Boeing says it’s planning to reduce its workforce by 10% and cut back on production of wide-body jets in response to the coronavirus pandemic’s dramatic effect on the aviation industry.
“We will be a smaller company for a while,” David Calhoun, Boeing’s CEO and president, told investors today during a conference call.
The moves came as the company reported an adjusted loss of $1.7 billion and a negative cash flow of $4.7 billion for the first quarter of the year. It was the second quarterly loss in a row, but it wasn’t as bad as analysts feared. As a result, Boeing’s shares finished today’s trading session up nearly 6%, at a closing price of $139.
In a letter to employees, Calhoun said that the pandemic has delivered a “body blow to our business.”
“The aviation industry will take years to return to the levels of traffic we saw just a few months ago,” he wrote.
In response, the company has started executing a plan for a 10% reduction in total workforce through a combination of voluntary layoffs, natural turnover and involuntary layoffs as necessary.
“That is 10% in total for the enterprise,” Calhoun stressed. “We’ll have to make even deeper reductions in areas that are most exposed to the condition of our commercial customers — more than 15% across our commercial airplanes and services businesses, as well as our corporate functions.”
Boeing’s total employment stood at 161,133 as of Jan. 1, including 64,529 employees at Boeing Commercial Airplanes, which has assembly plants in Everett and Renton in Washington state as well as in North Charleston in South Carolina. That translates to roughly 16,000 fewer jobs across the board, with more than half of those jobs cut from commercial airplane operations.
Earlier this week, Boeing laid out the terms of its voluntary layoff package, typically including one week of pay for every full year of service, up to a maximum of 26 weeks’ worth of pay.
Boeing’s downsizing plans call for reducing the 787 Dreamliner production rate from the current 14 jets per month to 10 per month in 2020, and seven per month in 2022. Combined production of the 777 and 777X would be reduced from the current five jets per month to three per month in 2021.
The 777X is still undergoing testing in advance of certification, and Calhoun said Boeing would “take a measured approach to the 777X rate ramp.”
For more than a year, Boeing’s 737 MAX fleet has been grounded in the aftermath of two catastrophic crashes, and the Federal Aviation Administration hasn’t yet signed off on Boeing’s plan to make fixes and put the jets back into operation. The return to service is currently expected to take place no earlier than this summer.
Calhoun said Boeing expects to resume 737 MAX production at low rates in 2020, gradually ramping up to 31 planes per month in 2021, “with gradual increase to correspond to market demand.”
Production of the 767 and 747 would continue at their current rates of three per month and one every two months, respectively. Those planes are currently used primarily as cargo freighters.
Calhoun said “the ongoing stability of our defense, space and related services businesses will help us limit the overall depth of the cut.”
Boeing Defense, Space & Security reported an 8% decrease in quarterly revenue, year over year. That drop was “primarily driven by a charge on the KC-46A tanker,” Boeing said. On the plus side, Boeing received an award for 18 more P-8A Poseidon maritime patrol aircraft, and a contract to develop a prototype for the U.S. Army’s Future Log Range Assault Aircraft program.
Weeks ago, Boeing said the aerospace manufacturing industry would need $60 billion in liquidity from public and private sources to get through the coronavirus crisis. Over the course of the quarter, Boeing added $11.6 billion worth of debt, bringing total debt to $38.9 billion.
The company is still considering whether it will seek federal aid. During an interview with CNBC, Calhoun noted that federal assistance programs have already had an effect on the availability of liquidity.
“When they got announced, the credit markets did loosen up a fair amount, which means that we have private options or public options available to us,” Calhoun said. “At this stage, just know that we’re going to evaluate all of those options.”
Update for 1:53 p.m. PT April 29: We’ve added the closing price for Boeing shares.