Boeing's top customer predicts big production cuts

Two aviation-industry billionaires had tough messages for Boeing workers at a reception before an airplane delivery at Boeing Field in Seattle Friday morning.

Steve Udvar-Hazy, chief executive of Boeing's largest customer, predicted that both Boeing and Airbus will sharply reduce their output in the coming months.

Hazy said jet production could drop by a third in the next 18 months. That would inevitably mean layoffs of blue-collar workers locally.

And Richard Branson, chairman of the Virgin Blue group of airlines, in town to accept a new 777 from Boeing that he was supposed to get before Christmas, described the delivery delay caused by the Machinists strike as "catastrophic."

Branson said that if there's a risk of further strikes in the future, he may not buy Boeing again.

Hazy, chairman and CEO of International Lease Finance Corp. (ILFC), makes huge deals with both the big jet manufacturers and the airlines. ILFC owns the world's largest wide-body fleet and has 74 Boeing 787 Dreamliners on order. He's in a unique position to assess the true state of the aviation business.

His remarks were much more pessimistic than recent cautious statements from Boeing executives, who have declared production is completely solid at least through the end of this year.

Hazy doesn't think so.

"By the fourth quarter, we could definitely see some adjustments," said Hazy. "I'd like to see it sooner."

"It would not be surprising to us if there were 30 to 35 percent cuts over the next 18 months," added Hazy.

He predicted that the two major producers will deliver fewer airplanes next year than in 2009.

Hazy also forecast a massive decline in orders this year.

"Airlines are focused on survival," he said. "Ordering new airplanes is not the flavor of the month."

In fact, he said, this year could see a net negative tally in the order books.

"It could happen that this will be the year when net cancellations and deferrals actually exceed the number of new aircraft orders," Hazy said. "The elements are out there for that to happen."

The year has already begun with negative net orders for both Airbus and Boeing.

The European planemaker booked just four orders in January but lost 12 orders to cancelations, for a net reduction of 8.

Through Feb. 3, Boeing had booked 18 new orders, but canceled 31 for a net decline of 13.

At an interview at the reception, Branson expressed anger at the cost of the Machinist strike to V Australia, the new international unit of his Virgin Blue airline in Australia.

His passengers were left stranded because V Australia's new 777-300ER, parked outside on Boeing Field, wasn't available for the peak holiday travel season down under, Branson said.

"It was a horrible mess that Boeing was on strike. We messed up tens of thousands of passengers over Christmas," he said. "We had to buy tickets on other airlines and scramble to get seats which weren't available. The financial damage in an industry where the margins are minute is catastrophic."

Boeing typically includes clauses in its contracts so that it is not required to pay airlines compensation for delays due to strikes.

"We're already thinking there's another lot of planes we want to order. Do we give it Boeing or should we go to Airbus, which doesn't go on strike? ," Branson said. "We have a choice. Do we have to come back to Boeing? If there's a danger of ever having another strike, we won't."

At this point, Branson turned to Hazy, who was standing beside him, and said Hazy had been making the same point at dinner last night.

"You can't deal with companies that are unreliable," Hazy said.

At the suggestion that Boeing could hardly guarantee no future strikes, Branson said he would have to examine whether Boeing has "an unreliable management/workforce situation."

"Britain was plagued by strikes 30 years ago," added Branson, who is English. "America should have got over this by now."

Dominic Gates

(206) 464-2963 dgates@seattletimes.com