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As soon as hijacked passenger jets slammed into the World Trade Center towers and the Pentagon on Sept. 11, senior Boeing officials sensed that airplane manufacturing would suffer drastically. Calls from airline executives soon began flooding into sales execs running Boeing's Commercial Airplane division here in Seattle. "We started talking immediately after the attack,'' says one senior Boeing official involved in the discussions to dramatically cut production. "We knew -- as soon as the events were reported -- it was going to have a dramatic effect on our business and our customers.''
That's why Boeing Commercial President and CEO Alan Mulally, in consultation with Chairman Philip M. Condit in Chicago, made the decision on Sept. 18 to cut 20% to 30% of 96,600 people employed by Boeing's commercial airplane unit -- this translates into 20,000 to 30,000 workers in the Seattle area. "We profoundly regret that these actions will impact the lives of so many of our highly valued employees,'' Mulally said, in a statement issued late Tuesday. "However, it's critical that we take these necessary steps now to size the business to support the difficult and uncertain environment faced by our airline customers.''
DOING WELL BEFORE. Boeing's Commercial Airplane unit, which still generates 60% of the company's total $51 billion in revenues, was already planning to pare the workforce in anticipation of an airline slump, after restructuring factories, embracing lean manufacturing principles, and cutting costs (for S&P's latest rating statement on Boeing, see the Sept. 19 "Stock Picks & Pans"). The hard work paid off in the first two quarters. For the first time in nearly a decade, the division was producing 10% profit margins. Execs were confident they could squeeze even more fat out of a what had been a costly and inefficient airplane production system.
Even some Wall Street analysts were impressed that the airplane maker was finally becoming a new kind of company -- one more focused on making profit and generating gobs of cash. Senior execs had hoped to continue double-digit profit margins even during the downturn that was expected in the commercial airplane business.
But along with the rest of America, Boeing leaders never figured that a band of terrorists would hijack four of their jets and slam them into the World Trade Center towers, the Pentagon, and a field in Pennsylvania, killing more than 5,000 people. The aftershocks have hit the airline industry and the financial markets hard. And the world's largest airplane maker is now feeling the effects.
"It's certainly going to test us, test the airlines, and test our competitors as well,'' says one Boeing executive. "It's the ultimate test of the industry's strength. It's horrible, horrific, shocking, stunning, traumatic, and it breaks your heart. At the end of the day, it's an incrediable challenge in front of us. I don't know if there's one word that can capture it.''
AN EFFECTIVE CURE? Boeing has sharply cut its forecasts for aircraft deliveries and says the downturn could run into 2003 as U.S. airlines reduce capacity. The company predicts that it might deliver just 500 jets this year, down from an earlier forecast of 538. And Boeing officials say they've slashed their projections for 2002 deliveries to the "low 400s, compared to the 510 to 520 previously forecast.'' The company says the sharp reduction in its forecast sales was in line with the 20% capacity reduction by U.S. carriers and its assessment of global air traffic."We've gotten inquiries from a number of airlines that do not want to take the balance of their airplanes this year,'' the senior Boeing executive notes.
The job cutbacks will occur across the entire spectrum of the company, touching engineers, office staff, and factory workers, executives say. But even the leader of the International Machinists Union, which represents about 24,000 factory workers and has often had tense relations with Boeing, says he could hardly blame the company for its decision. Adds Mark Blondin, president of International Association of Machinists Local 751: "The tragedy that has rocked the nation is now personally touching our members here in Puget Sound. We understand this is the kind of devastating event no one could foresee.''
Now, the question becomes whether Boeing's shock treatment will be enough to put the aircraft maker back on the growth track.
By Stanley Holmes in Seattle Edited by Douglas Harbrecht
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