Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Airbus 1Q2024 results: Airbus CEO: “A350 in-service experience drives positive reputation and orders” April 25, 2024
- A350-1000 or 777-9? Part 3 April 25, 2024
- Boeing CEO promises company is turning around…again April 24, 2024
- Solid start for stand-alone GE Aerospace despite cuts to LEAP output April 23, 2024
- SPEEA, Boeing at impasse over safety program, union says April 23, 2024
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.
787 production ramp may be faster; softer 2013 orders expected
Credit Suisse and UBS issued notes on Boeing today. Here are excerpts. Key points: production ramp up on the 787 may go faster than expected; Boeing continues to consider a rate higher than 10.mo for the 787; 2013 orders expected to be around 1:1 book-to-bill.
Credit Suisse
Softer 2013 Bookings May be [coming]. We agree with [Boeing] that cancellation concern is likely overdone. However, we think orders will slow…most airlines are already in the book, and we will not see a new product soon enough to spur activity. Although softer bookings are better than cancellations, and may not pressure production or earnings growth, orders have been the key historical share driver. So, although BA has not backed off a ‘13 book:bill target of 1.0x, we are less convinced, unless a number of ‘12 MAX commitments defer to ‘13.
[Boeing] noted that deferral and cancellation rates continue to be at or near historical lows. The leading indicator of trouble are conversations between airlines and Ray Conner (CEO of BCA) and these have not elevated beyond the normal level. Also Boeing commented that it is not seeing a slowdown in demand, if anything it is seeing an increase in demand for accelerated deliveries.
Regarding 2013 book:bill, we believe the most recent formal Boeing projection was made by Jim Albaugh at May’s investor day, targeting 1.0x or slightly better. Since Ray Conner recently assumed control of BCA, he has not changed the target, saying at an investor conference just last week that he expects 2013 bookings to remain near 1.0x.
However, we believe this target is highly sensitive to the timing of MAX commitment conversions, the health of the cargo market as it relates to 747, and 777 demand in the context of timing of the A350 schedule for those carriers interested in both.
One factor that could augment 2013 orders is a timely introduction of a 787-10 or 777X, although we think the former is more likely. Boeing expects more clarity on its widebody plan later in 2012 or early in 2013.
787 Rate – We estimate that most of Boeing’s suppliers are already at 5 shipsets per month, which should enable Boeing to achieve that rate sometime in Q4. Following this we expect Boeing to begin loading at 7 per month and then 10 per month in 6-month intervals.
Regarding 2013 production, while rate plans would indicate 6-months at 5 per month and 6-months at 7 per month, for a total of 72 aircraft produced, we note that a multi-week lag (currently 6-8 weeks but Boeing is attempting to get this down to 4 weeks) in delivery timing means that deliveries of newly produced aircraft will be somewhat lower.
However, some EMC (Everett Modification Center) aircraft will supplement deliveries, which should offset the production-to-delivery lag. Consequently, we now see 74 787s delivering in 2013, give or take, down slightly from our previous estimate of 78 deliveries. Boeing is continuing to evaluate the potential for the rate to exceed 10 per month, with investment as the key decision factor. The company expects to make a decision on a higher rate at the point at which it reaches 10 per month, scheduled for end of 2013.
UBS Securities
Dreamlifter indicating BA could go to 5/mo earlier than expected We believe the large structural suppliers are now in line to ahead of Boeing’s final assembly rate at 3.5/month. We believe our Dreamlifter tracker indicates Boeing’s final assembly rate could move up to 5/month earlier than expected.
SPEEA to members: reject Boeing contract offer
Late Monday, SPEEA, the engineers union, issued this press release urging members to vote down a contract offer from Boeing.
SEATTLE – On Monday, Sept. 17, the SPEEA Professional and Technical Bargaining Unit Councils voted to send Boeing’s September 13 contact offers to members for a vote. The BUCs joined the Professional and Technical negotiation teams in unanimously recommending members VOTE NO.
See the letter to Boeing announcing the vote:
See the letter to the professional membership explaining the vote:
See the letter to the technical membership explaining the vote:
See SPEEA’s summary of the Boeing contract offer:
The union presented its full proposal to Boeing on June 15. Existing contracts expire Oct. 6.
