By John BIERS – Japan Today
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 percent 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 percent — in commercial airplanes and services, as compared with defense and space systems, where the business has been more stable.
The company had 160,000 employees prior to the announcement, putting the downsizing at some 16,000 jobs.
The quarterly loss of $641 million compared to profits of $2.1 billion in the year-ago period. Revenues fell 26.2 percent to $16.9 billion.
Total debt at the end of the quarter was $38.9 billion, up from $27.3 billion at the end of December.
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 $60 billion in government support for the U.S. aerospace industry. The federal “Cares Act” legislation includes $17 billion aimed at Boeing.
In an interview with CNBC Wednesday, Calhoun said the company would weigh potential support from the U.S. Treasury against private sources. Credit markets have improved in the wake of the Cares Act and moves by the Fed to pump cash into credit markets, he said.
“We’re going to evaluate all these options,” Calhoun told the network. “We need liquidity.”
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.”
Calhoun told CNBC the company has made progress with regulators on the MAX, but that “there is still a mountain of documents that have to be completed.”
The jet has been grounded since March 2019 following two crashes that killed 346 people.
Boeing has previously said it expects to win regulatory approval for the MAX in mid-2020, but that timeframe is expected to push back in light of the coronavirus, which has challenged regulators and transformed the market for commercial travel.
“We’ve moved from a supply issue to what is now a demand issue,” Calhoun told CNBC.
Boeing shares jumped 4.7 percent to $137.49 in pre-market trading.