Boeing layoffs look more likely
New projections for airline travel for 2009 lead me to believe that Boeing will have to scale back on production rates later in the year, and that’s likely going to mean further layoffs going into 2010, which is going to have an impact on the western Washington economy.
As I wrote over at BNet.com yesterday, the International Air Transport Association now projects that the world’s airlines will lose a combined $4.7 billion in 2009 — more than double the loses it projected as recently as December. As the global recession spreads, demand for air travel is falling everywhere from Zambia to Azerbaijan.
“Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago,” says IATA Director General Giovanni Bisignani.
Adding to the problem is the fact that airlines are carrying a lot of debt, Bisignani says. Combine the two and “the pressure on the industry balance sheet is extreme,” he says.
That’s horrible news for Boeing. Airlines with a lot of debt and declining revenues are going to have a horribly hard time getting the tens (or hundreds) of millions of dollars they’ll need to pay their outstanding balances on the planes they ordered during the industry’s bull market, from 2004-06. So far, they’re not canceling orders in large numbers. (Boeing has seen airlines cancel 32 planes this year; that’s about 1 percent of the backlog it’s carrying, which is at all-time record high levels.)
But by all accounts, every airline is trying to push back the delivery date on the planes it has on order.
And if that’s not bad enough, Asian airlines in particular are expected to be hard-hit this year, losing a combined $1.7 billion. Roughly 30 percent of Boeing’s outstanding order backlog as of February was booked to go to Asian carriers.
Boeing CEO Scott Carson has been steadfast in saying that customers scheduled to take delivery of planes in 2009 have got their financing lined up, so those deals will go through. But given the state of the airline industry, it seems very likely to me that Boeing will have to cut production in 2010, simply because so many of its customers won’t have the ability to pay for the planes. IATA is projecting total deliveries from Airbus and Boeing will fall to 700 planes for the next three years; that would be about a 30-percent drop from 2008′s totals.
This — not anything to do with troubles involving AIG or International Lease Finance Corp., which you might have read at SeattlePI.com — is why Boeing is looking at more layoffs. (I’ll have a rant on that later.)
Further layoffs at Boeing will hurt the Puget Sound economy, of course. And the timing of the job losses — my educated guess is they’ll be announced mid-year, and start taking affect in late 2009 and early 2010 — will take some of the wind out of the sails of the recovery most economists are projecting will start next year, at least on a regional basis.
