. The Civil Aeronautics Board, created in 1938, oversaw virtually everything airlines did. Routes, airfares, serving alcohol, classes of service, and mergers were tightly controlled by the CAB. So was the competition. From its inception to 1978, the CAB turned down every single application to create a new airline (except a host of local service carriers immediately following World War II) or to upgrade charter carriers to scheduled service. More than 70 applicants were turned down.

Deregulation changes things…

Deregulation of the US airline industry changed everything. Approved by Congress and signed into law in 1978, the CAB went out of business shortly after. The Department of Transportation took over some but not all of its duties. The DOT and the Department of Justice were charged with approving or disapproving mergers, the latter for anti-trust/anti-competitive reasons. Airlines were free to set airfares at will. They were free to enter and exit markets in the US at will. (International routes still required government approval.)

Under the CAB, any changes in fares required its consent. Fares were set that virtually guaranteed labor costs would be covered. With new route authority often taking years to wind through the CAB’s bureaucracy for approval or disapproval, US carriers were well insulated from free-market competition. Those airlines that did fail were subject to mergers with stronger carriers, which needed access to the failing carrier’s routes, planes, and facilities in order to grow. The complete shutdown of a failing carrier was a rarity.

Under deregulation, failing carriers were allowed to fail. Other airlines might buy assets, such as slots, gates, and planes, but the freedom to move into new markets was unfettered. Buying international routes still required government approval, however.

With freedom, and in some cases, stupidity, management’s ability to cut fares below costs in a desperate effort to generate cash meant the underlying cost structures had to change. And labor’s cushy, decades-long ability to hold management hostage came under attack.

…Labor Costs become a target

During the 1970s, leading up to deregulation, and into the 1980s as airlines tried to adjust to a free market, labor costs (wages and benefits) were usually the single largest expense on the balance sheet. This would change during the presidency of Jimmy Carter when OPEC—the oil industry’s cartel—realized it could use pricing as an economic weapon. Fuel now holds this honor.

Braniff Airways was the first major casualty of deregulation. Its CEO, Harding Lawrence, went wild expanding the airline, figuring deregulation was going to be a short window of opportunity. The expansion was ill-advised in its own right. However, the plan was hurt by a concurrent recession, inflation, and fuel price spikes. As Braniff descended toward bankruptcy, employees—unionized and non-union—took haircuts in an effort to save the company. It was unsuccessful. Braniff collapsed in 1982 and ceased operations.

Continental Airlines was next. Already hurting from trying to adjust to the new free marketplace, Texas Air Corp. made a successful hostile bid for the airline. By 1983, its fortunes were reaching a point where bankruptcy was threatened. Labor unions declined to agree to the cuts demanded by management. Bankruptcy was declared, but unlike Braniff, Continental announced operations would be suspended for two days before resuming as a much smaller, low-fare airline. Federal law at the time allowed Continental to abrogate labor contracts. Unions were furious.

They weren’t alone

But even these two events were only part of a pattern. In 1981, also in response to the new deregulated environment, American Airlines persuaded its pilots to agree to a two-tiered wage system. The incumbent pilots remained on what became known as the A scale. New hires came in at lower wages, known as the B scale. American’s CEO, Bob Crandall, promised American would order new airplanes and grow if pilots approved the B scale. They did, and he followed through.

United Airlines followed a similar path. A two-tier wage approach came under the nomenclature Blue Skies. But United’s CEO, Dick Ferris, had bigger ambitions. United’s parent company, UAL Inc., bought Hertz and a hotel chain. Ferris changed UAL Inc. to Allegis, which one critic said sounded like a world-class disease. The Air Line Pilots Association (ALPA) set out for Ferris’ head and eventually forced him out of the company. Unsuccessfully, the pilots led an effort to buy the airline.

More bankruptcies, more concessions

The first Persian Gulf War, in 1991, led to a series of airline bankruptcies in the US. At one point, 40% of the capacity was operating under Chapter 11, the reorganization section of the bankruptcy code. Storied names like Pan Am and Eastern collapsed. Newer airlines like Midway (the first one) and several others ceased operations. Northwest, Continental, and TWA were among those that successfully reorganized.

The Great Recession of 2008 caused several more airlines to declare bankruptcy or cease service. And then there was COVID and the 2020 pandemic. Government aid avoided more bankruptcies. But throughout each of these events, labor granted more concessions.

Time to recover

Not anymore. Today, pilots are some regional airlines gained 100% salary hikes. Others at major carriers gained hikes in the 40% range. Southwest never laid off pilots or employees and largely maintained pay scales. During COVID, Southwest asked for some concessions, but these were rebuffed. Eighty-three percent of Southwest’s workers are unionized. Today, Southwest’s labor costs are among the highest in the industry. Yet the pilots and flight attendants want more.

Unions are on a roll. It’s taken 57 years for unions to demonstrate the kind of strength they had with that 1966 strike. It’s been 45 years since deregulation was approved and 31 years since Braniff’s bankruptcy took a significant hit on labor wages.

