Boeing Says It Will Eliminate 28,000 Jobs
Boeing Co., the aristocrat of world airplane builders, succumbed Thursday to a virulent downturn in the aerospace business by announcing that it will eliminate 28,000 jobs by mid-1994.
Hardest hit will be Washington state’s Puget Sound, a charmed region that has until now escaped the brutal cutbacks affecting Southern California, Texas and East Coast aerospace centers. About 15,000 jobs will be lost in Washington state this year and 4,000 more next year.
Although Boeing officials say they are confident that the reductions announced Thursday represent the bottom of the current downturn in the commercial aircraft business, other experts are more pessimistic.
Major airlines are in dire financial condition, having collectively lost about $10 billion in the last three years as sluggish air travel and tough fare wars have cut profits. Orders for new jetliners may not bounce back until 1995 or even 1996. In the meantime, additional cancellations could continue to undermine even Boeing’s reduced production schedules.
“There is consistent optimism about the way the industry sees these things,” said Don Scales, director of aerospace and defense at the consulting firm Arthur D. Little. “I think the bottom is a little ways further out, probably another year. And then there would be lagged effect on employment.”
The layoffs amount to about 20% of Boeing’s current work force of 143,000. Of the job cuts over the next 18 months, 7,000 will occur in Wichita, Kan., and 2,000 in other areas of the nation. Southern California firms--Boeing’s largest source of parts in the United States--will also feel a ripple effect. Northrop Corp., which builds Boeing 747 fuselages, will lay off 200 workers, for example.
With its cutbacks, Boeing joins McDonnell Douglas Corp. and most other aerospace companies in taking drastic steps to adjust to declining business. Massive worker reductions at such corporate giants as International Business Machines Corp. and General Motors Corp. may strike yet another blow to the nation’s fragile economic recovery.
In the first wave of cuts, Boeing sent layoff notices to 3,500 workers Thursday. The full force of layoffs will hit this summer. The company is hoping that 6,000 of the 23,000 job cuts planned this year can be accomplished by voluntary departures, with the other 17,000 coming from layoffs. As the Seattle economy deteriorates, voluntary departures from the company may slow down, Boeing Chairman Frank A. Shrontz said.
The Boeing slump shatters the confidence that the Seattle area would defy the tough times in aerospace and continue to enjoy a spurt in prosperity that has made it the envy of the nation. Seattle’s unemployment rate is expected to jump one percentage point to 7.5%, and the region has little chance of growth in the next year, Dick Conway, a private Seattle economist, said.
Boeing announced last month that it would have to slash production on all of its commercial aircraft programs, a dramatic turnaround from the confidence that senior executives espoused only last November. At that time, Boeing President Philip M. Condit asserted that Boeing’s huge $90-billion backlog would carry it through tough times without any production cuts beyond those announced in early 1992.
But in the next month, cancellations and deferrals by Delta Air Lines, United Airlines, Japan Air Lines and GPA, an Irish-based leasing company, began to mount.
“These were all surprises,” Larry McKean, Boeing’s vice president for human resources, said. Aerospace analysts seemed less surprised that Boeing’s massive backlog of so-called “firm orders” for aircraft was turning mushy.
“Nobody has been wrong by being too pessimisitic,” said Jack Modzelewski, a securities analyst for the PaineWebber investment firm. “Now, there is a lot of pessimism about how low production can go and how low Boeing stock can go.”
Boeing stock peaked in 1990 at about $60 per share, coming off a massive wave of aircraft orders. About the same time, employment peaked at roughly 165,000.
Boeing stock closed Thursday at $33.875, up 12.5 cents per share, but off 45% from its peak. Modzelewski projected the stock could drop to its book value of $28 per share.
Although industry analysts predict more canceled orders and job cuts, Shrontz said that the layoffs disclosed Thursday take into account future order cancellations to the “maximum extent possible.” United Airlines, for example, reportedly intends to cancel orders for 47 aircraft.
In addition to the deteriorating commercial outlook, Boeing’s defense business has suffered along with other contractors. At least 6,700 of the job losses over the next 18 months will occur in the firm’s defense business, McKean said.
Seattle economists described the Boeing cuts as a “shock” to the economy, and likely to keep the region stalled in a no-growth rut for a while.
“For people in Los Angeles, this is not a time to come up here and look for a job,” advised Conway.
In Seattle, which has ridden the lumpy cycle of the airliner business before, economists predicted Boeing’s work force reduction would cost the region between 49,000 and 54,000 jobs by next year.
In addition to Boeing’s direct losses of 19,000 jobs in the area, the ripple effects will spread throughout related support and service industries that depend on Boeing.
The job reductions at Boeing will be less severe than the catastrophic 70% cut that began in 1969, but recent studies have shown that Seattle is as economically dependent as ever on Boeing.
Boeing’s huge 98,300-person work force in the Puget Sound area accounts for 60% of the manufacturing jobs in the region and by far is paid the highest wages, averaging about $40,800 per worker. At that rate, the 19,000 lost jobs in the region will suck $760 million annually out of the region’s economy.
Times staff writers Doug Conner and John Balzar in Seattle contributed to this story.
* SEATTLE SLIDE: Job cuts at Boeing have the region’s economy reeling. A3
