Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Better transparency needed on Boeing’s 1Q earnings call April 22, 2024
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
SPEEA vote tally today, results expected late tonight
The contract offer vote count begins today at SPEEA headquarters at 5pm, with results anticipated by around 10 or 11 pm PDT.
The offer by Boeing is considered by the SPEEA leadership to be so bad that it was sent directly to the members for a vote rather than engaging in bargaining after Boeing laid the offer on the table.
Boeing calls the offer industry-leading but which reduces health care and pension costs.
A rejection by a wide margin is expected, but a vote on authorizing a strike is not on the table at this time. Once the contract is rejected, SPEEA and Boeing are expected to go to the bargaining table and negotiate a second contract offer.
787-10 decision anticipated very soon, perhaps within days
Boeing’s Board is expected to be asked very soon, perhaps at its meeting in October, to grant Authority to Offer the 787-10 to customers, according to two sources.
A Boeing spokeswoman said that ATO for the 787-10 is expected to occur before the ATO for the 777X, since the -10 is a more straight-forward project than the X, but could not confirm the October timeline.
The straight-forward stretch of the 787-9 will have less range (about 6,900nm) than either the -8 or -9 models, which comfortably top 8,000 nm but it is expected to carry around 323 passengers, putting it squarely in the class of the 777-200ER and the A350-900.
At 6,900nm, the airplane will cover most missions required by airlines. By foregoing a new wing and added fuel tankage, the operating weight of the airplane is expected to be roughly equal to the 787-9. A slightly higher-thrust engine will be required. Rolls-Royce announced a higher thrust version of the Trent 1000 now powering the 787 at the Farnborough Air Show, and insiders said this engine is specifically intended for the 787-10.
The 787-10 is billed by Boeing as the airplane that will “kill” the Airbus A330-300, but the 787 was also billed as the airplane that would kill the A330-200. The delays in the 787 program have given Airbus time to enhance the A330 family and the rival announced gross weight, range and engine Performance Improvement Packages to the 300 (and which are anticipated for the 200) at the Farnborough Air Show.
Airbus is also selling the A330 family at discounts to the 787 family today and this will continue in the future. The lower capital costs, Airbus believes, allows the A330 to remain competitive. Airbus COO-Customers John Leahy told us that Airbus expects to sell the A330 beyond 2020.
The 787-10 would replace the 777-200ER, which has largely been killed by the A350-900.
Debate over the 777X: still studying how far to take improvements
The quest to upgrade the Boeing 777 line, with particular focus on the 777-300ER, is heating up.
The Wall Street Journal has this detailed story. We found it on Google News, so it should be available to all readers but it may turn out to be a subscriber-only story.
Jon Ostrower’s WSJ piece indeed details similar information that we have been told. Flight Global has this story in which Steve Udvar-Hazy, CEO of Air Lease Corp., says Boeing is “gun-shy” about the new program because of the problems with the 787.
There’s more to it than that.
Here’s what we can add from a well-placed source familiar with Boeing’s recent thinking and events.
- Recent customer meetings indicated that the proposed 777-8X isn’t particularly well received. The concept as currently envisioned is actually slightly smaller than the current 777-300ER: 350 passengers vs 365 in three class. Customers are much more favorably inclined toward the 777-9X, envisioned at 407 passengers three class, more than 50 passengers larger than the Airbus A350-1000. The extra capacity goes a long way toward the economics, which according to sources, is targeted for the 9X to be 21% better fuel burn and 15% better operating costs, per seat.
- As a result of such cool reception toward the 777-8X, according to our source familiar with the thinking, Boeing is pondering covering the low end of the 777 class with the 787-10 and proceeding only with the 777-9X.
- The 777-9X would go a long way toward killing the already anemic sales of the 747-8I, even though in three classes Boeing advertises this capacity at 465 passengers. Boeing, however, notes that “Our product strategy focuses on a full array of products with seat count capacity in 15-20 percent increments to provide customers maximum flexibility to adjust capacity. The 747-8 is 15-20% larger than the 777X studies and serves those markets requiring more seating capacity.”