Karl Marx coined the phrase, “History repeats itself, first as a tragedy, second as a farce”. What’s happening today in the airline industry sure has this look and feel.

 Category: Airlines, Pontifications

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130 Comments on “Pontifications: History is repeating itself”

  1. Thank you for the history! There were facets of the CAB that I was not aware of until now!

    Only the growth of well-funded startups will restrain wages and benefits from growing to match airline profits.

    Reply

  2. Good to see that people are getting more equitable remuneration. Not so sure that mainline pilots needed this, but delighted to see that people “lower down in the pyramid” are being treated more fairly.

    Of course, this is a nightmare for Jerome Powell, because it’s a manifestation of the dreaded “price-wages spiral”. He’s trying to tame inflation by throttling consumption — but that’s hard to do when people are getting significantly higher wages. Didn’t the machinists at Spirit Aerospace get a (much-needed) 21% wage hike, plus (badly-needed) extra benefits? The phenomenon is broader than just at airlines.

    On a related subject: what effect are these wage increases having on US air fares? If these get too high, then Joe and Jane Average will be less likely to fly; in that regard, some carriers are already indicating decreasing bookings. Furthermore, how well will US carriers be able to compete with foreign airlines? Europe and Asia are increasing salaries also — but essentially only to keep pace with inflation as opposed to the much larger step-change increases occurring in the US. As a result, many air fares in Europe and Asia are only modestly increased relative to their levels before CoViD.

    Reply

    • Bryce
      Your point about the average person booking a US domestic flight will be affected What is the price point for air fare? When looking at $800 RT from Buffalo to Florida (e.g. family of 4 $3200) or just take an extra day drive down The other travel factor is rent a cars…about $120 a day with insurance. So for a Florida one week vacation, you are over $4k before lodging, food and entertainment (theme parks)
      What industry can afford 40% pay increase (for pilots and sure flight attendants will follow) without customers looking at alternatives

      Reply

  3. US pilots are making 10X the salaries of European carriers?!

    Compare:
    The typical Wizz Air Airline Pilot salary is £43,258 per year. Airline Pilot salaries at Wizz Air can range from £22,263 – £86,000 per year. This estimate is based upon 9 Wizz Air Airline Pilot salary report(s) provided by employees or estimated based upon statistical methods. When factoring in bonuses and additional compensation, a Airline Pilot at Wizz Air can expect to make an average total pay of £61,000 per year. [source https://www.glassdoor.co.uk/Salary/Wizz-Air-Airline-Pilot-Salaries-E824861_D_KO9,22.htm%5D

    Reply

        • Compare and contrast

          https://skift.com/2022/06/23/the-highest-paid-u-s-airline-ceos/

          The Highest Paid U.S. Airline CEOs

          Delta Air Lines CEO Ed Bastian was the best paid U.S. airline CEO last year. His compensation package included a tidy sum of $12.4 million — $2.5 million more than his closest peer — in mostly stock awards during the year.

          United Airlines CEO Scott Kirby followed up Bastian making $9.85 million in 2021. His pay, too, was almost entirely stock awards on his $1 million base salary. United posted a $4.5 billion adjusted net loss during the year.

          American Airlines CEO Doug Parker was the third highest paid with $7.24 million in compensation in 2021.

          Southwest Airlines former CEO Gary Kelly rounded out the big four U.S. carriers, which control roughly 80 percent of the domestic market, taking home $5.8 million in 2021.

          CEO Airline 2021 pay (all in)
          Ed Bastian Delta $12.4 million
          Scott Kirby United $9.85 million
          Doug Parker American $7.24 million
          Gary Kelly Southwest $5.8 million
          Ted Christie Spirit $3.87 milion
          Barry Biffle Frontier $3.6 million
          Robin Hayes JetBlue $3.45 million
          Ben Minicucci Alaska $3.21 million
          Peter Ingram Hawaiian $3.09 million
          Jude Bricker Sun Country $567,000
          Maurice Gallagher, Jr. Allegiant $0

          Reply

        • and

          Pay Ratios

          CEO Airline Staff Median Ratio to CEO Pay
          Ed Bastian Delta $70,240 176x
          Scott Kirby United $78,245 126x
          Doug Parker American $62,765 115x
          Ted Christie Spirit $53,603 72x
          Ben Minicucci Alaska $74,911 69.5x
          Robin Hayes JetBlue $50,115 69x
          Gary Kelly Southwest $84,872 68.6x
          Peter Ingram Hawaiian $69,381 44.6x
          Maurice Gallagher, Jr. Allegiant $46,257 0x
          Barry Biffle Frontier n/a n/a
          Jude Bricker Sun Country n/a n/a

          Reply

          • Ben and Jerry’s Ice Cream famously at one point had an employee compensation limit of 10x the lowest paid full time employee.

            i.e. the CEO/CFO/VPs etc could not earn more than 10x the lowest paid worker on staff.

            of course Ben and Jerry owned the company outright and made bank when they sold it to Unilever, but they managed to lock in a lot of their pay and social policies when they sold.

