Obama considers dual tanker buy

The US Air Force AIM online newsletter reported October 24 that presidential candidate Barack Obama is considering a dual tanker purchase. The article is here.

The same publication has another story quoting a retired general as saying delaying the tanker purchase is unwise.

Week 8: IAM-Boeing strike

October 27:

SPEEA, the engineers union at Boeing, starts its table negotiations tomorrow. Michele Dunlop of The Everett Herald has a good summary of the issues. At the moment, things look rather bleak and a strike by SPEEA is quite possible. SPEEA’s contract expires December 1, but don’t look for a strike until either after the IAM is back to work or after the first of the year in any case. SPEEA’s statement in advance of negotiations is here.

The LA Times has a story of interest here.

October 26:

As the IAM strike against Boeing begins its eighth week, mediated talks continue in Washington (DC) against a media blackout.

Here are the latest developments:

Bloomberg News cites officials at Goodrich, a major supplier to Boeing on the entire product line, predicting that no 787s will be delivered in 2009. Boeing has yet to acknowledge this, nor has Boeing even said the first flight will be delayed until 2009–something every analyst now believes.

Boeing stock reached a low of $41.75 last week; the 52-week low is $39.99.

The IAM strike cost Boeing 35 cents a share in the third quarter financial results, the company’s CFO said in the earnings call last week; that’s $256.49 million. This is $10.3 million a day for the 25 days the IAM was on strike in September, compared to the $100 million to $110 million a day analysts projects and the $75 million to $83 million a day we estimated. Delay deliveries due to supplier issues for galleys, principally on the 777, cost the company 25 cents a share. Third quarter revenue declined $1.224 billion year-over-year (7%), or $48.96 million a day. The cash and securities position declined by $3 billion for the quarter, attributable to strike, research and development and other cash outlays.

Vought, a major 787 supplier (also on the 747, C-17 and certain Airbus programs), said it is 30 days away from closing down the 787 plant at Charleston (SC) as a strike-related impact. On other hand, Triumph Group, another major supplier, had a boffo quarter.

Boeing 3Q results, earnings call

Boeing announced its third quarter/nine month results today.

The full press release with the results may be found here.

Boeing’s 11-page PDF slide show that goes with the conference call may be found here.

The full earnings call transcript may be found here.

The call begins; key points:

  • James McNerney, CEO: I want to be very clear; we worked very hard to avoid it, we want to solve it. We want an agreement that rewards a group of valuable employees and which protects out ability to compete. The linchpin remains management rights to respond to our business and market conditions, especially in today’s economic environment.
  • McNerney: 5-10 deliveries for Boeing wide-body aircraft affected by supplier delays for galleys.
  • McNeney: so far only two airplanes canceled, 80 deferred.
  • McNerney: Despite strike, have achieved key milestones in 787 program, including assembly of fourth 787. We have used the strike period to better organize the work plan in the factory. Delivery schedule will be reassessed after strike is over; there will be a ramp-up period after strike concludes.
  • McNerney: Boeing Capital is working with customers in tight credit market, but aircraft financing still available and we have no evidence that airplanes won’t be financed. We stand ready to help our customers if needed. We will do so when appropriate. 80% of our planes are ExIm Bank-eligible.
  • James Bell, CFO: Revenues down in third quarter affected by strike and the galley-delayed deliveries. These accounted for 60 cents a share in the revenue loss. Boeing Commercial revenues were reduced by $600 million. (Editor: This equals $24 million a day in reduced revenue.)
  • Bell: Costs for development of the 748-8F have increased. Engineering 95% complete.
  • Bell: It is very likely BCC will do some financing in 2009. We will be very disciplined. We have backstop financing commitments of $9.5 billion, or 3% of BCA’s backlog for next decade. We’ve recently included additional terms and conditions to reduce BCC’s risk.
  • Bell: All commercial and some defense programs affected by strike. It is important to note there will be a ramp-up period. All financial guidance suspended for duration of strike.
  • McNerney: We will not sacrifice our ability to compete for short-term agreement with the strike.

