Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Slow production ramp up, international sanctions slow C919 progress September 9, 2024
- Boeing, IAM reach tentative agreement on new contract September 8, 2024
- Bjorn’s Corner: New engine development. Part 23. Development risks. September 6, 2024
- If a strike occurs, here’s what Boeing can do September 5, 2024
- China banks on C919, but numbers say it still needs Boeing September 2, 2024
Boeing, IAM reach tentative agreement on new contract
By Scott Hamilton
- IAM 751 and Boeing reach a four year contract agreement. The IAM summary is here.
- Additional contract news from the IAM is here.
- The Boeing fact sheet is here: Boeing fact sheet IAM 751 W24 TA highlights-090824a
Boeing CEO Kelly Ortberg. Photo source: Boeing. The new contract agreement between Boeing and the IAM 751 avoids a strike and potentially marks a new era of labor relations between the two.
Sept. 8, 2024, © Leeham News: In a development that is contrary to all expectations, The Boeing Co. and the IAM 751 labor union reached a tentative agreement this morning on a new four-year contract.
IAM members, who assemble Boeing’s airplanes in the great Seattle area, get a 25% raise over the life of the contract; the union asked for 40%. The value goes up to 33% in “wage growth” when the wage increases, and “progression” are calculated. Certain pay grades did get a 42.3% increase, the IAM said.
There is a lump sum payment of $3,000 and Boeing’s 401(k) contribution increases up to $4,160 per employee per year. The union asked for a return to a defined benefit plan, which was probably a non-starter. Lower costs for medical care were agreed.
Boeing committed to build the next new airplane in the Seattle area. A Boeing spokesperson did not have details whether this would be in Renton, where 737s are built, or Everett, where widebody aircraft are currently assembled. Boeing also committed to keep the current 737, 767 and 777X production in Puget Sound.
The union also wanted a seat on the Boeing Board of Directors. Neither side referred to the seat in their information released today, so it appears this may not have been agreed. The Boeing spokesperson had no information on this and the IAM wasn’t immediately available to comment.
The IAM leadership unanimously recommends approval of the contract. The vote is set for this Thursday.
If a strike occurs, here’s what Boeing can do
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- Contingency plan for 4-12 week strike.
By the Leeham News Team
Analysis
Sept. 5, 2024, © Leeham News: There seems to be quite an expectation that there will be a strike by Boeing’s touch labor union, the IAM walkout at Boeing this contract cycle. The costs associated with a strike are well understood. Crippled cash flow, upset customers, and stock price losses not counting the damage to the companies in Puget Sound that built much of their business models on Boeing worker’s paychecks. It’s never a good thing to sustain a strike of any duration because the disruptive effects can last for years.
The last time the IAM struck was in 2008, for 57 days. The strike cost Boeing billions of dollars in lost revenue, much of which was made up in the following years. The ill-will generated by the strike affected customers. Management-labor relations remain strained to this day. Union leadership is determined to recover previous givebacks in wages and benefits. They want a seat on the Board of Directors, a role in improving Boeing’s safety culture, and a guarantee that the next airplane will be assembled in Puget Sound.
Talks remain far apart, according to the union. Boeing says progress is being made. A strike seems likely at this stage.
Boeing is clear about a strike potential. In a message last week to employees, Boeing said:
Does Boeing want a strike so it can stabilize production or allow time for the supply chain to recover?
Absolutely not. Any work stoppage, whether days, weeks or months, would disrupt our production system, supply chain and most importantly, our customers. When Boeing cannot deliver airplanes as scheduled, customers question our reliability. A strike would only help the competition and hurt our suppliers.
What is Boeing supposed to do if the IAM walks out? The usual answer is sweeping and cleaning and trying to deliver whatever you can sneak out the door to keep the money coming in. It is never a very effective way to operate.
Here are some points to ponder if the strike occurs and Boeing production shuts down.
China banks on C919, but numbers say it still needs Boeing
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By Scott Hamilton
Sept. 2, 2024, © Leeham News: Airbus and Boeing see China doubling its airliner fleet over the next 20 years. The numbers vary between the two companies. But the underlying data points to how challenging it will be for China to meet this demand without letting Boeing back into the mix.
Boeing has largely been frozen out of China since 2017 when then-President Donald Trump initiated a trade war with one of the world’s largest economies. Then, Boeing’s self-inflicted wounds came in the form of the 21-month grounding of the 737 MAX, a 20-month suspension of deliveries of the 787, and major, slow rework required for each model.
On top of this, after Russia invaded Ukraine, the Biden Administration—which kept Trump’s tariffs upon taking office in 2021—ramped up the pressure on China, which initially covertly supported Russia’s war on Ukraine. This support became more open as the war dragged on.