- Plans articulated by Jim Albuagh, former CEO of Boeing Commercial Airplanes, to seek Board approval for Authority to Offer (ATO) the X for sale by the end of this year has slipped to the end of 2013 or even early 2014, our source tells us. EIS is still contemplated for 2019. BCA’s new CEO, Ray Conner issued a note to employees following a Seattle Times story which said the program has slowed that it has not. Further, we are told by Boeing in response to this post that the anticipated timeline to seek Board ATO remains late this year or early next, but not as late as the end of 2013. Nonetheless, we did hear the later timeline from a well-placed source.
- Boeing still wants to see what the final design of the A350-1000 becomes. With EIS for this delayed to 2017 (if not longer), there is no rush to make immediate decisions for the X.
- The WSJ article suggests Boeing may elect to stick with metal wings instead of the more expensive and challenging composite solution. We understand that the composite wing remain the favorite but studies retaining the metal wing continue.
We need to emphasize that what may be true today may change tomorrow. The point is that the development of the 777X is fluid. With an extended timeline for the A350-1000, Boeing is in no hurry to make an early decision. The factors reported by the Wall Street Journal and FlightGlobal also are important.
Boeing continues to study whether to proceed with a major makeover of the aircraft–the 777X–or a less dramatic 777+ set of enhancements.
“Just like all other airplane development efforts, it’s an iterative process. We let the data from our studies and the input from our customers drive the best airplane design as we continue our work on this airplane that would enter the market later this decade,” Boeing tells us.
“As we’ve said for the last several months, when we are satisfied with the risks, costs and schedule, we intend to present a plan for offering the airplane to customers that would enter the market late this decade. Teams continue to study the many elements of a complex development process, and we continue to work with customers on their requirements. We are committed to this segment of the market and when we are confident in a plan we can deliver to our customers, we would formally launch the program following additional development work.”
Although Tim Clarke, president of Emirates Airlines, has been vocal in pushing Boeing toward the X model with range that will provide unrestricted non-stop service from Dubai to Los Anglese, this capability is needed for only about 5% of the world’s routes. Boeing (and Airbus) have been open in their reticence to build an airplane for only 5% of the market, considering the return on investment not worth the cost, the weight penalties or engine requirements for so few customers. It remains to be seen, however, what the outcome of the process will be.
New battle emerging in Asia
Our AirInsight affiliate has published a short report in its e-newsletter (subscription only) about a new battle emerging among LCCs in Asia.
An excerpt:
A new head-to-head battle appears to be shaping up in Asia.
Indonesia’s LionAir announced plans to create a new LCC, Malindo, which will be based in Malaysia and take on AirAsia.
AirAsia previously announced plans to acquire Indonesia’s Batavia Air—a deal that’s under regulator review and which may or may not consummate—in a bid to further penetrate the Indonesian market against LionAir.
AirAsia and LionAir are the two behemoths in the region, excluding flag carriers. AirAsia operates 100 Airbus A320s and has 272 more on order. It is poised to place an order for up to 100 more any day now. AirAsia was a launch customer for the A320neo and has been urging Airbus to proceed with a re-engining of the A330 to produce an A330neo—a move Airbus has so far resisted.
LionAir operates about 70 Boeing 737NGs and has an astounding 337 on order. It is the launch customer for the 737-9 MAX and was the first customer to sign a firm contract for the airplane. LionAir is poised to order 100 Airbus A320/A321 neos, presumably for the new venture.
ISTAT Europe: a tough review by Aeroturbopower, and our thoughts
ISTAT Europe: Aeroturbopower has this recap of last week’s ISTAT Europe conference and he takes a devastating hit at the Boeing presentation. We weren’t at the event this year but we’ve seen plenty of Boeing presentations and agree with Aeroturbopower’s assessment that Boeing takes liberties…something we’ve written about and something we’ve also expressed to Boeing directly. Comparing apples to oranges seems to be a common tactic.
But in fairness, Airbus also selectively chooses numbers that boost its case. We dissected one such instance in this column on AirInsight. Both companies play around with the seating configuration of their airplanes and the opposition to come up with numbers for seat-mile costs. We’ve seen Boeing compare ranges of the 737 NG and MAX vs the A320ceo/neo families by including the auxiliary fuel tank for the 737 but not for the A320, completely distorting the comparisons. Boeing relies on DOT Form 41 data and a study from 2006-2009 in Europe when comparing maintenance costs of the two families to argue the 737 costs up to 27% less to maintain. The figure, on its face, defies logic. If the A320 cost this much more to maintain, airlines would be hard-pressed to buy it. But more to the point, the methodology for the DOT Form 41 data is thoroughly discredited as a reliable source of information. Relying on a study that uses data up to six years old is also questionable.
