Exactly how many jobs were lost in the industry in the aftermath of 11 September? Our survey of the top 100 companies shows that the US terrorist attacks may have had less impact on employment levels than many people feared last year

Seattle last December had an air of gloom about it that had nothing to do with the rain clouds which shroud the city at that time of year. Three months earlier, the 93,000 or so employees working for Boeing Commercial Airplanes (BCA) must have thought themselves lucky. Inhabiting one of the USA's most laid-back and cosmopolitan cities, amid the spectacular scenery of the Pacific north-west, they enjoyed an enviable lifestyle working for the world's biggest aerospace company.

Then came 11 September and the subsequent announcement that BCA would shed up to one-third of its workforce. A total of 21,000 employees - ranging from assembly line workers to senior managers - spent the weeks before Christmas being handed termination notices and grimly contemplating the future as they set up appointments with Boeing-provided "career counsellors". Real-estate agents, coffee-shop owners and motor-boat dealers braced themselves for the aftershocks.

Boeing's total planned workforce reduction of 30,000 is among more than 100,000 jobs axed by the 100 largest aerospace companies since the terror attacks, according to exclusive research by Flight International. The figure represents 7% of their combined workforces, although this includes early retirements and so-called natural wastage, where employees who leave of their own accord are not replaced. Boeing is the largest company in the Top 100 and its reaction to the downturn has been most radical in terms of numbers, but dozens of other companies further down the list have taken similarly drastic steps to reduce costs in the face of fast-emptying orderbooks. Although every segment of the industry has been affected, businesses with a reliance on civil aviation have been much worse hit than defence suppliers. Most of Boeing's job losses have been in its BCA division. However - spread as they are throughout the entire global industry - the total job losses are less than the meltdown predicted by some shortly after the attacks.

Redundancies

Based on a survey of every business* in the latest Aerospace Top 100 (Flight International, 21-27 August, 2001), 101,358 redundancies have been announced or implemented since September. While this paints a fairly accurate picture of the scale of the situation, it does not take into account redundancies at smaller aerospace companies, airlines and in related industries such as airports, travel and hospitality. In the USA alone, the Aerospace Industries Association (AIA) estimates that 66,000 aerospace jobs have been lost as a direct result of 11 September.

On the positive side, our figure is not a net total; it does not include the number of jobs created or announced by Top 100 companies over the past nine months. Most of these have been in the defence sector as increased military spending has boosted several programmes. But Bombardier, for example, has so far hired back 1,100 of the 2,000 employees let go at its CRJ regional-jet plants in Montreal.

That the industry had to drastically and hurriedly downsize after 11 September was hardly surprising. The attacks prompted a flurry of order cancellations and deferrals as passengers - affected by security fears or reduced travel budgets - deserted the skies in late 2001. As airframe manufacturers adjusted their production schedules, the effects spread fast down the supply chain, with a series of redundancy announcements from major suppliers such as Honeywell and Rolls-Royce in the months after the attacks. Virtually every disappointing set of annual results since has, at least in part, blamed 11 September.

But this does not tell the entire story. The aerospace industry was in deep difficulties well before September due to the cyclical economic downturn in the USA. Some economists and analysts believe that airline passenger numbers and revenues are in no worse a state today than they would have been anyway had the 11 September events not happened.

Many experts now believe manufacturers used the attacks on New York and Washington DC as an excuse to "rightsize" pumped-up workforces with minimum opposition from trade unions and politicians. "There was overmanning in the industry as a whole," says analyst Graziano Freschi of PricewaterhouseCoopers. "The Boeing announcement was well overdue - there was a lot of excess fat."

Unsurprisingly, the USA - home to half the Top 100 companies and seven of the largest 10 - has borne the brunt of the job cuts, although the figure is undoubtedly skewed by the huge redundancies at Boeing. US companies in the Top 100 have shed 9.4% of their workforces since 11 September, compared with 6.8% for the UK, 3.1% for the rest of Europe and 3.8% for the rest of the world. There are a number of reasons for this. As most US companies had grown to meet the rising demand for aircraft in the late 1990s they had the furthest to fall - as Freschi points out - when the US recession began to take hold at the onset of 2001.

The US domestic airline market, heavily weighted towards Boeing aircraft, together with transatlantic routes were the worst affected by the slump in passenger traffic that was showing by the summer of 2001 and accelerated in the final quarter. This meant Boeing and its suppliers were affected more than rival Airbus, which sells proportionally more to Asian and European carriers.

According to rating agency Moody's: "In all likelihood, Boeing's deliveries will decline the most, as they did in the prior cycle [the 1991-95 drop in aircraft deliveries after the Gulf War]. This discrepancy in performance derives from Boeing's greater dependence on the US airlines. Airbus's rising market share and lower delivery levels should spare it from suffering as much."

Employment law

But there are other factors. Social culture and employment laws in continental Europe in particular make it a lot harder for manufacturers to lay off workers. The USA's hire and fire culture meant Boeing and other US companies could clear their payrolls of thousands of staff within weeks of 11 September. Airbus, on the other hand, has cut the equivalent of just 6,000 jobs, and - thanks to manoeuvres with overtime bans, shorter working weeks and temporary lay-offs - only around 500 workers have handed in their security passes for the last time.

