Boeing Girds for Tougher 2009 With Layoffs

Jan 18, 2009
By Michael Mecham

Despite record backlogs, aircraft manufacturers and their suppliers are issuing pink slips in order to reduce overhead to better position themselves should they be hit by a major industrial downturn in 2009.

The bad news isn't universal. Production workers, particularly those with specialized skills, are still being hired.

The layoffs are mostly aimed at administrative and contract workers. The most far-reaching example is the 4,500 jobs that Boeing Commercial Airplanes (BCA) says it will soon drop, but the trend extends to all three principal engine makers and a number of major equipment suppliers. Civil suppliers are most vulnerable, especially in general aviation. Cessna, Hawker Beechcraft, Diamond Aviation and Cirrus Design have reduced their staffs by a combined 3,430.

So far, manufacturers with military work are weathering the gathering storm best. But analysts expect a crunch later as governments, especially the U.S. with the incoming Obama administration, scramble for funds as they struggle to shore up markets.

Even those that have escaped so far are crossing their fingers. Orders for aircraft, parts and search-and-navigation equipment dropped 14% from 2007's record level. But there are some bright spots. The industry's 2008 backlog is higher than ever at $404.5 billion and 10,000 jobs were added last year, the Aircraft Industries Assn. (AIA) reported in a year-end assessment.

BCA acted despite its 3,700-aircraft backlog and a push to get back on schedule after last year's machinists' strike cost it 100 deliveries.

GE Aviation will trim 1,000 positions despite coming off its third-highest year for new orders - 2,908 - and its backlog of 9,200 engines. It has enough work to keep its staff busy through 2012.

Pratt & Whitney, which has kick-started the race to build an engine for the next-generation single-aisle aircraft with its geared turbofan design, laid off 350 salaried employees at the beginning of December to address "the impact of the current global economic conditions on the aerospace industry."

Rolls-Royce's need to hold down costs, sparked in part by a weak U.S. dollar, prompted it to cut 2,300 jobs in its U.K., European and U.S. facilities.

Similarly, Rockwell Collins idled 300 full-time, and 100 contract, workers late last year in both its civil and military operations in anticipation of a need to keep costs in line during a sour 2009. It acted, in part, because of the effects of the Boeing strike.

Proportionately, these losses are relatively small. Rockwell Collins has 20,000 workers, Rolls-Royce 23,300 and GE Aviation 39,000. BCA added nearly 4,900 jobs in the first 10 months of 2008, boosting total employment to more than 68,000. Two needs drove its hiring: the backlog in its current models and introduction of the new 787 and two major derivatives - the 747-8 and 777 Freighter. All three are behind schedule.

Boeing's announcement of the cuts drew a rebuke from Executive Director Ray Goforth of the Society of Professional Engineering Employees in Aerospace (Speea), who noted that in December the company posted a 14% quarterly dividend as Chairman and CEO Jim McNerney cited "our strong financial performance, record backlog and significant liquidity."

"These announced layoffs are puzzling," says Goforth. "We wonder what has changed since Dec. 10."

For one thing, Boeing likely is keeping close tabs on cash flow. BCA is paid the bulk of its money for new aircraft upon delivery. With the strike and production woes playing havoc with deliveries, cash influx was slowed. McNerney and Chief Financial Officer James Bell are expected to address these and other issues when they give their 2008 earnings report and 2009 forecast on Jan. 28.

Speea asserts there are 2,560 contract workers in BCA's factories doing jobs that should be performed by its members. It is unclear how many of those will be at risk, however. Boeing says contract workers are used to help transition past production bottlenecks or fill in when the company cannot find qualified personnel for full-time positions. Production personnel may be hired even as other workers are let go, the company states.

Boeing's situation ripples across the industry. So far, navigation and flight control systems maker Honeywell is holding its own on the job front, but an official says a lot depends on the Seattle manufacturer's demand. At airframe maker Spirit AeroSystems, which had to shorten workweeks and furlough employees during last year's Boeing strike, everyone is back to work full time. However, the outlook for 2009 is "uncertain, but hopefully stable," an official says.

The 787 has proved to be Boeing's biggest headache because it is running two years behind schedule while customers holding nearly 1,000 orders wait for deliveries. One indication of how much it is struggling, says UBS Investment Research analyst David Strauss, is the arrival rate of major assemblies flown in from Boeing's key foreign and domestic suppliers. December shipments to the 787 factory in Everett, Wash., were "well below pre-strike levels," he says.

Proportionately, the industry's biggest losses may turn out to be in both the general and business aviation sectors, particularly the emerging very light jet market. Eclipse Aviation has filed for bankruptcy protection. Cessna has laid off 2,500 and Hawker Beechcraft, 500. Cirrus Design tried shortening workweeks to get by but has let 250 workers go and furloughed another 100. Diamond Aircraft has let go of 180 of its 684 workers. Last October, Piper Aircraft cut workers' hours to avoid layoffs.

Downsizing is not universal. "For the time being, we are not preparing a significant reduction of employment inside the company," says EADS CEO Louis Gallois, speaking of its Airbus entity. "But we are assessing the situation every day."

He notes that Airbus has many temporary workers who could be let go before full-time employees are cut.

Executive Vice President Tom Williams, who heads programs at Airbus, adds that contingency plans are being reviewed. Possible scenarios include bringing outsourced work back in-house. Overtime and shift work are also being scrutinized.

But Williams is emphatic that Airbus has been conservative in ramping up its production and "we will also be conservative on the way down."

Airbus wants to be cautious about cutting too quickly. "It takes a long time to build skills" in factories, Williams says.

Overall, civil aviation accounts for 60% of the aerospace and defense sector's employment, notes AIA Research Director Bill Chadwick. One twist on the 2009 airline story is that because U.S. carriers - the traditional problem children of the industry - have already gone through some painful restructuring, they are better positioned than they were a year ago for hard times.

Still, AIA has had to dim its forecast. Last January, the industry employed 654,600 workers and AIA thought another 10,000 would be added during the year. But with general aviation sales getting hammered and the Boeing strike casting its long shadow across the industry, the figure stood at 655,900 at the end of November 2008.

When it comes to its more recent forecasts, AIA has changed its expectations for job growth. It is now being "prudent" rather than "cautiously optimistic."

Because two years of U.S. federal spending is essentially locked in, defense is proving to be a stable asset on the jobs front. But faced with the worst economic crisis since the Great Depression, defense spending will come under enormous pressure.

"The bailout money has to come from someplace," says Chadwick.

To keep it from coming out of defense, AIA is lobbying Congress and the fledgling Obama administration with the view that defense spending is a "proven jobs provider."

With Robert Wall in Paris.