That Great Global Economy.
This is not the way to start your workday… to find this email from your boss in your inbox:
“As we enter 2017, our plan calls for us to reduce our Engineering staff. I realize some of this news is unpleasant. But I wanted to respect your right to know what is occurring this year.”
But that’s what happened on Tuesday at Boeing.
Hammered by slowing aircraft sales and a declining order book, Boeing warned on Tuesday in an internal memo that it would conduct involuntary and voluntary layoffs of engineers in Washington state, southern California, and South Carolina, according to The Seattle Times. The memo did not mention the size of the staff cuts.
The memo by John Hamilton, VP of engineering at Boeing Commercial Airplanes, summed the situation up this way:
“We continue to operate in an environment characterized by fewer sales opportunities and tough competition.”
These staff cuts come on top of the cuts in 2016, when Boeing slashed its workforce in Washington state down by 9.3%. That’s 7,357 jobs.
Business has been tough. In 2016, deliveries fell by 14 jets from a year ago, to 748. Net orders dropped 13% from an already rotten level in 2015, to just 668, down 53% from 2014. And the lowest level since 2010!
Of these orders, 550 were for the 737 model. But Boeing only sold 58 Dreamliners, and analysts are speculating that it will need to cut production. And it only sold 17 of its twin-aisle long-range 777, its most profitable plane. In December, Boeing said it would slash production of the 777 by 40%.
Order cancellations in 2016 jumped by 67% to 180 airplanes, another sign that airlines are getting increasingly cautious – and nervous.
Boeing had already given a foretaste of these job cuts on December 19, without going into specifics. It showed that it is slashing jobs faster and more aggressively than forecast in early 2016. The new CEO, Kevin McAllister, who’d succeeded Ray Conner in November, is getting his feet on the ground, so to speak. And Boeing shares hit an all-time high.
But this wave of job cuts communicated on Tuesday isn’t the last one. Production workers will likely get a similar buyout offer on Wednesday, based on what a spokeswoman for the International Association of Machinists union told the Seattle Times.
Hamilton also said that there will be two more waves of job cuts in engineering later this year, the magnitude of which “will be driven by our business environment and the amount of voluntary attrition,” he said.
A Boeing spokesman told the Seattle Times that the company would also “aggressively reduce overall spending in 2017 in non-labor areas.”
In short, orders have plunged 53% in two years, order cancellations have soared, deliveries have dropped, production is getting cut, as wave after wave of layoffs sweep out engineers and productions worker – but no problem. In this wondrous era of ours, stocks can only go up no matter what. Boeing closed up on Tuesday, at $159.07 a share, just a buck shy of its all-time high in December:
The declining order book – Boeing’s first since the nightmare days of the Financial Crisis – is not just a Boeing phenomenon. The industry is under pressure. Airlines have peeked into the future, and they’re not particularly enthusiastic about what they see in the global economy. They react by slashing or even canceling their aircraft orders. But nothing seems to spook investors these days.
Coming soon to a store near you. Read… Get Ready for China’s Hot New Export Product: Inflation
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But we have Amazon, Starbucks – and designer marijuana cookies and neck tattoos.
Why would we want dirty manufacturing and real family wage jobs? Here in the PNW they (one party socialist state in Washistan) have opted for what I call the ‘pole dancing’ light entertainment economy.
The crash will be heard all up and down the left coast.
There is at least one company in the PNW that is doing well in manufacturing audio components for autos, homes and businesses, and that’s AudioControl in Mountlake Terrace WA.
It probably made sense to take Boeing’s headquarters to Chicago economically, but it was a slap in the face to Seattle I reckon.
Speaking of Seattle; way back on 6 August 1955, there was this guy named Tex Johnston. Tex was a damn good pilot, and in front of thousands of spectators and the world’s aviation industry, Tex flew a ‘Dash-80’ prototype of the four engine 707 to show off Boeing’s new plane. Unbeknownst to anyone else, Tex had planned to, and indeed did two barrel rolls smooth as silk right over everyone assembled. When called in to answer to Boeing’s CEO, he was asked, “What were you doing?” Tex’s answer, “I was selling airplanes.”
