Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Embraer downplays tariff impact on 2025 results May 6, 2025
- JetZero readies effort for private equity fund raising May 5, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 20. May 2, 2025
- Supplier Howmet exceeds expectations despite tariffs May 1, 2025
- Airbus 1Q2025 results: So far, so good, but US tariffs make future results unpredictable May 1, 2025
The Elusive McNerney:some historical perspective
The Wall Street Journal has a long profile on the elusive Jim McNerney, CEO of The Boeing Co., and his role in the 787 crisis. (Subscription required.) The story is detailed. For those of us who follow Boeing like the US follows the Kremlin, McNerney’s elusiveness is nothing new. When McNerney was named CEO, we researched him and found that (according to reports at the time) one reason he got passed over by Jack Welch as CEO of GE was that McNerney didn’t like to do press interviews and he didn’t like to schmooze investors. According to profiles when he was CEO of 3M, he didn’t like to do earnings calls, either. This is pretty clear as we listen to Boeing earnings calls, on which he is scripted, halting, clearly uncomfortable and gives the impress he can’t wait to get off. Reports and our own impressions suggest that if he had his druthers, he’d just stick around the office and let others do the public stuff.
So it doesn’t surprise us that McNerney has been ghostly throughout the 787 crisis. Boeing said it’s restricted as to what it can say during the investigation, but we checked with others and are told Boeing can talk about whatever was said about the airplane prior to the investigation and that restrictions come into play about what happened after the investigation started.
We know from our own conversations that Boeing is worried about the brand of the company and the airplane. The launch of the 787 information update site and the long WSJ article make it clear that Boeing is now trying to protect the brand.
As for McNerney’s ghostly presence to investors and media, aside from his natural tendency to avoid them, we believe Boeing’s legal team is taking a conservative approach to what it can and can’t say. We conclude this not based on anything we know in connection to the 787 crisis, but based on what we know Legal’s approach is to pretty much any public statement on sensitive issues. Media often complains about the timeliness and brevity of responses from Corporate Communications (and general uselessness in many cases). We know that in some of these instances, Legal had to vet the responses and they’ve been watered down into meaningless pap. Based on this long history, we think Legal has a lot to say about what the company can and can’t say–or will or won’t say. We know Corp Com would like to do more.
Boeing hopes for March or April return for 787; we think this is challenging
Update: Aviation Week’s Guy Norris has this detailed article in which the third week of March is identified as a target date for the 787 to re-enter service.
Original Post:
Boeing hopes to return the grounded 787 to the skies in March, according to customer briefings, or April, according to news reports, following a planned briefing to the Federal Aviation Administration tomorrow.
See The Wall Street Journal (subscription required) and The Seattle Times for details of the FAA briefing and Boeing’s planned program for a permanent fix. These articles suggest an April return to revenue service. The New York Times has this report. Reuters has this report.
A customer we talked with who has been briefed by Boeing said the target date is next month, which squares with another customer briefing we previously reported.
Either date sounds aggressive. The FAA has to review the proposals and satisfy itself that the approaches proposed by Boeing are safe to precede a redesign of the battery. Having been proved wrong once before, we think the FAA isn’t going to rush to judgment this time and (in any event) being the government, nothing moves quickly.
Then there is Sequestration, due to take effect March 1. The FAA’s track record on approving changes proposed by supply chains on unrelated matters that require Supplemental Type Certificates is already excruciatingly slow. Layoffs following Sequestration are expected to hit the FAA’s research and development and will this affect Boeing?
Also an unknown is the investigation into the 787 JAL fire by the National Transportation Safety Board. The NTSB’s preliminary findings are expected in the first half of March. Will the FAA want to wait for this before moving? Furthermore, the NTSB has already criticized the FAA certification of the battery and related systems in its press briefings and is examining the certification process as part of its investigation. The tension between the FAA and NTSB is long-standing. Will the FAA take more time because it’s one of the targets of the investigation?
Having initially declaring the 787 safe, only to ground the aircraft within days, Transportation Secretary Ray LaHood said the plane won’t be returned to service until the FAA (which is part of Transportation) is “1,000%” sure the airplane is safe. It’s a ridiculous statement, but has LaHood painted the FAA into a corner that will delay a decision about Boeing’s proposals?
Finally, having issued Special Conditions in approving the battery in the first place, will the FAA want more Special Conditions for the fix and the battery redesign?
Any and all of this will take time. There certainly is a recognition on the part of the FAA about the economic impact to the airlines from the grounding.
We don’t think this will move quickly. March-we don’t think so. April-maybe, but challenging.
SPEEA contract vote results in: Split decision
Update, Feb 20: SPEEA issued corrected vote totals; see below.
If negotiations fail to reach a contract for the Technical unit and they were to strike, the Professional unit cannot strike but neither can they replaced the Techies. SPEEA says production would come to a halt in the event of a strike.
Original Post:
Here are the results:
18,043 votes cast.
