Boeing finally conceded Thursday it will slash production at its Everett widebody jet-assembly plant, which will result in job cuts in the middle of next year, and probably mean layoffs at Boeing suppliers this year.
Hit by the global trade downturn that has left airlines struggling, Boeing finally conceded Thursday it will slash production at its widebody jet-assembly plant in the middle of next year.
The move will hit employment in 2010 at the Everett plant, which has some 28,000 workers, and could cause layoffs at Boeing suppliers even this year.
It also triggers accounting changes that will cut back company profits starting this quarter.
Boeing spokesman Jim Proulx said the company anticipates the work slowdown will bring “employment reductions beyond those already announced.” Earlier this year, Boeing said it would reduce its commercial-airplane work force by 4,500 by the end of 2009, but said it planned no slowdown in output.
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In the most significant production change, Boeing will slow monthly output of its large 777s in June 2010 from seven planes a month to five — a 28 percent cut.
The planemaker also said it will delay previous plans to modestly increase production of its 747-8 and 767, each currently at about one per month.
Some cuts to jet production were widely anticipated. Last month, Boeing Commercial Airplanes Chief Executive Scott Carson said a 10 percent production-rate cut was possible next year. But the company has downplayed industry observers’ predictions of wider slowdowns.
Boeing’s airline customers, especially those buying cargo jets, have been postponing scheduled deliveries. World air-cargo traffic declined by almost a quarter in 2008, according to Seattle-based consultancy Air Cargo Management Group.
The production cut’s effect on Everett employment may be offset somewhat when assembly of the new 787 Dreamliner ramps up at the plant.
But that will take some time. An executive at a Boeing supplier said the 787 program is no longer planning for a furious buildup, as many customers are likely to defer their Dreamliner deliveries, too.
“Rather than ramping up, the (787 suppliers) are really slowing things down,” the executive said.
If the global economic crisis continues and air travel doesn’t recover, further cuts are likely at other local Boeing plants.
Though Boeing said that “at this time” it intends to hold production steady at its single-aisle 737 assembly plant in Renton, aviation experts believe a slowdown will occur there, too.
Rob Stallard, a financial analyst with Macquarie Research, cited “a widespread expectation that this is just the first of several cuts for this downcycle, with the 737 rate likely to be the next that goes down.”
Because of the shorter lead time needed to build parts for the much smaller 737, Stallard said Boeing still has a couple of months before it has to finalize the narrowbody production rate for 2010. He predicted a cut from 31 per month this year down to 25 per month in 2010.
In a note to clients, Stallard also warned that because some parts for the large 777 have longer lead times, “The impact of the cut to the 777 rate will likely be seen in the aerospace supply chain before the end of this year.” That could trigger some layoffs at suppliers.
Boeing warned that the production decisions and unfavorable pricing trends will reduce its first-quarter earnings “by approximately $0.38 per share.”
That’s a hit of about $275 million, or about 30 percent of Wall Street analysts’ average first-quarter profit estimate of $1.24 per share.
With reduced deliveries, Boeing has to spread its production costs over fewer airplanes, resulting in higher costs per plane and lower profits.
“These are extremely difficult economic times for our customers,” Carson said in a statement. “It’s necessary to adjust our production plans to align supply with these tough market conditions.”
Boeing insisted that the production slowdown is purely a result of deferrals and not outright cancellations.
Airlines have canceled 32 orders for the 787 so far this year, but no 767, 747 or 777 orders have been canceled.
Dominic Gates: 206-464-2963 or firstname.lastname@example.org