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Squawks & HeadlinesBoeing hopeful of 777X deal, may build wings in Japan if rejected

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Boeing hopeful of 777X deal, may build wings in Japan if rejected

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(Reuters) - Boeing Co (BA.N) is hopeful its key machinist union will vote for a labor contract to secure production of the 777X in Washington State, but will look at alternatives, including building the wings in Japan if the deal is rejected, an executive said on Tuesday "We are hopeful," John Tracy, the U.S. aircraft maker's chief technology officer, said during a press briefing in Tokyo with executives from suppliers including Mitsubishi Heavy (7011.T), Kawasaki Heavy (7012.T) and… (www.reuters.com) More...

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PhotoFinish
PhotoFinish 2
This is just Boeing dangling bloody meat in front of Japanese to make them dance in front of the microphone for a press conference that will fill one day's news cycle.

All this to hopefully influence the union vote Wednesday. They need to change the visual from the union official ripping up the contract, to workers' jobs literally sailing off into the sunset to Japan.

Boeing never intends to get to another work stoppage ever again. That entails getting extensions to the labor contracts, years in advance.

Also by dangling the bloody meat of the 777X, Boeing can float much needed reforms to pension and healthcare to mitigate the cost and risk to Boeing over the long-term, allowing Boeing to compete not just with Airbus, but with increased airplane production by the Canadians, Brasilans, Chinese, Japanese. All have narrowbodies or regional jets, either in production or planned. It's only a matter of time before any one (or more) of them upgauges and starts to press the Boeing-Aurbus duopoly on increasingly larger aircraft.

Eventually, either Seattle or Toulouse can become like Detroit, as newer competitors come online with much lower cost structures and without the historical legacy costs that might leave either unable to compete.

I imagine that Boeing is floating greater cost sharing of healthcare, to bring down the runaway healthcare cost growth that has plagued much of the American economy. If each employee has some skin in the game, they'll make better healthcare utilization choices. They'll be more selective about how they spend their healthcare dollars, spending only when they deem necessary for their family's well being and avoiding extra costs of questionable benefit. That careful, mindful spending, benefits everyone, except healthcare providers who are just churning the system for extra procedure revenue. They'll be asked more often: "Is this really necessary?" "What benefit do we get for it?"

Also, Boeing seems to be wanting to make the jump from fixed-payment pention scheme to a fixed contribution pension scheme. This will better control Boeing's long-term pension liabilities. They would contribute to the employee's pension in the year in which their work contributed to Boeing's plane making. The employee gets more control of their retirement assets. Boeing doesn't get stuck with an open-ended liability that can force it into bankruptcy in a future decade, when the costs overwhelm the company's finances, in a changed world with increased competition from newer, nimbler competitors saddled with less legacy cost.

No matter how it turns out, these are all ambitious moves for Boeing to kept its' airplane making relevant for many years into the future. The healthcare and pension reforms have already been instituted at most other workplaces many years ago. Boeing is finally trying to play catch up.

Guess Boeing managers don't care where planes are made, as long as they're Boeing planes. If they aren't careful, planes will continue to ve made elsewhere (the South, and in other countries) but they just might not be Boeings. Some people are trying to make sure Boeing employees have jobs somewhere many years into the future.

The vote Wednesday will help determine where the jobs will be.
preacher1
preacher1 2
It seems to be cut and dried that if the union contract is rejected, the wings will go to Japan. I wonder since the Airbus deal over there if they actually will or if they will slap at them and put it somewhere over here just for spite. Personally, I know unions and their people have done some stupid things but I wonder if they actually will reject the contract or come to their senses. There just ain't that much in the Seattle area. You either work for Boeing or Microsoft or for somebody that is a vendor to them. It will be interesting.
zcolescott
...we'd be happy to build them in Tennessee!! ;)
PhotoFinish
PhotoFinish 1
My humble guess, Boeing would prefer to reach a long-term deal with their workers in Seattle. Mitigates a lot of risk.

But, if the union doesn't accept the long-term contract, Boeing may want to build'em near the SC plant, where they're already building up expertise making the 787. They've taken some hits with the early production there, but can recoup some of that investment, by leveraging that learned expertise to execute on the 777X.

Creating still another manufacturing center somewhere else is also a possibility. Provides for geographic diversification. It means that they won't have all their eggs in one basket, if circumstance forces them to continue downsizing the northwest operation. But doing so, could again repeat the teething pains of the initial move to SC.

Thirdly, Japan is always an option. They clearly have built up the wing expertise lately. Though the 2 contras are: 1) the loss of a large widebody order to Airbus and 2) desire to maintain wing expertise onshore, not necessarily in that order.

But everyone has a role to play. Boeing has to ask if the Japanese are interested. The Japanese have to participate in the show to indicate their desire to do the work. Boeing may end up sending the wing work offshore again. They would continue to do a great job.

But there are options, now. Seattle. Japan. South Carolina. Somewhere else.
preacher1
preacher1 1
You make the comment there at the last about the "desire to maintain wing expertise onshore". 2 things come to mind that may or may not be a factor in all this but are probably being looked at behind the scenes. 1. Although decent now, there is probably a leftover bad taste in somebody's mouth about all the initial problems on the 787 parts that came from Japan, regardless of whose fault. 2. Granted, labor costs would go down if they moved production elsewhere, BUT, how many years would it take to offset the investment cost in new infra structure. This has probably been looked at and calculated and not for public consumption at this time, if ever. Tomorrow's vote will be interesting.
PhotoFinish
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By cost of building the operation in SC and overseas, I mean the teething pains experienced in early production of the 787.

Some of it is early 787 production, but some of it is early production at new sites whether at SC or overseas.

But now that they've taken the hit to build up the expertise in SC, it's there to help produce whatever planes Boeing needs to build.

There is a need to mitigate the quality and consistency issues. Staying with Seattle, South Carolina, or Japan for wings (the Jaoanese batteries have provedto be a mess) would be safer than extending to yet another site at this time.
preacher1
preacher1 1
Yeah, but even going to SC, they'd still have infrastructure costs as basically, all that is there is in use at present time. The land and utilities are available but not in their possession, plus buildings and lines. Putting the people aside, it would be a big deal, although probably the easiest to follow.
PhotoFinish
PhotoFinish 1
Oh yeah, definitely. They'll spend money to make money.

But I was making a separate point that they've had teething issues with SC already. They can probably get better, more reliable and more consistent product out of there.

In a way I'm saying they've paid their dues for running a rookie operation. Of they need to build more facilities and hire more people, they'll have lots of experienced people around to lead teams, to ramp up faster, to troubleshoot more efficiently, etc.
preacher1
preacher1 1
And if nothing else, those poor, uneducated, Southern trash can be taught how to build airplanes