A Mish reader who works at Honeywell informed me last week that a huge slowdown was coming in the aerospace/aircraft business.
I now have the internal memo from Tim Mahoney, Chief Executive Officer of Honeywell Aerospace, with comments from the reader who went through a similar layoff and forced furlough situation last November as well.
Obviously, things have not improved.
Honeywell Employee “HE” writes
Hi Mish,
Here’s a heads up for you regarding upcoming aerospace layoffs.
We got word a few days ago that Honeywell is planning a new “reduction in force”, which is the company’s PC term for layoffs. We received an e-mail indicating that the action is coming up in August, where employees have been solicited to voluntarily apply to participate.
This is a repeat of the situation that made the news last November in which Honeywell announced At Least 1,000 Phoenix Valley Workers to Lose Jobs following mandatory holiday furloughs.
In March, the Seattle Times reported Boeing Cuts Could Reach 10 Percent.
History is about to repeat. Layoffs for the entire industry are coming because business is in a huge slow down.
Best regards,
“HE”
Turbine Engine Orders Down 10-20%
In a followup Email “HE” writes …
We’re starting to see numbers for the coming jobs reduction. The pipeline for orders for turbine engines is down by 10-20% with job cuts going to be that range. About 40K people in Honeywell’s aero division. Because we have production backlog to keep revenue up, cuts are going to hit the aero division’s engineering and supply chain positions harder. Number of layoffs tough to predict because this portion of HON’s workforce is top-heavy by age with many folks near retirement who benefit from volunteering for the reduction.
The slowdown in order pipeline is not just from business jet makers. We also see a slowdown in commercial transport OEMs.
Internal Honeywell Memo
From: Tim Mahoney Message
Sent: Wednesday, July 13, 2016 10:38 AM
Subject: Message from the Aerospace Leadership TeamThis message was sent to Aero employees in the U.S., Puerto Rico and Canada*
MESSAGE FROM THE AEROSPACE LEADERSHIP TEAM
As witnessed with our recent cost-saving measures, Aerospace continues to experience the effects of a slowdown in certain business segments. The industry has experienced more than 30,000 job reductions in the last year along with ongoing earnings volatility. Customers continue to cut costs in their supply chain and reduce inventory in their factories, resulting in uneven short-term customer demand for our business.
To navigate this challenging environment, we must move faster, make quicker decisions, and be more effective and efficient. Improving our organizational speed by addressing our workforce and management structure, including the number of organizational levels and reporting scope, will help drive faster growth and better serve our customers.
Based on these factors, we are conducting a workforce reduction in Honeywell Aerospace for the United States, Canada and Puerto Rico. We fully understand the individual and collective burden and stress this decision creates so will move as quickly as possible through the process and inform affected employees as soon as details are finalized.
Individual employee selection requests will be considered following established consistent and equitable policies and procedures. Employees who wish to express interest in being selected for this reduction should do so confidentially by sending an email to their Human Resources contact by close of business on Friday, July 29, 2016.
Eligible employees selected through this process will be offered the same benefits as other employees impacted by these reductions, including severance and outplacement assistance. Honeywell reserves the right to accept or reject self-nomination requests based on business needs. The Honeywell reduction in force policy for non-represented U.S. employees is available online. For Canada and Puerto Rico, please see your HR representative.
We remain focused on driving sales to prevent the need for further cost actions. However, additional actions may be necessary should market conditions continue to deteriorate, including in other regions of the world, which would be determined on a country-by-country basis, following local laws and practices.
Please do your best to remain focused on serving our customers, improving operations and execution and increasing sales to help us accelerate growth and remain competitive in a difficult global economic environment.
The Aerospace Leadership Team
Airbus Lowers Delivery Expectations
On July 12, USA Today reported Airbus to Slow A380 Production; Boeing, Airbus Win Jet Orders.
Airbus tamped down delivery expectations for its Airbus A380 superjumbo jet while. Separately, both Boeing and Airbus racked up significant jet orders. The company said Tuesday it expects to deliver 12 of the planes per year starting in 2018, down from 27 in 2015.
Airbus has delivered 193 of the A380s, which can carry more than 500 passengers. But demand has been soft lately, and airlines including Air France-KLM indicated they don’t plan to take all the A380s they have ordered.
