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Business, News, Politics

Washington State Economy Needs That Boeing Bounce…And More

Boeing 787 taking off, unlike the state economy (Photo: Boeing)

All joking is aside in the August update from Washington State’s Economic and Revenue Forecast Council. Chief economist Arun Raha’s deadpan wit–and any optimism–seem to have deserted him. The full sails on a becalmed jobs sea belong to Boeing, whipped from complacency by competitor Airbus.

The Puget Sound Business Journal reports that Boeing’s Jim Albaugh is making noises that re-engining may be in the cards for the 777 as well as the 737. That should all be good news for the Puget Sound region, since production speed is key, and Boeing’s largest, tested workforce resides here.

Writes Raha:

Boeing is growing again. The aerospace sector has added 6,200 employees since the trough in May 2010, more than all the jobs lost from the previous peak in February 2009 through the trough. We expect the aerospace job growth to continue over the next couple of years as Boeing plans significant production increases in all five models of commercial aircraft. Between now and early 2013, total production will rise from the 42 planes per month to 60 planes per month, an increase of more than 40%.

That’s well and good, says Raha, but “Boeing cannot, by itself, save us from the impact of another slowdown in the U.S. economy.” Recently, Raha has made a point of looking for upsides, saying that barring this or that unforeseen incident, the state can expect modest growth. Yet, since 2008, the winds have refused to blow fair. Now the disruption of the Japan earthquake has been followed by a summer of wrangling over the emperor’s new debt ceiling, and even incremental recovery has stalled out:

Major General Fund-State (GF-S) revenue collections for the July 11 to August 10, 2011, collection period were $9.4 million (0.8%) below the June forecast. Cumulatively, collections are $30.8 million (1.3%) below the forecast.

Concludes Raha, “Consumer confidence is in the tank. The risk of the economy slipping back into recession has increased significantly.” Earlier, Gov. Gregoire asked state agency management and employees to prepare themselves for more budget hacking, “as deep as 10 percent, or $1.7 billion, in January,” reports the Olympian.

News

Boeing Board Next to Weigh In on Surprise 737 Re-Engine

Renton Paint Hangar P1 Reopening Ceremony as Boeing gears up production of its 737

Back in February, when Boeing CEO Jim McNerney surprised everyone with his “bias” for a new version of the 737, more than a few people said it didn’t pencil out, Boeing was bluffing to steal some Airbus 320neo thunder, and would have to re-engine.

This week, the Seattle Times‘ Dominic Gates reported on Boeing’s “striking turnaround” to win back long-time Boeing buyer American Airlines from making an all-Airbus order:

Before anyone at Boeing knew about it, last month the airline signed an initial memorandum of understanding to buy A320neos, which will come with new fuel-efficient engines.

To head off that loss, within the last 10 days Boeing gave American a new proposal that offers the 737 jet equipped with similar engines, the sources said.

At the time the deal was announced, American said that orders with both companies were necessary because neither could provide the number of jets the company needed. Boeing would supply 200 narrowbodies: 100 Next Generation 737s and 100 of a new, re-engined 737, powered by CFM International’s LEAP-X engine.

Airbus would provide 260 of its A320s. Gates quotes the reaction of John Leahy, head of sales at Airbus: “If we had sold American 26 aircraft, it would have been a victory for Airbus because it broke Boeing’s 15-year monopoly.”

At Forbes, eyebrows are lifted at Boeing’s fire drill: “The re-engined 737 has not even been approved by the Boeing board,” complains RBC analyst Robert Stallard. (Directors will vote on the decision this August.)

Boeing, sounding a little like that British sketch about “the colonies we’ve still got,” listed the other American orders in the works:

The agreement builds on American Airlines’ existing backlog of 64 Boeing airplanes consisting of 51 737-800s, seven 777-200ERs (extended range) and six 777-300ERs. In addition, American Airlines has an existing purchase agreement with Boeing to acquire an initial 42 787-9 Dreamliners, with the right to purchase up to 58 additional 787s.

If the exact circumstances are embarrassing for Boeing, it’s more worrisome to hear Boeing Commercial Airplanes head Jim Albaugh admit that, internally, Boeing could not come up with a way to produce a new plane with sufficient speed: 40 to 60 per month. Their customers, waiting on 787s and 747-8s, can be forgiven a little concern over whether Boeing still knows how to ship a new plane on time and on budget.

You hear a little of that in Alaska Air CEO Bill Ayer’s phrasing when he says of the re-engined 737, “If Boeing can do this sooner rather than later this is a good thing.” If.

“Our customers wanted more efficiency now and certainty of delivery. We know we’ve made the right decision,” said Albaugh. It probably is, it’s just “regrettable that it took an established Boeing customer to convince them that a response to the neo was needed in the near term,” Michel Merluzeau of G2 Solutions told Bloomberg. Fuel costs are killing airlines‘ profits, and you don’t need to be a rocket scientist to know that an engine is one of the major fuel-devouring parts of an aircraft.

Still, first things first. Boeing’s immediate goal is to clear a 7-year backlog of 737 orders, hopefully finishing up in time for the re-engined model to take off from airports near you around 2018. “The 737 program currently produces 31.5 airplanes per month and expects to go to 35 per month in early 2012, 38 per month in second quarter 2013 and then to 42 per month in the first half of 2014,” says Boeing.

Accomplishing that goal will do a lot to reassure buyers that Boeing’s 787 debacle wasn’t a sign of an organization that has completely lost its way. (Cue the McDonnell-Douglas haters.)