Boeing needs a new Tex Johnston.
There was a common sense permeating Boeing back in the days which was probably due to the company having gone a hair breadth away from bankruptcy in 1936.
In 1949 the USAF instructed Boeing to delete the ejecting seat from the still-unbuilt B47B bomber as cost and weight saving measure.
George Martin, the B47 program manager, called up Bob Robbins, one of the Boeing senior designers, read the letter from the USAF aloud to him and said: “Bob, I want you to take this letter and put it in a safe place. The day is going to come when the Air Force will regret this decision and I want to be able to make it very clear where the order came to do away with the ejection seats”.
Mr. Martin had serious class!
Chicago is welcoming corporates with financial incentives. ConAgra Foods just moved there last year. Conversely, I think GE ruled Chicago out because it’s so much of a fiscal greasefire. They chose Boston instead. I don’t think ongoing fiscal woes in Chicago will cripple corporates, but it makes me wonder how sustainable it is and why they’d want to go there in the first place.
In this day and age, it will be the citizens who will pony up for Chicago’s financial difficulties, not the corporates. The beauty of owning the government is never having to pay the piper.
… and at Lockheed-Martin?
Lockheed withdrew from the commercial airliner business in 1984, if that’s what you mean.
Of course comments like those of Last Call (wishful thinking) must find a meaningless scapegoat for corporate overproduction, misguided sales forecasts, and just plain corporate reality.
So insipid to blame some local lefties and banter around childish phrases such as “left coast” re: a massive global business with a multitude of profit variables.
America is already tired of right wing scapegoating nonsense. It is like a mental health disease that adds nothing to the betterment of our economy or our culture.
Let’s call it what it is: “Masturbatory political narcissism”
Individualist meet responsibility
“America is already tired of right wing scapegoating nonsense.”
It’s made Amerika what it is: a profiteering free-for-all where only corporations have rights and actual people are only allowed to survive on condition they enrich their masters – a nation dedicated to under-the-radar military conquest of the the planet, hopefully before ecological collapse runs civilization off the cliff in the name of short-term profits.
Half the subject population has well and truly bought into it, and instead of rejecting corporatism has glorified its poster child. Adolf got by on a quarter. So you know where this is going.
“USA! USA!”
Suckers!
All correct.
What’s truly sad is that the democrat powers that be — have bought into what you wrote ( corporatism & militarism ) and abandoned their natural base : working-class Americans .
Mr. Trump filled the void left by the billionaire-friendly Clintons.
The next Democrat-leader would do well to eschew summering in Nantucket’s Vineyard ( every freakin’ summer ), and surrounding her or himself with H’wood mega-millionaires, and then go out and find common cause with the working class.
Since the D party kept Pelosi, and seems to be avoiding seeking out new and more progressive leaders, I am not hopeful at all.
BTW, before anyone out there asserts that the Corporate-icist Pelosi is a friend of the working class, go here :
https://www.opensecrets.org/
then here : https://www.opensecrets.org/politicians/
and then to Pelosi :
https://www.opensecrets.org/politicians/summary.php?cid=N00007360
Click around until you find here “Personal Finances”, shown to be the 7th richest person in Congress as of 2014 ( last year for Pelosi in Open Secrets that I could find. )
She came by her wealth honestly, you can be certain of that.
IT’S ALMOST 1789 AGAIN ! ! !
SnowieGeorgie
and then things can and will turn faster than you can sell.with all our modern education we have learnt how to deceive ourselves.History will repeat itself and the real Lessons will begin
Well said.
gee the 22 billion in stock buy backs and the 10 billion of tax breaks granted by the state washington must have had some effect. no top line organic growth anymore so buyback shares,acquire/merge with other companies with zirp money,or reduce expenses with layoffs. OR move to mexico or
move to state that can give you the best tax credits. this is the new paradigm. ya think trumps new air force one cost warning would have pushed cramer’s sell button .
A Trump useless Tweet in 3….2…..1….whatever….if he has time after calling his Russian hooker babe LOL, or insulting Hollywood further since of course he was never part of that crowd LOL!
