Boeing’s plans to trim its workforce and streamline operations is being tested even though demand is up, shares are soaring, and it’s ramping up production on older and newer airplane models.
Over the past year, the aerospace and defense manufacturer has cut more than 10,000 employees, or roughly 7 percent of its total labor force. The layoffs were part of Boeing’s long-term effort to curb costs as it lays the groundwork for a new jet line.
“We have to fund our future,” said Kevin McAllister, CEO of Boeing’s commercial airplanes unit, in a recent interview with The Seattle Times. But the “faster, nimbler Boeing,” described by the 54-year-old, who last year left GE to become the first outside executive to lead Boeing’s largest division, appears to lack the manpower to meet demand as new orders picked up again in 2017.
In the past two months alone, Boeing has inked more than $100 billion in deals with Singapore Airlines, China Aviation Suppliers Holdings Company, Emirates, Azerbaijan Airlines and more. These airlines are looking to upgrade or expand their fleets to take part in the increasing growth in air travel, particularly in Asia and the Middle East.
Yet a slew of recruiting efforts suggest that Boeing may not have enough workers with aircraft-mechanic experience to meet future production demand.
In recent months, the company has asked laid off or retired workers to return on a temporary six-month basis. Boeing CEO Dennis Muilenburg said that the company plans to bring back some retirees to “help us on some of our production programs and commercial airplanes.” He said the retirees offer “unique knowledge capabilities where we can quickly apply their expertise to our production lines.”
Additionally, Boeing set up several job fairs near its campuses in Washington state looking to hire assemblers, electricians, and aviation-maintenance technicians.
“That’s the normal ebb and flow of the workforce that come with a big, global industrial company,” Boeing’s CEO Dennis Muilenburg said in a third-quarter earnings call. Muilenburg said that though overall employment in the company has dropped, the company has also hired 11,500 new workers over the last three years. He did not specify which jobs those were.
“They seem to be pursuing profit, and willing to take risks on capabilities and talent,” said Richard Aboulafia, an analyst at Teal Group. “On the other hand, they’ve been cutting very deeply so far.”
He added that Boeing may have to “coax people back with generous packages” if they cut more skilled workers that can handle the pick up in labor.
Though Muilenburg has cut his workforce, he has struck an unlikely alliance with President Donald Trump, who claimed he would help Americans keep their jobs—defending his tax reform plan and staying mum during Trump’s Charlottesville debacle—which has paid off for the company.
Trump personally announced Boeing’s multibillion dollar deals during visits with foreign leaders, and the U.S. government recently awarded Boeing a $600 million contract with the U.S. Air Force to develop a new fleet of the presidential aircraft, Air Force One. Boeing also closed a deal for a $62 billion missile system with the government.
Boeing’s shares have soared 82 percent over the year to $285.90 per share, as of Dec. 8, and the business has enjoyed a long run as leader of the 30 companies that make up the Dow Jones Industrial Average. Sales have also risen in recent years. Boeing’s revenue was $95.6 billion in 2016 compared to $96.1 billion in 2015, according to its annual filings.
In its commercial-airplane group, its most profitable sector because it receives the most orders, Boeing has cut 23 percent of its engineering and technical workforce. The division employed roughly 59,000 workers as of Nov. 30, 2017 compared to 77,000 in the same month last year, according to the company’s website. That’s a loss of 18,000 workers. In 2016, the company only cut 4,000 jobs from the division, and closed a Long Beach, California facility in 2014, affecting 2,200 jobs in order to bring down operating costs.
Boeing also said that the cuts were tied to its transition from the older 777 commercial-aircraft, which is its best-selling model, to the newer 777X, the latest of its large-sized, twin-engine passenger aircraft. It plans to decrease the production rate on the 777 from five planes a month to 3.5 planes, in order to make way for the new model. It received 20 777X orders from Singapore Airlines this year.
The company adjusts its production rate every few months to a year to ensure that planes are delivered on time, but there are no planes standing in the tarmac and they’re on top of delivery deadlines
Aboulafia said that the company could have to raise prices, which would make it less competitive, it makes deep cuts to its workforce while people are retiring.
“They can cut, but can they still deliver?” he said. “They may be right or they might have gone too far.”
Like many manufacturing companies, Boeing has pushed for increased automation across its operations. It has incorporated robotic assembly and it is rolling out upgraded engines for its new 777X model. In May 2016, Boeing launched a new 777X Composite Wing Center in Everett, Washington, which employs a couple hundred mechanics and robots.
“Those development programs have done really well because they are able to leverage their current platforms,” Jeff Windau, an analyst at Edward Jones, said. Boeing’s history as a premier aircraft maker allows it to build upon its existing aircraft and make significant upgrades and improvements.
The company enjoyed a record 202 commercial airplane deliveries in the third quarter, with a total number of 680 airplane deliveries year to date. Its total backlog, which includes nearly 5,700 planes, decreased from $413 billion as of December 31, 2016 to $412 billion as of September 30, 2017, “primarily due to deliveries in excess of orders,” the company said in a statement.
“They seem to be pursuing profit, and willing to take risks on capabilities and talents…We’ll see if they pull it off,” Aboulafia said. “It’s not hubris if you win.”