Boeing Plans Deeper Job, Production Cuts--Update
July 29 2020 - 10:59AM
Dow Jones News
By Doug Cameron and Andrew Tangel
Boeing Co. said it would cut production of commercial jets even
further and continue to shrink its workforce as the coronavirus
pandemic deepens its toll on the global aviation industry.
The U.S. aerospace giant lost $2.4 billion in the second quarter
and said it may consolidate some jet assembly to save money and
prepare for a multiyear slowdown in aircraft deliveries.
Boeing had already planned to cut 10% of its workforce and plans
outlined Wednesday to shrink it further will likely ripple through
the broader U.S. economy, triggering thousands of job cuts among
suppliers and denting the trade balance as aircraft exports dry
up.
The worse-than-expected performance in the latest quarter
reflects the impact of the pandemic as well as the prolonged
grounding of the 737 MAX aircraft following two fatal crashes.
The company booked another $2.5 billion in charges to cover
airline compensation for the MAX, severance payments, abnormal
production costs and asset write-offs.
The per-share loss of $4.79 excluding pension costs and other
items compared with a $5.82 deficit a year earlier and the $2.57
consensus among analysts polled by FactSet.
Revenue fell 25% to $11.8 billion. Though sales at its defense
arm were flat from a year ago, they ran four times higher than the
jetliner business and provided a relative bright spot.
Boeing shares opened 1% higher and later turned negative as it
ended the quarter with more than $30 billion in liquidity, though
its debt now tops $60 billion.
The company has restarted limited MAX production, but pushed
back an increase to 31 planes a month until 2022. Boeing is also
trimming monthly output of its 787 Dreamliner to six and its 777
wide-body to just two. The revamped 777X plane that Boeing is
relying on to generate cash won't arrive until 2022, two years
behind schedule, and Boeing said it would stop making its 747 jumbo
in 2022.
Boeing has already announced plans to shrink its 160,000 strong
workforce, and plans further reductions, according to a person
familiar with the plans. It also wants to reduce jetliner
production as fast as possible, but is mindful of the impact on its
broader supply chain, according to the person. It didn't specify
how many more jobs would have to be shed.
Boeing Chief Executive David Calhoun said the plane maker is
studying whether to consolidate 787 Dreamliner production, rather
than making the jets at two factories in Everett, Wash., and North
Charleston, S.C. He said Boeing doesn't expect air-travel demand to
return to pre-pandemic levels for about three years.
"These past few months have been unlike anything we've seen,"
Mr. Calhoun said in a companywide message Wednesday morning. "The
reality is the pandemic's impact on the aviation sector continues
to be severe."
Global airline traffic is forecast to fall more than 60% this
year because of travel restrictions and weakening economic growth,
and take until 2024 to recover to its 2019 level after a decade of
rapid growth, according to the International Air Transport
Association, a trade group.
Airlines and leasing companies have responded by canceling and
deferring aircraft orders, forcing Boeing and rival Airbus SE to
reduce production, prompting suppliers to follow suit and cut
thousands of jobs.
The slump in deliveries to just 20 jets in the latest quarter
worsens Boeing's cash drain. The company burned through $5.6
billion in cash during the June quarter. Boeing raised $25 billion
in debt during the quarter and had $61.4 billion in debt at the end
of June.
The latest quarter reflects the mounting turmoil on commercial
aviation from the coronavirus pandemic. As infections in its
workforce mounted in the spring and suppliers faced their own
constraints, the company halted various production operations.
In April, Boeing announced it would ramp up MAX production to 31
jets a month next year, almost half the level before that
aircraft's grounding in March 2019 following the crashes that took
346 lives.
As the MAX's production ramp-up faces delays, so do the
aircraft's expected regulatory approvals to resume commercial
service. Boeing said it now expects to resume MAX deliveries in the
fourth quarter, rather than its previous estimate of the third
quarter.
Write to Doug Cameron at doug.cameron@wsj.com and Andrew Tangel
at Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
July 29, 2020 10:44 ET (14:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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