WA aerospace firms hopeful – and nervous – about Boeing woes and labor shortages
Although no Boeing representative attended the annual meeting of aerospace suppliers in Lynnwood last week, the deep-seated turmoil of the region’s giant aircraft maker was the focus of attention.
“The state of the industry depends on Boeing,” Morgan Stanley industry analyst Kristine Liwag said during a panel at the Pacific Northwest Aerospace Alliance conference. “If Boeing isn’t healthy, the industry won’t be.”
As the pandemic downturn eases and air traffic rebounds, local aerospace companies have reason to be optimistic after two dismal years.
Still, Boeing’s plight is rippling through the industry.
The manufacturer is burdened with $41 billion in net debt, which is holding back investment. Its job cuts during the pandemic have caused a drain of experienced engineers and mechanics.
More worrying for its suppliers, Boeing’s production rates remain very low and the company has not provided them with clear guidance on when 787 deliveries will resume and 737 MAX production ramp up.
An executive at a midsize metal parts supplier to Boeing, who asked not to be named to preserve the relationship with its main customer, said “it makes it difficult to create long-term supply agreements raw materials and the budget forecast for raw materials, equipment and labour.
The other worry that most businesses at the conference are concerned about is that as demand recovers from the pandemic, many businesses are desperately short of workers and struggling to hire.
Aerospace Recovery Depends on Supply Chain
Certainly, there was optimism at the Lynnwood rally that the gloom of the pandemic downturn is dissipating.
In his keynote address, Richard Aboulafia, industry analyst and managing director of consultancy firm AeroDynamic Advisory, noted that government financial support has kept many suppliers in business and as a result, “the damage caused by this terrible pandemic has been far more isolated than I feared.
Scott Lathrop, president of Exotic Tool Welding, which supplies precision welding to aerospace, defense and other industries, said loans from the federal Paycheck Protection Program have enabled his company to keep all of its skilled employees in Everett, about 20 people.
Now, Lathrop said, “Things are picking up speed. Looks like it’s coming back. »
Paul Dolan, CEO of a major aircraft modification, repair and overhaul company Aviation Technical Services, said the operation had shrunk to around 75% to 80% of its pre-pandemic size, with around 800 workers in Everett and about 1,300 in total, including its facilities. in Texas and Kansas.
Today, airlines are returning aircraft to service and the demand for aircraft overhauls is increasing. Eager to develop, ATS is recruiting again.
Dolan has raised wage rates to attract workers and late last year restarted its apprenticeship program which trains young people over 18 months to become licensed aircraft mechanics.
“Our success depends on our ability to recruit, train and retain,” Dolan said at the conference.
Kevin Michaels, founder of AeroDynamic Advisory, said the pace of the aerospace industry’s overall recovery will depend on how smoothly the supply chain can move back up.
At Boeing, demand for its short-range single-aisle 737 MAX jet has returned in full force. But the market for Everett-built twin-aisle jets serving long-haul international routes is very depressed. Aboulafia predicted that it would not return to its peak until after 2031.
Given the uncertainty surrounding Boeing’s production rates, there was much talk of suppliers diversifying into the nascent defense and commercial space markets.
With several companies planning to launch thousands of satellites over the next few years, Michaels said vendors able to meet the demand for specialized satellite components will have a lot of work to do.
“These are golden companies,” Michaels said. “They are extremely well positioned.”
Ron Epstein, an industry analyst at Bank of America, suggested that suppliers now reliant on Boeing should consider shifting production to growth areas such as satellites.
“Is it a choice to maybe pivot to supply this industry?” Epstein asked. “If you have big customers today who are unreliable and won’t tell you what production rates they’re building at, maybe that’s a choice.”
That assessment was echoed by Logan Coutts, who works in business development at Metaltech, a Sumner manufacturer employing about 62 people making metal components for aerospace and other industries.
“We will work less with Boeing and more with the commercial space industry,” Coutts said. “There’s a lot more funding involved.”