        • There are more pilots than CEO’s so priority is to replace pilots with software before CEO’s replaced with AI coupled to SAP ERP software.

          Reply

  4. I’ve long believed that the adversarial relationship that separates labor and management is a foolish poison. A modest base salary and benefit package coupled with a fairly extreme profit sharing formula for all strikes me as a healthier approach that would incentivize all to be both more collaborative and more focused on generating customer value. Greed begets greed, and it is a chicken and egg thing as to whether it starts in the C suite or in operations.

    Reply

    • Agreed. I was part on one Union that did its job. The other two were corrupt.

      I had to laugh at the cushy union job, CEO crashes a company and kites out with tens of millions in benefits.

      Reply

  5. Lots of talk about employee pay, but how about a little history of airline executive pay.
    I think you will see a much higher increase in C Suite pay than any employee pay.

    Reply

  6. http://www.cpreview.org/blog/2021/8/when-is-enough-enough-how-covid-19-exposed-the-airline-industrys-obsession-with-stock-buybacks

    For the past ten years, major airline companies – including American, Delta, United, and Southwest – have used a whopping 96% of their cash flows on stock buybacks, a process by which companies buy back their own stock to reduce the number of shares floating in the market.

    and

    Unfortunately, this tradeoff between wages and buybacks isn’t merely hypothetical. According to Business Insider, American Airlines spent more on buybacks ($12.9 billion) from 2014 to 2020 than on employee salaries and benefits in 2019 ($12.6 billion). Delta spent the same amount of money in stock buybacks from 2014 to 2020 as they did to pay for all of their employees’ salaries and benefits in 2019. Even at the individual level, wages for the median pilot decreased by almost 10% from 2000 to 2012, while stock buybacks were steadily on the rise.

    Reply

  7. No love for AA, the largest operator of Airbuses and their new expensive pilot contract? Largest amount of debt among the majors? Oh and the FAs want bank for their next contract.

    Reply

  8. Thank you Mr. Hamilton for mentioning Allegis, it was a concept ahead of its time.

    Reply

  9. AA’s Robert Crandall will go down as one of the best airline CEOs. Even its own pilot union that sparred with him acknowledged the then struggling AA would not have grown to a dominant position if had not been for him. SABRE, FF programs, and focusing on low CASMs at a time when the other majors where concerned about market share, all debuted under him.

    He got an awesome deal from a then struggling MD for then large MD80 order that helped spurred growth.

    Reply

  10. As regards history repeating itself, maybe. Either a fresh round of BKs like in the early 2000s. Or airlines pushing single pilot ops under the guise of a pilot shortage. Either way, the market will only pay so much and yes, we want our $199 from DFW to NYC ticket. Until or if the Y full fare customer comes back, airlines are relying on the low fare customer for revenues.

    Reply

    • Already on the market, with a 7nm processor.

      Intel has been trying for years to master the 7nm process, and has consistently failed.

      Reply

    • It also has sat-phone capability, “5.5G”. An analyst estimates Qcom is going to lose up to 60m chipset orders in 2024, potential profit loss in the billions.

      Reply

  12. Airline deregulation was a blessing for airlines like the one I once worked for, Alaska. The changes allowed positive change and growth. Was their pain along the way? You bet! Especially the mechanics strike in 1985 over A and B scale. It was brutal and unfair to all the existing mechanics that struck and lost their jobs.
    The CAB had strong arm control for sure, but a bright spot was Herb Keller starting SWA in 1971, it was severely limited in route structure but when deregulation was enacted …. Well the rest is history as we say.
    But SWA and Alaska’s success since is one for the business schools to teach.
    Credit must also go to executive leadership and as one commenter noted, Bob Crandal’s business acumen was brilliant.
    Crandall invented RASM and CASM.
    When one works for any airline today, you live and breathe this daily.
    Deregulation also helped to form the small commuter operators like Horizon and serve remote communities.

    I’ll end this with a statement a college professor predicted in a 1981 class that deregulation will cease many operations and create many mergers…… and the birth of low cost operations.
    Prophecy fulfilled.

    Reply

    • Airdoc:

      I lived the Alaska Airlines story, flew Ellis Airline aka Alaska Coastal Ellis when I was a kid.

      Back in the 60 till ? referred to as Alaska Scareline.

      Under regulation things were stable. Sure tickets were not cheap but you traveled or could when you needed to.

      Alaska as far as I know is still in dispute with its pilots, they were severely late and cancelled flights until they just cut back.

      Communities at least had small operators that got you to bigger cities. Now, a lot is going away and it looks like more and more.

      Bellingham has lost service from the Dash 8s, now its a couple of 175s a day and a lot have had to shift to the bus.

      Airlines come and go and boom and bust and cycles of upset and nationwide crashes of service.

