Big changes and cuts ahead for Boeing

By May 4, 2020 Featured

The US aircraft manufacturer Boeing is to shed 10% of its 160,000 workforce by the end of this year and greatly reduce the production of its aircraft range into 2022, in what the company describes as an entirely new market created by COVID-19.

At the company’s first-quarter earnings call on Wednesday, Boeing CEO David Calhoun detailed the adjustments to production runs that would be coming into effect. Plans for the 737 MAX, which he estimated will resume in the third quarter, will accelerate even slower than originally planned following the jet’s 18-month grounding. In a revised upbeat earlier plan to increase MAX production from 57 a month to 63, Boeing now sees this rate peaking at only 31 per month well into 2022, and will only rise if the market demand is there in the future.

A letter sent to the company’s employees last week, Calhoun called the pandemic “a body blow” to the business, created by a reduction in passenger volumes of more than 95% compared to last year’s figures and an expected $314 billion fall in airline revenue in 2020. He surmised that a recovery from the COVID-19 crisis to 2019 levels would take up to three years and that it would take “a few years beyond that” for the industry to return to long-term profitability.

“As a result, airlines are delaying purchases for new jets, putting the brakes on delivery schedules, and deferring elective maintenance,” said Calhoun. “We’re also seeing a dramatic impact on our commercial services business, as grounded airline fleets decrease the demand for our offerings. This is all putting pressure on our cash flow.”

According to AINonline, Boeing saw this year’s first-quarter cash flow turn negative in the amount of $4.3 billion compared with positive cash flow for the same period in 2019 of $2.8 billion. Now holding some $15 billion in cash and $5 billion in short-term debt, the company recently allowed the deadline for a $4.2 billion purchase of Embraer’s commercial aircraft business to lapse. Although Boeing blamed the collapse of the negotiations on the Brazilian airframer’s failure to meet certain conditions in the master transaction agreement.

“We are intensely focused on ensuring liquidity through the immediate crisis,” said Calhoun. “We believe that government support will be critical to ensuring our industry’s access to liquidity. We continue to evaluate options in the capital markets as well as funding options from the US Government via the US Treasury and various federal reserve programs.”

Boeing’s duel efforts to “resize and reshape” its business will include reducing the workforce by some 16,000 with voluntary layoffs and involuntary layoffs “as necessary.” The cuts will disproportionately affect the commercial aircraft and services business, amounting to about a 15% reduction in the workforce within these departments.

“We will be a smaller company for a while,” said Calhoun. “We’ve worked hard to maintain the stability of our workforce…But the sharp reduction in demand for our airplanes that we see for the next several years won’t support the size of the workforce we have today.”