Our take: this is no surprise. The rhetoric has been clear this was going to happen. We expect a No vote, followed by more negotiations.
Odds and Ends: More on EADS-BAE; surviving crashes
EADS-BAE: NOW that a few days have passed since the announcement BAE and EADS want to combine, here’s some more worldwide press:
Reuters: Government demands could make or break deal.
Interactive Investor: Merger will advance EADS military goals.
Mobile Press Register: Merger will advance Gulf Coast aerospace cluster.
London Daily Post: Defence worried about UK security.
International Business Times: US access key to merger.
Surviving crashes: A crash test of a Boeing 727 in Mexico drew snickers from some quarters, but the test concluded it’s safer to sit in the rear of the airplane than in the front. No kidding, and this is not new; this has been known in aviation for decades. But we actually like the response of Ted Baker, the founder and long-time CEO of National Airlines in the US (he sold out around 1961). When asked by a reporter where the safest place to sit in a plane in the event of a crash, the blunt Baker replied, “flat on your ass.” And you didn’t need a crash test to figure this one out.
Shrinking UAV market: Once thought to be one of the bright spots in a shrinking defense budget, Boeing now says the drone market will decline despite moves to increase civilian use.
US Defense sequestration: USAF tanker on hit list
The White House issued a 394 page report on what defense programs are subject to sequestration. The USAF tanker replacement–a program won by Boeing in a bitter contest–is on the hit list (PDF Page 274, document page Appendix B 38). It’s something called the Replacement Transfer Fund, Appropriation Discretionary. Whatever all this means.
BAE Systems is growth opportunity for EADS
Update, Sept. 13: Here are some stories from today:
Bloomberg: EADS move seen by Boeing as growth; Revives decade-old plan; and this update about the rankings:
BAE is the ninth biggest vendor to the U.S. government, with $7.3 billion in direct, or prime, contracts in the year that ended Sept. 30, according to a Bloomberg Government study ranking the top 200 contractors. EADS ranks No. 100, with $684 million in awards.
Reuters: US approval seen likely.
AOL: Big deal in Europe, not so much US.
Mobile (AL) Press-Register: EADS-BAE in merger talks, with a spin on local impact.
Original Post:
The prospective combination of BAE Systems and EADS is a growth opportunity for EADS, particularly in the US, where it has been striving for years to expand its defense footprint.
BAE Systems in 2009 was the Defense Department’s #5 of the Top 10 defense contractors. At that time 50% of BAE’s business was in the US. We have checked more recent figures. EADS North America, during the KC-X tanker competition, did about $1bn worth of business with the US government, in defense, Homeland Security and other contracts. We don’t believe this has appreciably changed in the 18 months since the tanker contract was awarded to Boeing.
Although the immediate reaction among observers and media is that the combination will make a strong competitor to Boeing, in fact BAE Systems services defense segments that are more closely aligned with Lockheed Martin and Northrop Grumman than with Boeing. There is also little if any overlap between BAE and EADS, whether here or in Europe and the UK, where BAE is headquartered.
BAE has about 40,000 employees in the US.
The combination, which has to be approved by the boards of both companies as well as a host of governments on both sides of the Atlantic, will certainly strengthen EADS and its argument that it is a substantial contributor to the US economy and US employment. Airbus, a wholly owned subsidiary that accounts for around 80% of EADS revenues, purchases $12bn in goods and services in the US and says it employs or supports 100,000 jobs directly or indirectly.
BAE, which owned 20% of Airbus until EADS bought these shares in 2006, isn’t a current supplier to Airbus. Although defense cuts in Europe and the US are limiting growth at this time, these come in cycles and BAE would strategically position EADS to grow its defense business and reduce reliance on Airbus revenues and financial performance.
The new company will be 40% owned by BAE shareholders and 60% owned by EADS shareholders. The current shareholdings in EADS of the German and French governments, presently 15% each, would almost certainly be diluted. (The German EADS shareholdings are currently indirect but may become direct. The French shareholdings are direct.)
The new company would be listed on several European exchanges, including BAE’s listing on the UK stock market.