Cash flow seen as driving Boeing cuts — and possibly layoffs

  • By Dan Catchpole Herald Writer
  • Wednesday, March 30, 2016 9:22pm
  • Business

EVERETT — The Boeing Co. expects to cut about 4,000 jobs in Washington through buyouts and retirements in the next few months. If that and other belt-tightening measures do not trim costs enough, layoffs could come in the second half of the year, a spokesman said Wednesday.

Relentless competition with European rival Airbus Group is driving the penny-pinching efforts, Boeing Commercial Airplanes CEO and President Ray Conner told employees in a webcast in February.

But industry analysts say Boeing likely needs to free up cash to cover expenses. The aerospace giant is spending money on developing new derivative airplanes — the 777X and 737 MAX, buying back shares, and covering losses from the 747 and the KC-46A Pegasus tanker programs. At the same time, competition with Airbus for airplane sales is as stiff as ever, and Boeing faces pricing pressures on 787 Dreamliners and 777 Classics, which will be replaced by the 777X.

“There’s a lot of money going out the door,” said Scott Hamilton, an Issaquah-based aerospace analyst and owner of Leeham Co.

Boeing has limited flexibility on 787 prices as it tries to recoup roughly $32.4 billion it lost building the first 363 airplanes. That tally includes $28.5 billion in production costs and $3.9 billion in nonrecurring costs, including tooling.

Company executives previously have said that 787 production costs are down enough that the program will start chipping away this year at the billions lost. Boeing can’t work down 787 deferred costs if the composite-material airplane’s price drops too much, though.

Pricing inflexibility likely cost Boeing a big order with Delta Air Lines in late 2014, Hamilton said. “Boeing offered 787-9s for $125 million, Delta wanted $115 million.”

Boeing couldn’t come down that far and lost the sale to Airbus, he said. “To say Airbus wins just because of price, though, is not true.”

Either way, the two airplane makers fiercely compete for sales, often significantly discounting prices.

The job cuts and other cost saving steps are part of the company’s plan to “make fundamental changes for the long term to win in the market, fund our growth and operate as a healthy business,” Boeing said in a statement issued Wednesday.

Boeing has said it likely won’t reduce the workforce on airplane programs in development or where production is increasing.

Beyond trimming jobs, Boeing also is squeezing savings by cutting inventory, travel costs and other non-labor expenses, and by renegotiating supplier contracts, company spokesman Doug Alder said Wednesday. “While there is no employment reduction target, the more we can control costs as a whole, the less impact there will be to employment.”

Boeing Testing &Evaluation, a part of Boeing’s engineering division, has reportedly set a jobs reduction target of 10 percent. That would be about 570 fewer jobs.

Since 2012, the company’s Washington workforce has dropped by 9,000 to 77,947 at the end of February. Most of those people work for Boeing Commercial Airplanes, which employs 82,310.

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

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