Boeing Strike Is Stalling Many Airlines’ Expansion Plans : Transportation: Added service has been postponed because of delays in delivering new planes. But some subcontractors are glad to get a breather.
Many of American Airlines’ flights between its Dallas-Ft. Worth hub and Washington’s National Airport are running entirely full these days. But the carrier says it cannot add a new Boeing 757 to the route because the aircraft maker’s machinists are on strike.
America West Airlines wanted to begin new Las Vegas-Houston and Phoenix-Houston routes this month but has postponed those plans at least until January because of delivery delays on some 757s it ordered. Japan Air Lines has postponed indefinitely an increase in its New York-Tokyo and Europe-Tokyo flights, many already flying nearly full. And United Airlines is scratching 14 flights from its schedule beginning Dec. 15.
For these and other carriers worldwide, Boeing’s 5-week-old machinists strike could not have come at a worse time. These airlines were already experiencing delivery delays and shortages of aircraft amid one of the tightest new and used jetliner markets ever.
As the strike continues with no new negotiations scheduled, the situation is bound to get worse. Numerous airlines awaiting delivery of new Boeing planes are being forced to revamp schedules or curtail expansion plans. The impact of the walkout is also exacerbating an already existing shortage of used planes, driving prices--which have been climbing steadily for a couple of years--still higher.
But the news is not all bad. For a few companies that supply Boeing with parts for its planes the strike might be coming as a welcome respite. Many of these subcontractors are already operating at full capacity, so the work stoppage is giving them a chance to catch a breather.
The news is not as bad as it seems for Boeing either. Despite the growing uneasiness of its airline customers, few analysts expect the strike to hurt the Seattle-based firm’s dominant share as producer of two-thirds of the world’s commercial jetliners. That is because its chief rivals--McDonnell Douglas and Europe’s Airbus Industrie--cannot boost production sufficiently to take advantage of the situation.
“I don’t think it is hurting Boeing’s marketing position in terms of making future aircraft sales because the backlogs of all manufacturers are so far into the future,” said Daniel A. Hersh, airline analyst at the Los Angeles brokerage of Bateman Eichler, Hill Richards. Any airline ordering new aircraft now can’t expect to get them until 1993 or 1994, he noted.
However, the strike has already begun to affect the Seattle-area economy, as economists at the Federal Reserve Bank of San Francisco estimate that personal income in the Puget Sound region may have fallen as much as $30 million during each week of the walkout. Some retailers, restaurants and other service businesses are reporting somewhat slower sales.
The strike by 57,800 members of the International Assn. of Machinists & Aerospace Workers began Oct. 3 when employees rejected a three-year contract offer. Both management and union officials appear to be prepared for a prolonged dispute.
Boeing has a total of 150,000 workers, and has assigned some of its engineers, scientists and administrative staff to the factory to keep up some production. As of Monday, Boeing had delivered 19 aircraft since the strike began, a substantial number considering about one-third of its work force is idle. The company was scheduled to deliver 29 aircraft per month.
But Boeing spokesman Mark Hooper acknowledged that Boeing will be increasingly hard-pressed to keep up with deliveries as the strike continues.
“The 19 aircraft were on the flight line and were close to being done,” he said. “What we are doing is working our way from the flight line back into the factory, and those areas are the ones that are most affected by the strike. Deliveries will slow (further) over time.”
Accordingly, Hooper said, Boeing has begun to ask its subcontractors and suppliers to reduce their shipments.
“We don’t need the tremendous volumes of hardware coming in here,” Hooper said. “We are trying to work with each supplier individually and understand what their needs are and have them understand what our needs are.”
At Northrop, possibly the largest Boeing subcontractor in Southern California, the strike has reduced production of 747 fuselages from five per month to four, said spokesman Tony Cantafio.
A spokesman for El Segundo-based Rockwell International, which builds fuselage sections for Boeing’s 747, said the Seattle firm has asked that production be curtailed to 3 1/2 shipsets of parts per month from the normal rate of five per month. Rockwell builds the fuselage sections with a work force of 1,000 at a plant in Tulsa, Okla., spokesman William Mellon said.
However, with only a few exceptions, most Boeing contractors around the country said they have felt little direct impact so far, although they anticipate that if the strike drags on significantly, they will be forced to curtail production.