Professional Group
Accept: 5,691 6,483
Reject: 4,810 5,514
Do Authorize Strike: 3,316 6,727
Do Not Authorize Strike, 2,586 5,249
Technical Group
Accept: 2,801 2,868
Reject: 3,014 3,203
Do Authorize Strike: 3,796 3,903
Do Not Authorize Strike: 2,098 2,165
The Tech group will return to the bargaining table in hopes of reaching a new agreement.
SPEEA-Boeing contract vote count underway-and we are there
It’s Tuesday evening, Feb. 19, and we are at SPEEA headquarters to watch the ballot counting on the contract vote offered by Boeing.
It’s 6:25pm and it’s too soon to spot a trend. However, as we watched the ballots separated from he envelopes were could see a lot of “Accepts” and a lot of “Rejects.” As can be expected, the Accepts do not approve of a strike authorization and those rejecting the contract OK a strike.
Final results aren’t expected until after 9pm. Stay tuned here for updates as well as on Twitter @leehamnews
6:45pm PST: Counting underway, tilt toward Accept at one table.
7:00pm PST: Can see several stations; it’s too close to call a trend.
7:15pm PST: As we scan the room at the counting tables we can see, it looks like this vote will be close. Caveat: we can only see perhaps 25% of the voting stations. Best we can see, it looks like the tilt is toward Accept. This is not at all like the IAM 751 vote in 2008, in which the Reject was obvious and clear early in the evening.
7:20pm PST: SPEEA reminds us there are two employee groups voting tonight, the Professional engineers and the Technical group. One group could Accept and one group could Reject. One could OK a strike, the the might not.
7:25pm PST: In response to Shuper, “Accept” or “Reject” refers to the contract itself. “Do” or “Do Not” Authorize a strike is the other vote. We’re not trying to identify the Do or Do Not because these are basically tracking Accept or Reject. There is no visual on ballots (as there was with the IAM): both questions are on the same ballot (they were separate at the IAM, so a visual card stacking was obvious). The votes are tallied by the old-fashioned five-count hash marks on a sheet of paper. That’s what we are spotting.
8:00pm PST: Kind of quiet. One Professional vote counter says his table is neck-and-neck. A Techie tells us his group tends to be more militant but he doesn’t have a feel for the vote.
8:15pm PST: A bit of a surprise: several vote counting stations appear to be done.
8:30pm PST: Results will be coming “soonish.”
9:00pm PST: SPEEA first told us 20-25 min, now saying 45-60 min.
Twitter: The Herald @EverettHerald
RT @chcktylr: For you engineers, that’s 79.17068889864% of membership. RT @sbhatt: 18,043 ballots cast in #speea vote on #boeing contract
9:15pm PST: While we are killing time here at SPEEA, there is speculation that the FAA may not approve the temporary fix of the 787 (no news there) and this means a full replacement of the battery design might take as long as 18-24 months. We don’t have enough data to give credence to this timeline but–if it were to be this long, the Airbus A350 might enter service before the 787 re-enters service. Think about that.
The results are here.
787 battery diagrams
Boeing Monday (Feb. 18) made available two battery diagrams for the 787 lithium-ion batteries.
Diagram #1
Diagram #2
- The New York Times has a Reuters article revealing the second battery on the ANA 787 had some swelling.
- Boeing was seeking extended ETOPS prior to the incidents, according to this article.
- Bloomberg News has this long article on the prospect of a SPEEA strike vote tonight.
- Where’s Waldo is a famous game. Where are the grounded 787s? See here to find out.
SPEEA vote due tomorrow
As if the Boeing 787 problems weren’t enough of a headache for the company, the second vote by its engineers will be counted tomorrow on a contract offer.
SPEEA members rejected the first contract offer from Boeing in October with a 96% vote. Boeing subsequently agreed to extend the current SPEEA contract provisions except for all issues related to the pension. The headline issue on this section is that Boeing wants to shift from a defined benefit retirement plan to a defined contribution plan. SPEEA says this results in a 40% reduction in benefits; Boeing says it’s less than that but still significant.
Boeing points out that all non-union employees are on a defined contribution plan and new hires for the unions should be, too. Current members would retain the defined benefit plan.
Boeing hopes this split approach will be enough to win approval for the new contract offer.
Also being voted on: whether members will grant SPEEA negotiations authorization to call a strike should the contract be rejected. Executive Director Ray Goforth has already said negotiators would not call an immediate strike, but they will seek a return to the bargaining table.
[Reuters has this article profiling Goforth.]
The hazard is that Boeing could withdraw its “Best and Final Offer” on all the other issues it agreed to and seek to renegotiate the entire contract rather than just the pension issues. Of course, this would incense union members and make a settlement ultimately that much more difficult.
Boeing needs the engineers to resolve the issues surrounding the 787, and to return the plane to service–the number one priority of 2013, says CEO Jim McNerney. The development programs of the 787-10 and 777X can wait (and, according to our information, these have been pushed to the right as a result of the 787 issues). Management’s lead engineer, Mike Delaney, basically said SPEEA members aren’t needed–that Boeing can rely on other engineers to resolve the 787 problems, a statement that went over like the proverbial screen door in a submarine.
