Boeing says it plans to lay off hundreds of engineers

EVERETT — The Boeing Co. continues slashing its workforce as it seeks to hold off market pressure and make good on promises to shareholders.

The company told workers Monday that it plans to lay off hundreds of engineers by week’s end. The announcement came in an internal memo from John Hamilton, head of engineering for Boeing Commercial Airplanes.

The cuts are needed to stay competitive, Hamilton said in the memo. A copy was obtained by The Daily Herald. “Along with reducing non-labor and supply chain costs, we are also continuing efforts to match employment levels with business and market requirements.”

More cuts could come later this year, he said in the memo.

Monday’s news may have buoyed Boeing’s stock price, which rose by $3.41 to $179.02 by the time trading closed on the New York Stock Exchange.

Boeing has been slashing its workforce for several years. Company executives in December said they plan to cut jobs this year at about the same pace as in 2016, when Boeing’s total workforce dropped by nearly 11,000, including about 7,000 jobs cuts in the commercial airplane division.

The cuts have continued this year. Boeing started 2017 with a new round of buyouts and limited layoffs. So far, the company has trimmed more than 2,000 jobs this year, including about 1,800 buyouts and more than 200 layoffs.

At the end of March, the aerospace giant employed 146,962 people around the world. Nearly half — 70,640 — work in Washington, including more than 35,000 in Everett. The number of Boeing workers in the state has dropped by nearly 9,000 since the end of 2015.

Boeing Commercial Airplanes is the company’s largest division. It employed 74,196 as of March 30. That is down from 83,508 at the end of 2015, an 11 percent reduction.

Friday’s layoffs are expected to affect chiefly engineers around Puget Sound. Workers will receive 60-day notices, making their last day of work June 23. Managers will be included in the cuts, according to a company spokesman.

The union representing the engineers, the Society of Professional Engineering Employees in Aerospace (SPEEA), pressed the company for further information about which employees are likely to be affected, said Bill Dugovich, the union’s spokesman.

“We’ve known that additional layoffs were coming,” he said. However, the lack of details and “abruptness of this announcement was surprising.”

Boeing told SPEEA it is working on providing more information, Dugovich said.

As far as the union is concerned, the cuts “absolutely” are driven by the bottom line, he said.

Boeing executives have promised to keep sending more cash to shareholders and to boost profits to about 15 percent of revenue, more than 50 percent above the company’s performance last year. They also pledged to continue spending billions of dollars to buy back issued shares, driving up the value of outstanding shares.

At the same time, one of Boeing’s biggest profit generators — its twin-aisle 777 jet — is bringing in less and less cash. The company is making fewer of the long-haul airplanes as it develops a successor, the 777X. Both aircraft are assembled in Everett. The 777X is still in development. Boeing and its suppliers have started producing parts for the program’s test aircraft and early production airplanes. It is expected to start flying passengers for airlines in 2020.

To ensure the 777X is assembled in Washington, state lawmakers in 2013 passed a tax break package worth an estimated $8.7 billion over 16 years. The tax breaks go into effect in 2024, after tax benefits granted in 2003 to land the 787 program expire.

Boeing’s job cuts “are causing a significant reduction in overall aerospace workforce,” said Tara Lee, a spokeswoman for Gov. Jay Inslee, who championed the tax package in 2013.

A Boeing lobbyist notified Inslee’s office Monday morning about the layoffs announcement, Lee said. “The governor, the state Department of Commerce, and our staff will continue to monitor the situation.”

With most of the 777X design work finished, Boeing started cutting the number of contract engineers working on the program in the fall.

Boeing is past the busiest periods for several major development programs: the 737 MAX, 777X and 787-10.

The company “probably has a lot of engineers without a whole lot to do,” said Scott Hamilton, an aerospace analyst based on Bainbridge Island.

Boeing Commercial Airplanes does not appear to be rushing to get started on what is expected to be its next major development program: an all-new design to fill a niche between the company’s biggest single-aisle 737 and its smallest twin-aisle, the 787-8, he said.

If the company’s board of directors had earlier greenlighted the middle-of-the-market plane, Boeing would not be cutting as many engineers, he said.

The number of engineers is related to, but does not simply mirror, development timelines, said Dugovich, SPEEA’s spokesman.

Boeing will be all right, so long as its current development programs stay on course, said Richard Aboulafia, an aerospace analyst and vice president at the Teal Group.

But the company could be courting risk if problems arise such as happened on the 787 program, he said.

Boeing introduced major technological innovations and fundamental changes to its supply chain on its 787 Dreamliner. However, problems during design and with the supply chain put the program years behind schedule. On a smaller scale, the company’s new military tanker, the KC-46 also has been dogged by design and supplier issues. In both cases, Boeing powered through the problems, in part, by assigning legions of engineers to the programs.

Competition with rival Airbus Group is fierce, and airlines do not pay more than they have to for airplanes.

However, while market pressures are real, Boeing’s need to slash costs is “mostly self-inflicted” — a consequence of its executives’ focus on rewarding shareholders, Aboulafia said. “They don’t seem to want to break their addiction to giving cash to shareholders.”

Jerry Cornfield contributed to this story.

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