Boeing sees big savings, others see big risks in job transfers
Detailed internal Boeing documents reveal the stark cost-cutting calculus behind its transfer of engineering work: The company hopes to save 28 percent on pay and benefits by shifting 1,300 Boeing Research & Technology jobs.
Seattle Times aerospace reporter
Boeing expects to save more than $100 million a year by transferring 1,100 research engineering jobs out of the Puget Sound region and an additional 200 from Southern California to lower-pay locations, according to internal Boeing documents reviewed by The Seattle Times.
The documents show the company is willing to spend more than $150 million to implement the plan, laying off people and closing research labs here while moving the work to new engineering centers in Huntsville, Ala.; North Charleston, S.C.; and St. Louis.
For each engineering job moved away, management projects average annual savings of $60,000 in pay and benefits.
The restructuring of the Boeing Research & Technology (BR&T) unit is just one piece of Boeing’s broader push since the spring of 2013 to shift multiple engineering units away from the Puget Sound region. So far it has announced that some 4,300 engineering jobs here are to be moved.
Boeing employees and some industry experts warn these plans have already undermined the morale of the entire engineering workforce here and that the company is at serious risk of losing essential expertise.
But Boeing is moving ahead. The stark financial calculus outlined in the BR&T documents suggests cost-cutting is the prime driver.
Boeing vice president Jim Schlueter did not dispute the figures in the documents but insisted in an interview that “cost is just one element of the decision making.”
Among other goals in transferring the work, he said, the company aims to “gain access to new talent,” “reorganize how we operate,” and “reduce our footprint where we are not as productive as we should be.”
Echoing remarks last week by Boeing Chief Executive Jim McNerney, Schlueter said the work transfer is about finding the best places to do research and the right skill mix for the future.
Ray Goforth, executive director of Boeing’s engineering union, had a different explanation when shown a summary of the documents: “So they really are just trying to drive out the older people to lower their labor costs. Wow.”
He said the BR&T engineers he’s heard from believe that the supposed savings are illusory.
“This utter dismantling of the research and technology capacity is going to really cripple the Boeing Company,” Goforth said.
BR&T is Boeing’s advanced central research and development unit. Its engineers provide support to the company’s commercial, military and space units, running labs that test materials for airplane parts, new chemical treatments or the performance of electronic systems. They also research breakthrough technologies for the creation of new products.
The plan to move work from here to three new “centers of excellence” in Alabama, South Carolina and Missouri — internally code-named Flash, according to the documents — was announced in early December, but with no details of which jobs would move and which would stay.
Since then, the BR&T engineers have been in limbo, but they expect to hear details of who exactly is to get cut next month, some as early as this week.
Of the 1,300 here and in Southern California whose jobs will move, only about 110 tagged as having “critical” skills will be offered relocation expenses and incentives to move to one of the new engineering centers, the Boeing planning documents reveal.
Other employees who are laid off can apply for jobs, likely with lower wages, at the new locations. The documents show Boeing projects only about 280 will make such a transfer.
The company also plans to hire about 660 new people at the new centers, 40 percent of them entry-level engineers.
To fill the remaining gap between jobs cut here and jobs added elsewhere, management plans to use some 240 contractors in the U.S. and overseas.
The documents cite a 2014 average engineering wage in Puget Sound/Southern California of $125,000 compared to a projected average of $89,000 — 28 percent lower — at the new sites.
With benefits in 2014 adding 70 percent of value to the wages, the full cost comparison is cited as $212,000 per head annually here versus $152,000 at the new engineering centers.
This will provide recurring labor-cost savings in excess of $100 million per year after 2016, once the work transfer is complete, the Boeing documents say.
The plan envisages lab reductions of 160,000 square feet in Puget Sound and Southern California. Multiple research labs will close around Boeing Field and South Park in Seattle, as well as in Everett, Auburn, Kent, Renton and Bellevue.
The restructuring will reduce the Puget Sound area’s share of BR&T’s total workforce to 28 percent in 2016, from 54 percent at the beginning of this year.
Boeing estimates the one-time cost of the major restructuring at more than $150 million, with the biggest single chunk, $71 million, spent going to severance payouts and benefits to those who either retire or are laid off.
One-time costs also include $21 million in relocation expenses for the critical individuals and the new hires; $42 million to reestablish labs at the new locations; and $12 million in recruiting and hiring expenses for all the new people.
But the internal planning documents also acknowledge risks to the work-transfer strategy, including:
• Essential expertise may leave Boeing. Rival companies could poach critical talent.
• The best candidates from inside or outside Boeing may not want to live and work at the new sites.
• New hires not being co-located with the departing experienced people could impede knowledge transfer.
• Morale could be damaged.
• The move could spark unionization efforts at the new engineering sites.
To counter that last threat, the documents say that in February and March, BR&T managers attended training sessions in “union containment,” discussing how to detect and discourage any nascent organizing efforts among the nonunion engineering workforces in Huntsville, North Charleston, and St. Louis.
BR&T engineers here say loss of talent is certain — in part because of the alienation caused by the process.
One engineer, who asked to be anonymous for fear of company retribution, said his group, which consists of 23 people, has been told only 10 jobs will remain here after the work transfer. No one yet knows who will be cut.
In these circumstances, he said, for weeks everyone in his unit has been concentrating less on work and more on what steps they should take to protect their livelihood.
“This is the worst I’ve seen in 30 years,” he said. “Management is terrorizing the workforce.”
He’s already been told informally that he’s one of the “critical” individuals who will be offered relocation, but he said Thursday there’s no way he’s taking the offer.
“I won’t go,” said the engineer. “Nobody wants to go. Nobody wants this to work.”
Boeing’s Schlueter said management is “aware of the risk of losing essential expertise and capacity, and we’re doing a number of things to address that.”
“But we’re also aware of the risk of not being competitive in the future,” he added.
Outside aviation experts side with the engineers.
Hans Weber, president of engineering-consulting firm Tecop International, said it’s foolish to look at such employees purely as an expense, “as if you could simply unplug one person because their salary is too high and plug in another one whose salary is lower because he is less experienced.”
He said the most talented engineers in BR&T already will be scouting for other options.
“It’s more than a risk — it’s inevitable that you lose some of your best people in that process,” Weber said.
Scott Hamilton, Issaquah-based aviation analyst with Leeham.net, said the new hires in the new locations will “have to get trained, have to get experience.”
“The concern is losing institutional knowledge,” Hamilton said. Referring to Boeing’s headquarters, he added, “Chicago right now seems totally tone deaf to that risk.”
Tone deafness also pervades some of the messages to managers about the dramatic changes ahead.
“Facilitate understanding, acceptance and support for the transformation journey,” suggests one slide in a presentation on the subject. It also advises managers to hold their own feelings in check to avoid “emotional contagion” among employees.
Too late for that.
The wife of one engineer said she wept after dropping off her child at school this week, overcome by the idea of moving and losing the life her family has made here over more than 20 years.
Among employees, the anger and disillusionment is palpable.
Another BR&T veteran engineer said that because his unit didn’t have a simple petty cash system, he used to routinely spend small sums of his own money to buy bits of material for Boeing work projects.
But the intense loyalty he had felt for Boeing is gone, he said. “Now, I wouldn’t spend a dime for them.”
He and his colleagues won’t be rushing to pass on their tribal knowledge to the new hires in Charleston and Huntsville, the engineer added.
“I don’t see anyone putting a great deal of effort into documenting anything. It’s just not possible to pass on 20 years of experience,” he said. “We’ll go through the motions, and they’ll get what they get.”
Dominic Gates: 206-464-2963 or email@example.com