(Adds detail about new airplane, Boeing comments)

By Alwyn Scott

SEATTLE, Feb 10 (Reuters) - Boeing Co said on Wednesday it would cut jobs at its commercial airplane unit, addressing intense pressure to reduce costs and compete with Airbus even as the industry booms.

Boeing and Airbus are turning out planes at record rates, and plan to boost output in coming years as they work through backlogged orders that stretch out seven or eight years.

But last year Airbus won 57 percent of new orders booked by the two airplane makers. Boeing's operating profit margin also narrowed to 3.5 percent in the fourth quarter, from 9.3 percent a year earlier. Factors included the high cost of producing its state-of-the-art 787 Dreamliner and a charge it took to account for slowing sales of its 747 jumbo.

"To win in the market, fund our growth and operate as a healthy business, we are taking thoughtful steps to reduce the cost of designing and building our airplanes, part of which involves evaluating our employment levels across all of commercial airplanes," Boeing said after its Airplanes chief, Ray Conner, announced the move in an employee webcast.

"We will start reducing employment levels beginning with executives and managers first."

Conner also said Boeing may decide this year about developing an aircraft to fill a gap between its biggest 737 and the smallest 787 Dreamliner to compete with Airbus in that segment of the market.

Boeing did not set a time frame for job cuts and said the number "will depend on how effectively we bring down costs as a whole."

Once based in Seattle, Boeing has already cut about 4,000 jobs in Washington state and has come under fire there after receiving a major package of tax incentives in 2013 linked to job growth.

Washington state granted Boeing tax breaks in exchange for the company's decision to put a new aircraft program, the 777X, in the Seattle area to "maintain and grow" aerospace employment.

Washington state remains the center of Boeing's commercial airplane operations, and employment has tended to rise when production booms. But this time, Boeing is producing record numbers of planes with fewer workers than in the past.

Employment has fallen as the company sent work to other states and countries, reorganized engineering talent around the world and stepped up automation and lean manufacturing.

Boeing stock fell 1.2 percent to $116.36 on the New York Stock Exchange on Wednesday.

(Reporting by Alwyn Scott; Editing by Steve Orlofsky, Cynthia Osterman and David Gregorio)