Airbus said it reached break-even financially at 27 deliveries last year and hopes to cut production costs to lower its break-even point.
Boom Time Over for Aerospace
The Wall Street Journal reports Boom Times Wane for Airplane Makers.
Plane makers Boeing Co. and Airbus Group SE are confronting the stark reality that years of record order bookings are over even as they try to reassure investors with rosy outlooks for the long-term prospects for airliner sales.
Both plane makers have enjoyed a booming multiyear surge in aircraft orders, outpacing deliveries. Their backlogs for planes to be built now stretch many years. That’s changing, though.
Aircraft deals at the start of the year have been slow as weakening economies and geopolitical woes from Latin America to the Middle East have caused bookings to dry up. And that was before the U.K. voted last month to leave the European Union, creating a shock to one of the world’s biggest plane markets.
The continuation of the order boom is crucial to the financial goals of each company. While the largest chunk of payment from airlines and lessors comes at delivery, booking new orders means pre-delivery payment cash that sustains each manufacturer’s operations.
Airbus and Boeing also sought to soothe investor anxiety by raising 20-year demand forecasts. Boeing said it expected a $5.9 trillion market. The plane maker expects airlines will require nearly 40,000 jetliners between 2016 and 2035, an increase of 5% over its 2015 expectation.
Aerospace Boom Over This Cycle
Layoffs are coming for the second time in a year and previous orders are being cancelled.
Yet, CEOs tell investors don’t worry because the 20-year forecast is up.
Yeah right.
The aerospace boom is over for this cycle.
Mike “Mish” Shedlock
Not to worry, Fed will come to the rescue: print money, buy weapon systems.
That’s a pretty common outcome in societies with out of control governments:
The economy slows, leading to unemployment.
The unemployed get pissed off and restless.
The government tries to deflect blame from themselves by blaming “those guys” (Jews, Chinese, Mexicans, Muslims…). leading to increased animosity, hence fear of the other, on both sides.
Leading to military buildups.
Leading to more jobs in the short term, but a population dependent on military buildup.
Until it all grows into more and more open hostilities.
The main takeaway being, none of the above assumes anything about exactly who happens to be nominally “in charge”. Neocons, Liberals, Nazis, Laying Clintons or Guys With Orange Hair. It’s a process that is pretty much agnostic wrt political view and morality.
The only prerequisite, is that there is a government with enough power that they are in a position where they “can” respond to internal failure by blaming someone else. And can, in any way shape or form, claim to be able to “do something” about “those guys” that they are blaming. And that they have the resources to respond to the increased animosity caused by the blame game, by ramping up the military.
Hence, the only solution, is to make government smaller and less effectual. But then again, what else is new?
Zero or negative interest rates will not make this situation any better.
Ultra cheap financing already filled the airplane storage “graveyard” in Arizona with planes no one needs
SpaceX just stuck the landing on land again so that area or aerospace appears to be doing great.
Folks are going to need planes too so I really don’t see the slowdown in actual aircraft building although clearly the need for avionics might need to be rationalized as how many knobs and controls are in fact needed? Probably no more in a regulatory sense.
Since we now have “auto-pilot” for cars and SUV’s I’m really struggling with how this is bad news for aviation as maintaining an airport is a lot easier than maintaining the entire interstate highway system.
I think oil prices are going to collapse tomorrow but we’ll see.
Nice plug for Elon Mush! He needs it too. NASA is running out of cheap parts to give him, Tesla’s are self-crashing, secondary market prices are falling (Tesla canceled their buyback deals), and the SEC is wondering if self dealing with his own solar company isn’t a case of self dealing.
If maintaining an airport were so easy, explain OHare, JFK, LaGuardia, LAX and both Washington DC messes? Perpetual construction, perpetual delays, perpetual cost overruns… and that is before the TSA started “helping”.
ObamaCare is collapsing because doctors won’t work for free no matter what stupid thing Obama says. And oil rig workers won’t either.
The only thing collapsing tomorrow is Illinois’ state ObamaCare program; not the first failure, and certainly not the last.
Free shit army fail… again.
How_To_Guarantee_That_You_Live_After_A_Traffic_Stop
1. You need to memorize the phone number of a lawyer. Until “Black Lives Matter” supplies enough use (212) 965-9081 which is Barry Scheck.