In a webcast for SPEEA, Ray Conner, CEO of Boeing Commercial Airplanes, played the patriotic card, according to those who listened to it, by saying a strike would hurt customers and aid Airbus. (Boeing traditionally doesn’t comment on internal employee communications.)
We think the vote will be close, though we don’t know how to define it other than we don’t expect margins to remotely reflect the 96% rejection last October or the 85% rejection by IAM 751 in 2006 (and a similar strike vote). As we’ve talked to people, the sentiment seemed fairly evenly split with a tilt toward rejection and a strike vote.
Unlike IAM 751, which needs a two-thirds vote to strike, SPEEA needs only 50% plus one.
Votes will be counted tomorrow, Feb. 19; results will be known tomorrow night.
Odds and Ends: 787 likely grounded to May; More Batteries; Boeing’s 10K
787 Battery short-term fix: The Seattle Times has this story which recounts Boeing’s effort to design a short-term fix to get the 787 fleet flying again. The scenario outlined in the article suggests the 787 will be grounded at least until May. The story also paints a picture that if the grounding lasts nine months, production would have to slow and financial impacts will start to hurt Boeing.
More on Batteries:
The A350: Reuters has this story on Airbus’ switch from lithium-ion to current technology batteries.
The New York Times has this story about the different directions Airbus and Boeing are taking.
The Puget Sound Business Journal has a good story about the evolving technology of lithium ion batteries and even though the 787 is currently the world’s most advanced airplane, battery technology has advanced beyond the 787. PSBJ787Batteries
On Other Stuff
Boeing issued its annual 10K report on February 11. We were already engaged in the PNAA conference Feb. 12-14 and didn’t have a chance to read it until after the conference. The following excepts are from the 10K.
747 Program: The accounting quantity for the 747 program increased by 25 units in 2012, reflecting the normal process of estimating planned production under existing and anticipated contracts. We continue to incorporate changes identified during flight testing into previously completed airplanes. First delivery of the 747-8 Intercontinental occurred in February 2012.
The production rate increased from 1.5 to 2 airplanes per month in May 2012. Ongoing weakness in the air cargo market and lower-than-expected demand for large commercial passenger aircraft have resulted in pricing pressures and fewer orders than anticipated in 2012. We have a number of unsold Freighter and Intercontinental production positions beyond 2013. If we are unable to obtain orders for multiple Freighter aircraft in 2013 consistent with our near-term production plans, we may be required to take actions including reducing the number of airplanes produced and/or building airplanes for which we have not received firm orders. We also remain focused on reducing out-of-sequence work, improving supply chain efficiency and implementing cost-reduction efforts. If market and production risks cannot be mitigated, the program could face an additional reach-forward loss that may be material.
[787 Information]
[787 test airplanes]: During the fourth quarter of 2012 we finalized an order for one of the three remaining flight test aircraft. We continue to believe that the other two 787 flight-test aircraft are commercially saleable and we continue to include costs related to those airplanes in program inventory at December 31, 2012. If we determine that either of the remaining aircraft cannot be sold, we may incur additional charges.
[787 grounding]: We are unable to reasonably estimate a loss or a range of loss at this time because such estimates are dependent on the ultimate finding as to cause and the timing and conditions surrounding a resolution and return to flight. Any such resolution could have a material effect on our financial position, results of operations or cash flows.
Airbus drops lithium battery for A350
Airbus, A350 and Lithium battery: Airbus has dropped plans to use the lithium-ion battery in the A350. An Airbus official told us, “We confirm we are opting for nickel cadmium for the A350 main batteries to protect the programme schedule. This decision is about protecting the integrity of our program schedule… (it’s not about any safety concerns about Li-ion batteries, we continue in parallel to mature for the A350. With so much uncertainty raised by the Boeing 787 investigation, we are being prudent in order protect our programme schedule. This is business as usual.”
“As a result of making this decision now, Airbus does not expect it to impact the A350 XWB Entry Into Service schedule,” an Airbus statement added.
Odds and Ends: 787-10/777X; 737NG engine issues; American-US Airways
787-10/777X: Aspire Aviation has this long analysis of the current status of these developmental programs.
737NG Engine Issues: Aviation Week on February 8 had a report of thrust irregularities on the Boeing 737NG. The Seattle Times reported it on line last night and in print today. And then the Seattle media went mad. We’re perplexed. The issue goes back five years, it happened 32 times and not since December when a fix appears to have–fixed it. What’s the big deal?
American-US Airways: The long-awaited merger was announced today and to our great relief, the US Airways management will run the place. American CEO Tom Horton is booted upstairs to non-executive chairman, much as was Glenn Tilton in the United-Continental combination. Unfortunately the AA-US merger keeps the awful tail livery rolled out by Horton a few weeks ago.