A Boeing 777 production rate cut looks inevitable, with few deliveries scheduled after 2017. Growing pressure on the industry may also curtail production of other jets, affecting jobs in Everett and Boeing's cash flow.
A downturn in the global airplane business appears to be gathering speed, and the first big impact is clear: Boeing, which is already cutting production jobs on its 777 jet program in Everett, will likely have to announce further cuts within months.
Experts say the effects of a rapid decline in aircraft orders may ripple through other Boeing jet programs, curtailing planned production increases of the 787 Dreamliner and perhaps even the 737.
Executives at Boeing, which is set to deliver 99 of the large widebody 777s this year, have already said they’ll cut deliveries to 85 next year and as few as 66 the year after.
Tens of thousands of people work on the 777 at Boeing and its suppliers in this state.
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Boeing plans to keep building the 777 at those lowered production rates until production of the replacement 777X model ramps up beyond 2020.
But a yawning gap that now looms in the 777 delivery schedule for 2018 and 2019 means even that reduced pace of production isn’t nearly slow enough.
Boeing’s success this month in selling 10 of the 777s to Qatar Airways hasn’t changed that equation.
Industry data compiled by aviation-analysis firm FlightGlobal shows Boeing still has only 29 deliveries of the jet to customers scheduled for 2018 and just nine deliveries the year after.
Boeing, which reports quarterly earnings to Wall Street on Wednesday, declined to comment, though it has publicly acknowledged a looming hole in its 777 production schedule.
Prospects for significant new 777 sales to fill that hole are dim.
After a dozen boom years of soaring orders and rising jet production, a consensus has emerged at aviation gatherings that the airplane industry is stalled and losing altitude.
Sales of current model 777s have dwindled from 194 sales five years ago to just 16 sales so far this year.
Even giant Persian Gulf carrier Emirates, which will have 146 of the jets by the end of month, faces slowing passenger growth. Emirates, the largest operator of 777s in the world, has fed the widebody-jet sales boom more than any other airline.
Emirates CEO Tim Clark, in an email exchange, called it “an almost perfect storm of adversity” for air travel: European economic stagnation, the U.K.’s Brexit vote and other trends toward protectionism, terrorism in Europe and Turkey, the Asian economic slowdown, a slump in Africa and a general overcapacity in widebody jets.
Hong Kong-based carrier Cathay Pacific — another top 777 customer, with 70 in its fleet and 21 of the forthcoming 777Xs on order — said this month its outlook “has deteriorated.”
“Overcapacity and strong competition is putting particular pressure on our passenger business,” Cathay said.
Adam Pilarski, senior analyst with consulting firm Avitas and a longtime aviation-industry expert, said airlines massively over-ordered planes in recent years and now face too much political and economic uncertainty to confidently expand further.
“I don’t see people lining up to buy large numbers of planes,” Pilarski said.
In August, Boeing Chief Financial Officer Greg Smith conceded that without new 777 orders, the company might have to cut production even further than planned.
In September, Boeing Chief Executive Dennis Muilenburg said a decision on such a cut could be delayed no more than two or three months.
Meanwhile, not nearly enough orders have materialized.
This month’s Qatar order brought the net 777 sales total for the year to just 16 airplanes, compared with 54 at the same point a year ago.
A pending big order by Iran includes 15 current model 777s. Despite political opposition, that deal seems likely to go through eventually, and should give the 777 program a huge boost.
But it won’t close the production gap.
Boeing’s newly appointed sales chief, Ihssane Mounir, cannot afford to sell the current 777 planes at fire-sale prices without cannibalizing future sales of the new 777X model due to deliver in 2020.
Conversations with company employees in Everett, speaking on condition of anonymity because they are not authorized to talk to the news media, revealed a sense of foreboding among the workforce.
A manager informed one mechanic’s crew that without new 777 sales, the production rate beyond 2017 could fall as low as 48 jets per year.
The hit to Boeing’s profit and cash flow would be even larger than that figure suggests.
