Boeing Earnings Call to Shed Light on Airlines, Economy

One of the most-important issues of the year -- aside from the question of what Michelle Obama will wear to tonight's Inaugural Ball -- could get settled next week when Boeing announces its fourth-quarter earnings and discusses its outlook for 2009.

We already know that Airbus out-sold and outdelivered Boeing in 2008. The broader economic question will be whether the world's airlines have started canceling orders en masse, in the face of cash losses and expected sharp drops in passengers. If they have, this would have a direct impact on local economies particularly in the states of Washington and Kansas, where Boeing's commercial jet production takes place, but also in places like California, Texas and Ohio, where key suppliers are located. As a result, economists as well as stock analysts will be interested in what CEO Jim McNerney has to say.

Boeing already has announced it's going to lay off 4,500 workers in its Seattle-based Commercial Airplanes division, starting in the second quarter. That's about seven percent of its Puget Sound workforce.

A lot of the reporting on the layoffs has tied them to weakness in the global airline industry.That's part of it, but a much bigger factor is the ongoing delay of the 787 program. Boeing had expected to start delivering Dreamliners last year and to be taking in checks for upward of $75 million for each one. Instead, the company's been forced to increase spending on 787 development, with no chance to recoup that additional cost till 2010 -- and that's assuming that the company can stick to its revised-for-the-fourth-time delivery schedule.

Tellingly, none of the job cuts are coming from the ranks of production workers. Instead, WARN notices are expected to go to those filling administrative and support jobs. That says to me that Boeing expects airlines will continue to want the 3,714 planes they had on order as of December.
The data, so far, tends to support that assumption. Airlines canceled seven orders with Boeing last year, a rate of just over one percent. (Airbus had a harder time, seeing 123 cancellations in 2008, which is not quite 14 percent of its 900 gross orders.) And two weeks into 2009, Boeing has 13 firm orders on the books (plus another 15 777 freighters to come), with no cancellations.

Still, rumors up here in Seattle are flying that huge production cuts are in the offing. Insiders say there's talk that key customers in Asia are trying to get out of deals they've made to take scores of planes this year. If -- or when, if you listen to the scuttlebutt -- that happens, then Boeing is expected to slash staff at its suburban jet factories. Boeing's suppliers would then follow suit -- Oregon-based Precision Castparts, in fact, has already announced job cuts.

Yet at the same time, there are strong signs that Boeing may be rethinking its largely outsourced 787 manufacturing model. The complicated global supply chain it established for the new carbon-fiber jet has not delivered, and now, after two years of nightmarish Dreamliner delays, Boeing is said to be planning to pull more work back in-house, starting with the 787-9 model, which is set to begin production in 2012. (It has already bought out the share of longtime supplier Vought Aircraft Industries, in a South Carolina joint venture to supply 787 parts. Vought is a Carlyle Group subsidiary.)

All these factors will affect the prospects for aerospace industry employment, which is one of the nation's best-paying manufacturing sectors, and one that -- so far -- has been largely insulated from the economic crisis. (According to Mike Parks, editor of Marple's Pacific Northwest Letter, Washington was the only large state nationwide where manufacturing employment grew last year, and that's largely the result of gains in aerospace.) Gains or losses in aerospace will have real economic impact on communities around the country.

We'll likely hear more about this on Jan. 28, when Boeing announces its 2008 earnings. But for now, it's interesting to read Airbus sales guru John Leahy's comments to Bloomberg last week, about the arms he's twisting to keep his order book intact.

"If someone goes bankrupt obviously we can't deliver an airplane," he said. "But if you're not bankrupt, if we have the plane built it's very expensive not to take it."

Airbus, by the way, is projecting its deliveries will be flat in 2009.