      I don’t know its made things better and its tended to drive staff position salary down to low levels. Alaska outsourced its baggage handling and the only way that pays is for less benefits and salary.

      Reply

  13. I am happy to read, that in most airlines, the staff is receiving good wedges, and good working conditions.

    But I would like to point, that there are many issues, affecting Aviation Safety, like:

    Very often, the airport infrastructure has not changed in the last three decades, same runway lengths, same dated terminals… Many airlines are using the wrong aircraft type, to operate at some airports.

    Too often there are runway incursions, near misses, ATC miscommunications, unexperienced pilots, inattention… This is reaching a dangerous level.

    Reply

  14. I come at this from another angle, that of the “start-up”. My first two aircraft and what got me started in the industry were ex Pan-Am Airbus’s which a European bank were stuck with. Creative destruction, in this case of Pan-Am enabled the creation of new, more productive airline entities. Pan-Am was a great institution but it was an institution and in their arrogance, a much detested one I later learned. Those aircraft then made more money than they ever did flying for Pan-Am!

    Had it not been for the politics of de-regulation the world would have remained in a stagnant, soviet style un-dynamic, backward state. Airbus would not exist. It must go further; in the US bankruptcy must mean bankruptcy. In Europe, state aid must truly be outlawed so the likes of Alitalia 2.0 can’t happen.

    The last three years left me disillusioned with the industry (and the world) and I no longer participate but those friends who still do say that raising capital for a start-up is somewhat like putting on a float for the British National Party at the Notting Hill Carnival; the very first issue being ESG. Most discussions, at least with institutional investors never get passed this part.

    The industry, despite all appearances it is hopelessly broken. This current phase of the industry is very temporary, the peak of the cycle, a bubble so enjoy it while you can. It will end within 18 months at the commencement of WW3. That and its aftermath will create new opportunities of its own but only ten years away so too late for me – I’ve “Gone Galt” and will watch from afar with morbid curiosity.

    Reply

    • @Fastship
      Excellent comment.
      I hope you’re wrong but I’m afraid you’re right.

      Reply

    • You mean when you flew on something more than A321 or 737-800? You mean widebodies flew domestic routes? Meals in coach on a domestic flight? Choice of 8 majors to buy a ticket from? Hubs other than ORD,ATL, DEN, IAH, and DFW. Those days? Impossible! The almighty CASM!

      Reply

      • Absolutely. Airline employees to assist you, adequate seat space, planes not always packed to the gills, no fights, folks said Hello, flight attendants not harried.

        Reply

        • I was stressed out by something or other on one 767 flight
          in the late 80s- and the stewardess brought me a complimentary bottle of white wine (full size), and chatted with me for several minutes. Imagine that!

          Reply

  16. ‘Airbus records strong widebody order activity during August’:

    “Airbus has disclosed an order for three A330-900s from an unidentified customer during August, a month which has been one of the strongest this year for long-haul aircraft agreements.

    The airframer recorded 20 A330-900s for lessor Avolon, as well as seven A350s for Air Algerie – comprising five -900s and two -1000s.

    Airbus also booked the top-up order for 75 A321neos from Wizz Air, following approval from the budget airline’s shareholders, as well as a further 12 for an unidentified customer.

    Over the first eight months of the year the manufacturer secured net orders for 1,218 aircraft, of which widebodies accounted for 146.

    Airbus has delivered 433 aircraft over the same period including 52 in August. The airframer is aiming to deliver 720 for the full year.”

    https://www.flightglobal.com/air-transport/airbus-records-strong-widebody-order-activity-during-august/154832.article

    Reply

  19. What I would like to add is that in Europe & the UK the industry has largely been re-regulated through punitive taxation. An example; just last month in France, it was found that high speed rail on certain routes was four times more costly than the same routes by air. The political response was to seek ways to tax the air service to the point it could be no longer competitive with rail!

    The imminent arrival of CBDC’s will be a mechanism to further curtail individual freedom to travel by air.

    Reply

    • Note however that evaluations of the reports on these costs confirmed that the primary reason was that air travel in Europe remained heavily subsidized and minimally taxed. To be fair a lot of this is long-ago concepts perpetuated long after the rationale for them are lost: A good example is that aviation fuel is not taxed (while both electric and diesel consumption by railways is heavily taxed) because in the 1950-1960 period there was a determined attempt to accelerate European aviation. Another example was the local subsidizing of smaller airports – those of course frequented by Ryanair and the rest!

      Reply

      • There is no subsidy, except of course for the rent seeking entities that are the state carriers. Railways are almost by definition State entities dependent entirely on coercive taxation.

        Oil Royalty in (i.e. the UK) tax has been as high as 75% and that is before refinery takes place. Subsequent distillates are heavily taxed. The tax on UK flights can be as high as 70% of the ticket price (APD). There is no tax on rail tickets.

        Regional airports can only subsidise carriers because they themselves are quasi state enterprises.