Few Boeing airplanes have been delivered to China since 2017 and fewer orders have been placed.
Boeing predicts that China will need 6,720 single-aisle aircraft through 2043. Airbus sees a need for 7,950 single aisles for the same period. On the widebody side, Boeing forecasts a requirement for 1,575 aircraft; Airbus forecasts a need for 1,380. Widebody freighter forecasts for China are 170 and 190 by Boeing and Airbus, respectively.
Let’s compare these numbers with production rates. China still needs Boeing.
Using stock could be one option for IAM salary demands
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By The Leeham News Team
Aug. 26, 2024, © Leeham News: Boeing’s in contract negotiations with its touch labor union, the International Association of Machinists District 751 (IAM 751). The powerful union wants a 40% raise over the life of a four-year contract. Leadership wants to recover medical co-pays and reinstate a defined pension plan, given up in previous contracts.
The union also wants a guarantee that the Next Boeing Airplane (NBA) will be built in the Seattle area. Boeing’s executives used the threats of relocating 737 MAX and 777X assembly elsewhere to wring economic concessions out of 751 members in previous contract talks.
The contract expires on September 12. The union membership already has voted to authorize a strike on September 12 if the contract offer is voted down.
This time, the membership believes it is in a stronger bargaining position. Boeing’s weak financial position is viewed as playing right into labor’s strength. Jon Holden, president of the union, echoed those sentiments. “We understand our power. We are ready to use it,” Holden told The Seattle Times. Holden was also not going to let management off the hook, due to the poor financial position Boeing finds itself in, he told the newspaper. “It’s not about whether they can afford to pay us. That’s not even a question,” he added. “They can.”
But the ultimate question is, How can Boeing afford to pay what the union wants?
Here’s how.
The Military Gravy Train. Not for everyone.
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By the Leeham News Team
Aug. 22, 2024, © Leeham News: Lockheed Martin (LM). RTX. Northrop Grumman (NG), General Dynamics (GD). BAE Systems (BAE). These are the world’s largest defense contractors, by revenue.
| 2023 | 2022 | 2021 | |||||
| Sales | Earnings | Sales | Earnings | Sales | Earnings | ||
| Lockheed Martin | $67,571 | 6,920 | 65,984 | 5,732 | 67,044 | 6,315 | |
| RTX | $68,920 | 3,195 | 67,074 | 5,5216 | 64,388 | 3,897 | |
| Northrop Grumman | $39,290 | 2,056 | 36,602 | 4,896 | 35,667 | 7,005 | |
| General Dynamics | $42,272 | 3,315 | 39,407 | 3,390 | 38,469 | 3,257 | |
| BAE Systems (in £) | £25,284 | 2,682 | 23,256 | 2,479 | 21,310 | 2,205 | |
| (in millions) |
Source: 2023 Financial reports. BAE reporting in EBIT.
Five corporations. Three years. Fifteen sets of data points. Not a drop of red ink to be seen. Airbus and Boeing can’t say the same thing.
The all-important Unit Cost
- Part II of the Boeing Liabilities Problem
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By the Leeham News Team
Aug. 15, 2024, © Leeham News: Chief Financial Officer Brian West recently cautioned Boeing (BA) analysts and investors about the cash burn on the Q2/2024 earnings call;
“I’m just not smart enough right at this moment to say whether it’s $5bn or $10bn,”
BA used $4.3bn in the second quarter, which followed a burn-off of $3.9bn in the first quarter. The company shored up its cash position by borrowing $10bn during Q2/2024, injecting much-needed funds to cover losses. Eventually, all that money must be repaid.
LNA continues to analyze just how short Boeing is from that point and where it needs to be to make that happen.
Supply chain may be stabilising — but risks remain, says Accenture’s aerospace lead
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By the Leeham News Team
August 12, 2024, © Leeham News at Farnborough: After a period of intense disruption, the aerospace supply chain is showing signs of stabilisation, partly due to Boeing’s recent production slowdown, according to Accenture’s global aerospace and defense lead, John Schmidt.
Titanium is now a scarce material given the sanctions against Russia. All Airbus and Boeing airplanes use the material. Photo Credit: Leeham News.
The reduction in output has eased some pressure on suppliers, allowing them to catch up on backlogs and recalibrate operations. However, Schmidt warned this respite may be short-lived as new challenges loom on the horizon.
Geopolitical tension involving Western nations and Russia, and the Asia-Pacific region, risks raw material shortages that may disrupt the delicate balance once more.