Questions begin:

  • McNerney: cancellations and deferrals are pretty much in line with what we’ve seen in previous years and others are interested in icking up positions. Discussions are slightly more, but backlog is still in relatively strong parts of the world. We have steadily increased production rates in a measured way in last few years to meet demand without getting beyond our headlights. We’re feeling good about our production rates over next few years but we want to understand impact of strike before adjusting rates in the future. We don’t anticipate any white tails at all next year.
  • McNerney: Impact on 787 remains day-for-day. The gating item is the assembly of the early airplanes in the factory, not supply chain. (McNerney would not answer whether first flight would occur in 2008 if strike ended tomorrow.)
  • Bell: We’re not overly dependent on any one financing source (for BCC to help customers). We went through and reaffirmed commitments. Pricing may be different, but not out of line. We think ExIm will do 20% of financing over next six months. We have provisioned for BCC to participate for about $1 billion.
  • Bell: BCC is heavily concentrated in 717s (Editor: financially ailing Midwest Airlines is a major customer; AirTran is the other major customer). BCC has been working to reduce exposure in this type.
  • Bell: Making up strike-delayed deliveries in any short period of time is impossible.
  • McNerney: We’re trying to learn from 787; in retrospect we bit off more than we can chew. There is a lot to learn from how we did that, good and bad. Hopefully you’ll see that in new programs. On 747-8 we’re not particularly proud on how that’s sorted out (on processes). Learning how to manage the 787 global supply chain with IT, design responsibility, visibility through IT and design, we did not have the kind of controls in management and IT are areas we have had to fix.
  • Bell: Negotiations with 787 customers over delays, we’ve settled with some and have a better than expected settlement to serve the customers and to protect the corporation. By the time we deliver the first airplane, we’ll have a better view of zero margin (financial) on program.
  • McNerney: We had [previously] informally slotted American positions, so this order doesn’t affect demand [and therefore won’t affect production rate].
  • Bell: A lot of financial liquidity crisis should clear up by 2010.
  • Bell: Would not definitively speculate how long the ramp up will take following the strike, but depending on the length of the strike, Bell hoped two months would see the production back to normal.
  • McNerney: I think there is a way forward, a compromise, on management rights issue. I think there is a way to work with the union to meet some of their goals. I think both sides are approaching negotiations tomorrow with a constructive headset.
  • Bell: The strike impact is 35 cents a share and the galley issue is 25 cents. (Editor: there are 740,250,000 shares outstanding.)
  • McNerney: There have been some informal discussions with the IAM which indicated some constructive headset. [And] we look forward to successful discussions with SPEEA.

We’ll make a personal note: Boeing today confirmed what we reported previously: American’s 787 delivery positions were already figured into the production chain. We also note with satisfaction that Air Transport World reported October 21 what we’ve been reporting for months: that there are no new delivery positions available for the 787 until the end of the next decade. Here’s what ATW reported:

Last month ATWOnline revealed that two airlines were quoted 2020 as the earliest delivery date for a new 787 order (ATWOnline, Sept. 8). Boeing confirmed the timeline, stating that it “has said publicly that first availability for new orders of the 787 is around the end of the next decade.”

Note that ATW quotes Boeing as confirming this.

Corporate Website updated 10/21

This week we take a look at the complaints filed against Airbus and Boeing at the WTO. Decisions were expected months ago–where are these? Check this comment out at our Corporate website.

We also talk about the shrinking availability of capital for airlines to finance airplanes next year.

Update, October 24:

The WTO announced it won’t have any decision until next year.

