Leeham News and Analysis
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Leeham News and Analysis
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- JetZero readies effort for private equity fund raising May 5, 2025
IAM rejects Boeing contract, strikes at midnight
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By Karl Sinclair
Sept. 12, 2024, © Leeham News: Boeing’s largest union today rejected a four-year contract and approved a walk-out beginning at midnight tonight.
The vote to reject the contract and go on strike were overwhelming: 94.6% to reject the contract, 96% for the strike.
For financially ailing Boeing, a strike is the last thing it needs. When the union, IAM 751, last struck in 2008, the walk-out lasted 57 days and set the foundation for labor wars that continued to this day. Then-CEO Jim McNerney the following year located the second 787 assembly line in South Carolina. (The first line, in Everett, was closed during the COVID pandemic.) In 2011, McNerney threatened to build the 737 MAX elsewhere if 751 members didn’t approve a contract amendment with concessions. He repeated the process in 2013 and 2014 with the 777X development. The latter was the second amendment to the 2008 labor contract that governed wages and benefits for the huge union, which represents workers at Boeing’s factories in Renton and Everett, home to the 737 and 767/KC-46A and 777, respectively. The IAM 751 also represents workers at other Boeing locations.
Union leadership want to recover benefit concessions and sharply increase wages that failed to keep up with inflation. They wanted a guarantee that the next Boeing airplane will be assembled in Puget Sound (the greater Seattle area). They wanted a seat on the Board of Directors and a role in changing Boeing’s failed safety culture.
Management wanted to hold the line. The company remains in a loss-making position, led by the continuing turmoil at Boeing Commercial Airplanes. The defense unit, which is not represented by 751, also is bleeding profits. The two units caused Boeing to burn through nearly $10bn in cash in the first half of this year alone. Only the services unit is making money, but not nearly enough to offset the losses and negative cash flows at the other two units.
More losses and negative cash flow is expected for the quarter ending this month. Company CFO Brian West speaks at a Morgan Stanley investors conference tomorrow. His will be the first detailed response to the union vote, whatever the outcome.
Internally, Boeing prepared for a 2-12 week strike.
Some observers fear that a long strike could shove Boeing into bankruptcy. LNA doesn’t agree, but we’ve nevertheless analyzed the prospect.
The A330neo for medium haul or twice the frequency with A321XLR? Part 2
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By Bjorn Fehrm
September 12, 2024, © Leeham News: We examine the high-volume short-to-medium-range market and check whether a route previously reserved for the Airbus A330neo can be flown with a fleet of A321XLRs. At equal per-passenger operational costs, doubling the frequency is advantageous and can drive market growth, revenue, and margin.
After comparing the aircraft and their seating, we now use our Airliner Performance and Cost Model (APCM) to fly them on a Southeast Asia route and compare the operating costs.
Summary:
- The A321XLR is competitive on fuel costs but loses out on Cash costs as several cost factors don’t scale linearly with passenger capacity.
- The cost disadvantage doesn’t render the A321XLR a non-replacement for an A330-900; it just needs a positive revenue uptick from the frequency increase to be an interesting alternative.
Slow production ramp up, international sanctions slow C919 progress
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By Karl Sinclair
Sept. 9, 2024, © Leeham News: China isn’t getting into the commercial aviation industry to let Airbus and Boeing supply three quarters of the market, says a consultant. The long-term outlook for the Big Two aircraft producers may be considerably more bearish than many think.
He made the following comments when asked about the new Boeing (BA) projections for the aircraft market in China, “COMAC wants to hit 150 (deliveries) in the next five years. That means that one-fourth of that China demand goes to COMAC,” said Brian Langenberg, principal and industrial strategist of Langenberg and Co. “If you believe that China got into the commercial aviation industry to let Boeing and Airbus make three-fourths of their narrow bodies aircraft,” he says people underestimate the determination of the Chinese government.
COMAC C919. Source: Leeham News.
The C919 is COMAC’s latest narrow-body jet, which began commercial service at China Eastern Airlines (CEA) in 2023. Since then, eight more have been delivered to CEA, Air China, and China Southern as COMAC slowly ramps up production. COMAC has more than 1,000 orders for the type, with the vast majority coming from airlines and lessors in China, although AerCap of Ireland has orders for 20.
COMAC’s production goals are aggressive. LNA believes the learning curve will take longer than production managers suggest. International certification by European and US regulators is also important to China and mandatory for export sales.
Related Article
China still needs Boeing to fill demand
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.
The A330 for medium haul or twice the frequency with A321XLR? Part 1
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By Bjorn Fehrm
August 29, 2024, © Leeham News: We have compared the Airbus A321XLR to the Boeing 757 to see if it can replace the long-range single aisle on its trans-Atlantic routes. The result was convincing: The A321XLR is, in many respects, what the Boeing NMA should have been: a replacement for the 757 with additional range.
Now, we look at the short- to medium-range market and check whether a route that was previously only possible with the Airbus A330 can be flown with a fleet of A321XLRs. The advantage, at an equal per-passenger cost, is the doubling of the frequency to drive market growth, revenue, and margin.
Summary:
- The A321XLR is close to 50% of the passenger capacity of the A330-300/900 in a long-range configuration.
- It has most of the range of the A330-300 and can fly the bulk of the routes of an A330-900.
- Can an airline operate a dual daily A321XLR to a daily A330 at the same per-passenger cost?
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.
Aviation’s recruiting problem shifting from pilots to technicians, cabin crew
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By Judson Rollins
Introduction
August 19, 2024, © Leeham News: Boeing issued the latest edition of its annual Pilot and Technician Outlook (PTO) last month, forecasting demand for 2.3 million new aviation personnel by 2043.
Of these, 649,000 are new pilots, 690,000 are new technicians, and 938,000 are new cabin crew.
“Driven by aviation traffic trending above pre-pandemic levels, personnel attrition, and commercial fleet growth, the demand for aviation personnel continues to rise,” said Chris Broom, vice president of Commercial Training Solutions at Boeing Global Services.
Source: United Airlines.
The Seattle-based OEM says demand for new personnel will be driven primarily by single-aisle airplanes, except in Africa and the Middle East, where widebody airplane demand will be the key factor.
According to the forecast, greater Europe — what Boeing now calls “Eurasia” — China and North America will account for more than half of new industry personnel.
The company believes South Asia, Southeast Asia, and Africa will be the fastest-growing regions for personnel, with demand expected to more than triple within 20 years.
Two-thirds of new personnel will address replacement due to retiring staff and other attrition, while one-third will support growth in the commercial fleet.
Summary
- The global pilot shortage may peak sooner than expected.
- Technician recruiting is increasingly hampered by competition from other industries and obsolete educational programs.
- Increasing cabin crew attrition could drive higher costs for airlines.
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.