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 19. April 25, 2025
- How good is the C929? Part 2. April 24, 2025
- Boeing First Quarter Results Update: China is 10% of the backlog, with 500 in “Unidentified” April 24, 2025
- Boeing First Quarter Results: Tariffs, Return flights, $10.55bn asset sale April 23, 2025
- RTX Q1 2025 Earnings: GTF Talk Takes A Back Seat To Tariffs April 22, 2025
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.
Week 5, Boeing-IAM strike
Update, October 8:
Breaking News, 6:30 PM PDT, Seattle Times: Dominic Gates reports that Boeing and the IAM secretly met and are resuming talks. The story can be found here.
The Seattle Post-Intelligencer has a catch-up piece here. The P-I’s James Wallace has this story about the impact on suppliers from the strike, posted this evening.
Bloomberg News: The IAM responds to Boeing’s management pressure tactics. You don’t scare us.
Update, October 7:
Update, 1:30 PM: Boeing further ratcheted up the pressure with an appearance before the Governor’s Aerospace conference today with a direct warning that strikes can drive assembly out of Washington State. The Seattle Times has this report.
We have some in-depth comment about the McNerney memo listed below on our bi-weekly update on our Corporate Website.
Seattle Post-Intelligencer: James Wallace has a lengthy story here. In it, Teal Group analyst Richard Aboulafia speculates that in 10 years there may be no airplanes built in the Seattle area. We think that’s a little too soon, but fundamentally agree that Boeing is moving in this direction, fed up with the labor strikes and threats of strikes.
McNerney’s memo isn’t just about the IAM strike, of course; it’s a not-too-subtle shot across the bow of SPEEA. Boeing’s contract information exchanged with SPEEA is very similar to that rejected by the IAM. Boeing’s can’t give in to the IAM without giving in to SPEEA, which shares many of the same issues with the IAM.
Is this year about union-busting? SPEEA thinks so. We met with SPEEA two weeks ago (we were to meet with Boeing yesterday, but this was rescheduled at Boeing’s request) and SPEEA thinks Boeing is engaged in busting SPEEA.
Clearly Boeing would rather not have to deal with unions, but the only way to achieve this will be to move to a right-to-work state. As long as Boeing is in Washington State, unions remain a fact of life. At an IAM rally held while negotiations were still underway, a labor official boasted that Washington is the fourth-most organized state in the union (or something like that). This might have been cool stuff to express at the rally, but it’s not something that would be looked upon favorably by management.
But moving to a right-to-work state won’t guarantee a non-union force. The IAM successfully organized the employees in Charleston, SC, where major portions of the 787 are built. Employees for Southwest Airlines and American Airlines are highly unionized in Texas (Continental Airlines employees are less well organized), though one might argue that as national airlines votes could overwhelm local sentiment. We don’t think this is a valid argument. (We lived in Dallas for nearly 12 years and have a pretty good feel for local union sentiment.) Boeing has an operation in San Antonio and speculation has been rife a second 787 line might emerge there. Could be and it wouldn’t be long before unionization efforts would happen–especially if Boeing succeeds in putting down the IAM here in Seattle. Payback is, as they say, a bitch, and the IAM would seek payback bigtime.
We remain concerned that outsourcing off-shore is a major threat to the viability of the US aerospace industry, as we commented last week and today on our Corporate Website. McNerney uses the threat of the rise of new competitors in his memo below, but the irony is that Boeing’s own outsourcing (along with Airbus, Bombardier and Embraer) are creating these competitors.
Update, 0935 PDT October 6:
Boeing CEO Jim McNerney issued an internal memo this morning about the IAM strike. The bottom line: Boeing doesn’t look to be budging on its positions. Here is the memo in full:
Boeing stalled by strike as competitors strengthen their positions Any settlement must balance rewarding valued employees with protecting our ability to compete and win
Jim McNerney
Chairman, President and Chief Executive Officer
>
Many of you responded to my column last week on the crisis in the financial markets with questions and comments about the ongoing strike in the Pacific Northwest and Kansas, which has now entered its fifth week.
I understand and share the frustration so many of you feel when we don’t have the whole team together working to meet the commitments we’ve made to our customers and competing to win the new business that will sustain and grow Boeing jobs for years to come. Read more
USAF loses yet another tanker award
Update, October 6:
Mobile Press-Register: The Mobile paper has a long interview with Northrop Grumman’s CEO on the KC-X tanker debacle.
Original Post:
The USAF has been overturned on yet another contract award concerning aerial tankers. A federal court overturned a maintenance contract for KC-135s awarded to Boeing after Alabama Aircraft (formerlly Pemco) protested to the GAO, lost, and sued. Alabama Aircraft’s press release may be found here.