“Will the last person leaving Seattle, turn out the lights.” – Seattle billboard in 1971. Read here: http://www.historylink.org/File/1287
Both Boeing and Seattle have seen much worse times than the 2017 layoffs.
Yes, Anon, I remember those times. My uncle, a Boeing engineer lost his job, got very depressed, got cancer, and died a few years later. My grandmother’s church had to start a food bank in Redmond, my old home town, because there were so many people in need. I used to go with her when she volunteered there, and I remember asking her why there were so many hungry people coming to the food bank. “Boeing!!”, she snorted.
Curious, does Goldman Sachs happen to have an ‘outperform’ rating on Boeing?
Not exactly. In Oct, Goldman slapped a SELL rating on Boeing and lowered its price target to $109. Obviously, the markets didn’t listen.
Was it due to the Trump Tweet?
The cost of making America great again is just too darn high!!!
I find hilarious when robotraders scramble to sell or buy based on a tweet but ignore long term trends, such as the complete saturation of airliner markets.
Both Boeing and Airbus have aggressively pursued any deal they could seal over the past fifteen years and now they face a market that’s swimming in supply. An airliner is not a car. It’s designed for a long lifespan. Despite both Boeing and Airbus lobbying like maniacs to prevent refitting older aircraft with modern, better engines, the market for refurbished airliners is out there. Even Delta has started buying used because the deals are just too good to be passed over.
Boeing has a fantastic product in form of the 787 Dreamliner. It’s a highly revolutionary concept, but it’s also a very expensive airliner, with prices starting at US $225 million. A 777-300ER coming off lease can be had fully refurbished and with all certificates for anything between US $55 and 60 million, according to flight time.
Apart from proving Richard Anderson has no idea how much a used 777 costs (the cheapest machines presently on the market are early production -200ER’s costing about $18 million a piece but needing a lot of work to be put in regular service), this makes second hand airliners extremely tempting for everybody but big airlines such as British Airways, JAL and Air France which “have” to buy new for political reasons.
It’s working the other way as well, at least in business aviation,
The prices of 10 year old, large (G550/Falcon 7X and 900) have dropped so much, it no longer makes sense to refurb/upgrade the 20 year old G-5s and Falcon 900s.
There are a lot of airplanes on people’s books showing as “assets” that will only be worth their scrap value on January 1, 2020, when the ADS-B mandate goes into effect.
New airliners don’t make much sense, when fuel is $2/gallon.
It does when life-cycle costs can be cut by 20 to 40%.
The 787 is a beautiful looking aircraft. It is revolutionary in that it is a one-piece composite barrel fuselage. Boeing had cost and delay trouble with it though because they farmed out production of parts to global suppliers instead of keeping control in house all the way.
Airplanes need to fit together perfectly at final assembly, and that was a problem with the 787. The carbon wings, manufactured by Mitsubishi in Japan were troublesome, if I recall correctly, and the lithium-ion batteries caught fire a few times initially.
For my money, the 747 is still the most majestic bird in the sky, and it was designed back in the ’60s by engineers using slide-rules, eh?
The production of an airliner is an assembly of thousand of parts made by many specialized subcontractors.
A aircraft builder would no more produce these in house than a house builder would make its own nails, plumbing fixtures, roof tiles, etc.
Nick, very true, but it is also a balance between keeping control of making most of the main systems, like wings, and the main tube of the machine. IMHO Boeing went across the line on the 787.
“The cost of making America great again is just too darn high!!!”
MAGA would require taxing the rich and/or running up national debt costs beyond any ability to pay, so your betters would be pleased if the usual voter short-term memory loss would kick in sooner, rather than later.
Besides, America could really only have been considered ‘great’ after it defeated the corporatists in Europe and Asia and was taxing them at home. And you know that’s never going to happen again.
Forget MAGA. Plant potatoes. You’re going to need them.
The boom brought on by credit stimulation, to wit LOTS OF CREDIT and EASY CREDIT and ULTRA-LOW interest rates ? Von Mises had a lot to say about that which does not need recitation here.
The boom brought on by credit stimulation merely brings activity ( e.g., sales in some cases ) forward. Until it doesn’t.
Gotta wring all of that malinvestment — or excess production — out of the real economy.
