777 Decision Signals More Job Losses
Michael Mecham 
Boeing's decision to reduce 777 production next year will likely lead to further job cuts among its commercial aircraft workers beyond the 4,500 the company already has announced.
But just how many isn't clear. A Boeing official said Friday the company is still evaluating how the 777 rate cut will affect employment, but added, "We believe that decision will result in employment reductions beyond those already announced."
Boeing said Thursday it will cut 777 rates from seven a month to five beginning in June 2010. It also will delay a planned increase in 767 and 747 rates although the impact of that decision is of less immediate importance because their monthly rates are low.
What's unclear is how production on other programs, such as the 787, might help offset the decline in demand for 777s. No production rates have been set for the 787. Even in boom times, Boeing never expected the 787 to prompt a large increase in jobs throughout its Puget Sound production base in the Seattle area. Its estimates were the program would add only 800-1,000 workers out of an employment base of about 68,000.
But with the program running nearly two years behind schedule, the company is still focused on beginning flight testing and getting the first six aircraft for that effort out the door in Everett. No date has been set for when the seventh aircraft - the first production airplane to be delivered to launch customer All Nippon Airways sometime in the first quarter next year - will enter the factory.
So despite the 787's sales success - more than 850 orders - it is unclear whether a successful rampup of its final assembly line, after two years of frustration, might offer sanctuary for workers now associated with the 777.
Thursday's announcement wasn't a surprise to industry analysts, most of whom have maintained for some months that the company was too optimistic about market conditions.
At a recent meeting of independent aircraft traders and leasing companies, 45% said they expected a 0%-3% contraction this year and 31% expected more than 3%. While 43% said they expect the airline industry to emerge from the trough of the current passenger and cargo recession next year, 30% predicted it wouldn't happen until 2011.
"The industry has never experienced this phenomenon where we have a recession on a global scale," International Lease Finance Co. CEO Steven Udvar-Hazy commented. "No airplane is immune from the operating environment we're in." He predicted the industry will need to take 25-30% in production cuts.
ILFC is the industry's largest buyer of commercial airplanes, which informs Udvar-Hazy's pessimism.
While most analysts feel airlines with deliveries due this year have their financing in order, backing for next year's deliveries and beyond is far less clear. That uncertainty is driving skepticism that Boeing can hold next year's production rates as it's outlined, even with the 777 pullbacks.
At Macquarie Securities, analyst Robert Stallard noted that because airlines have a shorter lead time when ordering 737s - he puts them at 6 months -- Boeing can afford to put off deciding whether it needs to cut its narrowbody production in Renton.
But Stallard predicts it will make 737 cuts later this year. Current rates are about 30/month. He predicts they will have to fall to 25/month, which is where they were about three years ago.
In all, Boeing says it is shedding 10,000 jobs this year. In January, it said 4,500 of those would come in commercial airplanes.
About 1,000 of those cuts will come from positions left unfilled, others through attrition, layoffs of "several hundred" contract employees and reductions in overhead/management staff. The company emphasized then that so-called "touch" workers, those on the factory floor who actually produce aircraft, were least likely to be affected. But the official acknowledged that some have and that uncertainly going forward is likely to affect others.
Boeing handles layoffs by notifying impacted employees 60 days in advance. Some can save their jobs by finding other positions within the company. Others are saved because managers decided not to end their particular employment. The official said Boeing has already issued a substantial number of 60-day warning notices.
Photo credit: Boeing