        One significant feature of the industry (now) overlooked by the writer is the gmt response to terrorism, a threat they themselves in large part created and its impact on travel which has now evolved into eco-terrorism. The manufactured hysteria and the specious arguments behind it means it’s only a matter of time that one of these head-cases will bomb an airliner. At the very least it will be behind the restrictions on individual freedom of movement.

        Reply

  20. Lockheed L-1049 Super Constellation

    Few years ago, I met this lady on a plane. We started a friendly talk. Then, she explained to me that, when she was young, she was a Super Constellation stewardess.

    I was fascinated by all the stories she told me. The passion, and happiness, that all those memories brought her, made me feel great. Crossing the Atlantic, in the golden age of Aviation, left a warm, and loving memory in her…

    Reply

    • Is it a defeat, or a feature?? 🤔

      -> Boeing CFO:
      737 MAX aft pressure bulkhead defect complicated to fix & affects 3/4 of 220 parked jets.

      “There’s hundreds of holes that get inspected. There’s an X-ray inspection process step that’s required. And it’s a very critical part of the airplane.”

      Reply

      • ‘ This rework is more extensive and takes more time than that of the tailfin fitting issue that became public in April. “It is early in the rework process and the rework hours will likely be higher and the cycle time longer than the vertical fin we had earlier. This is different, it is more complicated, there is more involved. There are hundreds of holes that get inspected, there is an X-ray inspection that is required, and it is a very critical part of the airplane.”

        BCA will produce negative margins in Q3, similar to the Q1 margins of this year. Back then, the operating margin was -9.2 percent.

        BDS will also produce negative margins in Q3, similar to the -8.5 percent in Q2

        https://airinsight.com/rework-boeing-737-max-pressure-bulkhead-will-take-longer-to-fix/

        I wonder how many 737 MAX 8 in service are also affected.

        Reply

          • ..”[Boeing CFO] West said that >>>75 percent of the 220 aircraft in inventory<<< at the end of Q2, or 165 aircraft, will need rework on the pressure bulkhead after non-conforming, elongated fastener holes were found on produced aircraft. This rework is more extensive and takes more time than that of the tailfin fitting issue that became public in April.."

            Should be fine.

          • Whoa!

            Let me repeat this:

            “75 percent of the 220 aircraft in inventory”

            This raises some interesting questions that perhaps our esteemed colleague Mr Hamilton might like to pose. Here’s the thought process:

            1) The inventory buildup goes all the way back to late 2018, early 2019.

            2) 55 aircraft (25%) are ok. That means by the 56th aircraft produced (if those numbers are correct) you are guaranteed to have run across a plane singing like a harmonica during a pressure test. It might have happened at #10, maybe #40 – buy by #56, the problem is there.

            Question # 1
            ————–

            Capt Bryce, master of all things Planespotters, when was the 56th aircraft that is stored in Inventory produced? It must be in those Chinese aircraft that have been sitting around forever.

            Question #2
            ————–

            When did Boeing stumble across this problem? Were they sitting on it?

            Question #3
            ————-

            I have been reliably informed (so I hope) that the problem links back to one of three Spirit suppliers. If the problem is also sitting in aircraft stored in Inventory, as well as production models, how deep does it go? Apparently it was caught during a pressure test when the plane bubbled all over the place and made noises like a flute. Was it an aircraft coming off the line or one that had been sitting in the employee car park?

            Did the supplier fix the problem all by themselves or was it only caught by BCA who got on the horn and asked WTF? Were there no singing Max’s discovered when deliveries resumed?

            I would find it hard to believe that the problem existed in only stored planes, then righted itself during normal production.

        • B’s reverse Midas touch strikes once again, with obvious negative consequences.
          Perhaps we should open a betting book as to when and at what price B shall repurchase Spirit? It seems destined to in my view.

          Reply

    • Some numbers on that delivery estimate:

      By the end of Q2, BCA has delivered 216 Max’s. Add in another 70, per guidance and you get 286 airframes for the first 3 quarters, which leaves 114 to be delivered to make the 400 mark.

      38 a month, for the 3 months of Oct, Nov & Dec – to make the target.

      Breaking News!

      Leeham Bets dot com is now taking wagers on the over and under of 114 Max’s delivered during Q4.

      All winning wagers will be paid out with signed copies of Air Wars, all losing wagers will have their personal information forwarded to Boeing HR department and are required to attend a job interview there.

      (Disclaimer: No actual offer of wagering, books or jobs is being made here, but I am pretty certain that if enough people approached actual bookies, someone would offer you odds on it….)

      Reply

  24. Is BA’s optimistic post-recovery forecast “sustainable”??

    Reuters: Spirit AeroSystems CEO Says Boeing, Airbus Contracts ‘Not Sustainable’

    Reply

    • “Spirit is also discussing the Dreamliner program with Boeing, Gentile said, as the parts maker has logged $1.4 billion in reach-forward losses and needs relief to ramp up 787 production to Boeing’s target of 10 per month by 2026.”

      I doubt it’s in the interest of BA to corner SPR into bankruptcy.