All these manipulations of data is why we view numbers from both companies with a high degree of skepticism. In this column, we discuss this at the very end.
Manipulation of data like this harms the credibility of both companies.
As for Aeroturbopower’s report on the 737 MAX design not being frozen, this is true and it’s not news. Boeing said it won’t be until next year and this is what we are also hearing from customers. We’re hearing from a variety of sources that there are still challenges in achieving the advertised 13% fuel burn improvement over today’s 737 NG. We believe Boeing and CFM will get there, but it remains tough. We would not be surprised to see the 69.4 inch fan diameter increase yet again.
WTO Compliance?
The Washington Post reports that the US has complied with the WTO ruling on Boeing illegal subsidies. Boeing didn’t announce whether it has repaid the illegal subsidies, as it pledged to do if it was found guilty of receiving them.
Odds and Ends: Boeing responds to SPEEA; Enders’ mystery injury revealed; AirAsia
Boeing v SPEEA, con’t: As ballots are mailed by SPEEA to its members to vote on the Boeing contract offer, Boeing issued this response to SPEEA executive claims about the offer.
Enders’ mystery injury: EADS CEO Tom Enders was supposed to accompany the German chancellor to China on a recent trip but had to cancel due to an undisclosed injury. This Bloomberg article reveals what happened in a profile of his efforts to get the French and German governments out of EADS.
AirAsia: Long-written about plans to buy 100 Airbus A320s are headed to the board for approval, according to this article.
Odds and Ends: FT on BAE-EADS; Boeing-SPEEA dispute getting ugly; Arik Air
BAE-EADS: The Financial Times of London has this analysis, from the British perspective, of the proposed merger between BAE Systems and EADS. Bloomberg News has this analytical piece. And when the merger was announced, Boeing CEO Jim McNerney didn’t have objections. Now he says the merger needs scrutiny. Seems to us he woke up to the long-term potential impact of a strengthened EADS in future competitions for US DOD contracts, including the next round of tankers–the KC-Y. Here is a report of McNerney’s original reaction.
Boeing-SPEEA: The contract dispute between Boeing and SPEEA is getting uglier by the day. SPEEA has outright accused Boeing of lying over terms and/or negotiating tactics. If you follow SPEEA on Twitter, you can see the vitriol increasing almost by the hour.
Boeing, for its part, spent the summer confining discussions to only one topic at a time, rejecting SPEEA contract offers, then dropped a full offer on SPEEA only a couple of weeks before a contract vote was to commence–then expressed bewilderment at SPEEA negotiators sending the contract for a vote with a “no” recommendation. We see some parallels in Boeing’s approach to those it followed with the disastrous 2008 IAM 751 negotiations. We think the contract will be rejected by a comfortable margin.
Nigeria’s Arik Air: The airline ceased domestic operations. The airline has eight Boeing 737s, two 747-8Is and seven 787s on order.
SPEEA-Boeing dispute appears headed for work slowdown
SPEEA union members are quietly gearing up for a “work-to-the-rules” approach that could amount to a work slowdown as voting begins on a contract offer by the company.
SPEEA’s negotiating team recommends a “no” vote on the contract.
“Work-to-the-rules” is a common labor tactic when union members want to make a point to the company before resorting to the draconian step of a strike. The tactic is common in the airline industry.
Labor contracts and corporate policies usually lay out precise work rules and methods of doing tasks. In practice, however, labor often finds more efficient procedures and short-cuts that may not follow the letter of the contract or policy. Tossing these overboard and working to the rules usually winds up slowing productivity.
In this case, it’s unclear how widespread the action may be–it could only be pockets of workers at this point but it certainly could spread throughout the workforce if negotiations continue to be difficult.
Update, 430 PM PDT: Boeing issued this statement to SPEEA members:
Boeing’s response to SPEEA contract vote
As you know, last week Boeing passed its initial contract proposal to the SPEEA negotiating team. In an unprecedented departure from the normal negotiating process, the SPEEA negotiating team, without any discussion or clarification, elected to put the proposal directly to a vote by its members.
