A Muffled Boom Boeing Gears Up For Rebound, But Work Force Won’t Grow Very Much
The question isn’t whether the boom is back at Boeing. It is.
Evidence is everywhere. Among the signs:
Airlines ordered more jetliners from The Boeing Co. in January - 137 - than they did in all of 1994.
The March 22 Boeing News listed 302 job openings. The comparable issue last year listed only two openings.
Boeing’s suppliers - the first to feel the run-up in production - are humming.
“We think ‘95 was the bottom of the cycle,” declared Nancy Bethel, vice president of marketing for Boeing Commercial Airplane Group.
So the only questions about the immediate future are:
How big a boom?
How long will it last?
If Boeing’s latest forecast is right, the world’s airlines will need 15,900 new planes worth $1.1 trillion over the next 20 years.
That works out to an average of 795 planes per year, split between Boeing, Airbus Industries, McDonnell Douglas Corp. and perhaps a new competitor or two.
If Boeing continues to capture 60 percent of the market, it will win $600 billion worth of jetliner orders. If it reaches its new goal of a 67 percent market share, Boeing will see $670 billion worth of jetliner orders - an average of $33.5 billion per year.
Sales of that magnitude would be 25 percent higher than in Boeing’s peak year of 1992, when 446 jetliners worth $24 billion rolled off its assembly lines.
In usual times, that would suggest the mother of all booms is at hand.
But these are not usual times. The world of aviation has changed, and forced plane makers to change with it.
Deregulation of the airline industry increased competition and forced fares lower. Lower fares forced airlines to cut their costs in order to stay profitable. Lower profits led the airlines to pressure Boeing to reduce the price of its jetliners, which in turn has forced Boeing to cut its cost to produce planes.
In recent years, Boeing has worked to restructure the company so that it can produce more planes more quickly, at less cost and more efficiently than it has in the past.
Work flow has been streamlined. Supplies have been moved closer to workers who need them. Kits are color-coded so that a worker can see at a glance if something is out of place.
In new factories, such as the ones built at Frederickson, raw aluminum travels barely a half mile on its journey toward finished product. At older factories, such as Boeing’s Fabrication Division plant in Auburn, the same chunk of aluminum would travel more than five miles on the same journey.
Driving the streamlining is a fundamental change in the airline industry. The low-fare carriers rule the skies, and they can only do so profitably by getting their costs down.
Some, such as Seattle-based Alaska Airlines, squeezed more than $100 million in annual costs out of their operations in order to survive.
In such an environment, the profits needed for capital investment are meager. So airlines have told Boeing, Airbus and McDonnell Douglas their planes cost too much.
“For our customers to have sustained profitability, they have to continue to cut costs,” said Bethel, as she released Boeing’s Current Market Outlook last month. “They’re looking to us to help them reduce their ownership costs.”
Which means Boeing must cut its costs - especially labor costs - in order to keep its jetliners affordable.
“If we had our way, we wouldn’t add a soul,” said Ron Woodard, president of Boeing Commercial Airplane Group. But boosting production rates “means we’ll add some people … But you know our goal is to add as few as possible.”
That was also a goal in the mid-80s, on the eve of the last jet boom.
“Last time, in the ‘80s, when they had a similar gain in production, they hired 50,000 people,” said Seattle economist Dick Conway, who did a landmark 1989 study of Boeing’s effect on the Puget Sound economy.
“Can they get away with hiring as few as 10,000 or 15,000? The answer might be ‘maybe,’ but I wouldn’t be surprised to see 20,000, 25,000.”
Boeing reached an all-time employment high in Puget Sound of 106,700 in October 1989. Since then, Boeing jobs have fallen by one-third, to 71,000. Throughout the downturn, Boeing executives warned repeatedly that most jobs lost as production slowed were gone forever.
“I think it’s going to be a robust recovery in units or seats or dollars, however you measure it. But I don’t think it’s going to be as robust in bodies,” said Bill Whitlow, an analyst with Pacific Crest Securities in Seattle.
“I don’t see them getting back to 106,000 people in Puget Sound. The question is, where will they get to? I think it’ll peak at a little over 80,000,” Whitlow said.
Conway, who has forecast that Boeing’s area employment will peak at about 86,000, said the boom “is not going to supply the same kick to the economy that it did in the ‘80s. Since then, our economy has grown some - not a lot, but some, so we are less dependent on Boeing. But it will still be significant.”
If the U.S. economy continues growing at a moderate pace; if the world economy returns to healthier levels; and if Boeing adds 10,000 to 15,000 jobs, Conway said Puget Sound will see employment growth of about 3 percent annually. That’s nearly three times what it was in the first half of the decade, but little more than half what it was in the late 1980s.
Already there are signs that the new boom is different.
If the rebound had followed past patterns - with orders picking up 12 to 18 months after the airlines return to profitability - airlines would have ordered 1,214 jetliners from Boeing, Airbus and McDonnell Douglas last year, Bethel said. Instead, they ordered 714, about 40 percent fewer than in the past.
“It’s a more gradual rebound,” Bethel said. “We think the reason for that is our airline customers are aggressively managing capacity. They’re being cautious. And as they return to profitability, they’re focusing on repairing their balance sheets before they order tremendous amounts of new airplanes.”