That’s because in 2018 Boeing plans to build the 777X’s initial six test planes, none of which would go to customers that year. And to allow mechanics the extra time they’ll need to assemble the early planes, each of those will have an empty slot — a “blank,” in Boeing’s parlance — before and after its position on the production line.
That would mean actual deliveries to airlines could be reduced to just 30 jets.
Such a dramatic drop of more than two-thirds from this year’s deliveries would inevitably mean big job cuts in the factory.
“There is a lot of fear and concern right now,” said the mechanic.
“The atmosphere is uncomfortable,” said an engineer. “It sounds like layoffs are coming.”
A Washington state study commissioned in 2013 estimated that at that time almost 20,000 people at Boeing worked directly or indirectly on the 777 program, with more than 9,000 additional jobs at 777 suppliers.
If production of the current 777 falls, engineering employment in Everett will likely remain high, buoyed by development work on the forthcoming 777X.
The assembly-line mechanics, as well as workers at suppliers, are the most vulnerable to layoffs if production falls.
In 2012, when Boeing delivered a total 83 of the jets, a Boeing executive estimated that about 3,400 machinists worked directly on assembling the 777 in the Everett factory.
Ramp-ups at risk
As the industry stares gloomily at the end of the airplane-order boom, Boeing management argues that its huge backlog of orders means it won’t see a sharp production impact.
The current 777 model and the 747 jumbo jet both lack that big backlog, which is why these are the two jet programs facing an intense short-term crisis.
Unfortunately, the potential impact of an airline downturn looks broader than that.
Boeing’s 787 Dreamliner had a massive order backlog even before it entered service but has won relatively few orders since.
Now, with 500 of those jets built, the backlog is down to 700 planes.
Muilenburg has already said the company won’t go forward with raising production to 14 jets per month as previously planned unless it secures more orders.
“The 787 rate is starting to look at risk,” wrote Goldman Sachs analyst Noah Poponak in a pessimistic assessment of Boeing last month. “The next rate move is more likely down than up.”
Boeing’s best hope of a large 787 order this year seems to lie with Emirates, which has said it’s weighing a big order with two contenders: the 787 and the Airbus A350.
With both manufacturers desperate for widebody-jet orders, Clark said it’s a good time to buy.
“Never been better: name your price,” he said. “Seattle and Toulouse have the red carpet out.”
Emirates’ assessment of the contending Airbus and Boeing jets is complete, he added, but “an order will only follow once we have a clearer understanding of global economic trends.”
In an article in Airfinance Annual this month, Bert van Leeuwen, Amsterdam-based managing director of aviation research at DVB Bank, cited both the dot-com bubble and the subprime mortgage crisis as possible parallels to the waning airline boom.
He said both Airbus and Boeing need to hold back on planned production increases, calling that “the only thing standing between us and chaos.”
Is Renton secure with the 737?
Boeing looks more secure in the 737 narrowbody-jet segment, where it has a huge backlog of 4,350 airplanes.
On the strength of that, Boeing has said it will increase production in Renton in steps, from the current 42 jets per month to 57 per month in 2019 and possibly higher later.
“That backlog’s looking very solid,” Muilenburg said at a conference in September.
And yet, even the narrowbody-jet market now displays a few signs of distress, especially in Europe.
Carriers serving the Mediterranean tourist market, such as U.K.-based Monarch Airlines, have seen sharply lower traffic after terrorist attacks in France, north Africa and Turkey.
Monarch this month narrowly averted a financial collapse by restructuring a pending 737 order.
Low-cost carrier Ryanair of Ireland — the second-largest 737 customer after Southwest Airlines and the most successful airline in Europe — slightly lowered its profit forecast due to the fall in the British pound after the U.K. Brexit vote.
Avitas’s Pilarski said the free movement of people and goods within the European Union was “a big part of why Ryanair and others did so well.”
The concept of a borderless Europe now looks increasingly shaky. And with slowed trade growth and political and economic unease worldwide, Pilarski is pessimistic about Boeing’s planned trajectory across the board.
“The dramatic increases in (737) narrowbody production will not happen. The 787 increases will not happen,” he said emphatically. “In the short term, they will eliminate the 747. And on the 777, they’ll probably cut the rate further.”