October 2008 Archives

Tentative agreement

We got the word last night that we’ve reached a tentative agreement with the IAM.

It’s a hopeful sign that we may soon get back to the work of delivering on the more than 3,700 airplanes in our backlog, and get our factories humming again.

The tentative deal is a new four-year contract. Union leaders are recommending that members ratify it. In a statement, the Boeing team points out that we retained the necessary flexibility to manage our business, while making changes to the contract language to address the union’s issues on job security, pay and benefits.

Meantime, Boeing and SPEEA agreed to a one day delay in the start of main-table talks while our negotiators return to Seattle. Those talks will now begin tomorrow.

Tough quarter

In my most recent weeks of travel and meeting with reporters and with customers, the questions I most often heard had to do with the impacts of both the ongoing machinists strike at Boeing and the current economic situation.

Our 2008 third-quarter financial results released today provide some answers. Obviously, with production stopped since early September, the strike has affected all of our commercial production lines - and even some of our defense programs. At Commercial Airplanes, we’ve also been challenged by an ongoing supplier issue involving galleys for some twin-aisle airplanes.

As a result, our commercial deliveries for the quarter were reduced by 23%. Commercial Airplanes revenue was down 16% and operating earnings declined 58%. Overall, Boeing’s net income declined 38% as revenue fell 7%.

Despite those issues, and the challenging global economic environment, our products and services continue to be in high demand. The third quarter saw 149 airplane orders (625 during the first 9 months). That increased our commercial backlog to a record $276 billion – an 8% increase this year.

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After a successful first flight in July, the 777 Freighter continued its flight test program in the third quarter.

We also had some significant accomplishments during the quarter, including completing 787 pressurization and landing gear tests, start of flight control tests, and beginning final assembly of the fourth flight-test 787. We also began building the first 747-8 Freighter and continued flight testing of the 777 Freighter. In Renton, BCA handed off the first assembled P-8A Poseidon to IDS and also completed the first BBJ-3, and Boeing Commercial Aviation Services delivered its 25th 747-400 Boeing Converted Freighter to UPS

We’re proud of these accomplishments, but we’re well aware of the challenges ahead, including our customers’ access to airplane financing. To that end, Boeing Capital is working closely right now with our customers.

With all that, though, the strike remains one of our top near-term issues. It bears repeating that no one wins during a strike. I think our CEO Jim McNerney put it best this morning when he said, “Simply put, we want this strike to end. And we’re committed to working with the union leaders and federal mediator to reach a settlement.” He emphasized that we worked hard to avoid a strike and want to end it as soon as possible.

Tomorrow, federally mediated talks with the IAM will resume. To summarize what we heard this morning, our hope is to resolve the strike – but in a way that rewards our employees while retaining Boeing’s ability to compete in a challenging market and economy. As was discussed during the earnings call, our team believes that our offer was industry-leading, especially when viewed in light of recent developments in the economy.

Next week we’ll begin main-table negotiations with SPEEA, which represents about 21,000 Boeing engineers and technical professionals. We look forward to respectful, productive talks that lead to a fair agreement there as well.

About our backlog - so far in 2008, we’ve had 2 cancellations and about 80 deferrals with no issues in reassigning the deferred aircraft to other customers. But increasing risks remain right now as a result of the financial and market turmoil.

It’s been a difficult time. As mentioned this morning, uncertainties caused by the strike mean we won’t be able to assess the impact on our schedules and deliveries until it ends. Right now, we think the strike will result in at least a day-for-day impact to our commercial programs, but we won’t know for certain until it’s over.

That’s why you saw no financial guidance today. And even when the strike is over, there will be a ramp-up period before we recover the momentum we had before the work stoppage.

In the meantime we’ve been working to better organize our factories for the ramp-up that will continue once we return to work, because, as Jim McNerney said, we remain focused on improving our competitiveness longer-term. That’s something that’s especially important in the current environment.

Down Under in Australia and New Zealand

I mentioned earlier that I was headed to Australia and New Zealand to brief airline customers, news media, banks, industry and financial analysts and government agencies on Boeing’s commercial market outlook for both the near-term and 20 years out. Those of you following our media coverage know that I also made quick stops in Japan and Korea.

The key takeaway from our research and analysis is that, despite near-term challenges facing the aviation industry, air travel is, and will continue to be, an integral part of the economic and social fabric of our world. The aviation industry has proven to be very resilient and we see strong long-term growth.

I arrived in Auckland right at the start of the southern-hemisphere spring. The weather was glorious. Went to a rugby match and enjoyed New Zealand’s national sport.

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During a New Zealand rugby match, a “lineout” brings the ball back into play after going out of bounds.