Week 7: IAM-Boeing strike

October 24:

Day One of the resumed negotiations between the IAM and Boeing has come and gone with no news of progress or stalemate. Boeing stock closed up 8% yesterday, presumably on hopes of a settlement, but we learned of nothing yesterday that would support that stock movement. The stock is up slightly this morning in a down market. Yesterday we did a four minute interview with KUOW, the Seattle public radio station. You can link into the KUOW site here for a listen.

October 22: Not looking good.

Dominic Gates of The Seattle Times has a new report that is quite discouraging as new talks are to begin tomorrow. Despite cautiously optimistic positioning by Boeing CEO Jim McNerney during the earnings call this morning, the national head of the IAM union paints a far dimmer picture in this report.

October 20, Breaking News:

The Federal mediator has called Boeing and the IAM back into negotiations beginning Thursday (the 23rd).

Aerospace writer John Gillie of The Tacoma News-Tribune has this short item on the development.

We spoke with the IAM; a spokesperson says that the IAM didn’t ask for the resumption of talks but she did not know if Boeing did. (We have a call into Boeing.) The IAM spokesperson, while calling the move “positive,” was very cautious. Noting that nothing will get settled unless talks are held, she nonetheless had no information if Boeing was willing to make any concessions on the outsourcing issue, which is the key stumbling block.

At this stage, any characterization that this is a breakthrough or the beginning of the end would be falsely optimistic and a gross distortion of the situation. Rather, the questions and uncertainties prevail at this time.

Dominic Gates of The Seattle Times has this report. The Seattle P-I has this story.

Expect Boeing CEO James McNerney to be quizzed on the earnings call Wednesday about this.

Update: October 21. We talked to Boeing today; Boeing did not ask for talks to resume, saying that the Mediator made the decision to resume the talks. Like the IAM, Boeing was very cautious and did not want to raise expectations. Like the IAM, Boeing viewed the resumption in a positive light, noting that obviously no settlement will be reached without talking, but there is no reason at this stage to view this as anything more than part of the process.

October 19:

It’s time to lighten the mood as the IAM-Boeing strike enters its seventh week. This is a great send-up of Boeing and the IAM in their contract negotiations.


The video below is dated, going back to 1997-98, but as long as we are tongue-in-check today, let’s look at this one, too.


Update, October 20:

For some reason, the direct links above don’t connect; a Comment below with the direct URLs do work.

One question that comes up is why are Boeing and the IAM fighting over 2,000 jobs, with outsourcing delivery of parts by vendors directly to the assembly line? For Boeing, the issue is flexibility and efficiency. Boeing says it doesn’t make sense to have vendors deliver parts to a central receiving dock, only to have the IAM then deliver the parts to the assembly line with no value-added to the process, which is–in Boeing’s view–slowed by the interim step.

From the IAM’s viewpoint, it says:

“Why is it important to not allow vendors into the factory? Once we give up jurisdiction on a package of work and allow the vendor inside the factory to perform that work, then we no longer have rights to perform this work, cannot bargain to reclaim the work and cannot make it a strike issue. This is why we cannot go after the work New Breed is currently performing on the 787 line. That is why it is so important to fix the language in LOU #37 and stop Boeing from expanding the scope of work vendors perform inside the factory.

“This is not just about these 2,000 or so jobs. If Boeing replaces these jobs inside the factory, the chances are even greater that they will chip away until they have replaced all our jobs with vendors. Vendors will want to install the interiors they deliver. The landing gear suppliers will want to do their own installation. Vendors will want to hang the engines. Where would it stop? We have had facilities subcontractors inside the Boeing gates for their entire career. This is wrong, and the time to stop vendors from expanding their scope inside the Boeing gates is now. This is not just about parts handlers, but all our jobs. It is union busting – plain and simple.”

The boldfacing is the IAM’s.

We don’t see an issue with delivering the parts to the assembly line, and then letting the IAM install them. We do think going to a central receiving point and redelivering is a wasted step.

