Analyst: Boeing’s hard line could be costly in long run

LYNNWOOD — The Boeing Co. has a bigger share of a historically big backlog of commercial airplane orders than rival Airbus, thanks to the new 777X jetliner. It’s an enviable position.

But a “penny-wise and pound-foolish” attitude toward employees and suppliers could later hurt the Chicago-based company, a leading industry analyst said Wednesday.

Richard Aboulafia of the Teal Group in Fairfax, Va., addressed the annual conference of the Pacific Northwest Aerospace Alliance. He said Boeing’s efforts to drive down labor and supplier costs might yield short-term savings but could also have a down side, including missed opportunities for innovation by shop-floor workers who might now be disinclined to help the company improve factory efficiency.

“Boy, does that seem foolish,” Aboulafia said.

Boeing and Airbus continue to dominate the large-jet sector, leaving little, if any, room for new manufacturers to enter the market.

The acute demand for passenger planes defies the industry’s history of aircraft demand closely shadowing economic cycles, Aboulafia said. When the recent economic crisis hit, demand was unabated, and no market correction seems to be looming, he said.

Demand is sustained by a complex set of circumstances, including increasing passenger traffic, fuel prices and cheap financing, Aboulafia said.

Historically, fuel costs and borrowing costs have stuck close, but they’ve drastically diverged in the past decade. In simplest terms, airlines have been able to afford to finance new, more-fuel-efficient planes to meet growing passenger loads and to cut operating expenses.

Commercial jets “became safer than T-bills in a lot of ways,” Aboulafia said.

Those circumstances can’t last forever, but the industry appears to be in good shape in the next few years, he said.

Narrow-body jetliners have been especially popular, he said.

Airbus has a slightly larger share of that market than Boeing, which has a strong lead in the wide-body market, thanks to the attractive promised efficiencies of the 777X.

“Airbus faces a real challenge to respond to the 777X,” Aboulafia said.

Boeing has said the aircraft will be assembled in Everett, and its carbon-fiber-composite wings will be produced in metro Puget Sound. The company is expected to announce where in the next few weeks.

Late last year, Boeing pitted states against each other in a much-publicized hunt for potential 777X production sites.

At the same time, the company pressed its largest union — the International Association of Machinists and Aerospace Workers — to accept a long-term contract extension that cut negotiated benefits and compensation in return for putting the work in Washington.

The 33,000 leaders and members of the Machinists union who work at Boeing were deeply divided over the contract, which was narrowly approved by voting members in early January.

Washington Gov. Jay Inslee led the state’s campaign to land the 777X. Speaking to attendees at the PNAA conference Wednesday, the governor applauded the Machinists, calling them the “best aerospace workers in the world.”

The admiration isn’t entirely mutual. About 30 union members and supporters marched outside the Lynnwood Convention Center in below-freezing temperatures, protesting Inslee’s role in the Boeing contract negotiations.

For union members opposed to the contract, Inslee and several other state and local elected Democrats had all but endorsed a yes vote on the company’s proposal.

“They can’t make up for their positions,” said Henry Nobel, a retired Boeing employee and former Machinist.

Nobel said he wants Inslee to use his office to push federal labor regulators to overturn the contract.

The PNAA conference concludes today.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com.

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