Dreamliner Blues: The grounding of Boeing’s 787 Dreamliner is obviously at the top of everyone’s radar screen. I’m not sure what’s left to say after Jon Talton’s excellent narrative and summary in The Seattle Times on Sunday. Here’s an angle that I haven’t seen elsewhere: The 787 was grounded in virtually the same news cycle as Gov. Jay Inslee’s inauguration. At least Gov. Gregoire had about three years of what economists called the “Great Moderation,” steady economic growth of 3.0-3.5% a year, until the bottom fell out and disaster struck in September 2008. Gov. Inslee may have to deal with an economic crisis right away.
The range of outcomes for Boeing is very wide. If the problem is as simple as a batch of defective batteries, the financial impact will be small. But if a fix requires a redesign the of the plane’s key electrical system, we could be looking at a very long delay before production resumes.
Boeing 16 months ago (mid-October 2011) disclosed the “accounting block” for the 787 program, the number of planes over which it plans to spread development costs that are estimated in the high teens of billions of dollars ($16 billion, give or take). Boeing has assumed increases in productivity as it ramps output. A redesign would throw an enormous monkey wrench into those plans, and possibly — depending on the weight of a new battery, for example — decrease the fuel efficiency that has been the model’s key selling point.
The tail risk — at one extreme, writing off the entire program — is almost too awful to contemplate. At the very least, Boeing shareholders would suffer massive losses. Airbus is building a 787 competitor that will be ready to fly in 2014.
The 787 crisis comes at an inconvenient time, with Boeing and the union representing professional engineers locked in unfriendly combat over a new contract. Add them up, and the omens are not good for Washington’s economy. We’re dealing with big numbers. Boeing directly employs 87,000 in Washington state. Suppliers push the total for the aerospace sector to within striking distance of 100,000. Whether white collar or blue, almost all of these jobs pay far more than the state average.
Talton likes to end his daily musings at the Seattle Times with haiku. He didn’t do that in his Sunday piece, but his exit line was terse and to the point: “Anxious weeks await.” I quote him because I can’t say it better.
Weak employment report: Employment in the Evergreen State was growing nicely last fall, but the December employment report shows we’ve hit a bump in the road. Payroll employment declined by 7,900, despite an uptick in the beleaguered construction sector, still 30% below the pre-Great Recession high. December unemployment fell to 7.6%, down a tenth of a percentage point from November, but mainly because the workforce shrank, i.e., the denominator was smaller.
Economist Doug Pederson of the Puget Sound Economic Forecaster told the Times that the 4,100 decline in jobs in retail might be a statistical quirk that will be adjusted away in subsequent reports, but also might reflect some of the uncertainty that businesses are dealing with as a dysfunctional Washington wrestles with the fiscal cliff, the debt limit, higher payroll taxes and the like.
The Times reported that the decline in the workforce in part represents Washingtonians leaving the state for work in Canada’s tar sands, for example. I wouldn’t be surprised if a lot of truck drivers in North Dakota’s Bakken Formation oil fields have Washington drivers’ licenses in their pockets.
Amazon.com in the news, again: Have we had a month recently when Amazon.com didn’t make big headlines? I don’t think so. Here we go again. The National Retail Federation, made up of bricks-and-mortar retailers, just named Amazon CEO Jeff Bezos winner of its top annual honor, the Gold Award. Why? As the Seattle Times reported, love it or hate it, Amazon has what the bricks-and-mortars folks crave: an edge with digital savvy shoppers, caché on Wall Street and a commanding lead in the fast growing e-commerce market.
Bezos will have to make more room on his wall for his awards. In December, Fortune named him Business Person of the Year. The Harvard Business Review recently named him the No. 1 living CEO. Bezos is famous (infamous?) for telling potentional victims of his relentlessly efficient platform that “your margin is my opportunity.” I think he still has a lot of runway in front of him, a lot of business models to disrupt.
Rockefeller Center Bellevue? What’s not to like about the news that the Rockefeller Group Development Corp., which owns the Big Apple’s Rockefeller Center, has taken an option on 5.5 acres in downtown Bellevue (106th Ave NE and NE 8th) owned by the Sterling Realty Organization.
Preliminary plans call for three office towers above a “podium” with retail and public space. The Times says this would be downtown Bellevue’s largest project since the completion of the Bravern project in 2010.
Rockefeller project has no timline yet, but The Times reports that construction is to start in Bellevue this year on three office towers with 1.5 million sq. ft. of space and five residential projects with up to 1,100 units total. Office vacancy in downtown Bellevue, The Times report, is the lowest in the region.