Leeham News and Analysis
There's more to real news than a news release.
SPEEA rejects Boeing contract; negotiations commence; no strike possible till after Nov. 25
SPEEA, the engineers union for The Boeing Co., rejected the company’s proposed contract Monday by a 96% vote margin. The Seattle Times has this story.
Boeing issued this statement:
The SPEEA negotiations team notified Boeing that SPEEA’s membership rejected Boeing’s initial contract proposal. Our focus now is on resuming discussions on October 2 with your negotiations team.
In the spirit of good faith, we will continue to listen closely to your negotiations team. We want to understand your viewpoints and objections, which is what the bargaining process is all about. As was true when we made our initial proposal – we are committed to continuing discussions, answering questions and considering any proposals or counter-proposals from your negotiations team.
While Oct. 6 is the expiration date of the contract, it remains in effect until Nov. 25, 2012. On Nov. 25, the contract will terminate as a result of SPEEA filing a 60-day termination notice per Article 23 of the contract. No strike can take place until after Nov. 25.
We will continue to provide updates on the progress of negotiations and encourage you to check the negotiations website on a regular basis.
We expect the negotiations, which commence at 1pm today, to be difficult. Boeing is determined to reduce health care and pension costs; SPEEA is determined to prevent higher cost sharing on heath care premiums and shifting new employees from a defined pension plan to a 401(K) plan. Boeing offered raises of 2.5% to 3% and the union wants 5%. But, as The Times story notes, the big sticking point right now seems to be the union’s assertion that Boeing has language in the proposed contract that will allow the company to unilaterally change terms and conditions at a later date, particularly for current retirees on health care. Boeing says it has “no plans” to do so, which SPEEA labeled weasel words.
Boeing threatens to move engineering jobs out of Puget Sound (30% of engineering is already outside of the Seattle area), but SPEEA claims Boeing’s defense unit is already doing so.
Although there are no sanctioned job actions by members, there have been reports of work slow-downs. We expect these actions to increase.
The last time SPEEA struck, in 2000 for 40 days, Boeing’s deliveries dropped by 50 aircraft.
SPEEA rejecting Boeing contract
It’s 10pm Monday PDT and SPEEA is voting down the Boeing contract. New talks are scheduled for Tuesday.
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.