The Boeing Co. will evaluate whether to produce the 787 wide-body airplane series in one location, which could halt production of the model at the company’s Everett assembly plant, and the company says it will delay delivery of the first 777X until 2022.
With airline interest in new planes fading, Boeing also said Wednesday it will slow production of the 787 and 777 models and push back an increase in 737 Max output. It will also stop building the iconic 747 jumbo jet in 2022.
Production of the 787 is now split between Boeing’s Everett campus at Paine Field — which also produces the 767, KC-46 Pegasus, 777 and 747 series — and North Charleston, South Carolina. However, only the South Carolina assembly plant is configured to build the largest 787 model, the -10.
The North Charleston plant assembles only 787s. Boeing has been building the planes there since 2012. It is the only location outside Washington where the company does final assembly of commercial airplanes.
Boeing CEO David Calhoun laid out plans that could consolidate production to a single location during a conference call on Wednesday.
“To further de-risk our skyline, taking into account the financial condition of our customers and the geopolitical environment given the lower-rate profile, we will prudently evaluate the most efficient way to produce the 787 to include the studying of feasibility of consolidating our 787 production into one location,” Calhoun said after Boeing announced quarterly results.
Boeing plans to lower the production rate of the 787 next year to six per month.
“We previously planned to reduce the 787 production rate to 10 per month in 2020 and gradually reduce that to seven per month by 2022,” Calhoun said.
“In light of the ongoing challenges presented by the pandemic and the impact on our airline customers, we now plan to reduce the 787 production rate from the current 10 per month to 6 per month in 2021.”
Boeing employed about 35,000 at the Everett campus in three shifts and some 7,000 at the South Carolina location last year, according to a company news release.
Boeing will also end production of the 747, first certified in 1969, by about 2022, Calhoun said, as it completes the last dozen or so orders for freighter versions.
Deliveries of the 777X model, which took its first test flight in January, will be delayed until 2022, Calhoun said. “This reflects our assessment of the development and test timeline, feedback from our customers and projected impacts from COVID-19,” he said.
The combined rate of the 777X and 777 models also will be reduced to two per month in 2021, down from a previous plan of three per month, Calhoun said. Production rates of the 767 and 747 series, both built in Everett, won’t change. About half of 767 production is dedicated to the KC-46 tanker, Calhoun said, referring to the military version of the 767.
In a letter sent Wednesday to employees, Calhoun said “production rate changes are not a reflection on your work or our capability. The market simply won’t support higher output levels at this time, and we need to adapt accordingly.” As a result of COVID-19 impacts and lower demand, “we’ll have to further assess the size of our workforce,” Calhoun said.
Union leaders, meanwhile, will be watching for more than just layoffs. Boeing’s study as to where to continue building the 787 could be concerning to the union workforce in Washington because the South Carolina assembly line is not unionized — though Machinists have tried to organize there.
Jon Holden, District 751 president, told union members in a statement Wednesday: “With the announcement that Boeing is looking to consolidate all 787 production in one site, the International Association of Machinists and Aerospace Workers will work tirelessly to tout the advantages Puget Sound, the state of Washington and our workforce hold for any aerospace company evaluating where to site a manufacturing facility.”
Boeing workers in South Carolina “will be fighting to protect their jobs just like we are fighting for ours,” Holden said. “This is worth mentioning, so that we remember our battle is never with workers in other communities. It is corporations like Boeing that pit us against each other.”
In a message sent Wednesday to all employees in the Boeing Commercial Airplanes division, Stan Deal, the commercial airplanes president and CEO, said that Boeing will further assess the size of its workforce to reflect the shrinking commercial market.
“As we work through our plans, we will try to limit the impact on our teammates as much as possible,” Deal wrote, adding that the company will take an open and transparent approach, “much like we did when the company announced workforce reductions last quarter.” Boeing said in April it would reduce the workforce by 10%, or about 16,000 jobs.
For many affected workers, their last day on the job is Friday.
“While we anticipate more uncertainty before our situation becomes clearer, we do know that there will eventually be an economic recovery and air travel will be an essential part of that rebound,” Deal said. “The actions we are taking now will help prepare us for what is ahead.”
In announcing financial results, Boeing said losses reached $2.4 billion in the second quarter and the company will cut more jobs as demand for commercial aircraft withers in the pandemic.
The losses were far worse than Wall Street expected, as was the decline in revenue, which fell 25%.
“The reality is the pandemic’s impact on the aviation sector continues to be severe,” Calhoun said. “This pressure on our commercial customers means they are delaying jet purchases, slowing deliveries, deferring elective maintenance, retiring older aircraft and reducing spend — all of which affects our business and, ultimately, our bottom line.”
Calhoun said it will take around three years to return to 2019 passenger levels. On Tuesday, an airline industry trade group said air travel won’t recover to pre-pandemic levels until at least 2024, a year longer than previously forecast. The International Air Transport Association cited the inability of the U.S. and developing countries to contain the coronavirus.
So far this year, Boeing deliveries of new airliners — a critical source of cash for the Chicago company — are down 71%. Boeing recorded 59 orders but also 382 cancellations, mostly for the troubled Max, which is built in Renton. Another 323 orders, also mostly for Max planes, were removed from Boeing’s backlog because of uncertainty about the deals going through.
Boeing will produce the 737 at low rates for the rest of the year, said Calhoun, then gradually raise the rate to 31 per month by 2022. “As we see it today, narrow-body airplanes will lead the way to recovery as airlines bring their networks back online, focusing first on domestic routes,” Calhoun said.
The second quarter would have been worse for Boeing if not for its defense and space business, which depends on contracts with governments and has been largely insulated from the pandemic. Revenue in that business was flat compared to a year ago.
The pandemic has compounded Boeing’s problems, which began with the grounding of the 737 Max in March 2019 after two crashes killed 346 people.
The company has been forced to lay off thousands of workers, cut spending and suspend its dividend and share buybacks.
The $2.4 billion loss included more than $1.3 billion in writedowns for production slowdowns, severance payments and temporary closures because of virus outbreaks in Boeing factories. It compared with a loss of $2.94 billion in the same quarter last year, when Boeing took a $5.6 billion charge to cover compensation it owes airlines for the grounding of the Max jets.
The company reported a loss per share, after special items, of $4.79. The average forecast of 20 analysts in a FactSet survey was a loss of $2.57 per share.
Revenue fell to $11.81 billion, down from $15.75 billion a year earlier. Analysts expected $12.95 billion, according to FactSet.
Herald writer Janice Podsada contributed.