Financialization is a scam by the elites to increase their wealth. And financialization rests entirely on the easy credit policies of the lyin’ thievin’ FED, and their dependent parasite elite banks.
In any case, the elites have gained, and the 99% have lost until now. And from now on, the 99% will continue to lose.
Joe Kennedy of Massachusetts said this of the “Savings and Loan” debacle in the 80s ( speaking of the 99% at the time ), “they weren’t invited to the party and they should not have to pay to clean up the mess.”
As a reminder ( again re: the S&L debacle ) lots and lots of banksters were jailed.
BANKSTERS JAILED DURING OBAMA REIGN : None !
This post boom bust was predicted by Austrian economists, and was always 100% certain to pass.
Read up on Von Mises regarding booms brought on by credit expansion.
SnowieGeorgie
Consider William K. Black’s “The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry”. Published in 2005, it introduced me to the white collar crime of “control fraud”, where the crook is at the top. Enron was such an enterprise. When I saw his 2005 BookTV presentation and read the book I did not think that “control fraud” was so pervasive. Captured regulatory agencies are the product of captured legislators; the Keating Seven being the S&L example. The largess of corporate leaders toward causes is calculated PR cover.
It’s pretty obvious what Boeing needs to do. It needs to diversify.
When America is Great Again workers will need a new fleet of busses and passenger trains to get home every Thanksgiving for turkey, booze, and bowl games. Boeing could re-tool and build busses. (sarc/off)
The days of air travel for working people are fast coming to an end. The experience of swiping the plastic for an unnecessary flight is over.
In the last century, Boeing actually got into the mass transit (terrestrial variety) business, installing a system in Morgantown, WV. I don’t think it was either successful or profitable. They now prefer dealing with customers who can print their own money.
As the focus on rebuilding the economy proceeds forward we’ll need transportation to travel back and forth from our wealth creating jobs.
This upsets globalism fanatics to no end as they perceive their carefully constructed money pump is being bypassed.
-BA civilian aircraft will be on a strict diet.
-In the triad:
stealth, superiority fighters and bombers, Boing is a very important player.
The need for war as is being hyped in the MSM is actually being diffused, it seems to me. This explains the heightened angst of traditional war mongerers who bank large coin by dropping bombs on civilian targets.
Yen shorter than AIG weekend prior to bailout
Asian butterfly new swan
Short squeeze in yen – parabolic stock market?
I wonder how much of this problem is caused by the consolidation of the airline industry. Less competition allows for a reduction in flights to maximize prices but reduces the need for planes. Consolidation also means less competition to maintain the comfort of passengers, so older planes fly longer. And consolidation increases the barriers to entry.
Capital just keeps flowing into the market. Share buy backs, consolidation and actual sales declining. Scared money? Only game in town? It may be that the market will keep rising despite bad news as it’s seen as the safest place in a destabilizing world.
NSC is at 52 week highs and automakers have done a moon shot as well. Where are the astute traders who had the heads-up?
The future is going to be difficult. To much capacity and to little demand. Raise the demand significantly and the resources and energy to build will rise dramatically. For every job Trump *saves* there will be at least one lost. For every trade barrier or tariff raised there will be raising costs internally which will mean more lost jobs.
And all this is outside the record levels of debt, which as someone above pointed out, is buying future demand.
I just can’t figure out how America gets Great Again until after we have a good round of deflation and debt restructuring. Get rid of the huge sucking vacuum of debt and interest payments and then I see an easy path.. That is unless this global climate changes enough to throw one big axle in the gears of the machine.
Trump says he is going to get rid of the over priced big Pharma. Sounds like deflation to me and restructuring. Also with the military acquisitions.. more deflation and restructuring.. Part of me says Bring it on and the other side worries about all those unintended and chaotic consequences..
Part of what’s going on is that the commuter jet makers are upsizing their offerings are are starting to nip into the smaller versions of Boeing and Airbus’ narrowbody products. Examples of this are the Embraer E195-E2 and the Bombardier CS300.
The airliners on the other hand are loving this increased competition.
– I guess stock investors were thinking that a Trump administration was going to increase defense spending.