2. Turn off your engine and toss your keys in front of the steering wheel and roll down your window.
3. Place both of your hands on the steering wheel at the 10 and 2 position and grip tightly. Never let them go.
4. The officer will approach and ask something. YOUR ANSWER IS ATTORNEY. You demand your 5th Amendment rights.
5. Now the officer will have to call for “Back Up” but will not shoot you as your hands are on the wheel and he does not know if a recording device is active.
6. You will go to jail alive, but police shootings justify your non-compliance and you will be released ALIVE.
7. Being ALIVE is the reward and CONSUMMING THEIR RESOURCES is also a REWARD.
8. After enough people follow this method, police will have to change theirs.
Hi Fedwatcher Nice to see you again
So an officer asks to see your license, registration and insurance and your answer is “Attorney.”
Yeah – it is going to be a long day.
You ever think that police only enforce the laws of politicians? They don’t create these laws – just enforce them.
You ever think about that blacks vote overwhelming for the most far left big government leftist increase taxes politicians?
You really think the average cop wants to enforce a Deblaso NYC $13 per pack tax by arresting an petty criminal selling loosies?
Blacks vote for a nanny state and then get upset when they get one.
“Blacks vote for a nanny state and then get upset when they get one.”
=====================================
Yes indeed. Of course the vast majority of police are neither bigots, racists, or guilty of assault. Most inner city Police Departments have many minority police officers.
If you are a black inner city youth you are about 99 times more likely to die from another black civilian, then a police man.
Definitely good advice to keep hands on top of steering wheel and follow police orders, be polite and non threatening, if you have to reach for some papers announce it ahead, actually a good idea to double check and make sure your ins ,reg and lic are in convenient place. Cops are people too and have to be on edge, give them a reason to let you go with just a warning.
On the other hand it’s generally a good idea to keep your mouth shut.
I was about to mock the misspelling of the shouted “CONSUMMING”, but then I realized the inherent ironical construction and must therefore state my dedicated awe!
Keeping in mind that both recent black idiots that were shot were also packing heat.
My advice, have your LICENSE, REGISTRATION & INSURANCE in the center console at the ready…when the officer approaches have both hands out the window with one hand holding the docs…keep you hands out the window and in plain sight (visible by the cops dash board cam) until incident is over.
Or course if you are a typical fat whiny ‘Merikan and can’t handle this without having a hissy fit….and you do get shot…well then, TFB.
9. Try to shuck your jacket and get out of your car in plain view before the officer gets out of his car.
10. Precede your sentences with “yes, sir; or No, sir.”
11. Repeat after me, “Mofo is not a pronoun.”
I’m seeing a similar layoff situation at a Honeywell competitor I work for. Commercial aircraft related business is down. There are confirmed plans for buyout/layoffs at their Illinois site, and rumors of similar actions to be taken at other locations.
My department has 45% eligible to retire, and another couple who have about two years to go. The department is running lean, but my manager isn’t allowed to hire new people. If the next buyout offer is good enough, Most eligible employees will bolt for the door with no love lost.
Interesting thing from these articles is most of the new sales are the older, smaller A320 and 737 jets. The newer more expensive dreamliner isn’t flying off the shelves. Customers still want the basic bare bones people hauler. That by itself tells me times are hard.
Just talking about layoffs is misleading at best. The companies are changing product lines and outsourcing as much as possible. Hiring may be down at boeing because they are actively trying to dump their unions, but hiring at suppliers may be more than offsetting. We really need to see sales figures to make sense of this.
The company is one of Boeing’s major suppliers, and sales are down. Over the past ~2 years there has been a 50% headcount reduction. Honeywell didn’t adjust quickly enough so their layoffs look worse, even though the end result in headcount will be similar.
Mish,
America’s largest defense contractor, Lockheed Martin, has reduced thier number of employees by about 20,000 folks over the last 5 years. Their most recent announcement from a few weeks ago is for 1500 layoffs in their MST division.
Government spending as a percentage of the budget and as a percentage of GDP on the military is way down. The military is the smallest it has been since before WWII.
Defense contractors remember the “peace dividend” days of Clinton. They are not going to be crushed like that again.
And it is working for them. Their stocks are at all time highs. But they are reducing manufacturing space and employment levels.
