Boeing, Airline Industry Face Huge Problems

Boeing Co. workers in North Charleston voted overwhelmingly to disband their union in a move that could give the region an edge in landing an aircraft plant the company is looking to build.

Of the 267 ballots cast, 199 were in favor of decertifying the election that made them members of the International Association of Machinists. The company was pleased; the union was disappointed.

The local plant makes rear fuselage sections for Boeing’s 787, a new fast-selling lightweight jet that has been delayed by snags with suppliers and an eight-week strike last year by the IAM.

Boeing has said it would consider North Charleston and its manufacturing hub outside Seattle, among other sites, for a new 787 assembly plant. A decision is expected by the end of the year.

Airliner Production Faces Sharp Axe

Even with the action by the Boeing union to disband, airlines and airline production are both in trouble. Please consider Airliner production faces sharp axe.

Investment bank UBS predicts there will be a surplus of 1,400 airliners at the end of this year, necessitating production cuts at both Airbus and Boeing. The bank made its forecast in a detailed report at the end of August on Airbus parent EADS, warning that the "significantly reduced production rates" required to address overcapacity were "currently not being planned for". It expects Airbus production rates to fall by about 40% by 2012.

Separately, lessor AWAS has told Flightglobal’s financial news service Commercial Aviation Online that, according to its own internal analysis, there will be an aircraft surplus of about 1,000 aircraft by the end of this year and about 1,600 by the end of 2010.

Passenger traffic would have to grow at the rate of an estimated 14% to avoid production cuts, way beyond the 4-5% growth projected. UBS concludes that there would have to be 3,600 aircraft retirements to avoid cutting production, another unrealistic possibility.

Airlines Face $11 Billion in Losses

Highlighting the woes of the travel industry, the Wall Street Journal reports Airlines Face $11 Billion in Losses.

The global airline industry faces $11 billion of losses this year, greater than previously forecast, as business travel remains in a slump and fuel prices are rising, the International Air Transport Association said Tuesday. The group expects airlines to lose $3.8 billion world-wide in 2010, as carriers struggle to generate revenue from their best customers, who either aren’t flying or are buying cheaper tickets.

IATA sees premium passenger traffic falling 20% in 2009, compared with a 5% drop in traffic from the back of the cabin. The low demand for high-priced seats is expected to push yields, or revenue per passenger, down 12%.

Historically, it has been difficult to rebuild yields once they fall, Giovanni Bisignani, IATA’s chief executive, said during a conference call with reporters. Following the last airline downturn, after the Sept. 11, 2001, attacks, it took the industry more than three years to claw back to 2000 revenue levels.

Near-term, Mr. Bisignani sees more airline bankruptcies, on top of nearly 50 resulting from the current recession. "In the last year-and-a-half, medium-sized airlines from all parts of the world" have fallen victim to the downturn, he said. IATA is now monitoring some 20 airlines with financial problems.

Qantas Cancels Orders for Boeing 787 Dreamliners

In June Qantas Defers Delivery and Cancels Orders for Boeing 787 Dreamliners.

Qantas has reached an agreement with Boeing to defer the delivery of 15 Boeing 787-8 aircraft by four years and cancel orders for 15 Boeing 787-9s scheduled for delivery in 2014 / 2015.

Qantas Chief Executive Officer, Mr Alan Joyce, said the changes to the group’s Boeing 787 orders were appropriate in the current climate, and that discussions with Boeing, which commenced some months ago, had not been influenced by the announcement this week of a design issue and further delay to the aircraft’s first flight.

"Qantas announced its original Boeing 787 order in December 2005, and the operating environment for the world’s airlines has clearly changed dramatically since then," Mr Joyce said.

The cancellation of the 15 Boeing 787-9s is expected to reduce the Qantas’ aircraft capital expenditure by around US$3 billion based on current list prices.

China Airlines To Delay Boeing Jets

Just a few days ago China airlines, Boeing in talks to delay 787 jet

Chinese airlines are negotiating with Boeing Co (NYSE:BA – News) to further delay taking delivery of 787 Dreamliner orders, a senior Boeing executive said on Monday, as they continue cost-cutting initiatives amid weak international air travel demand.

A sharp global economic downturn had pushed China’s top three airlines — Air China and China Eastern Airlines — into a combined loss of more than $4 billion in 2008, forcing them to slash their capital expenditures.

Meanwhile, Boeing, the No. 2 plane maker behind EADS unit Airbus, has also been struggling with a range of supply, manufacturing and design problems, made worse by a two-month strike at its Seattle-area plants last year.

United Airlines (UAUA), Delta (DAL), Southwest (LUV), have all had significant bounces from the March lows. The above reports suggest those rallies may be suspect.

In addition, order delays and cancellations at Qantas and China Airlines shows just how misguided strikes at Boeing are. A tip of the hat must go to Boeing workers in North Charleston for voting to disband the union.

Finally, given a nasty confluence of shifting demographics, consumer attitudes towards debt, corporate attitudes toward spending, and boomers facing retirement with far less wealth than imagined, the outlook for a robust recovery in airlines and airline manufacturers seems remote.

Mike "Mish" Shedlock