Boeing Intends to Trim Work Force by 12,000
In an abrupt reversal of its frenetic hiring pace that has strained the entire U.S. aerospace industry this year, Boeing said Tuesday that it will eliminate 12,000 jobs in the second half of next year.
The firm said the reduction plans are based on its expectation of finally resolving the production problems that bedeviled its Seattle-area aircraft assembly plants during much of this year.
“We have been as inefficient as you can possibly be this year,” President Harry Stonecipher said. “When we get to an efficient position, we really ought to be able to reduce employment.”
The firm said it hopes that the majority of the 12,000 jobs can be eliminated by attrition, but it acknowledged that in some areas workers will be laid off or transferred. The cutbacks affect about 10% of the 118,000 employees in Boeing’s commercial aircraft division in Seattle.
The announcement came as a surprise because less than a week ago Boeing offered a $7,500 bonus to retirees to return to work to help deal with continuing problems with Boeing’s new-generation 737-700.
To cope with a rush of orders in recent years, Boeing was forced into an ambitious and risky plan to double its production rates. As it encountered problems, it began adding more workers and scheduling costly overtime. Since 1996, the firm has added 32,000 new workers.
By last summer, the firm’s assembly operations were so short of parts and doing so much work out of the proper sequence that the company shut down assembly on two jet models. The fix-it plan also forced Boeing to take a $2.6-billion charge.
In a telephone news conference Tuesday, Boeing’s top executives said the firm is continuing to make progress in its recovery plan. Although parts shortages are becoming less severe, it is still experiencing some problems. Boeing was short on 1,538 types of parts in mid-December, down from 2,003 in November and 2,600 in October.
Chairman Phil Condit said in an interview Tuesday that the cutbacks could save several hundred million dollars annually. With fewer workers, Boeing will deliver more planes next year, aiming for production of 550 under its Boeing and Douglas nameplates.
“To the extent that you can deliver with 12,000 fewer employees, it is a huge positive,” said aerospace analyst Wolfgang Demisch of BT Alex. Brown & Sons. The cutbacks will also help productivity by freeing up the most experienced workers, who have been assigned to train recruits this year.
Demisch said, however, that he is not raising his earlier estimate that Boeing will earn about $2.2 billion next year, up from an estimated loss of $500 million this year. “It is a little early to declare victory,” he said.
Paul Nisbet, an analyst with JSA Research, sees the Boeing cutbacks as positive and is continuing to recommend the stock.
“It would bother me if they needed to keep all these people,” Nisbet said.
“They’ve been incurring extra costs, because it costs three times as much to insert a part afterward than doing it in sequence,” he said. “As that problem winds down they won’t need the work force.”
The cutbacks, if focused on the Puget Sound region as expected, would decrease job growth in the area to 2.9% next year from a projected 3.6%, according to Dick Conway, a Seattle economist and co-publisher of the Puget Sound Economic Forecaster.
In spite of huge growth in the high-tech sector with such strong companies as Microsoft Corp., Boeing employment continues to be the driving force behind the local economy, Conway said. Boeing was exclusively responsible for pushing the area’s job growth to 5% in the last two years from just 1% in the first half of the decade.
Shares of Boeing rose $1.69 to close at $50.63 on the New York Stock Exchange.
