Insight - As Boeing booms, robots rise and job growth lags

By Alwyn Scott

NEW YORK (Reuters) - For most of its 100-year history, when Boeing turned out more planes, employment soared and the Seattle-area economy prospered. When the rate of production fell, layoffs followed and the local economy crashed.

The cycle was so predictable that Boeing workers had a phrase for it: "Headcount goes by rate."

Now that longstanding cycle has broken down.

The world's largest plane maker is in the midst of its biggest peacetime boom, churning out 20 percent more planes than when the last big cycle peaked in the 1990s.

But it is doing so with one-third fewer workers. In their place, Boeing is turning to robots and outsourcing.

In the past year, Boeing installed four banks of two-story riveting machines at the factory that makes its 737 aircraft in Renton, Washington. When it switched them on in May, the age-old clatter of hand-held rivet guns gave way to the whispery hiss of the 60-ton robots, which Boeing says can work twice as fast as people, with two-thirds fewer defects.

At its sprawling plant in Everett, Washington, Boeing has installed robotic arms to drill and rivet together fuselages for the 777 jetliner.

The machines are "taking what is in the neighborhood of 50,000 to 70,000 fasteners in the 777 fuselage that are today applied by hand and automating them," Boeing Chief Executive Dennis Muilenburg said in a speech at an aerospace trade fair in Seattle in September.

It's a "huge transformation in how we build airplanes."

Boeing says automation is essential to improve quality and worker safety, lower costs and keep up with its European rival Airbus, which also is automating and churning out more planes to meet worldwide growth in air travel.

But while Boeing says the robots have not caused any layoffs, the company is not predicting significant job growth either.

"Increased automation means we can go higher in rates with a stable workforce," Barry Lewis, head of wing manufacturing operations at Boeing's 737 plant, said during a recent factory tour.

BROKEN CYCLE

Manufacturing job loss is well documented at auto plants, textile mills and other U.S. factories. More than 6 million such jobs disappeared between 2000 and 2009 as companies automated and sent work overseas, according to the Bureau of Labor Statistics.

Now the shift is coming to Boeing. The company's airplane unit has hired about 33,000 people since employment bottomed out at about 50,000 in 2006, a bust spurred by the 9/11 attacks. But that 66 percent increase in labor has allowed Boeing to make almost twice as many planes, meaning the ratio of workers to planes has plummeted.

The plane maker's current backlog of 5,600 plane orders worth $426 billion dwarfs the $94 billion tally during its last boom in the late 1990s. But today's workforce is about one-third smaller - 83,000 compared with 122,300 when Boeing's employment last peaked in 1998. Back then, Boeing made 564 planes a year, about 217 workers per plane. This year it aims to make 760 planes, using about 109 workers per plane, and the figure is falling.

Amid the biggest commercial aircraft boom in its history, Boeing's airplane division employs fewer workers per plane than during all other booms since World War II.

"Boeing and Airbus are catching up with the rest of manufacturing," said Robert Reich, a professor of public policy at the University of California at Berkeley and former labor secretary in the Clinton Administration. "There will be no let up in the loss of manufacturing jobs."

Boeing's employment growth stopped in 2013, the year Washington state approved $8.7 billion in tax credits for the industry. In return for the incentives, companies were supposed to "maintain and grow" aerospace jobs in the state.

Since then Boeing has shed nearly 3,000 jobs in Washington, fueling tensions with its unions and state officials.

Machinist and engineering unions, which represent about 51,000 Boeing workers, have joined with state legislators sponsoring measures that would tie the tax credits to job and wage targets.

"The frustration level in the community is high," said state Rep. Mike Sells, a Washington Democrat whose district includes Boeing's largest factory, which makes the 747, 767, 777 and 787. "We need to be able to show real hard numbers to the public if we're going to be granting these exemptions."

CHANGING LABOR

As recently as 2012, teams of workers drilled and riveted 777 fuselages. That year, as Boeing increased output of 777s by 18 percent, it began using machines to drill the holes. Now, robot arms are drilling and installing the rivets. Similar robot arms covered with protective cloth are now painting 777 wings, applying a more precise coat than people can.

European rival Airbus also is automating, and industry experts say it is doing so at a faster pace than Boeing, partly driven by rigid labor laws in Europe that made it difficult to lay off workers in a downturn. The European giant is working on technology to more easily configure robots and run them with common software. It also is testing a system that uses hand tools laden with sensors and Google Glass-type headsets to validate that workers install parts correctly.

Airbus plans to implement the system with the A330 this year.

"After that, we deploy it globally," said Sebastien Boria, technology leader for the future aircraft factory at Airbus.

Boeing and Airbus decline to say how much manual labor the machines save. At Boeing, production time will be cut in half while quality and safety improve, Walter Odisho, vice president of manufacturing at Boeing Commercial Airplanes and a recent hire from Toyota, said in an interview.

Suppliers say the machines reduce the need for human labor substantially. Electroimpact, which created the two-story wing-riveting machines installed at Boeing’s 737 factory, said older machines required workers to frequently change tools the machines used, a process that could take an hour if employees were on break. Electroimpact cut the time to five minutes on the new machines by automating the tool change. It has since cut the time to 80 seconds.

On the 777 line, the labor savings from automated riveting could be more than 100-fold. One person can run eight sets of robot arms that each do the work of 16 people, replacing 128 workers, said Surinder Lamba, president of Apache Aerospace Inc, a Washington state company that supplies tooling to all of Boeing's commercial jet programs.

"The lights out factory is already happening," he said. "Not because we don't want lights but because we want to run 24-7. No Christmas. No lunch. No breaks."

FEWER JOBS

Outsourcing also is limiting Boeing's U.S. job count. Boeing said in September it would open a factory in China, its first outside the U.S., to complete, paint and deliver 737s for the Chinese market. Boeing says the plant is necessary to meet rising 737 output, and won't cause layoffs or reduce work in the U.S.

Boeing is also sourcing more parts outside its factories, reducing its own costs. In 2005, Boeing sold facilities in Wichita, Kansas, that made 737 fuselages. The hulls are still made in Wichita, but now Spirit AeroSystems Holdings (SPR.N) employs the workers, not Boeing.

Around that time, Boeing developed a radically different production system for its 787 Dreamliner. Large industrial partners around the globe make wings, fuselages and other big pieces, and Boeing joins them together at factories in Everett and in South Carolina with minimal automation.

Partly in response to production snarls from outsourcing large parts of the 787, Boeing brought wings and other work back in-house for the 777X jet it is now developing.

But Boeing is pressing suppliers to cut costs so it can sell its airplanes for less, prompting many to automate, too. After taking over Boeing's facility in 2005, Spirit reduced its workforce by 15 percent. It has since continued to install robots, and recently announced plans to invest $100 million in further automating its plants.

And Boeing's plans for its next-generation factories suggest it will rely on robots even more in the future. Innovation in the factory is now as important as innovation in aircraft design, Muilenburg said.

Not all politicians and leaders have grasped the new reality at Boeing, said Richard Aboulafia, an aerospace analyst at the Teal Group. "But even when they do, what choice do they have? Across the economy, high-skill, high-wage manufacturing jobs are becoming scarcer every year."

(Reporting by Alwyn Scott. Editing by Joseph White and John Pickering)