AA: getting early delivery positions

With Boeing’s 787 line sold out to 2017 or 2020 (depending on which aerospace analyst you believe), how did America get early positions? Here’s what we wrote for Commercial Aviation Online (paid subscription only) yesterday. We had to wait 24 hours before we could post this on a free site.

Commercial Aviation Online, October 16:

American Airlines’ previously held purchase rights for the Boeing 787 provide the airline with favourable delivery slots beginning in 2012.

American declined to comment directly on the 787 contract, but reminded CAO of its previously announced 787 purchase rights.

A CAO source says the delivery positions had been reserved for American, and with American’s reminder of its previously stated purchase rights, this is the probable explanation for the early delivery positions.

The positions do not come from another customer, either by deferral or cancellation, nor do they further delay the program deliveries.

Also, American’s early delivery positions shouldn’t come as a surprise to those familiar with the airline’s over-arching contract with Boeing, signed shortly before the 1997 merger between McDonnell Douglas and Boeing.

The contract called for Boeing to be the exclusive aircraft provider to American for 20 years. As a condition to the merger in order to gain approval from the EU, Boeing agreed not to enforce its side of this contract provision, enabling American to order from Airbus should it choose.

However, from American’s perspective, the contract provides most favored nation pricing as well as what is described as the “mechanism” to ensure American gets aircraft in the future when it wants them. This mechanism is how American gets early deliveries even though the 787 is otherwise sold out to the end of the next decade.

IAG/AirInsight has this podcast about the American order.

Since writing this piece, we confirmed that the purchase rights dating to the 1996 contract are indeed the key and that American’s delivery slots had been reserved all along. Delta and Continental have similar exclusive supplier contracts with Boeing and have similar purchase rights.

We also reconfirmed that for any other customer, 787 delivery positions are unavailable.

Airbus unshaken: WSJ

Update, October 15:

Bloomberg reports that Airbus is scaling back plans to increase production of the A320 and A330 lines. Here is the story. This prompts us to highlight an item in The Wall Street Journal piece below: Boeing won’t up production to catch up delivery delays due to the strike (though this is really no surprise).

Original Post:

With Boeing dominating the news in recent months due to delays with the 787, the 747-8, the controversy over the KC-X program and the labor difficulties, a little news about Airbus is refreshing.

As previously reported, Airbus has its own delay issues with the A400M military program. A380 delays continue to make news from time-to-time. The Wall Street Journal just published a long piece about Airbus, saying the European company is “unshaken” by economic turbulence. Unlike most WSJ articles, this one is free. It’s worth a read.

Meantime, from what we are hearing in the market, Airbus continues to make efforts to benefit at the 787’s expense by selling the A330 to disappointed 787 customers. Sales of the A330 have been more than healthy and with the anouncement that the company is designing an A330 Heavy with longer range, Airbus is making a concerted push to further expand the A330 market.

With the 787 troubles, Boeing doesn’t have delivery slots (beyond the occasional hold-back) until 2017 or 2020, depending on who you believe. Airbus has A330 delivery slots as early as 2012. The A350 is scheduled to go into service in 2013 (which, given the A380 performance and the 787 issues, draws a lot of skepticism even at this early date) but Airbus believes the A330 could be produced alongside the A350 for another decade–as a passenger airplane. While an A350 Light is being discussed that would clearly be a replacement for the A330, this plane probably would not be available until 2015 or later, if at all.

Boeing contemplates a second line for the 787, something that is required if there is any hope to catch up on program delays in a reasonable amount of time. But the question not only is when can Boeing do this but also where will a second line be established. Common sense says do it at the Everett, WA, plant where the 787 line is now. But the IAM strike and the likelihood of one by SPEEA suggests Boeing management has had enough and we think it entirely possible a second 787 line could be opened in a right-to-work state.

(For non-Americans, a right-to-work state means no unions required.)