      Reply

    • Bloomberg:
      -> The latest quality lapse at Spirit, which builds the 737’s frame for Boeing, appears to date back to at least 2017 and could require inspections on more than 1,000 jets, Rob Spingarn of Melius Research wrote in a Sept. 5 report.

      Reply

    • -> Gentile offered more detail. He said that of about 1,000 holes in the aft pressure bulkhead, 500 are machine-drilled and on some planes those had been drilled by one of three subcontractors as oblong instead of circular holes.

      -> “We set up essentially a separate factory across the street,” Gentile said, adding that two teams of mechanics will work on X-ray inspections while six teams do the repairs.

      -> The 787 Dreamliner program has separately struggled with a series of manufacturing quality defects, chiefly gaps at the joins throughout the aircraft structure that are larger than specification.

      These defects have showed up on the parts from all the major supplier partners, not just Spirit.

      As of the end of July, Boeing still had 85 parked 787s awaiting repair and delivery.

      -> Gentile said Spirit has never managed to make enough progress on reducing the cost of building carbon composite structures. The 787 was the first commercial jet built largely from this material.

      “Even from day one, we were never able to get down the learning curve as fast as we expected. And so we’ve lost money. It’s not a secret,” he said. “We have delivered about 1,165 [Dreamliners] so we’ve lost over $1 million per unit.”

      -> “We also see shortages of raw material and even fasteners, some basic things, and that creates disruption,” Gentile said. “In the last 18 months, we’ve had $200 million of charges in supply chain that we’ve had to cover.”

      https://www.seattletimes.com/business/boeing-aerospace/boeing-cfo-says-latest-737-max-defect-will-impact-deliveries-and-profits/

      Reply

      • Those Boing 3Q Financials should be a hoot.

        “We’re on a pathway to an onramp to a future to a glidepath
        to provisionally possible Future Profitability here at Boing, and don’t let anybody tell you any differently!”

        Too bad, though, about all the skilled Boing US personnel we [pointedly] got rid of..

        Reply

      • Interesting statement on profitability of the B787 program. It appears @Frank P, @Bryce and others are correct about the profitability of that Boeing program. I hope the statement from Gentile will now put to rest the arguing about the profitability of the B787 program with erroneous statement about free cash flows that some commentors on these pages continue to make.

        Reply

        • @Branaboy

          Lol !
          What these two people have been saying is not new,
          Information on the profitability of the program they have been hanging around the forums since the beginning of the 787 program
          thanks to journalists such as D. Gates or J. Ostrower

          What these two people have been accused of is having misused the facts due to their primary anti-Americanism that they propagate. They establish old stakes even hoping for the disappearance of Boeing, (that has nothing to do here) are not always objective.

          Please, don’t make them mass people like expert analysts.
          Just hilarious.
          You’re just late.

          Thks

          Reply

          • PS. I am not addressing Franck.P. He is not concerned, of what I accuse

        • Thank you, sir.

          As I’ve maintained, FCF will keep the lights on and bills paid, but is not sustainable over the long term. This is why operating margin is so important.

          For those who don’t have an accounting background, look at it this way:

          An airline asks BA to build them a jet. They sign a contract to deliver an asset. Don’t even think of it as an aircraft – an asset can be machinery, a building…even a pile of cash. So…

          I give you $140 million. X amount of time later you give me something back worth that much. However, because costs spiral, it now cost you $150 million. If it was a pile of cash (because you paid your employees, subs and suppliers $150 million in money) what has happened?

          You could say that you borrowed $140 million from me, for whatever length of time it took…and it cost you $10 million to do this, because you have returned something to me that costs $150 million.

          Now blow it up:

          https://s2.q4cdn.com/661678649/files/doc_financials/2023/q2/2023-06-Jun-30-8K-PR-Ex-99-1.pdf

          BCA delivered 266 aircraft during the first 6 months of 2023.

          They got $15.544 billion in cash from customers.

          It cost them $998 million to get that money because they spent $16.542 billion to make those assets. Almost a billion in borrowing costs, to hold onto $15.5 billion, said another way.

          (We’re going to ignore the effects of the DPB and the costs that are squirreled away there, to be pulled out at a later date)

          It is just bad business (and unsustainable) to keep doing this. It has been going on for nearly 5 years.

          Reply

  26. Re Financial results

    It would seem that the savings and the results for shareholders in the civil aerospace industry, such as Spirit, demonstrate that Boeing is not alone in getting sucked into this spiral.

    As I said last week, Boeing CEO D. Calhoun must sound the alarm or leave if he does not react.

    Let the means at work to reorganize the industrial chessboard such as on-site controllers at suppliers for example who could say “stop” immediately so as not to have to make mistakes. Visits would be very frequent

    The Boeing CEO D. Calhoun needs cash flow and demonstrate that it can slowly get out of debt if in 2023 it fails to achieve the delivery target synonymous with cash flow.

    So he will have to go. The best case scenario is that he is replaced by someone put in place by the Boeing Board who has taken into account the rather dangerous slowness of the positive results that are too slow.

