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Originally published March 29, 2009 at 12:00 AM | Page modified March 31, 2009 at 6:51 AM

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Jon Talton

Boeing's woes nowhere near as low as they can go

Columnist Jon Talton on Boeing: After the boom is lowered, what next? Perhaps the biggest mistake would be to assume that this will be a continuation of the long roller-coaster ride of Boeing jobs and another upswing will inevitably follow.

Special to The Times

When will Boeing really lower the boom?

Not the boom of 10,000 layoffs already announced, about half coming in the Puget Sound region. I mean the kind of clear-cutting that occurred in slowdowns more shallow and contained than this one, most notoriously in the Boeing recession of the early 1970s that claimed some 70,000 jobs.

The unemployment rate in Snohomish County, where Boeing's massive commercial-airplanes factory is based, has already hit a 25-year high of 9.9 percent. A quarter of a century ago, Boeing let go some 20,000 workers over four years. Starting in June 1998, Boeing began a six-year hiring drought, which saw employment in Washington state cut nearly in half.

That kind of boom lowering.

A year ago, the Seattle-area economy was nicely sidestepping the national recession. Washington Mutual and Safeco were still major corporate headquarters. The subprime-mortgage disaster was washing into Pierce County, but real estate overall was still doing better than most places. Unemployment was around a now-unbelievable 4 percent.

At that time, old hands at watching the local economy took comfort in Boeing's continued hiring. True, the region is much less reliant on Boeing than in the 1970s. But it remains a critical bellwether. As of February, the company had nearly 76,000 well-paid employees in Washington state, 47 percent of its employment and more than any other state by far. It also anchors an aerospace cluster of 650 companies estimated by the Aerospace Futures Alliance of Washington to sustain 209,000 direct and indirect jobs and generate the majority of Washington's exports by dollar value.

Now that virtually every other pillar of the region has been cracked or knocked down by a deep, global recession, it's hard to avoid the conclusion that the biggest shoe — more major layoffs at Boeing — has yet to drop out of this misbegotten economic closet.

My colleague Dominic Gates has reported on the dissonance between Boeing's relatively upbeat forecasts and the fear among those who finance commercial-aircraft purchases, including a unit of the reviled AIG. At a recent conference in Phoenix, those players worried where they would get the money to pay for approximately 965 jets scheduled for delivery this year by Boeing and its rival Airbus. Such is the reality of a global credit crisis.

While Boeing provokes much flag-waving, as in the Air Force tanker controversy, it is a world company, and its fortunes are tied to increases in global GDP. Unfortunately, the International Monetary Fund predicts that the world economy will contract this year for the first time in six decades. And the outlook beyond 2009 is murky.

Airlines are in trouble everywhere. The International Air Transport Association last week predicted that airlines would suffer a $4.7 billion loss this year — that's almost double the red ink it had originally forecast. Ominously, the trade group said it expected revenues for the industry to fall even more than what was seen in the aftermath of Sept. 11, 2001. Another report said airfreight volumes have collapsed this year.

All this raises skepticism about Boeing's relatively bullish 2009 forecast for commercial airplanes although, tellingly, the company has been more cautious about the outlook beyond this year. This worst economic downturn since the Great Depression won't end soon.

After the boom is lowered, what next? Perhaps the biggest mistake would be to assume that this will be a continuation of the long roller-coaster ride of Boeing jobs and another upswing will inevitably follow. Boeing considers Washington — where it has produced 13,000 jets — a high-cost place to do business. On the other hand, it benefits from the critical mass of talent here that is partly drawn to some of the benefits of those costs: strong universities, good quality of life, etc.

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The Governors Council on Aerospace and other economic-development organizations are charged with figuring out the balance to keep Washington competitive. The cautionary tale that's widely cited is that of Los Angeles, which lost more than 100,000 aerospace jobs in the early 1990s. The reason often cited is the end of the Cold War. But a deeper factor was that it had become too expensive and difficult to do business there.

Lost were well-paid jobs, each one supporting an estimated 2.1 additional jobs. They were replaced by tourism and retail jobs with a multiplier of only 0.6.

Another issue facing Boeing, and us, is the twilight of Airbus as the only strategic rival facing the company. Major recessions shake things up. Boeing is already preparing for an onslaught of potential competitors from China, India, even Brazil. This will add more uncertainty about employment here, particularly with Boeing employing an international supply chain.

Then there's the long-range likelihood of sustained higher energy prices, whatever the temporary relief in crude costs now. This will further challenge Boeing to make the most fuel-efficient airliners, or risk losing business to those that do.

Of course, no one knows when the world will emerge from this crash. But if the speed and severity of recent events is any guide, we'll have to fight hard to preserve strengths that were once a given.

You may reach Jon Talton at jtalton@seattletimes.com

Copyright © 2009 The Seattle Times Company

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