If this happens, might an interim period be undertaken for Line 2 to cover production while Line 1 is shut down and moved alongside Line 2 in the right-to-work state? Call us conspiratorial, but we certainly see a scenario where this could happen. We believe the odds are much better than 50-50 that the replacement airplanes for the 737 and 777 won’t be built in Washington State. Why, then, keep the 787 here? The 747 and the 767 will die here, but these are both at the end of their life cycles anyway (final outcome of the KC-X program being the only variable).

Airbus, meanwhile, chugs along with the A380 (and A400M) the only hiccups (or up-chucks, as the case may be). The company is working on improvements to the A320 that will reduce fuel burn by several percentage points; Boeing is only doing minor improvements that customers hope will gain as much as 3% fuel improvements but say could be as little as 1%.

Pratt & Whitney began testing its Geared Turbo Fan on the A340-600 test bed owned by Airbus. Although Airbus cautions against reading anything into the use of the A340 as the platform, observers speculate that this could lay the groundwork for Airbus to put the GTF on the A320 as an interim step toward a full replacement airplane, not expected before 2018 or 2020. An A320 GTF theoretically could be certified by 2012 or 2013.

Boeing responds by saying the GTF could be fitted on the 737, but the problems are greater than on the taller A320. CFM International is working toward certification of its new LEAP-X powerplant, an entirely new engine, which is promised to reduce fuel burn around 12%-15%, similar to the GTF. But certification isn’t promised until 2016.

Airbus’ A330 Heavy, it says, will have more range than early models of the 787 (something Boeing disputes) because its analysis concludes that the 787 will be heavy and fuel burn promises of the GEnx and Trent 1000 engines won’t live up to promises. Meantime, Boeing works on a Product Improvement Package for the 777 which Emirates says provides a 10% operating cost improvement.

Airbus will likely finish this year with a substantial sales lead over Boeing.

Change in Boeing production?

The economic times may cause Boeing to alter production, a top executive said. Bloomberg News reports that Randy Tinseth, VP-marketing, hinted at this. The aerospace analyst at Goldman Sachs last week issued a report predicting fewer deliveries in coming years as airlines face financing difficulties. Bloomberg now reports pretty much the same thing.

Flight Global’s Laura Mueller reports that two lessors have urged production cuts.

This is the sort of “flexibility” Boeing seeks in its contract with the IAM and, upcoming, SPEEA: to alter production and jobs in bad times. Boeing says that the job guarantees sought by the IAM inhibits this flexibility. Airbus has long had handcuffs on its ability to reduce its workforce in bad times, due to European labor laws (as opposed to union contracts) that mean a huge severence pay that makes laying off people academic.

What’s interesting in Tinseth’s reported comments is the contrast with Boeing executive statements all year. Boeing’s top execs repeated told everyone who would listen (including, it seems, its own unions) that Boeing was insulated from any downturn because the backlog was so well spread out among customers around the globe in different economies and with varied business models. Some observers didn’t drink the cool aid, but certainly the labor unions took note and these chickens came home to roost in the current labor demands for reduced outsourcing and job guarantees.

So while Boeing execs were reassuring Wall Street, they in some respects set the stage for the current labor impasse.

Week 6: IAM-Boeing strike

October 17:

MarketWatch: Boeing is expected to finally reveal the damage caused by the IAM strike during its earnings call October 22. This is a matter of much speculation: some analysts figured Boeing was losing between $100m-$110m a day, or $3bn+ a month–which is higher than the monthly revenue reported in the second quarter. We tried to back out the non-affected units of Boeing Commercial Aircraft and estimated the revenue loss at $75m-$83m a day. Dominic Gates at The Seattle Times, in a well researched article, estimated that Boeing is losing $1.3bn a month in cash, or $43.3m a day. Perhaps we’ll find out on the 22nd.

October 16:

Seattle Post-Intelligencer: Columnist Bill Virgin asks the question: Can Boeing reverse outsourcing even if it wanted to?