The contract is worth $1.1 billion.
The inability of the Air Force to conduct proper contract evaluations and awards is mind-boggling. Not only are there the high-profile issues with the KC-X program, dating to the 2001-2004 illegal conduct in that award, and the clear disregard for its own rules on eight critical points in the more recent award, the USAF couldn’t even properly award a public relations contract for the Thunderbirds air show team.
Failed bail-out bad news for aviation
The collapse of the $700 billion bailout of the US financial system is bad news for aviation.
The capital markets were already driving up pricing on debt and driving out many lending institutions from the aviation market. Airbus and Boeing downplayed the declining credit markets (our conversations with them being about two weeks ago, before things really began to go south). Each believed that money to finance airplanes was available, albeit more expensive, and that neither would have to step up to provide backstop financing until the second half of next year. Part of this is the large segments of their respective order backlogs that are eligible for export credit financing backed by the European and US governments. In Boeing’s case, the company has said on several occasions that about 83% of its backlog may be financed by the US Export-Import Bank. We don’t have a figure for Airbus, but we believe that most of its backlog is similarly eligible for the European Credit Agency (ECA) financing.
Based on the information we had at the time, we generally agreed. But not now. ExIm or ECA or not, there still have to be viable banks and general market liquidity available for the credit agencies to provide guarantees for the funding.
The situation has changed so dramatically in just the last seven days that we are now concerned there will quickly be a financing crisis for the airlines. In this respect, the airlines may just decide that the longer a Boeing strike the better.
Our colleagues at Commercial Aviation Online, the finance-oriented publication of the Flight Global family, paints a dire picture emerging in aviation finance in our conversations with them. (We write for CAO as well.) But they are still constructing their stories, and we’re obligated to me ambiguous at this stage. Furthermore, it’s a paid-subscription service, so while we’ll be able to synopsize stories when the time comes, we won’t’ be able to fully reproduce them here. But the bottom line is that things are going south faster than anyone believed in aviation finance.
Update, September 30: Bloomberg News has this short item about customers for Embraer having difficulting financing the planes that were ordered. Brazil, like the US, Europe and Canada (for Bombardier), offers export financing support, too.
Update, 11:45 AM PDT: Commercial Aviation Online posted its story. (Paid subscription required.) Here are some excerpts:
With no US bailout package on the table, the aviation finance market remains frozen unable to make sound decisions in an uncertain climate.
“Right now, there is no interbank lending and banks are hoarding cash. Most bankers are putting off any decisions because there are no good decisions right now,” says a London-based banker.
He adds: “It is hard to say anything concrete right now except that if the current crisis continues, we are in big trouble. However, even with a US bailout don’t expect a panacea. What we are seeing now is what happened to the Japanese banks. It will take five to ten years to get out of this mess.”
Due to uncertain market conditions, a number of aviation deals that are currently in the works are likely to be renegotiated.
“No one wants a RFP right now. Everything is being delayed and many deals will have to be revisited,” says another banker.
Week 4: IAM-Boeing strike
Update, October 2:
Here’s a new twist. An Australian newspaper reports that Virgin Blue may seek damages from Boeing and the IAM over the strike-induced delays of the 777s the airline wants. We think Boeing’s customer contracts preclude strike-caused delays. The IAM liability, if any, is another matter.
September 29:
Seattle Times: Dominic Gates has this detailed analysis of the strike and its cost to both sides.
One piece of math in the article that Dom didn’t do is to present the daily cash drain for Boeing. Based on his information that the monthly cash cost is about $1.3 billion, this means the daily cash cost is about $43 million. This compares with the widely reported figure of $100 million to $110 million a day, which was actually deferred or “lost” revenue, but which is also quite a bit higher than it should be because these figures don’t take into account the unaffected businesses within Boeing Commercial Airplanes that continue to produce revenue: Alteon (pilot training), Aviall (maintenance) and Jeppessen (maps and related stuff). We estimated that strike-related BCA revenue loss was more like $75 million to $83 million a day.
An IAM official predicted at the start of the strike that the IAM could bleed Boeing of its $10 billion in cash in a matter of a few months. Not hardly. Certainly $1.3 billion a month in cash loss is not chicken feed, but it’s also only one-third of the widely quoted figures.
Everett Herald: The IAM’s health benefits end Oct. 1. Some inside Boeing told us they believe that this event will help trigger a settlement.
Politics continue on the tanker
(Special projects precluded us from updating last week, so some of the links below backtrack into then.)
