Boeing Chief Executive Jim McNerney, acknowledging that “I’m sounding like Darth Vader here,”
touted plans Wednesday to reduce costs by squeezing suppliers hard and cutting jobs across the company.
Suppliers that don’t agree to cut their prices as contracts are renewed will find themselves on the outside, he made clear.
“We have no-fly lists across the company,” McNerney said. “If a certain group is not working with us … they’ll be on a no-fly list. They’ll not be allowed to bid on new programs with Boeing.”
Speaking during the company’s annual investors conference, held at Kiawah Island Golf Resort near Charleston, S.C., McNerney made no attempt to sugarcoat his focus on the financial bottom line.
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He gave no specific targets for wringing costs out of the company’s supply chain and work force, however.
Boeing’s stock has soared since the grounding of the 787 Dreamliner ended. Its shares closed Wednesday at $97.93, up 30 percent so far this year and just 9.4 percent shy of the record $107.23 in July 2007.
Boeing Chief Financial Officer Greg Smith told analysts the company’s booming production lines should strengthen its cash flow to more than $8 billion this year.
Boeing plans to return around 80 percent of its approximately $4 billion in free cash flow to shareholders.
Yet the company faces a shrinking defense budget and tight commercial-airplane pricing, and the plan outlined Wednesday maintains a relentless focus on increasing productivity and cutting costs.
McNerney said Boeing’s initiative to squeeze costs out of suppliers — a corporate effort dubbed “Partnering for Success” — has already been applied in choosing suppliers for the 737 MAX program.
It will be used again in selecting partners for the upcoming 787-10 and 777X programs, he said.
And the no-fly list is already in effect.
“We have sent out a lot of letters to folks that we’ve told not to bother to bid on those programs,” McNerney said. “We remind them: Don’t bet against Boeing.”
One Wall Street analyst asked McNerney how he will achieve comparable cost cuts within the company.
McNerney responded by praising how Dennis Muilenburg, head of the defense and space division, has cut $3 billion from his budget in the past two years by shedding “double-digit thousands” of jobs.
He added that the commercial-airplane unit is “beginning to do that right now.”
In recent months, Boeing Commercial Airplanes
announced it will shed as many as 4,000 engineering and production jobs this year through layoffs and attrition, citing a stabilization of plane-assembly work and a reduction in re-work on the 787s and 747-8s.
McNerney said Muilenburg got a head start on the staffing cuts, spurred on by the specter of Pentagon cuts. But now it’s commercial chief Ray Conner’s turn to look for ways to reduce costs.
“Ray is getting after it now,” McNerney said.
Barclays Capital analyst Carter Copeland, interviewed after finishing 18 holes at Kiawah after the investor conference, said Boeing aims to significantly shift the profit structure of its supply chain.
While Boeing’s profit margins hover around 10 percent, Copeland said, historically its top suppliers make 15 percent and lower-tier ones frequently are in the 20s, even though it’s Boeing that takes most of the risk.
As for the job cuts, he said those are needed where the workforce had necessarily “ballooned” to deal with the 787 production problems.
More broadly, he said, McNerney is determined to boost Boeing’s profits to a whole new level.
”Lots of industrial companies enjoy profit rates that are substantially higher with far lower risks,” Copeland said.
“Maybe it’s a cold Wall Street view, but the company has a lot of work to do to be considered a best-in-class industrial company,” he said. “This management is finally taking the steps to do it.”
One small gleam of solace for Puget Sound-area employees came when McNerney talked about how Boeing will choose between South Carolina and Washington state to place future work.
Apparently, the East Coast site isn’t a shoo-in.
McNerney said the choice will involve many factors, but strongly hinted that labor deals, as well as supplier agreements, could be key to swinging things Everett’s way.
The Machinists union agreed to a landmark contract extension in 2011 that ensures Boeing of labor peace through 2016, and it dropped a labor-board case against the company in exchange for securing the 737 MAX assembly work for Renton.
Boeing South Carolina currently employs 6,500 people, versus 85,500 people in Washington state.
The big prizes for future work placement are fabrication of the giant composite wing of the 777X, as well as final assembly for that plane, followed in the 2020s by the next new airplane.
“There is a scenario where some of the work would be in Everett, within the context of other kinds of arrangements we’d make with the people who work for us,” McNerney said
“The whole idea is to have choice,” he said. “Now that we have internal competition, we are going to get much better deals.”
Dominic Gates: (206) 464-2963 or firstname.lastname@example.org