Kansas.com: Spirit AeroSystems, a major supplier to Boeing for the 737, 747 and 787 programs, may have to begin layoffs as the strike as Boeing continues. Spirit originally went to a three day work week when Boeing’s IAM walked off the job.

October 15:

Seattle Post Intelligencer: James Wallace gives this report about what went wrong in the IAM-Boeing negotiations.

Seattle Times: Dominic Gates has this report about the failed negotiations.

Everett Herald: Here’s its report on the collapse.

The Street.com: Ted Reed takes a look at the analogy used by Boeing to the auto industry in arguing its hard-line position.

October 14:

It’s election season and a candidate for the Democratic State House of Representatives in the district where we live is supporting the IAM strike against Boeing. He’s asking for wood for the burn barrels used by striking members to stay warm. OK, this makes sense, now that it’s getting cold in the Seattle area. But he goes on to ask for volunteers to help man the picket lines.

Say what? The IAM has 27,000 members, most in the Seattle area (other striking locations are in Wichita, KS, and someplace in California). With 27,000 members on strike, the IAM needs outside volunteers to man the picket lines? We previously heard a story from Boeing management that at Boeing’s Renton plant that Boeing’s security guard talked with some picketers and found they had been hired to walk the picket line. We don’t know if this story is true or apocryphal but the story from the Democratic candidate is true; we got the email to prove it.

What gives? Where is the solidarity? Why aren’t the union members manning their own lines in sufficient numbers?

Tacoma News Tribune: Aviation writer John Gillie has a Q&A with SPEEA’s president from March, but it’s worth revisting as negotiations with SPEEA begin around the clock in two weeks.

October 13:

Talks broke off after only three days, reports The Seattle Times, over the issue of outsourcing. Here is the story from The Seattle P-I.

787 First Flight: 1Q09 (or 4Q08)

Update, October 9:

In a third story posted by Mary late last night, Boeing sticks to its plan for a first flight in the fourth quarter this year. Originally the first flight was supposed to be late October. At the Farnborough Air Show, program chief Pat Shanahan said November; and more recently, December became the target date. Boeing CFO James Bell told an investors conference in mid September the 787 delay is a one day-for-one day on the strike. It won’t take too much longer for the first flight to slip. Aerospace analysts already predict it.

Original Post:

Our colleague, Mary Kirby, at Air Transport Intelligence (we both write for the same Flight Global family of publications) reports that Boeing is planning on the first flight of the 787 in the first quarter of next year. Her ATI report, on the paid-subscription site, includes this passage:

Boeing now eyeing 1Q for 787 flight testing
Mary Kirby, Philadelphia (09Oct08, 00:52 GMT, 187 words)

Over a month after Boeing machinists began strike action, bringing jetliner production to a standstill, the airframer is now eyeing a further delay to the 787’s maiden flight.

Responding to comments by a Northwest Airlines executive concerning the carrier’s requirement that its 787s be delivered with the range and specifications promised, a Boeing spokesman in a telephone interview today said the airframer will have “more specific airplane performance data following flight testing. That’s scheduled to happen first quarter 2009.”

This expands on her earlier report with a free posting on Flight Global that Northwest
Airlines is unhappy with the status of its airplanes at the moment. This full story may be found here. The relevant passage in this story is:

Boeing will have more specific airplane performance data following flight testing, which is scheduled to occur during first quarter 2009.

This is the first confirmation by Boeing that the first flight is now the 1Q09; only yesterday, The Seattle Post-Intelligencer speculated the first flight slipped, reporting:

The first flight of the Dreamliner was to have taken place by the end of this year after a series of production and supply-chain issues. But the strike has probably pushed that out to at least early 2009, although Boeing has not confirmed this.

The P-I’s full story may be found here.

Several aerospace analysts had already forecast the first flight was slipping, even before the IAM struck Boeing on September 6.

Update, 7:20 PM: Mary’s full story from the ATI site has now been posted on the free site and it is here.