Tuesday, April 19, 2016

Plane Makers’ Employees Buffeted Despite Booming Orders: Fierce competition, more discerning buyers and economic headwinds make it harder to secure lucrative deals

A Blue Air Airlines Boeing 737 and a Tarom Airlines Airbus A318. Boeing and Airbus have both been reducing staff.


The Wall Street Journal
By ROBERT WALL
April 19, 2016 7:44 a.m. ET

LONDON—The world’s biggest airliner makers Boeing Co. and Airbus Group SE are enjoying record order books but, for employees at the companies and their suppliers, the good times are over.

Boeing last month said it would eliminate 4,000 jobs at its commercial airplane unit and may cut more. Rolls-Royce Holdings PLC is shedding 2,600 positions in its aircraft engine business. General Electric Co. this year said it would lay off more than 300 people working on jet engines.

Aluminum producer Alcoa Inc., which has bet heavily on supplying the aerospace industry, last week said it had cut 600 jobs in the unit that makes aircraft parts, with plans to shed 400 more. Another 1,000 positions may be eliminated, Chief Executive Klaus Kleinfeld said after the company lowered its 2016 sales and profitability targets for the unit.

Airbus, the No. 2 plane maker behind Boeing, also reduced headcount. The plane making unit employed about 78,800 workers at the end of 2013. It ended last year with 72,800 people on its payroll, according to Airbus data.

On the face of it, job security for the more than 1 million employees involved in producing airliners should be rosy. Boeing has a backlog of about 5,800 planes yet to be delivered. Airbus has deals for more than 6,700 airliners it still needs to build.

Both plane makers are increasing output of their most popular planes to satisfy strong airline demand. They are on track to build more than a combined 1,800 planes a year by 2020 compared with 1,397 in 2015.

But cost-cutting pressure is mounting. Fierce competition, more discerning buyers and economic headwinds are making it harder for Airbus and Boeing to secure lucrative deals.

Delta Air Lines Inc. is looking at secondhand planes to meet some of its fleet growth needs. Willie Walsh, CEO of British Airways parent International Consolidated Airlines Group SA, has said the company may rent used long-range jets because new ones are too costly.

Airlines that splashed out on more efficient but expensive planes when fuel costs were high are no longer willing to pay a premium at lower oil prices, analysts said. That is forcing the plane makers to offer discounts to win deals.

Boeing’s jetliner unit boss, Ray Conner, told employees recently that the focus on cutting costs comes as “price carries more weight than ever in sales campaigns.” The company said it would try to avoid involuntary layoffs.

The drive to shrink payroll comes as Airbus, Boeing and their suppliers shift from years of designing and developing the newest planes to building them efficiently.

With development of many of its new aircraft engines completed, GE said “the company will be unable to maintain its level of 4,352 engineers in the U.S.” GE plans to cut 307 jobs after offering voluntary early retirement to some engineers and shifting others into new jobs.

An Airbus spokeswoman said that “over the last few years we required an exceptionally high engineering workforce level due to several, overlapping new aircraft developments. With the bulk of the work for these major new aircraft developments behind us, we are coming back in the next few years to a regular level of engineering workload.”

Building new planes also puts a squeeze on profits as companies try to figure out how to build them as economically as the ones that have been in production for years. Airbus has cut output on the profitable A330 widebody while boosting production of the new A350 long-range jet, which won’t make money for a few years. Boeing is building fewer 777 long-range jets ahead of the introduction of an improved version around the end of the decade.

“The market is going through a transition given an unprecedented level of new model introductions,” Alcoa’s Mr. Kleinfeld said, leading to lower orders for legacy models. Alcoa cut this year’s target margin for adjusted earnings before interest, taxes, depreciation and amortization for the unit that makes plane parts.

Hiring hasn’t ended, though. Airbus, for instance, said it expects to recruit more than 1,000 staff this year, roughly on par with 2015’s intake. Around 80% will be workers to help build more planes.

Original article can be found here:  http://www.wsj.com

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