Boeing Lays of 16,000 Staff Amid Groundings & Quarterly Losses



Aviation giant Boeing has announced it will be laying off 10% of its workforce, or around 16,000 employees, after the company posted huge losses for the first quarter of 2020.


Boeing is fighting a war on a number of fronts, with the global pandemic wiping out demand for international air travel seemingly overnight, as well as the fallout from its 737 MAX scandal causing turmoil at the Chicago head-quartered company.


Overall, job cuts are set to be the most aggressive at Boeing’s commercial aeroplane division, which is set to be trimmed back by 15% as they drastically reduce production numbers of two widebody jets, the 787 Dreamliner and the 777.


Boeing posted a $1.7 billion loss on its core operations, far more than Wall Street analysts were predicting. The company was ravaged by the 737 MAX crisis, where two almost brand-new planes crashed, and caused a number of airlines to cancel or delay their orders for new units, which was compounded by the coronavirus pandemic which has made routes unprofitable for airlines.


According to aviation tracking company Cirium, global passenger demand has dropped 90%, causing more than two-thirds of the world’s aircraft to be currently grounded.


“The demand for commercial airline travel has fallen off a cliff,” Dave Calhoun, Boeing’s CEO said. “The pandemic is also delivering a body blow to our business.”


Boeing has said it will offer some staff buyouts, while others will be forced to deal with an involuntary layoff. Boeing’s CEO has said it’s too early to confirm how many involuntary layoffs will take place, but has said that it has offered 70,000 of its employees a voluntary severance package.


“That’s a big number of offers,” Calhoun said. “We are hoping to get a reasonably big number of voluntary departures.”


A voluntary shutdown to its Washington state manufacturing plant cost Boeing an additional $137 million, however, the impact of this is yet to be seen on the company’s quarterly results as the shutdown didn’t occur until the last week of the quarter. Boeing says that cost-cutting and layoffs will not impede the speed of its development plans for new aircraft


This is in addition to the postponement of an order from Southwest Airlines, one of the company’s largest buyers, who has delayed the delivery of 55% of the total 107 aircraft it had ordered for this year and 2021.


CEO Dave Calhoun has said that the airliner’s strongest seller, widebody jets, are set to be hit by the drop in international flights, adding at the company’s annual meeting earlier this week that international travel demand is set to take longer to recover than the domestic travel market.


In light of this, Boeing has cut the rate of production for its 787 Dreamliner - a craft commonly used on international long-haul flights - from its peak of 14 each month, to just seven a month by 2022; for the remainder of the year, Boeing said it will produce them at a rate of 10 per month.


Production of the 747 and 767 models, which are used primarily for freight purposes will continue at their current rates, however the new model of the 777 which was slated for its debut next month will be cut to just three craft per month. The controversial 737 MAX has had its production suspended since January of this year after two fatal crashes prompted an investigation.


It’s expected that when Boeing returns to production of the 737, it will be at a rate far less than the 52 initially slated for production each month, with the company building units at a rate of 31 per month. Production of the 737 MAX will be complicated by the dramatic reduction in demand, with Boeing’s CFO, Greg Smith stating that it will raise the costs of production by around $1 billion.


Initially, Boeing estimated a $4 billion production cost for the 737 Max crisis, which has now been updated to $18.7 billion for the company to make up for. It’s expected that production will resume in the second quarter of 2020, possibly even ahead of the official approval for the aircraft to return to the air. Boeing has built a total of 450 units of the 737 MAX since the January grounding, and it is awaiting approval to deliver planes around the third quarter of this year.


Greg Smith estimates that the company will deliver some, but not all of the finished aircraft this year, but admits the slow delivery will impact the company’s cash flow as Boeing doesn’t profit significantly on deposits, but final deliveries. Smith said the company can weather the storm of the pandemic through $13 billion in cash from a credit line, and the company’s cash balance rising at the end of 2019 from $10 billion to $15.5 billion.


The company has been buoyed by a $25 billion capital raising bond offering that took place yesterday, the sixth-largest investment-grade bond offering of all time, according to Refinitiv data. Boeing's CFO Greg Smith said that "we've got good options out there to help for the near term liquidity and give us appropriate cash."


Boeing has said it will offer some staff buyouts, while others will be forced to deal with an involuntary layoff. Boeing’s CEO has said it’s too early to confirm how many involuntary layoffs will take place, but has said that it has offered 70,000 of its employees a voluntary severance package.


Calhoun said that “with all the market ramifications of the COVID-19 outbreak, it will take us a little while before we announce a big new airplane… but we’re still in the development business,” alluding to Boeing’s previously announced plans to release an updated, longer-range 737 MAX- codenamed the 797.


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