Torrance-based Allied-Signal Aerospace, which produces a wide range of equipment for virtually every Boeing aircraft, is continuing a normal rate of production, but the company has begun discussions with Boeing to curtail its shipments, said Larry Huppert, director of advanced program marketing at the company. Allied-Signal produces environmental control systems, which control passenger cabin temperature and pressure, for Boeing’s 737, 757 and 767 aircraft.
Similarly, smaller contractors have seen little effect. “Quite to the contrary, we have received correspondence that says in no way should we shut down production,” said Frank Power, president of Sonfarrel, an Anaheim-based producer of machined plastic parts for Boeing jetliners.
Weber Aircraft, a Fullerton-based producer of aircraft seats, galleys and toilets, is operating its factories with two shifts at capacity and has received no orders from Boeing to slow down, said spokesman Ken Khteian.
Airlines, however, are definitely feeling the pinch, some more than others.
At American, the strike has hurt its ability to fully serve its Washington-Dallas route. It is flying it currently with McDonnell Douglas MD-80s, which have a capacity of 142 people, and Boeing 727s, which can carry 150. The 757, which it had hoped to use, can carry 194 passengers.
But American, which was to receive nine new 757s from Boeing this year, has only gotten seven thus far, with the eighth scheduled for delivery later this month. It’s the delayed delivery of the ninth that is causing American its problems.
“It is not allowing us to optimize our revenues on these routes because we cannot fill the demand that is there,” said American spokesman James Brown. “Any time that an aircraft delivery is delayed it reduces planned revenue and property for the year.”
At Japan Air Lines, delayed deliveries come as a severe blow. It was supposed to get five giant Boeing 747-400s during 1989, but because of earlier delays, none had been delivered. Now it doesn’t know when any will be delivered.
This fouls up the carrier’s plans to upgrade service with larger jetliners. The carrier--whose planes already fly 88% full on average--currently operates 10 flights weekly between Tokyo and New York. It had hoped to boost that to 12 or 13 and ultimately to 24.
British Airways is clearly worried about its planned schedule for the winter, spring and next summer. It had hoped to add 12,500 seats on the transatlantic routes in the summer season. But such expansion is now doubtful.
As planes are delayed, prices of used models have been skyrocketing. Morton Beyer, chairman of Avmark Inc., an Arlington, Va.-based aviation management service that appraises aircraft, said the values of used 747s have increased 50% recently and as much as 100% in the last two years.
Richard L. Spaulding, president of USAir Leasing & Service Inc., a USAir Group unit that deals in used planes, said: “If the strike is prolonged, retirements (of aging airplanes) will be extended out. It is bound to affect the prices of the good stuff. People will pay a premium. They’ll say, ‘I can’t afford to lose business because I cannot get planes.’ ”
NEXT STEP:
A federal mediator is trying to bring representatives of the machinists union and Boeing management back to the bargaining table, but no new talks are scheduled. If the walkout goes on much longer, some airlines are expected to cancel summer expansion plans.
BOEING’S FIVE LARGEST BACKLOGGED ORDERS
BUYER TOTAL ORDER TYPE NUMBER 1. United Airlines 273 aircraft 737 158 747 13 757 86 767 16 2. GPA Ltd. (Ireland) 245 aircraft 737 155 757 50 767 40 3. International Lease Finance 126 aircraft 737 91 747 4 757 17 767 14 4. American Airlines 78 aircraft 757 68 767 10 5. Lufthansa (West Germany) 70 aircraft 737 43 747 11 757 16
Source: Boeing Co. Boeing had 1,100 subcontractors in Southern California in 1987. Some of the major current Southland subcontractors and the products they provide include:
Northrop, Electro-Mechanical division (Anaheim): Body panels for 747s
Rohr Industries (Chula Vista): Engine buildup
Parker Hannifin, Fuel Products and Aerospace Hydraulic divisions (Irvine): Hydraulic actuators
Allied Signal/Garrett Corp. (Torrance): Auxiliary power units, cabin air conditioning and temperature control systems, cabin pressurization control systems, wheels and brakes, electrical power systems and avionics
Menasco (Burbank): Landing gear
Continental Graphics (Culver City): Information services including illustrated parts catalogues and automated inventory systems
Western Gear, Applied Technology division (City of Commerce): Actuators for 767s
Tool Research and Engineering Corp., Astech division (Santa Ana): Exhaust ducts
Sources: Boeing, companies Compiled by MELANIE PICKETT
