Boeing to Slash Aircraft Production 35% : ‘Significant’ Layoffs Planned; Southern California Will Feel the Pinch
Faced with a persistent flow of canceled aircraft orders, Boeing Co. on Tuesday said it will slash jet production and lay off a “significant” number of workers.
The cutbacks by Seattle-based Boeing are sure to be felt in Southern California, where an estimated 1,000 firms supply the aerospace giant with everything from 747 fuselages to passenger seat cushions. In fact, one of Boeing’s key Southern California suppliers, Northrop Corp., said it will lay off workers as a result of the cutbacks.
“The Boeing tentacles are very well entrenched in Southern California,” said Jack Kyser, chief economist at the Economic Development Corp. of Los Angeles County. “What happens to Boeing is important to us.”
Plans call for Boeing to scale back aircraft production by about 35% over the next 18 months. The company will also accelerate previously announced plans to cut the production of some models. Analysts estimated that Boeing might eliminate 10,000 to 20,000 workers during the next two years.
Besides Boeing, United Technologies in Connecticut on Tuesday announced 7,700 additional layoffs at its divisions that make jet engines and electronic equipment for commercial aircraft.
Both aerospace firms are responding to a wave of canceled and postponed aircraft orders by the struggling airline industry. Domestic airlines, which have been hit hard by the recession and intense competition, have lost a combined $8 billion during the last three years. Just Tuesday, American Airlines postponed delivery of eight Boeing planes worth about $500 million.
Despite the mounting losses, Boeing--the world’s largest aircraft manufacturer--had remained bullish. The company expected its huge backlog of orders--totaling about $90 billion--to shield it from the turmoil among airlines and keep its assembly lines humming. But it apparently underestimated the depth of the industry’s problems.
“While we remain optimistic about the longer-term prospects for our business, the present reality is sobering,” said Dean Thornton, president of the Boeing Commercial Airplane Group. “There’s no escaping that this will mean hardship and job losses, and we’ll do everything we can to minimize the impact.”
Boeing’s stock fell $1.375 on Tuesday to close at $35.50 a share on the New York Stock Exchange.
For the first time, Boeing announced a reduction in the manufacture of the 747 jumbo jet--the most expensive and profitable plane in the company’s fleet. Monthly production of the jets, which cost up to $158 million apiece, will fall to three from five beginning sometime next year.
The company did not provide an estimate of how many workers will be laid off, saying only that the cutbacks are “expected to be significant.” Last year, the company eliminated nearly 9,000 jobs through attrition and layoffs.
The news of major production cutbacks set off alarms throughout Boeing’s home in the Seattle region, which is heavily dependent on the economic health of the airplane maker. “A Major Blow to the Puget Sound Economy,” read the headline on the ominous lead story in the Seattle Post Intelligencer on Tuesday morning.
“This is starting to look like one of its worst contractions on record,” said Paul Sommers, research director of the Northwest Policy Center at the University of Washington. While he doesn’t foresee a repeat of the late 1960s and early ‘70s, when the company lost close to two-thirds of its local work force, he added: “I don’t know how bad it’s going to get. It may be 10,000 jobs or more.”
While the Seattle area will shoulder much of the pain, Boeing’s decision will also reverberate throughout Southern California’s collapsing aerospace industry. Last week, McDonnell Douglas announced thousands of additional layoffs at its Douglas Aircraft plant in Long Beach.
Some of Boeing’s Southern California suppliers include Northrop, which makes the main body for the 747 in Hawthorne, and Allied Signal, which produces wheels, brakes and power units in Torrance.
Northrop spokesman Tony Cantafio said the firm will lay off an estimated 200 workers this year as a result of Boeing’s decision. “Next year we would expect further cuts,” he said.
Boeing spokesman Steve Smith said it is too soon to say how its Southern California suppliers will be affected. But “obviously there is going to be an impact, because we are going to be reducing (production) rates across the board.”
The company Tuesday also reported 1992 profits of $552 million, compared to $1.57 billion in 1991. The latest year’s results, however, were depressed because of a one-time accounting charge to cover the cost of retiree health care and benefits.
Times researcher Doug Conner contributed to this story.