Our proposal provides both market-leading retirement and medical benefits, and competitive wage increases all four years of the contract. However, the SPEEA negotiating committee’s decision to abandon the negotiation process has denied us the opportunity to come to a mutual understanding about our proposal.
There should be no question about the respect we have for our engineering and technical workforce. We’ve made proposals supported by facts and data relevant to our employees and our business. We have respected the role of the SPEEA negotiating team and have taken the process seriously. We’re all on the same team designing, developing and producing airplanes, and it appears to us that some have repeatedly tried to provoke an emotional response by creating a perception of mistrust and disrespect. That couldn’t be further from the truth.
SPEEA’s proposal summary misrepresents components of our proposal and we sincerely hope this reflects a misunderstanding or a miscommunication rather than a deliberate distortion. We expressed our willingness to meet throughout this week with SPEEA’s negotiating team in order to hear the union’s response, answer questions and discuss any counterproposals – especially since we have time left before contract expiration. The SPEEA negotiations team, for their own reasons, made a decision to cease negotiations and use this unconventional approach.
We will continue to share and clarify with you details of our proposal in the days ahead in order to clear up any confusion created by the absence of meaningful discussion. We will send updates and also encourage you to visit the Boeing negotiations website regularly to check for updates and clarification about our proposal.
Julie-Ellen Acosta, vice president, Human Resources, Commercial Airplanes
Conrad Ball, Functional Engineering director, Boeing Military Aircraft
Mark Burgess, chief engineer, Engineering, Operations & Technology
Mike Delaney, vice president, Engineering, Commercial Airplanes
Gene Woloshyn, vice president, Employee Relations, Boeing
Todd Zarfos, vice president, Engineering – Commercial Aviation Services, senior chief engineer of Support
SPEEA issued this press release:
SPEEA wants to protect members on military leave from Boeing cuts |
SEATTLE – At a time when the United States is engaged in the longest running conflict in its history, The Boeing Company wants to eliminate the ability of engineers and technical workers on military leave to buy important disability and life insurance coverage at the company’s discounted rates.
The action is tucked inside Boeing’s contract offers to 23,000 engineers and technical workers represented by the Society of Professional Engineering Employees in Aerospace (SPEEA), IFPTE Local 2001. SPEEA’s Professional and Technical Unit Negotiation Teams, along with their governing bargaining unit councils recommend members reject the offers. Ballots go out later this week. Contracts expire Oct. 6.
“This is a cut that is offensive beyond measure,” said Ray Goforth, SPEEA executive director. “Allowing military personnel to buy insurance at discount rates costs Boeing nothing. As a union, we cannot allow these cuts to stand.”
Boeing made no mention during negotiations of benefits for employees on Military Leave of Absence. The company’s offer deletes an entire document that covers a wide variety of medical, insurance and other benefits. Boeing wants to use Summary Plan Descriptions (SPD) to address the benefits and items. After close examination, SPEEA discovered the SPDs remove the ability for individuals on military leave to buy and/or extend their Boeing long-term disability or basic life insurance after three months. Technically outside the legally binding contract, SPDs can be changed at any time by the company without informing the union.
“Eliminating the ability of our war fighters to buy these products is just one more example of the gratuitous take-a-ways Boeing has put in these contract offers,” Goforth said. “I am shocked by the degree of corporate arrogance that prompts Boeing to start cutting the benefits of individuals serving our country.”
At a time when the company is soaring with record profits, Goforth said corporate leaders are engaging in a wholesale grab of everything they can get from engineers and technical workers.
The union vote is a straight “Reject” or “Accept” of the Boeing contract offers. Union officials said a strong rejection should make it clear to Boeing that it must stop attacking engineers and technical workers and return to negotiations ready to negotiate.
While the majority of covered employees are in the Puget Sound region of Washington state, these SPEEA Professional and Technical contracts also cover employees in Oregon, Utah and California.
A local of the International Federation of Professional and Technical Engineers (IFPTE), SPEEA represents 26,560 aerospace professionals at Boeing, Spirit AeroSystems in Wichita, Kansas, and Triumph Composite Systems, Inc. in Spokane, Wash.