Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: Air Transport’s route to 2050. Part 28. June 27, 2025
- Parent agency, FAA often at odds as politics outweighs safety June 26, 2025
- Electric Flight and the Ugly Duckling June 25, 2025
- Engine makers tout “Plan A” but have “Plan B” backups in R&D June 23, 2025
- Bjorn’s Corner: Air Transport’s route to 2050. Part 27. June 20, 2025
Military contracts exempt from government subsidies
A new round of news articles has emerged concerning launch aid to Airbus for the A350. This one is typical. It and others tied the subsidies identified in the long-running WTO case received by Airbus to the proposed merger between Airbus parent EADS and Britain’s BAE Systems.
BAE gets about half its revenue from the US Department of Defense. According to Bloomberg rankings, BAE was DOD’s No. 9 supplier last year (down from #5 in 2009 when the US was still engaged in the Iraq War).
Some say the Airbus WTO issue may cause a problem for the merger with US authorities while others say it shouldn’t. The news that Airbus received $4.5bn in launch aid will add fuel to the fire.
(We wrote a couple of years ago that Airbus had received launch aid–it was revealed in the EADS financial statements. We’re a bit perplexed why the big hubbub now.)
Airbus and the European Union say launch aid per se wasn’t deemed illegal by the WTO and only the terms and conditions providing below market interest rates and other T&C were. Any subsequent launch aid would comply with the WTO ruling.
Boeing and the US Trade Representative say launch aid itself is illegal.
But while some try to connect launch aid to military contracts (see the USAF tanker) and even to this merger, the fact remains that military contracts are completely exempt from WTO rules over subsidies.
SPEEA and Boeing: the next round
The Seattle Times has this story about the latest developments in the contract negotiations between SPEEA and Boeing. The Everett Herald has this story. Note the discussion of moving jobs in The Times story and note what we said in The Herald story.
It strikes us that Boeing may not have learned anything from the outsourcing dispute in the IAM NLRB dispute. We told a Boeing communications person during the discussions about where to put 787 Line 2 that all the focus on the union and strikes was a bad idea and that a good reason to locate a line elsewhere was to diversify from the natural disaster risk. The response to us then was “that wouldn’t be true.”
Now Boeing is openly saying once again it will move jobs if it doesn’t get the labor contract it wants. What is it thinking??? You can move jobs because Washington State can’t fill them and there’s nothing that anyone can argue with about that.
This is another head-shaking moment of bewilderment in Boeing management strategy.
Update: Boeing’s Doug Alder sent us this statement:
“Boeing has made no threats to move work. We have simply noted our ability to use the full resources of the company in order to stay competitive. We’re confident we can reach an agreement with SPEEA that benefits the company and our workforce.”
Bob Crandall assesses the situation at American
Following our post yesterday about American Airlines, Terry Maxon, the aviation reporter for The Dallas Morning News and one of our oldest friends in this business, sent us this link to a long letter Robert Crandall wrote to an American pilot.
Crandall, of course was the hard-charging CEO of American for many years. Ever the straight shooting, Crandall has some forthright opinions.
One we disagree with, however, is his defense of Tom Horton. Crandall notes that Horton had been CEO (at the time of Crandall’s letter) for only 10 months and should be given a chance. We note, though, that Horton was CFO from March 2006 before his elevation to CEO 5 1/2 years later. He shares in the decisions made during this time and the responsibility for them.
Crandall absolutely right in his critique of the pilot actions involving sick-outs and frivolous maintenance write-ups, leading to massive delays and cancellations. This drives customers away. We’re a million-miler on American and right now any time we travel, it’s not on American. The pilots are acting like those at Eastern Airlines in their battle with Frank Lorenzo, the scourge of unions at the time. (The International Association of Machinists also engaged in open warfare with Eastern.)
Eastern’s pilots and mechanics destroyed that airline. They would rather have killed Eastern than work with Lorenzo, or in the case of the IAM local, even his predecessor, Frank Borman.
What the pilots at American are doing today is threatening the airline. Some Wall Street analysts are talking about American entering Chapter 7 liquidation, a view with which we so far disagree.
But it’s also clear that Horton and his team are giving short shrift to a possible merger with US Airways if they aren’t the surviving management. The future of American’s thousands of employees is at stake. Management ego shouldn’t be involved.
Aside from Crandall’s defense of Horton, we agree with his critiques.
The downward spiral of American Airlines
We’ve been watching with dismay the downward spiral of American Airlines.
This once-great carrier is hardly recognizable any more. It is perplexing to us how a management team that got its training under Robert Crandall and helped create such a great carrier could have gone so wrong.
Crandall retired in 1998 and was succeeded by Don Carty. We have to admit we preferred that Bob Baker, the EVP of Operations, succeed Crandall but Baker already had battled cancer and was viewed as probably on a shorter life span given the nature of his cancer. Unfortunately, this assessment was correct and Baker died a few years later.
Carty, on the other hand, was Crandall’s number two (to Baker’s number three) in the company. But Carty had also been CEO of Canadian Airlines and frankly, we were never too impressed with his leadership there. It was this that gave us trepidation when he succeeded Crandall.
The Crandall team also included Gerard Arpey, who subsequently succeeded Carty after Carty so screwed up labor relations that he had to go. Carty acquired Reno Air, a small MD-80 operator with a hub in Reno (NV) and in the course of doing so, created immense discord with the AA pilots union, having failed to lay the ground work with them for the acquisition. Reno Air brought zero to American and less than zero when the labor relations debacle is considered.
Odds and Ends: GOL orders 60 MAX-8s; Qatar says GEnx engine fault delays 787s; SPEEA deal “within few weeks”
GOL Orders the MAX: Boeing and the Brazilian airline GOL announced an order for 60 737 MAXes. The press release did not specify sub-type but GOL tells us the order is for the MAX 8.
Qatar’s 787s: Qatar’s CEO says the shaft issues on the GEnx engines are what’s behind the airline refusing to take delivery of its Boeing 787s.
SPEEA Deal: Boeing CEO Jim McNerney says he expects a deal with SPEEA within a few weeks, according to this article.
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.