    I’m not saying they’re going to fire him but if there’s another ridiculous interruption due to more x or y counterfeits in 2024. I’m afraid they’ll have to retire

    When you do
    “One step forward and Two steps back and ” several times, it can’t work…

    Reply

  27. Slowly is becoming clear Airbus A350 is taking over leadership in large WB’s. Loyal Boeing 777 operators are switching over. The 777-9 is large, heavy and it’s certification troubles unprecedented and ongoing.

    Freighters? A321F, A330ACF, A330NEOF seems feasible and the A350F looks lie a solid platform for many operators.

    Watching A’s dominance in NB, this just can’t be healthy for the industry longer term. I suspect indirectly Washington lifelines, funding, tax reduction and short cuts are already being implemented across the board.

    Boeing, its supply chain and related institutions are a proud national strategic asset, that can’t be allowed to spiral down like this. Hard nosed government analysts will look through the façades & propose restructuring and support packages. Mostly under the radar but widely supported.

    Reply

    • I think the first step is understanding that Calhoun isn’t the guy, moving forward.

      Reply

    • Where will the bailout money for BA come from?
      There’s another D/R debt showdown coming in October, with most analysts saying that a government shutdown is inevitable. The budget deficit in fiscal year 2023 is $2T, total government debt is heading toward $35T, and annual debt servicing costs are heading toward $1T (14% of total government revenue).

      Reply

  29. Keesje,

    Quote
    ..”Slowly is becoming clear Airbus A350 is taking over leadership in large WB’s. Loyal Boeing 777 operators are switching over. The 777-9 is large, heavy and it’s certification troubles unprecedented and ongoing….”
    Unquote
    _———–

    Please Keesje not this tired argument of the A380 to return to the 777-9. It’s ridiculous.

    Heavy does not imply inefficient. Just looking at the A320neo/737MAX have heavier engines than the ceo/NG and are much more efficient.
    And when you say the A350 takes the leadership of the large widebody it’s not clear.

    The A350 overlaps with the 787’s and 777-X’s. That’s like suggesting that the A350 crushes both the 787 Dreamliner and the 777-X.

    This is purely fanboy tired talk Keesje

    -> 1,600 787 Dreamliners sold and 370 777-Xs sold against 960 A350s that’s +2000 787/777-X moderns Widebody in the backlog to show us please where the Airbus widebody leadership is in all of this ?

    And when you say that loyal Boeing customers have left the 777 for the A350,
    I especially see Lufthansa ordering for the first time a 777 passenger (777-9) the ME3, Catay Pacific, British Airways and SIA have all ordered the 777-X after the A350-1000.

    I see these customers rather leave the A350 for the 777-X…

    On the other hand, it is true that certification problems are quite worrying for the 777-X

    And any news on the 787HGW, and 737MAX10?
    I thought the 787HGW was a matter of paperwork

    What’s going out there?…

    Thks

    Reply

    • Leeham has noted that before and that is why they believe China will take MAX aircraft in the future.

      Going on history, It will almost certainly be even slower as they never have met targets yet.

      China Iron Industries are slow, it is the privately owned ones that are competitive.

      Reply

      • > they believe China will take MAX aircraft in the future. <

        That is called "talking your book". Yeah, China will ordering up / accepting MAXes.. any day now.

        😉

        Reply

      • The real story for China C919 ramp up numbers, they only have production capacity (e.g. western production equipment) of 4 aircraft a month. Are they trying to duplicate the production equipment and tooling themselves or go back to western equipment/tooling suppliers to purchase more? First they need to maximize a rate of 4 a month (50 a year) then add capacity…add 2-3 years for western equipment (BOD)…5-6 years if they try it themselves….so call it 5o a year to at least 2028

        Reply

        • I can imagine that a major priority at this juncture may be to get the CJ-1000A engine up and running: after all, as long as the C919 uses LEAPs, it can be throttled by US export restrictions.

          Sterilizing western components from the rest of the C919 design will be relatively easy.

          After that, production can be ramped up in earnest.

          Reply

  34. -> Southwest Airlines Co. pulled questionable parts from a jet engine on one of its planes after being notified by suppliers, making it the first major carrier to publicly confirm their use on a commercial aircraft.

    A review by suppliers the carrier didn’t identify found “suspect parts” in an engine used on a Boeing 737 NG, Southwest said Friday in an emailed statement. The components — a pair of low-pressure turbine blades — came from AOG Technics and were replaced out of an abundance of caution, it said.

    https://www.bloomberg.com/news/articles/2023-09-08/southwest-air-says-engine-on-jet-used-suspect-supplier-s-parts

    Reply

  36. The PW GTF engine fiasco is starting to take on even more serious proportions:

    “On 10 September, an Air China Airbus 320neo (registered B-305J) operated flight CA403 between Chengdu, China and Singapore. During the flight, the pilots reported an engine fire with smoke emitting in the cabin. Upon landing on runway 20L, the aircraft was immediately evacuated.”

    https://www.aviation24.be/airlines/air-china/airbus-320neo-incident-engine-fire-and-evacuation-at-singapore-airport/#respond

    ***

    Groundings, shortage of spare parts, a bankrupted airline…and now a fire / runway evacuation.