And consolidating. Lockheed Martin just bought Sikorsky.
And yes – that means less competition.
I worked for Lockheed. Their goal was to become MUCH LESS manufacturing, and MUCH MORE systems engineering. Now that I’ve had a chance to work for one of their suppliers, I can see the weakness in their business strategy start to fall apart. The weakness is this: To develop the skills to be an excellent systems engineer one must work in the trenches for a good 10 years. With disappearing trenches fewer engineers are developing the knowledge necessary for large complex systems. Requirements flowed down to suppliers are not as well written, so supplier have more opportunity to rewrite the requirements, to their advantage and unaware how such requirements affect the rest of the system. Lockheed isn’t the only prime contractor exhibiting this symptom.
Boeing was thinking something similar. Farm out the components to bottom of the barrel contractors, because the real money is in assembling the end result. Ask how that worked for the 787.
Production engineers + high skill employees = overhead to dump at your first opportunity.
Too bad the Learjet 85 story will never see the newsstands. Much like Beech/Hawker, they found out that they have dumped all of their people who knew how to get a “clean sheet” design thru certification. Or actually design an airplane and control the weight, and make sure the wing and stabilizers were large enough. Then compounded the problems by bringing on contract engineers.
Finally, hide the fact that the program was going to be killed for 8 months (probably to minimize the hit on the stock price, or to give the suits enough time to dump their stock)
time for moar war, or at least some big money defense systems to keep up with Russians, Chinese and ISIS that may or may not work.
The bank is printing too much plane inflation, which the CPI doesn’t measure.. Few can afford new planes. Estimates for the B-21 show 76% inflation since the recent estimate. Won’t get many orders that way.
Bankers are mercilessly confiscating purchasing power from both Joe average citizen, and the military. The bank then lends the confiscated loot to hedge funds and such.
The laws of math win again.
Viking Air Ltd. of Canada is doing just fine, after acquiring the rights to the ‘Twin Otter’ from Boeing who wrote off the model in 1988.
They have since inked a deal with a Chinese firm to supply 50 units, of what could be a total of 500 aircraft. Plus they have just delivered 3 Twin Otters to Nepal, along with multiple single orders to customers in various countries.
The large international jet liner manufacturers and airlines, may be facing a prolonged downturn, but the smaller regional carriers seem to be enjoying a resurgence of interest, with attendant demand for quality built small aircraft.
So all news in the aerospace sector in not negative. Could this portend a future trend of smaller is better?
layoffs happen all the time but most people can new jobs at the same or higher pay. I understand there is a ‘stigma’ if you aren’t working (especially if you are male & Caucasian). I can recommend a good therapist and a good cocktail and anti depressant medications to help people get thru a period of unemployment
(Throws the “BS” flag……)
Maybe in your field, but not in aviation. Laid off from two different companies in 2004 and 2009. Relocated twice, and ended up having to work for 20% less both times. I’m currently two steps farther up the food chain, but STILL getting paid less than what I was making in 2003 in real dollars. I dont even want to think about inflation adjusted dollars.
Pretty much the same story as everyone else who doesn’t work in finance, health care, or real estate.
so you should have gone into one of those fields. Of course it is always ‘someone elses’ fault right? or just blame “the economy”.. sure, LOL!!!
Honeywell’s sales suck, because they treat their customers like shit, their engines aren’t being installed on anything new, and they have laid off so many people, they can’t get avionics products to market, nor get someone on the phone to fix an AOG problem without dealing with an Indisn call center.
The only thing that saves their azz is that RockwellCollins isn’t much better. That, and the fact that replacing their gear with Garmin stuff in an existing airplane is problematic.
(Another typical US story, where the retrofit business is there, but can’t be generated, because of the “shortages” of engineers and technicians to design/install the equipment. And quit blaming “lack of qualified people”……..there would be plenty of qualified people, if US aerospace hadn’t spent the last 30 years cutting salaries and benefits, and generally making the jobs as unattractive and low paying as possible…….but I digress…)
And don’t get me started about MSP and HAPP.
They have pizzed off all of the chief pilots and maintenance directors in corporate/business aviation, who are (unfortunately for Honeywell) in a position to spend the money to steer clear of Honeywell when it comes time for aircraft replacement or major mods.