Uncertainty at Boeing
Boeing chose to boycott this year’s Pacific Northwest Aerospace Alliance conference because of a spiteful lawsuit, settled in June, that alleged a culture of discrimination against women in the organization’s leadership last year. last.
PNAA Acting CEO Nikki Malcom, who had strongly denied the allegations, was named permanent CEO at the conference.
Despite Boeing’s absence, the company’s problems were at the center of the discussions.
Deliveries of the Boeing 787 have been largely halted by manufacturing defects for more than a year, and there is no clear indication when the Federal Aviation Administration will give approval for them to resume. Some conference attendees are hoping for April, but many others don’t expect a recovery until the second half of this year.
Meanwhile, the MAX is ramping up, with production approaching a target of 31 jets per month, but with no definitive information on production rates beyond that.
For companies that make parts for the 787 or 737 MAX, uncertainty is a real problem.
Aboulafia exposed at the conference the biggest strategic void at Boeing. His leadership does not speak of aircraft of the future, which allowed the Airbus A321neo to soar with orders in the large single-aisle market.
“I still think Boeing could come up with a killer product that feels really good,” Aboulafia said. But Boeing, scrambling to fix its problems and strapped for cash, won’t commit to launching one.
The company’s spending on research and development fell 30% in 2020 and another 20% last year, Aboulafia told the conference.
It’s been 18 years since Boeing last launched an all-new airliner design. These launches decide the future shape of the industry and the aircraft manufacturing base of the region.
“Something has to happen this year,” Aboulafia said. “If it’s not, the market share situation gets worse and you can expect it to be a 70/30 market (split in favor of Airbus) in, say, a dozen years. It then becomes just a matter of time before someone replaces Boeing in 20 or 30 years, or whatever it takes.
And Aboulafia added another concern: The drain of machinist skills and engineering talent during the downsizing of the past two years will be difficult to reverse in the post-pandemic job market.
Innovation beyond Boeing
The growth of technology, space and defense companies investing in satellites, innovative space vehicles, new concepts of urban air taxis and all-electric or hybrid-electric aircraft has increased the demand and wages for engineers in this region and around the world. -of the.
When Boeing launches a new plane, Aboulafia said the demand and funding for aerospace and software engineers outside of the commercial airliner industry “fundamentally jeopardizes any chance Boeing has of resuscitating its design teams.”
“Boeing really needs to rethink its relationship with its engineers and employees because otherwise they’re going to be overtaken by so many other different sources of talent demand,” he said.
Coutts, 26, of Metaltech, who grew up idolizing Boeing, with stickers of the 787 on his bedroom wall, said young people coming out of engineering schools are watching the growth of the commercial space industry, salaries offered and media coverage of Elon Musk. and Jeff Bezos, and see this as their future.
“They don’t see the same excitement with commercial aerospace in Washington,” Coutts said.
At the conference, Omer Bar-Yohay, CEO of electric aircraft start-up Eviation, presented a classy example of innovative aerospace engineering opportunities in the region.
He showed video of Eviation’s nine-passenger, two-crew Alice all-electric commuter plane taxiing down the runway outside its assembly plant in Arlington.
“We plan to start flying in a few weeks,” Bar-Yohay said. He predicted that eventually production of the Alice aircraft could reach “several hundred or even a thousand aircraft per year within a reasonable timeframe”.
Exciting as it sounds, such new ventures cannot replicate Boeing’s gigantic impact on aerospace manufacturing in this region.
Bill Alderman, chairman of Alderman & Company, an investment bank that specializes in mergers and acquisitions of smaller aerospace vendors, acknowledged Boeing’s importance and said he was confident its trajectory would eventually recover, as it did. did after past crises.
“Boeing is in a bad place right now and we’re all hurting,” Alderman told a conference panel. “Boeing, I think, will come back.”
In case Boeing wasn’t enough to worry about, suppliers at the conference learned that Airbus wanted a 15% price reduction by 2025 from its global suppliers, reflecting a mandate from Boeing. which has reduced supplier profits in previous years.
Airbus confirmed on Friday that the 15% price reduction target will accompany the increase in work volume resulting from the ramp-up of its production.