    “Because We’re Worth It”

    Reply

    • EASA …you there !!! Anybody home…
      Ofcourse not…..
      What’s it going to take to ground your PW powered AB fleet…
      A major disaster …??
      Too many close calls..
      FAA … here’s your chance to actually call out EASA and follow suit..
      Like what are the odds that’s going to happen !!

      Reply

      • @Robert L.
        That’s not wrong.
        P&W engine is a major disaster.
        There are still airlines that take the risk of not choosing the CFM Leap-56. This world is truly incomprehensible, after all it’s not my money

        Looks like indeed Airbus enjoys the favors of the EASA,
        But they are big boys..

        Reply

      • PW is a US corporation, so its products fall under the authority of the FAA as primary regulator.
        The EU and Brazilian regulators are secondary in this instance.

        No amount of extra punctuation can change that, can it ????? !!!!! 🤣

        Reply

    • Bryce

      ‘…Speaks volumes….”
      —
      It doesn’t say more than that. Just that the 737MAX is more efficient in shorter missions where the A32Xneo is too heavy…

      Reply

  38. CJ-1000A certified in 2027, with mass production in 2030, is a highly optimistic schedule.

    Not going to happen, I think. This is the kind of PR-fluff that Boing (for example) is always putting out.
    Mid-next decade is more like it.

    Reply

  39. “Spirit Aero Seeking to Renegotiate with Boeing, Airbus”

    “Rising labor costs, parts shortages, and regulatory obligations are factors making business “unsustainable,” causing the airframe builder to turn to its customers for relief.”

    https://www.americanmachinist.com/news/article/21273377/supplier-seeking-to-renegotiate-terms-spirit-aerosystems

    ***

    Particularly bad news for BA: it has more Spirit parts in more of its aircraft — but, more importantly, its margins are too thin to be able to carry extra costs.

    Reply

  41. Article cites a lot of history but completely fails to make the central economic point.
    Unions had huge leverage in the CAB era because system was designed to protect status quo (new entry forbidden/airlines not allowed to fail). Industry efficiency massively improved because of the combination of increased competition and bankruptcy law enforcement that rewarded better run airlines and transferred assets from weaker ones.
    After 2002 the industry destroyed meaningful competition believing a permanent oligopoly would mean even very mediocre airlines could dependably produce profits. And the BK laws were largely gutted–80% of US capacity was BK but senior managers were totally protected. But the elimination of competition gave unions even more leverage that they had in CAB days. Unions weren’t responsible for for any of this but their efforts to exploit this leverage are entirely rational. Unions have no legal responsibility to moderate demand to protect longer term economics and know that savings from more moderate demand would just produce bigger stock buybacks and none would have been shared with workers

    Reply

  42. You know Byrce .
    You choose to tell everyone else to ignore someone, when comments don’t suite their tastes.
    For some reason, you just can’t do the same to mine !!!
    Believe me, if your so offended by me..
    Simply ignore me !!
    How hard is that for you to comprehend !
    That was easy !!
    So when I say something negative again about your cherished company, what are the odds of you being the first one to chime in to whine and deflect in your usual obnoxious manner….
    Any betting man would love those odds

    Reply

  43. Some news regarding the FrankenTanker:

    “”We just kind of need to get their no-kidding ground truth of, ‘this is what we think we can deliver and when we think we can deliver it,'” Andrew Hunter, the service’s acquisition chief, said in a Sept. 5 interview at the Pentagon. ”

    …

    “But asked whether he still anticipated that Boeing’s Pegasus may be the answer for the Air Force’s tanker plans, Hunter sounded more noncommittal than he did to start the year.”

    ““To me, it’s all going to be dependent on what we get back in the RFI, and what they can actually deliver,” he said. ”

    …

    “Last year, Hunter said that the Air Force had “struggled” to reach certain agreements with Boeing. In the year since, “we’ve definitely made some progress,” he said, though “it’s still a challenge.”

    “The acquisition czar explained that Boeing was having difficulty submitting proposals in a timely fashion with all the information officials needed — hampering their ability to even begin negotiations on factors like cost.

    ““It’s very frustrating, I think, to all of us, if we just sit around waiting for a proposal to get to the point where we get to argue about pricing,” he said. “In some cases that’s been many months, to even as long as a year or more.””

    https://breakingdefense.com/2023/09/air-force-acquisition-chief-on-tanker-plans-and-negotiations-with-boeing/

    Reply

    • Quite a word salad from Mr. Hunter. Have the things expressed
      here not been mentioned to him before ?

      Expect no change! as the $$ keep flowing the Right Way..
      “Readiness” is a chimeric hoot.

      Reply

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