“We know as we’re investing there, we’re also creating a competitor.”
Boeing, the largest US exporter by dollar value, faces a tough environment for commercial jetliners. In 2016, net orders dropped 13% from 2015 and 53% from 2014, to just 668 planes, the lowest level since 2010! Through June 6, 2017, Boeing has just 208 net orders.
The company is under pressure to cut costs. So there has been wave after wave of job cuts through voluntary buyouts and involuntary layoffs last year and this year. Its payroll has shriveled by about 30,000 workers over the past five years. At the end of May it was down to 145,000.
So Boeing is moving some work to China and other locations overseas, CEO Dennis Muilenburg explained to the Wall Street Journal in an interview. He has been calling the business climate in the US “uncompetitive,” according to the Journal. Boeing is building some plants overseas. One of them is near Shanghai that will complete aircraft made in the US. Workers will paint the planes and install the interiors, such as seats and other fittings. That’s the first step.
It has a Chinese partner, which is required in China to do business in China. There will be technology transfers, which is also required. The Chinese partner is state-owned Comac, which is leading China’s efforts to become an aerospace giant to compete with Boeing and Airbus. Comac already supplies Boeing with parts for its aircraft. Comac’s own jetliner, the C919, which is the size of Boeing’s 737, completed its maiden flight a month ago.
Muilenburg, who has no illusions about this, said: “We know as we’re investing there, we’re also creating a competitor.”
This is the same process that high-speed train makers from Japan, France, and Germany went through. China bought some train sets and other equipment from each. There were joint ventures, technology transfers and the like. And now China, having gained what it needed from these companies, is cranking out its own high-speed train sets and other equipment that it is not only using in China but also selling around the world, in direct competition with the Japanese, French, and German companies where much of this technology originated.
The CEOs were hailed at the time for opening the door to China. And why would they be willing to create competitors in China? That question arose a lot. The answer was that the high-speed train makers in Japan, France, and Germany would innovate and stay ahead of the Chinese, and that their technology would always be better, which would protect their market share.
Now these CEOs have moved on. And the new CEOs are struggling with competition from Chinese train makers every time a country is looking at building a high-speed rail system – and there are now a lot of them, including the US, where a number of states are deeply into it.
Automakers have gone through the same process, as have other sectors. Now it’s time for aerospace companies.
China has 1.3 billion people it needs to fly around. So China needs to have a lot of planes. It’s a huge market. Muilenburg said that over the next 20 years, 6,800 planes will be sold in China. So Boeing is going to invest in China, create jobs in China, and transfer technology to a state-owned company in China in order to play in China.
But he said that completing planes in China will not affect Boeing’s manufacturing workforce in the US and that these plants Boeing is building overseas aren’t, as the Journal paraphrased him, “directly harming US jobs.”
“My goal over time is to add manufacturing jobs, but these will be different kinds of jobs,” he said.
Boeing is “transforming” how it manufactures planes, Muilenburg said. He is pushing for more automation, innovation, and new technologies in in manufacturing to lower costs. That’s where the biggest benefits may come from. The opportunity of how the company manufactures planes “is even greater than some of the product innovation that we’re going to bring to the table,” he said.
Innovative methods of getting costs down, offshoring some of the work to countries where labor is cheaper – which Boeing is already heavily relaying on via its global supply chain for components – and more waves of layoffs… It sounds like a plan shareholders will appreciate. Throw in a $14-billion share-buyback announcement, and it makes for a nice basket of goodies, though not necessarily for the workforce at Boeing.
Shares of US Defense Contractors not amused. Read… “Largest Single Arms Deal in US History” Turns into “Fake News”
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