The trip was incredibly busy, with a full schedule of briefings – especially in Australia. But I did have a free hour in Sydney to stroll The Rocks near the harbor and soak in the view of the famous opera house.

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A look at Sydney’s famous opera house as seen from The Rocks across Sydney Harbour.

Though the stops in Seoul and Tokyo were brief, nearly 80 media outlets attended the sessions. A keen point of interest for both Oceania and N.E. Asia: Over the next 20 years, Asia-Pacific will lead the world in air traffic growth, with annual growth of 7%. This compares to a world average rate of 5% growth in air traffic over the same 20-year period.

Also of interest was a trend of the past 20 years: The growth in intra-Asia air travel has been accompanied by a dramatic growth in frequency — the number of flights available to the flying public — as well as growth in the number of destinations a traveler can get to nonstop, without flying through a hub airport.

This trend shows no sign of letting up in the foreseeable future, and is reinforced by our estimate of airplane sizes. Of all the airplanes delivered in the next 20 years, only 3% will be very large airplanes – 747s and larger. About 65% will be single-aisle planes, and 23% will be twin-aisle.

747-8 revisited

Speaking of 747s, my blog on the new 747-8 intercontinental had one of the highest comment counts so far this year. I guess that’s no surprise. Recently, readers of Flight International magazine voted the 747 the top civil aircraft of all time. And with its new engines, wings, system, and material technologies, the 747-8 Intercontinental is extremely efficient and will have the lowest cash operating cost of any long-range airplane.

On the other hand, our analysis shows that smaller planes with greater range is a strong and established trend. In part that’s because of the risk associated with super-sized planes – having to fill all those seats day in and day out. But in those markets where a large airplane does make sense, the 450-seat new 747-8 Intercontinental will delight passengers and operators alike. Go to newairplane.com to see this great new plane.

Getting back to Australia/New Zealand, there’s lots more I could talk about – including something that turned out absolutely perfect, which I’ll share with you next time.

The Next-Generation

In the midst of everything else that’s going on, I didn’t want to pass up an opportunity to show you some photos from a great event a few weeks ago with a great Boeing customer.

Alaska Airlines has completed a transition to an all-Boeing 737 fleet. At Sea-Tac Airport they celebrated the final flight of their last MD-80, and ushered in a new era with a just-delivered Next-Generation 737-800 in a special Boeing/Alaska Airlines livery.

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Side by side with the MD-80, the newly delivered and specially painted Alaska Airlines Boeing 737-800 airplane, dubbed the “Spirit of Seattle” in tribute to the airline’s now all-737 fleet and their unique hometown partnership with Boeing.

Alaska says their 737-800s use 800 gallons of fuel per hour, versus 1,100 gallons per hour used by the MD-80. They estimate a 20-30% savings in fuel burn. And another key point: the common fleet type will also mean lower costs for operations and maintenance, training and flight crew scheduling. It also pays dividends in terms of fleet reliability and passenger experience.

But Alaska is not alone in their admiration for the 737-800. In fact in the just released annual Airfinance Journal Aircraft Investors’ and Operators’ Poll, the 737-800 was voted best airplane, period.

The 737-800 was voted number one in overall aircraft type, number one in investor appeal, number one in residual value, and number one in re-marketing potential. Not bad for an airplane that’s been in operation for only ten years now.

That’s right. Let’s not lose sight of the fact that the Next-Generation 737 is the newest airplane in the 100-200 seat segment. It entered service in 1998 – 10 years after the A320.

As the Airfinance Poll results indicate, investors and operators are continuing to realize cost savings by investing in fuel-efficient, Next-Generation 737 airplanes. And as Alaska Airlines might tell you, those savings can really pay off.

One down, two to go

The 787 program reached a milestone last Saturday, successfully completing the high-blow test on the 787 static test vehicle in our Everett factory.

This test is one of three static tests on a full airframe that must be cleared prior to first flight. During the test, the airframe reached an internal pressure of 14.9 pounds per square inch (1.05 kilograms per centimeter) gauge (psig) – which is 150% of the maximum levels expected of the airplane in service.

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The 787 static test airframe, at the factory in Everett, has undergone the first in a series of tests to demonstrate the airframe’s durability.

It took nearly two hours to complete the test, as pressure was slowly increased to ensure the integrity of the airplane.

The 787 team was confident going into this test because of the extensive work it’s done on larger and larger pieces of composite – from small coupons to fuselage sections. Still, it’s very rewarding to see a whole airplane being tested and having the results we expected.

With one test down, we have two more static tests before first flight – limit load testing on the leading and trailing edges of the wings.

 

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