Politics continue to plague the tanker program even though the Bush Administration has punted the decision to the next presidency. Today we play catch-up with selected stories of interest.
Update, September 26:
Inside Defense reports that US Rep. John Murtha (D-PA), chairman of the House Appropriations subcommittee, says a split buy between Northrop and Boeing is the only way to recapitalize the USAF tanker program any time soon.
Murtha generally has been supportive of Boeing’s KC-767 tanker proposal.
He’s added language to the 2009 defense appropriations bill directing the DOD to study the feasibility of a split buy, Inside Defense reports. Murtha, according to the publication, acknowledged that Boeing and DOD don’t like the idea and he didn’t know if Northrop does, “But let me tell you something, we’re not going to have tankers if we don’t do that, I’m convinced,” Inside Defense quotes Murtha as saying.
Murtha predicted that in a re-compete, Northrop is likely to receive the order because its plane is ready to go.
Inside Defense is a paid-subscription service only but readers may register for free and receive three free articles (and then pay a la carte thereafter). This article may be found here, with the registration process the first thing you will see.
Update, September 25:
Be careful what you ask for. US Rep. Norm Dicks (D-Boeing/Washington) announced that he’s inserted language in a new House bill to require the USAF or DOD to review any adverse ruling from the World Trade Organization on the “illegal” subsidies complaints filed by the US Trade Representative and the European Union against Airbus and Boeing. He has said for years that Airbus received “illegal” subsidies and presumes the WTO will back up the USTR complaint. Most objective observers, including us, agree with his biased viewpoint on this one.
But most objective observers, including us, also think the WTO will find Boeing received “illegal” subsidies as well–something Dicks and other Boeing supporters in Congress seem blind to.
The full House has to approve Dicks’ language (likely) and then the Senate has to agree (unlikely).
A decision by the WTO is overdue.
Update, September 24:
Mobile Press-Register: Gates against tanker split buy.
Aviation Week: DOD’s Gates eyed changes to RFP before canceling contract.
JD Crowe at The Mobile Press Register is at it again.
Update, September 23:
Associated Press: DOD Secretary Robert Gates says the next administration should buy the cheapest tanker.
Original post:
Washington Times: [Tanker] Rigged in Boeing’s favor. US Sen. Richard Shelby (R-Northrop/Alabama) writes in an Op-Ed piece that DOD’s decision punting the tanker to the next presidency was nothing more than a sop to Boeing.
JD Crowe at Mobile Press-Register
Business Week: Boeing’s CEO beat the Pentagon, but lost some, too. Boeing CEO Jim McNerney gambled in taking on the Pentagon over the tanker, and won.
Defense Industry Daily: A400M delays creating contract controversies. Airbus’ sole military program isn’t going too well. (We count the KC-330 as a broader EADS program; the A400M is Airbus.)
Washington Post: Defense buyer says Northrop’s bid was $3bn cheaper than Boeing. DOD’s John Young said the smaller KC-767 should have been cheaper to buy than Northrop’s KC-30–but it wasn’t. We say perhaps the US taxpayer was going to benefit after all from all those “illegal” subsidies alleged to be provided to Airbus.
Inside Defense: Flyoff will determine tanker win. The Air Force’s top buyer predicts a flyoff between Boeing and Northrop for the tanker contract. Inside Defense is a paid subscription service but with registration you can get three freebies, including this article.
Los Angeles Times. Northrop entitled to termination fee. The Pentagon says Northrop is due tens of millions of dollars for the canceled tanker contract.
Week 3, IAM-Boeing strike
Boeing and the IAM entered the third week of the strike last Saturday and there is no sign of any progress. As of last week, the two sides weren’t even talking about talking.
Update, September 24:
Seattle Post-Intelligencer: Columnist Bill Virgin has an interesting piece speculating what happens to Boeing in the Puget Sound (Seattle) region when the strike is over.
Reuters: Boeing CEO calls IAM strike a “standstill.”
Bloomberg: Boeing CEO cites economic downturn, sees risk to backlog and need for Boeing to finance customers. There is also some reporting on the IAM “standstill.”
Original Posting:
We spoke with the IAM and Boeing and each side is waiting for the other to pick up the phone and ask to talk. The mediator is staying in touch with each side, but there’s little for him to do as present.
Boeing insists that the IAM narrow down its “wants” to two or three items from the three pages presented at the last-ditch Florida talks immediately preceding the walk-out. For the IAM, it’s not that simple and without resolving the list of issues, these elements would become part of a contract.
We remain pessemistic about any early settlement.