Boeing announced sweeping cost-cutting measures Wednesday after reporting a first-quarter loss of $641 million following the hit to the airline business from the coronavirus pandemic.
The aerospace giant plans to reduce its workforce by 10 per cent through a combination of voluntary and involuntary layoffs and will slash production of its main commercial planes, including the 787 and 777, Chief Executive David Calhoun said in a message to employees that accompanied an earnings release.
‘The aviation industry will take years to return to the levels of traffic we saw just a few months ago,’ Calhoun said. ‘We have to prepare for that.’
Calhoun said the job cuts would be deeper – more than 15 per cent – in commercial airplanes and services, as compared with defense and space systems, where the business has been more stable.
The quarterly loss of $641million compared to profits of $2.1billion in the year-ago period. Revenues fell 26.2 per cent to $16.9billion.
Total debt at the end of the quarter was $38.9billion, up from $27.3billion at the end of December.
Boeing announced sweeping cost-cutting measures after reporting a first-quarter loss of $641million following the hit to the airline business from the coronavirus pandemic
Calhoun said the belt-tightening was needed to maintain adequate liquidity at a time its revenues are depressed, adding that the company is ‘exploring potential government funding options’ in the wake of COVID-19.
Boeing has previously called for $60billion in government support for the US aerospace industry.
Federal relief legislation includes $17billion aimed at Boeing. Calhoun has previously balked at the idea of the US taking a stake in Boeing.
‘We are in an unpredictable and fast-changing environment, and it is difficult to estimate when the situation will stabilize.
‘But when it does, the commercial market will be smaller and our customers’ needs will be different. We know we are going to have to borrow more money in the next six months in order to get through.’
The loss reflected ‘abnormal production costs’ connected to the temporary suspension of Puget Sound manufacturing operations due to COVID-19 and due to the suspension of production of the 737 MAX, which remains grounded following two deadly crashes.
Boeing said the pandemic crisis has hit demand for new planes and services, with airlines delaying purchases of jets, slowing delivery schedules and deferring elective maintenance.
It will cut production of the 787 from 14 per month to 10 per month in 2020 and gradually to seven per month by 2022.
Boeing also will trim output on the 777 and lower its targets for the 737 MAX.
‘We have done a tremendous job of increasing our production rates and services offerings in recent years,’ Calhoun said.
‘But the sharp reduction in our demand for our products and services over the next several years simply won’t support the higher levels of output.’
Boeing shares jumped 4.1 percent to $136.36 in pre-market trading.
Boeing was in trouble before the coronavirus outbreak with its best-selling jet, the 737 Max, grounded after two crashes killed 346 people.
The grounding of the Max added billions in costs and cut deeply into revenue last year, leading to Boeing’s first money-losing year in two decades.
The company faces criminal and civil investigations and a flurry of lawsuits by families of the people killed in the crashes.
The outbreak has added to Boeing’s troubles as airlines delay or cancel plans to buy new jets.
It also caused Boeing to shut plants for several weeks, although it has reopened in the Seattle area and will resume production of 787 aircraft at its facilities in South Carolina on Sunday night, with most of the staff returning by May 4.
Operations at South Carolina were temporarily suspended on April 8 following the COVID-19 pandemic.
Boeing said it will institute a series of safeguards including signage to create physical distance and face coverings for employees.
Over the weekend, Boeing terminated a deal with Brazilian aircraft maker Embraer SA, which analysts said will help Boeing conserve cash but weaken its position in the market of building smaller passenger jets.
Boeing 737 MAX is ‘expected to remain grounded until at least August due to software issues’
Boeing’s grounded 737 MAX jet will likely remain grounded until at least August as the manufacturer continues to grapple with software issues, people briefed on the matter told Reuters.
The largest planemaker has signaled it now hopes to win regulatory approval in August for the plane’s return to service, but that could be pushed backed until fall, the sources said, as timing for meeting milestones is uncertain.
The best-selling airplane has been grounded since March 2019 after two fatal crashes in five months killed 346 people.
Boeing halted production in January and has 400 undelivered MAX planes in storage.
Southwest Airlines, the largest operator of 737 MAX airplanes worldwide, said Tuesday it was removing the MAX from its schedule through October 30 based on Boeing’s ‘recent communication on the MAX return to service date’.
Last week, Reuters reported that a key certification test flight had been delayed until late May at the earliest and reported in early April the company was dealing with two new software issues.
The Federal Aviation Administration (FAA) has repeatedly said it has no timetable for approving the plane’s return to the skies.
On Monday, Calhoun during the company’s annual meeting did not repeat prior guidance that Boeing anticipated the plane would win approval for a return to service in mid-2020.
‘We remain confident in the MAX,’ Calhoun said.
Boeing said on April 7 it needed to make two new software updates to the 737 MAX’s flight control computer.
One issue involves hypothetical faults in the flight control microprocessor, which could potentially lead to a loss of control known as a runaway stabilizer.
The other issue could lead to disengagement of the autopilot feature during final approach.