Boeing to cut 747 rate to 6 a year, hopes to avoid layoffs

  • By Dan Catchpole Herald Writer
  • Thursday, January 21, 2016 5:50pm
  • Business

EVERETT — The Boeing Co. announced a further 747 production rate cut, an announcement analysts likened to a swan song.

“They’re keeping the doors open long enough to get the Air Force One order,” said Richard Aboulafia, an industry analyst and vice president at the Teal Group.

The U.S. Air Force has said it wants to order modified 747s to replace the two 747s used by the U.S. president by 2018. The planes are commonly known by the call sign Air Force One. The military has not signed a contract, though.

Boeing said Thursday it plans to make only six 747s a year in Everett starting in September and that it will write off $885 million before taxes as a result.

The company hopes to avoid layoffs due to the rate cut by moving affected workers to other programs, Boeing spokesman Doug Alder said. “If we do need to go down in employment, we’d start with executives and managers.”

Some 747 and 767 teams — mostly in program management and operations — have been combined in recent months, he said.

“We’ll continue to move quickly on identifying more ways to share resources, operate as an integrated program and deploy crews doing similar work for both programs to increase competitiveness” and cut program costs, he said.

The rate cut is driven by a slowdown in the air-cargo market, Boeing Commercial Airplanes President and CEO Ray Conner said in a statement.

Air freight traffic was hammered by the 2008 economic downturn and began recovering in late 2013. However, that “has stalled in recent months and slowed demand for the 747-8 Freighter,” Conner said.

Conner held out hope for the 747’s future, noting the need to replace aging 747-400 freighters.

The company is working “aggressively” to cut production costs and “win additional orders to support ongoing future production,” said Boeing Chief Financial Officer Greg Smith.

Boeing’s 747 order backlog has been steadily shrinking in recent years. It had six new orders in 2015, but cancellations left it with two net orders. The year before, it had zero net orders.

For the past several years, company executives have said the air-freight market will rebound, and they keep pushing out when they expect it to happen, said Scott Hamilton, an aerospace analyst and owner of Leeham Co. in Issaquah.

The demand for jumbo freighters might return eventually, but “I don’t see it happening in time to save the 747-8,” Hamilton said. “I don’t see the 747 recovering from this” rate cut.

The list price for a 747-8 is $379 million, but sales prices are typically deeply discounted.

With fewer future sales expected, Boeing said it will take a $569 million after-tax charge against fourth-quarter earnings, which it plans to announce Jan. 27.

Boeing now makes 747s at the rate of 1.3 planes a month. That is dropping to one a month in March and half a plane in September.

The only time 747 production fell so low was when Boeing started making the current Dash 8 version. The switch from the 747-400 proved to be more difficult than expected, leaving Boeing with no 747 deliveries in 2010.

Once the Air Force One deal is done, Boeing likely will shut down the 747 line, Aboulafia said.

There is little room for the iconic airplane in modern aviation. “It was born in a time when you didn’t dare cross the Rocky Mountains without a third engine,” he said.

It’s popularity primarily came from range and efficiency and “had very little to do with its capacity,” Aboulafia said.

The 747’s cavernous size is a liability for airlines intent on filling seats.

For air carriers needing a big, long-range passenger plane, Boeing’s new 777-9, which is in development, is more attractive and economical than the 747-8, Aboulafia said.

Earlier this month, Airbus Group executives said they expect orders to pick up for their behemoth A380.

“Some people at Airbus are still delusional about prospective sales” for very big planes, Aboulafia said. They “want to maintain a vision of happy unicorns a little longer.”

“It’s the same reality” for Boeing’s 747, he said.

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

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