Top aviation-industry analyst Richard Aboulafia said Wednesday that Boeing’s 777X program could give the jet-maker a significant lead over rival Airbus in the decade ahead.
But he also warned that Boeing management is running big risks with a “penny-wise and pound-foolish” strategy of squeezing its labor unions and suppliers.
Stan Deal, Boeing vice president in charge of the supply chain, later defended the company’s pressure on suppliers to cut their prices.
Aboulafia said the 777X is a winning concept in a size and performance category where Airbus doesn’t yet have a competitive candidate.
- Seattle-area home prices set record; 2nd-fastest rising in nation
- Students seeking sugar daddies for tuition, rent
- Florida man runs over couple on motorcycle during road-rage incident
- The best deli in Seattle that you’ve probably never heard of
- South Florida officers find 2 alligators eating human body
Most Read Stories
“Airbus faces a real challenge to respond to 777X. They are going to have to find $12 billion or so to do something,” he said, adding that failure to do so could result in “a permanent Boeing advantage.”
Aboulafia projected that in the decade ahead Boeing will win a market share of 55 percent by dollar value, versus 45 percent for Airbus. It would be an even larger gap, he said, if not for an Airbus lead in narrowbody jets, where the A320neo has outsold the 737 MAX.
With widebody jets much more expensive,
his market forecast shows Boeing coming out well ahead.
Speaking to local industry suppliers in Lynnwood at the annual conference of the Pacific Northwest Aerospace Alliance (PNAA), Aboulafia also had sharp words for Boeing’s hardball management approach.
He said Boeing’s strategy of forcing major labor concessions on the Machinist union in exchange for building the 777X in Washington “reeks of some sort of psychological exercise rather than an economically driven process.”
“Congratulations,” he said sarcastically. “They saved the cost of a 777 or two per year, and lost the opportunity to work together with the workforce to be innovative and productive.”
“That seems really foolish,” he added.
“If you don’t have the workers on your team working with you and feeling good, you’ve lost a big chunk of the battle.”
Aboulafia said he sees the same dynamic in Boeing’s corporate strategy of pushing suppliers to cut costs by 15 to 20 percent in order to win business on new programs like the 777X.
Boeing Chief Executive Jim McNerney last year said suppliers who didn’t play ball would be put on a “no-fly list.”
Subsequently, Boeing awarded the 777X landing-gear contract to Canadian company Héroux-Devtek, a small player that has made landing gear parts but never built the entire gear for any plane.
That left United Technologies, which makes the current 777 landing gear, out in the cold.
“This effort to squeeze, squeeze, squeeze without regard for the consequences … has engendered a great deal of ill will … and also inherently produces risk,” Aboulafia said.
“Héroux-Devtek is a good company, but they have never done anything like this before,” he said. “You just introduced a level of risk because you put (the United Technologies landing-gear unit) on the no-fly list.”
Speaking at the conference later in the day, Boeing’s Stan Deal defended the company’s cost cutting and the demands made on suppliers.
Deal said that rather than a simple demand to cut pricing, Boeing’s strategy entails systematic efforts to redesign the required work, reduce defects and foster competition among suppliers, with the goal of cutting costs to both the supplier and Boeing.
“It’s not just a margin squeeze,” he said. “It’s a cost reduction on their side, and we get to share in it.”
“There is pressure, I won’t argue that point,” he added. “Is it a painful journey? On occasions it can be. This is a business that takes courage.”
Deal told the local suppliers that, however much they might wish otherwise, Boeing’s program to cut supplier pricing “is not going away.”
In consolation for the downward pressure on their prices, the PNAA audience could at least take heart from Aboulafia’s upbeat take on the state of the aviation industry, which he said is “fundamentally in great shape.”
Aboulafia even offered a significant and optimistic change to his projections at the same conference a year ago.
In 2012, he forecast Boeing would have to cut production around the middle of the decade in a lull between the winding down of current jet programs and the introduction of new models toward the end of the decade.
Wednesday, Aboulafia said he no longer expects that downturn.
He said the aerospace industry remains “the healthiest part of the world economy” and the success of both Airbus and Boeing in selling their narrowbody jets has bridged the previously projected gap.
Dominic Gates: (206) 464-2963 or email@example.com