“The supply chain has evolved and changed in terms of where the focus is since COVID,” noted Schmidt in a sit-down interview with LNA at the Farnborough Airshow in July. “It wasn’t too long ago that we couldn’t get chips – chips were holding things back. It seems like we’ve gotten ahead of that, and now we’re dealing with trying to find other sources of supply, and sometimes it’s an issue with quality coming in.”
“What’s next is going to be sources of supply for things like titanium? There is enough in the supply chain already that has insulated the impact, but we’re starting to see early indications that [titanium] might be the next thing that comes up.” Read more
Airbus a sideshow in Boeing-Spirit deal, but intertwined
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By the Leeham News Team
Aug. 9, 2024, © Leeham News: The financial results for the first half of 2024 are in for the corporations of the aviation industry and it has been a mixed bag for many. Notably, Tier 1 supplier Spirit Aerosystems (SA) faces increasing cash flow pressure, despite reporting a 9% increase in revenues.
President and Chief Executive Officer Pat Shanahan was supportive of employees. “This has been a dynamic and eventful period for the company, and I want to extend my gratitude to each employee for their dedication and hard work.”
Profitability, Free Cash Flow (FCF) and Cash on hand were driven down by a joint product verification process on the 737 MAX shipsets, to ensure conformity of fuselages prior to transportation to Boeing’s (BA) final assembly site in Renton (WA). During the second quarter, a paltry 27 units were shipped to BA, averaging nine a month. Quarterly and half year deliveries were either relatively flat or down, over 2023.
Source: Spirit Aerosystems 1H2024 Results
Meanwhile, deliveries to Airbus (AB) were up across the board, with the exception of the A330 program, which dipped slightly for the first half. Year-over-year, SA shipped 37 more shipsets during the second quarter and 52 more over the half-year to Airbus.
While Boeing has faced increased scrutiny from regulators, which has trickled down to SA, why does Spirit seem able to produce components for Airbus that pass inspection and enter into the AB supply chain, in increasing numbers?
Calhoun’s biggest failure at Boeing: fixing safety
By Scott Hamilton
Commentary
David Calhoun
Aug. 8, 2024, © Leeham News: Kelly Ortberg becomes president and chief executive officer of The Boeing Co. today. He replaces David Calhoun, who was named to the position in January 2020. Calhoun replaced Dennis Muilenburg, with a charge to save Boeing from the first 737 MAX crisis and extended grounding; and fix, among other things, the safety culture failures that led to the 21-month grounding of Boeing’s cash cow.
Ortberg has a long list of things to fix, including but not limited to:
- The union contract with the IAM 751, in negotiations now; the contract expires in September
- Fixing Boeing’s safety culture
- Quality control at all the BCA and BDS factories
- Stemming losses at BDS
- Getting BCA production back up to normal rates (50+ for the 737, 10-12 for the 787)
- Getting the MAX 7, MAX 10, and 777X certified
- Regaining the confidence of the FAA, EASA, and other regulators; getting authority to oversee its operations and ticket airplanes back from the FAA
- Repairing the balance sheet
- Integrating Spirit AeroSystems into Boeing
- Returning BCA to profitability
- Launching a new airplane to replace the 737
- Regaining global market share closer to parity with Airbus
- Repair relations with the supply chain
- Negotiate a new contract with the engineers union, SPEEA, in 2026
- Repair relations with the airlines and lessors
- Repair relations with the IAM 751 and SPEEA unions
Ortberg’s long list of things to do reflects a failure of leadership by Calhoun.
Trouble with the Boeing backlog?
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By the Leeham News Team
Aug. 8, 2024, © Leeham News: On July 31, 2024, Boeing (BA) released the financial results of the second quarter, in what was widely expected to be a dismal reporting period. The company had been facing pressures from all sides of the spectrum, including certification, production, supply chain and financial, to mention a few.
The third quarter now brings fresh challenges as BA will have to deal with an increasingly militant union membership (and contract negotiations), who want to claw back concessions previously granted to the company.
Indeed, the 2Q2024 results were less than stellar, with an ever-increasing cash burn and a decreasing amount of commercial aircraft delivered. The silver lining to the very dark cloud which hung over the release, was news that the embattled reign of CEO Dave Calhoun was coming to an end, and newly minted Kelly Ortberg of Rockwell Collins fame, would replace him on August 8.
Lost in the eruption of euphoria which saw Boeing shares rise 2% on the day, despite losses that surpassed the previous quarters figures, was news that all was not well with the Boeing Commercial Aircraft (BCA) backlog.
Typically, when previous results were poor, optimists pointed to the duopoly Boeing shares with Airbus and the multi-billion-dollar backlog of orders it holds. “Airbus production is maxed out, so what are airlines going to do for new aircraft?”, was the common refrain.