Boeing Co said on Wednesday it would cut its 160,000-person workforce by about 10 per cent, further reduce 787 Dreamliner production and try to boost liquidity as it prepares for a years-long industry recovery from the coronavirus pandemic that drove its second consecutive quarterly loss.
Planemakers, airlines and suppliers have been left reeling by the pandemic, which has crippled passenger travel and catapulted major economies into recession.
“Our industry is going to look very different as a result of this pandemic,” Boeing CEO Dave Calhoun told investors. “We will be a smaller company for a while.”
Chicago-based Boeing burned through $4.7 billion in cash in the first quarter, but said it was confident of getting sufficient liquidity to fund its operations, sending its shares up 7.7 per cent to $141.37.
Many of the job cuts, to be completed by the end of year through voluntary and involuntary layoffs as well as natural turnover, will be at the company’s commercial aircraft division, where it was already grappling with a production freeze and year-long grounding of the 737 Max following two fatal crashes.
Boeing expects to resume 737 Max deliveries in the third quarter following regulatory approvals, CFO Greg Smith said, with production re-starting at low rates in the second quarter before gradually increasing to 31 per month during 2021.
Further gradual production increases will correspond with market demand. Meanwhile, Boeing will focus on delivering jets that it has already built in order to unlock frozen cash.
With few people flying, key 737 Max customers like Southwest Airlines Co are deferring their deliveries.
The pandemic has also aggravated a slump in demand for wide-body jets like the 787, sapping a key remaining source of cash for Boeing as the 737 Max remains grounded.
Boeing plans to reduce production of the 787 to seven a month by 2022 - half the planned rate of just a year ago when it was implementing a record monthly rate of 14. It had already progressively reduced the target to 10 on the back of U.S.-China trade tensions. It will also reduce the 777/777X combined production rate to 3 per month in 2021 from 5.
Reuters reported on Tuesday that Boeing is working with investment banks on a potential bond deal worth at least $10 billion. Last month it drew down its entire $13.8 billion credit line and is also weighing seeking government aid.
Analysts said the quarterly cash burn was not as bad as feared and that the company might be able to avoid raising capital from the U.S. Treasury, although Seth Seifman of J.P. Morgan said the path forward for Boeing still remains “quite challenging.”
The planemaker ended the quarter with $15.5 billion in cash.
The company’s adjusted loss stood at $1.70 billion, or $1.70 per share in the first quarter, compared with a profit of $1.99 billion, or $3.16 per share, a year earlier.
Over the weekend, Boeing canceled a $4.2-billion deal for Embraer SA’s commercial aviation, prompting the Brazilian company to initiate arbitration.
It is also facing lawsuits related to the 737 Max crashes and federal prosecutors aided by the FBI, the Department of Transportation’s inspector general are investigating the aircraft’s certification. Reuters reported Tuesday 737 Max approval is not expected until at least August and could be pushed back later.
European rival Airbus on Wednesday posted a 49 per cent slump in first-quarter core profit and called for an industry-wide campaign to restore confidence in flying.
In a memo to employees, Calhoun said: “The aviation industry will take years to return to the levels of traffic we saw just a few months ago. We have to prepare for that.”
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