As employment law specialist Peter Talibart, a partner at Norton Rose, says: "It is easier to dismiss people in the USA." In the UK, for instance, employees have notice periods written into their contracts, and, in common with the rest of Europe, the state mandates redundancy payments to the individual. Workers in mainland Europe are even better cushioned. "In many continental jurisdictions, the law is much more protective towards employees in collective redundancy situations than it is in the UK," says Talibart. Employers in continental countries must consider the social consequences of redundancies - employees' dependents, family circumstances, local levels of unemployment and so on.

Softer approach

The picture is very different across the Atlantic. "In the USA, employees are employed on an at-will basis, meaning that they have no contract of employment and, more importantly, do not have a notice period. There is no statutory equivalent of a redundancy payment in the same sense that it exists in the UK and other European jurisdictions," Talibart says.

According to many in Europe, this soft-centred approach to employment law means businesses are less tempted to act rashly in a crisis and get rid of trained and experienced workers to appease shareholders obsessed with the next quarter's bottom line. The US approach, they say, means manufacturers struggle to find the same skilled employees when the upturn arrives. Critics, of course, maintain that European companies are less able to react to a change in economic circumstances and remain saddled with unsustainable costs at a time of falling revenues.

However, some believe the fact that aerospace companies are run more efficiently today than 10 years ago saved thousands of jobs in this latest crisis. It meant most businesses were prepared for a downturn. Alcoa's Huck Aerospace Fasteners group has seen demand drop by a quarter over the past nine months but, according to president Jim Dauw, the effect could have been much worse on businesses further down the supply chain if assemblers had not begun to adopt Japanese-style lean manufacturing methods during the 1990s. This has meant factories holding just a few days of stocks rather than several weeks and rely on just-in-time deliveries. "In previous recessions, customers consumed inventory they already had [while cancelling orders for fresh components], multiplying the effect of the fall - we would have seen not a 25% drop but a 50% or 75% drop," he says.

Allan Cook, chief executive of UK components manufacturer Cobham, points out that suppliers are building far closer relationships with their customers than before. This has meant businesses are less vulnerable to sudden order cancellations caused by a downturn in demand. "More and more, we are being asked to supply entire systems, rather than just components," he says. Freschi agrees: "Suppliers are shielded by long-term contracts," he says. This has lessened the multiplier effect, which might have seen the effect of a drop in demand by final assemblers rippling out and engulfing dozens of small suppliers dependent on that business.

The good news is that, barring another cataclysmic turn of events, more large-scale job cuts are unlikely. According to Freschi, financial markets believe the worst is over, with the crisis in the civil sector cushioned by an upturn in defence spending by the US and other governments in reaction to new terror threats. This is different to the recession of the early 1990s where the economic downturn was matched by a lowering of international tension as the Cold War ended and military budgets were cut.

At Lockheed Martin, for example, overall employment has remained steady. The company has cut jobs from its struggling space division, but is increasing staffing levels in its military aircraft division as it begins development of the F-35 Joint Strike Fighter. Losses at GKN and other second-tier suppliers may reflect the fact that 40%of its business is civil-related, and the job losses cannot be assigned to one market or the other.

According to the AIA, aerospace employment is at its lowest level in the USA for 13 years. From a total workforce of 1.3 million in 1989, the total shrank steadily for seven years as the end of the cold war led to cuts in defence spending and technical advances increased worker productivity.

A rise in employment in the mid-1990s was led by the recovering economy, bringing increased air travel. This rise slowed and halted in 2000. Increased defence spending - although even in the USA President Bush's budget is still well below Cold War spending levels - may do something to reverse this slide. At present, higher defence spending has not led to significant rises in defence employment, but new programmes should change this.

The bad news for jobs - at least in the short term - is that the pace of mergers in the industry is unlikely to decrease. The just-announced Goodrich agreement to acquire the aeronautical division of TRW is just the latest in a string of takeovers over the past few years. These inevitably lead to redundancies as the new management gets rid of overlapping resources as they search for efficiencies.

Mergers to continue

With Fairchild Dornier teetering on the brink of extinction after last week's decision by Bombardier not to take over its 728/928 regional-jet programmes, more than 3,000 jobs also hang in the balance in Oberpfaffenhofen, Germany.

In the long run, an ever-rising demand for air travel and the need for governments to remain vigilant in a new era of unpredictable military threats could see employment levels begin to rise again. Among Western manufacturers, however, these jobs are likely to be increasingly highly-skilled rather than traditional metal-bashing as the emphasis swings from airframe construction to systems and intellectual property.

* Flight International contacted every business in last year's Top 100 (three have merged with other Top 100 companies since the list was published) and asked them how many jobs they had shed since 11 September, including redundancies announced but not yet implemented. In the occasional instance that a company refused to confirm the number of job losses, we have made an estimate based on earlier regulatory announcements or annual results.

Source: Flight International