10,000 jobs to go, but Boeing is upbeat about future

Boeing executives painted a rosy picture of the plane maker's 2009 business prospects Wednesday, even as they announced they'll cut 10,000 employees, or 6 percent of its work force, to protect against the possibility things will worsen.

The company ended 2008 with a dismal loss. But Chief Executive Jim McNerney forecast that the year ahead for Boeing's operations will be stable and profitable. And Boeing says it hopes to maintain current levels of airplane production for "several years."

Analysts skeptical

Some analysts questioned that picture of extended calm, wondering whether Boeing can expect to keep production — and employment — at the levels outlined Wednesday.

And for this state, there will be some immediate pain.

More than half the 10,000 jobs Boeing will eliminate are in Washington, including the 4,500 job cuts in the commercial-airplanes unit announced earlier this month.

The additional 5,500 job cuts revealed Wednesday — a combination of attrition, retirements and layoffs — will affect the defense division and the corporate support-services unit and will be spread nationwide. Those let go primarily will be in supporting roles, including contract labor as well as marketing, accounting and office staff.

The Machinists union in a statement said it expects few of its members to be affected.

Boeing employs about 13,000 people in Washington state outside the commercial-airplanes division. So proportional 6 percent cuts in the other divisions should mean roughly 800 more jobs lost in the state, bringing the total cuts here to more than 5,000 jobs.

Focused on upside

Still, on a teleconference announcing the fourth-quarter loss and Boeing's strategy in the economic crisis, the company leadership focused on good news.

McNerney said the new 787 Dreamliner is on track to fly by the end of June, and he expects all six flight-test airplanes to be in the air within four months of the first flight.

While other industries are rushing to shrink capacity amid the economic crisis, Boeing says it plans "stable delivery levels for in-production commercial airplanes over the next several years."

For this year, Boeing still plans to build more than 480 airplanes. Engineering and production staff will have their hands full to deliver the two much-delayed jet programs, the 787 and the 747-8.

And Boeing expects to make money: Management forecast more than $3 billion in operating profits for its commercial-jet division this year.

Executives are shrinking the work force as a conservative cost-cutting measure — a hedge against an expected downturn ahead in the commercial-aviation market and a potential slowdown in U.S. military spending.

"The global economy continues to weaken and is adversely affecting air-traffic growth and financing. We are also expecting pressure on defense budgets," McNerney said on the conference call. "We can and must prepare for the continued market uncertainty."

McNerney said the first major 787 cancellation will be announced today, with an order for 15 Dreamliners wiped from the order book. Air Finance Journal reported the canceled order belongs to S7, a Russian airline formerly called Sibir.

Boeing production this year is solid because airplane deliveries are locked in 12 to 18 months in advance.

Because of the two-month Machinists strike, the plane maker pushed some 2008 deliveries into 2009. It also deliberately overbooks delivery slots.

McNerney said 737 production in Renton is overbooked by 15 percent for 2009 delivery positions. "We feel comfortable" that Boeing will have enough customers to take delivery of every plane it builds this year even if cancellations and deferrals spike as expected, he said.

Cloudy after 2009

Chief Financial Officer James Bell warned that the expected shrinking of Boeing's record order backlog introduces a level of uncertainty beyond 2009. "There is no question things could happen as the backlog moves around."

If airline traffic continues to shrink dramatically, analysts expect production cuts perhaps as early as 2010 — and accompanying layoffs of key workers who design and build airplanes.

"They are delaying the inevitable cut," said UBS analyst David Strauss, who forecasts that production of current models will fall to 360 jets in 2011, with the new 787 adding only another 60 or so deliveries.

Joe Campbell, of Barclays Capital, said at least a mild downturn is hard to avoid, but that an uptick in deliveries from 787 production plus a recovery in traffic could keep Boeing's business close to level.

Surprising as it may seem, Campbell said, Boeing executives effectively said: "We think we can make this."

Boeing lost $56 million in the fourth quarter of 2008, compared with a $1 billion profit for the same quarter in 2007. Boeing Commercial Airplanes' operating loss for the quarter was nearly $1 billion.

Executives attributed the loss to two heavy charges: $1.2 billion due to the Machinists strike and $685 million for additional engineering and supplier expenses on the troubled 747-8 jet development program.

For the year, the strike drained Boeing of $2.5 billion in operating cash flow.

Bell detailed substantial extra costs incurred in developing the 747-8, the new version of the jumbo jet due to fly for the first time late this year.

The wing required extensive redesign, and the outsourcing of component work to lower-cost suppliers caused supply-chain delays.

747-8 still a go

McNerney insisted the airplane, which has little more than 100 orders, still is viable and won't be canceled. In November, initial deliveries of the 747-8 were pushed into 2010.

As for the Dreamliner, McNerney said Boeing still aims to build 10 per month in 2012 and "will evaluate possibilities to increase and/or accelerate that rate."

After all the delays, analysts remain skeptical.

"There's still a long road ahead of them," said Strauss of UBS. "There's still a fair amount of risk to both the 787 Dreamliner and 747-8 programs."

But even those risks are overshadowed, Strauss said, by the debate over how the looming down cycle will hit Boeing.

Because of the charges against earnings, Boeing's overall profits came in lower than internal target levels set by management.

That means the 2008 Employee Incentive Plan (EIP) will pay out only six days of extra pay in February — instead of 10 days for meeting the targets or up to a potential 20 days if the targets had been exceeded.

White-collar workers participate in the EIP, but in contract negotiations last fall the company and the Machinists union failed to agree on including the blue-collar work force.

About 48,000 employees in Washington state will receive the extra pay in mid-February, for a total of more than $97 million.

Companywide, Boeing next month will pay about $220 million in EIP payments to 114,000 eligible employees.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com