Boeing gets scolded by workers, key customer
Boeing’s South Carolina boondoggle will double the costs of developing the 787, and the time and energy executives wasted plotting the move may cost the Company one of its most-vital customers.
That’s the takeaway from headlines this morning.
The first assertion came from SPEEA Executive Director Ray Goforth, who wrote a guest column for today’s Seattle Times. In it, he warned that the 787 — the fastest-selling new plane of the Jet Age — is dangerously close to becoming a money-loser for Boeing.
“Instead of generating profits, the 787 is a money pit, siphoning manpower and cash from the 747-8, Air Force tanker and other critical programs,” he said. “Boeing Chicago’s decision to outsource design, engineering and manufacturing failed. Instead of concentrating efforts to get the 787 back on track and in the air, Boeing leaders decided money is better spent setting up a new production line. This will further delay the profitability point of the 787 by nearly doubling capital investment.”
Goforth’s comments echo those made by District 751 President Tom Wroblewski last week: “Instead of investing in our shared future and a highly talented workforce, in a region ideally suited for aerospace, Boeing has decided to double-down on its failed 787 strategy and place an ill-advised, billion-dollar bet on a strategy that’s a proven loser.”
Any investor applauding Boeing’s decision to lower labor costs, by moving to South Carolina, really doesn’t understand the business of building airplanes, Goforth continued. They’re in for a rude shock.
“The cost of labor for a project like the 787 is between 8 and 9 percent of the billions being spent on development,” he wrote. “”Increasing productivity is a much larger factor in driving profitability. Labor controls productivity. Experienced workers can drive a program along the learning curve and toward profitability much faster. An inexperienced labor force comes down the learning curve slower. Therefore, beating down labor costs is little help to Boeing’s bottom line.”
One thing that does help Boeing’s bottom line is steady sales of its tried-and-true, profit-generating 737, which is the airplane of choice for low-cost carriers like Southwest Airlines and Ryanair. Not coincidentally, it’s the airplane built with the most Union labor. District 751 Members in Renton now deliver the planes at a rate of more than one a day.
But one long-time Boeing stalwart, Ryanair CEO Michael O’Leary, now is threatening to “divorce” Boeing and cancel some or all of the 110 ‘Three-Sevens he has on order. The reason? Boeing’s obsession with the 787 is keeping it from running the rest of its business effectively, according to what the outspoken Irishman told the Financial Times.
“Boeing seem to have a degree of internal turmoil,” O’Leary told the London-based newspaper. New Boeing Commercial Airplanes chief Jim Albaugh seems to have been distracted, he hinted, or at least has taken an awful long time to get familiar with the business.
Not that former BCA chief Scott Carson was better, according to O’Leary: “The last time I met Scott Carson I got a 45-minute briefing on how the 787 was coming along,” he told the Financial Times in a recent interview. “I said, ‘I’m not interested in your 787s, we want 737s. You’re not selling any aircraft, so why don’t you sell me some?’ ”
“We won’t continue these discussions indefinitely,” O’Leary said during a Monday press conference. “If they are not completed before the year end, then Ryanair will end its relationship with Boeing and confirm a series of order deferrals and cancellations.”
Analysts noted that O’Leary is famous for his bombast, and suggested that his comments could be partly bluff. Then again, “It would be folly to treat his threats to Boeing as empty ones,” the Wall Street Journal reported online. “O’Leary can well afford to walk away. Ryanair has over EUR2.5 billion in cash reserves, a unique position of strength for any major airline.”