Boeing Commercial Airplanes has taken steps expected to eliminate 4,000 jobs by June — and that may be only halfway toward the total cuts this year.
Since Boeing Commercial Airplanes CEO Ray Conner announced a drive to cut the workforce six weeks ago, his team has taken steps expected to eliminate 4,000 jobs by June — and that may be only halfway toward the total cuts this year.
An internal Boeing document obtained by The Seattle Times reveals that at least one company unit is targeting a 10 percent workforce reduction overall.
And people with knowledge of what’s planned say that’s roughly the percentage of jobs expected to be cut. That would translate to as many as 8,000 jobs being eliminated.
Asked about the plans, Boeing said Tuesday the initial jobs eliminated include “hundreds of executives and managers” and that the 4,000 figure will be achieved through normal attrition and a voluntary buyout package for about 1,600 employees.
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The workforce reduction is part of a major cost-saving push that also involves squeezing supplier costs, increasing productivity, shrinking inventory and cutting travel, overtime, services and contractor expenses — an effort that Boeing said “involves taking out billions of dollars in cost by the end of 2016.”
If enough savings cannot be found elsewhere and more job cuts are required, layoffs would come later in the year, Boeing said.
Sean McCormack, Boeing Commercial Airplanes (BCA) vice president of communications, said Tuesday that “our targets are dollar-based.”
“The more we reduce nonlabor costs, the less impact there will be to jobs,” he said.
One Boeing unit in the Puget Sound area — the Test & Evaluation division that conducts flight, ground and lab tests — recently outlined precise job-cut targets in an internal guidance document telling managers what to expect.
It begins: “We anticipate the need to reduce staffing levels about 10 percent before the end of the year.”
Conner first announced job cuts were coming last month in an internal webcast to all commercial-airplanes employees, a precise account of which has not previously been made public.
According to a Boeing transcript of that webcast, Conner said the company needed to drastically reduce costs — and thus airplane pricing — because of fierce sales competition from Airbus.
“Their biggest weapon that they’re using in the competitions today is price,” Conner told employees. “They are attacking us with price in every single campaign. And as a result of that, you know, we’re being pushed to the wall.”
Danger for Boeing
Adam Pilarski, senior vice president with Chantilly, Va.-based aviation-consultancy Avitas, said saving billions of dollars through cutting supplier costs and increasing productivity can only be a long-term goal.
“In a few years, yes, things can change. By the end of the year, are you kidding me?” he said. “The only way you quickly can reduce costs is by laying people off. There’s no magic about it.”
But Pilarski said there is a danger for Boeing in cutting too many jobs, especially as it plans to match Airbus by revving up 737 production to 57 jets per month and 787 Dreamliner production to 14 jets per month.
“I cannot see how you cut employment 10 percent and keep production levels increasing,” Pilarski said. “The two don’t go together. Something has to give.”
Many older, highly experienced blue-collar workers will be leaving the company as part of the cuts.
A person familiar with the figures said more than 1,000 Machinists applied for the buyout when it was offered this month, though Boeing may reject some because they have skills that cannot be let go.
The severance package, designed to appeal to those already intending to retire soon, advances full pension eligibility and also offers a week of pay for every year of service up to a maximum 26 weeks.
Jon Holden, District 751 president of the International Association of Machinists (IAM) union, expressed surprise when informed of the potential scale of the job cuts.
“We have not been notified of these types of reduction numbers,” Holden said.
He said the coming cuts highlight a lack of accountability for the $8.7 billion in aerospace tax breaks extended to Boeing in 2013 to make sure Boeing built the 777X here.
“This should make it clear to the Legislature why it is important to tie guaranteed job numbers to tax incentives, like the other states have done,” Holden said.
Likewise, Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace (SPEEA), is exasperated that “we’re the only state that’s not attaching accountability requirements” to corporate tax breaks.
More than 9,000 Boeing jobs here have been eliminated since fall 2012, many by transferring engineering work to Boeing sites in other states.
“Now we are losing thousands more jobs,” said Goforth.
“That’s our reality, guys”
In justifying the anticipated cuts to employees in last month’s internal webcast, Conner was unusually frank as he invoked a dire threat from Airbus.
He said that Airbus winning 63 percent of single-aisle sales last year with its A320 jets going against Boeing’s 737 jets was “alarming … because the 737 is the biggest contributor to the earnings of the Boeing Company.”
While the 737s had once been much better than the A320s, Airbus has narrowed the gap and the A321neo is now “a very competitive machine against the MAX 9,” Conner acknowledged
He gave the example of Korean Air, previously an all-Boeing 737 operator, which last year split a new order for 60 jets between the 737 MAX 8 and the A321neo.
Even in the market for bigger twin-aisle aircraft, Conner said, “We’ve ceded ground to Airbus.”
He cited another sales campaign last year, when longtime all-Boeing customer EVA Air of Taiwan bought 18 of the largest 787-10 Dreamliners, despite intense pricing pressure from the competing Airbus A350-900.
Boeing had to dig deep to close a large price gap, “not all the way but just enough so we were able to win,” Conner said.
Combining single-aisle and twin-aisle sales, he said Boeing now has 46 percent of the total backlog. Airbus is “trying to drive us to 40 percent,” which he said would anoint the European jet maker as the securely dominant player.
“That’s our reality, guys. That’s what we’re dealing with,” Conner told employees. “And with the market kind of stabilizing here and not seeing the kind of growth or the opportunities for more campaigns, I think we’re going to be in an even tougher fight as we move into 2016 and beyond.”
With that bracing rationale, Conner then laid out bad news of the coming job cuts.
“These reductions apply everywhere, to every work group,” Conner said.
He said he didn’t know how many jobs would be cut, “because a lot of it depends on how efficient we can get … and how much cost we can actually get out.”
“We’re going to start at the executive level and at the management teams. And then we’re going to look at attrition and we’re going to look at voluntary layoffs,” Conner said.
Moving beyond buyouts to involuntary layoffs is “the last thing we want to do,” he said.
South Carolina stable
Some parts of BCA will be affected more than others by the cost-cutting.
North Charleston, S.C., seems relatively safe. Last month, Boeing South Carolina Vice President Beverly Wyse said she expects employment there to be stable for the next few years.
“I don’t anticipate any layoffs,” she said.
Elsewhere, offers of voluntary layoffs have already gone out to units around the company, including to the Southern California customer-support group that Boeing moved from Washington state over the past three years.
Boeing’s workforce in Washington state, including commercial airplanes, defense and corporate units, stood at just over 79,200 at the beginning of the year.
At that time, total BCA employment companywide stood at 83,500.
BCA’s projected tally of 4,000 jobs eliminated by June gets Boeing almost halfway to 10 percent.
If it comes down to getting another 4,000 in the second half of the year, that will certainly be more painful.