Technology Stocks : Boeing keeps setting new highs! When will it split?
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From: Eric2/5/2014 6:20:25 PM
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Analyst Aboulafia lauds 777X, berates Boeing for creating ‘ill will’

Top aviation industry analyst Richard Aboulafia said Boeing’s 777X could give it a significant lead over rival Airbus but criticized the company’s “penny wise and pound foolish” strategy of squeezing its labor unions and suppliers.

By Dominic Gates

Seattle Times aerospace reporter

Top aviation industry analyst Richard Aboulafia said Wednesday that Boeing’s 777X program could give the jetmaker a significant lead over rival Airbus in the decade ahead.

But he also warned of the high risks Boeing management is running with a “penny wise and pound foolish” strategy of squeezing its labor unions and suppliers.

He said the 777X is a winning concept in a size and performance category where Airbus doesn’t yet have a competitive candidate.

“Airbus faces a real challenge to respond to 777X. They are going to have to find $12 billion or so to do something,” he said. Failing to do so could result in “a permanent Boeing advantage” in the market.

Aboulafia projected an overall market share of 55 percent for Boeing, versus 45 percent for Airbus, in the decade ahead. It would be an even larger gap, he said, if not for an Airbus lead in the narrowbody jet sector, where the Airbus A320neo has outsold the 737 MAX.

With widebody jets much more valuable, his market forecast shows Boeing coming out well ahead.

Speaking to local industry suppliers in Lynnwood at the annual conference of the Pacific Northwest Aerospace Alliance (PNAA), Aboulafia also had sharp words for Boeing’s hardball management approach.

He said Boeing’s strategy of forcing major labor concessions on the Machinist union in exchange for building the 777X in Washington state “reeks of some sort of psychological exercise rather than an economically driven process.”

“Congratulations,” he said sarcastically. “They saved the cost of a 777 or two per year and lost the opportunity to work together with the workforce to be innovative and productive.”

“That seems really foolish,” he added. “If you don’t have the workers on your team working with you and feeling good, you’ve lost a big chunk of the battle.”

Aboulafia said he sees the same dynamic in the Boeing corporate strategy of pushing suppliers to cut costs dramatically in order to win business on new programs like 777X.

Boeing chief executive Jim McNerney last year said that suppliers who didn’t play ball would be put on a “no-fly list.”

Subsequently, Boeing awarded the 777X landing gear contract to Canadian company Héroux-Devtek, a small player that has made landing gear parts but never built the entire gear for any plane.

That left United Technologies, which makes the current 777 landing gear, out in the cold.

“This effort to squeeze, squeeze, squeeze without regard for the consequences … has engendered a great deal of ill will ... and also inherently produces risk,” Aboulafia said.

“Héroux-Devtek is a good company, but they have never done anything like this before,” he said. “You just introduced a level of risk because you put (the United Technologies landing gear unit) on the no-fly list.”

For the local suppliers in his audience, Aboulafia offered a significant and optimistic change to his projections at the same conference a year ago.

In 2012, he forecast that Boeing would have to cut production around the middle of this decade in a lull between the winding down of current jet programs and the introduction of new models toward the end of the decade.

Wednesday, Aboulafia said he no longer sees that production downturn.

He said the aerospace industry remains “the healthiest part of the world economy” and the success of both Airbus and Boeing in selling their narrowbody jets has bridged the previously projected gap.

Dominic Gates: (206) 464-2963 or
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