Boeing said it will slash staff and production after posting a massive first-quarter loss. Demand for air travel has evaporated during the coronavirus outbreak, and the aerospace company continues to reel from the 737 Max grounding.
The company announced it would cut 10% of its jobs, about 16,000 positions, through a combination of buyouts, natural attrition and involuntary layoffs. The cuts will be deepest in Boeing's commercial airplane unit -- which will lose about 15% of jobs. And Boeing said it would drastically scale back production of two widebody passenger jets, the 787 Dreamliner and the 777.
"The demand for commercial airline travel has fallen off a cliff," said Boeing CEO Dave Calhoun. "The pandemic is also delivering a body blow to our business."
Calhoun said it is too soon to say how many involuntary layoffs will be needed, but that it is likely that there will be some. He said that the company has offered 70,000 of its employees a voluntary layoff package.
"That's a big number of offers," he said. "We are hoping we get a reasonably big number [of voluntary departures]."
The job cuts are expected to take place by the end of this year.
The company lost $1.7 billion from its core operations, a bit worse than Wall Street had expected. Boeing was hit by both by the 737 Max crisis as well as airlines canceling and delaying orders for new planes because of the pandemic. A temporary shutdown of its factories in Washington state because of health concerns cost the company $137 million. But it didn't shut production until the final week of the quarter. Boeing will incur additional costs from the temporary shutdown in its second-quarter results.
Nearly two-thirds of aircraft around the world are now parked, according to tracking firm Cirium, as airlines slash their flight schedules. Passenger demand is down about 90%.
Tuesday Southwest Airlines, one of Boeing's best customers, disclosed it had delayed delivery of at least 55% of the 107 planes it had previously scheduled for delivery from Boeing this year or next.
Widebody jets, Boeing's strongest sector, could also be hurt because of their use on long-range international flights. At Boeing's annual meeting Monday, CEO Dave Calhoun said the expectation is that the demand for international travel will take even longer to rebound than the demand for domestic travel.
Boeing will cut production of the 787 Dreamliner to seven a month by 2022, though it will initially build 10 per month for the rest of this year. It has been building 14 of the planes each month between a unionized plant in Washington state and a nonunion plant in South Carolina. Calhoun said it is too soon to say if both plants will continue to build the plane.
The 777, which is about to debut a new version, will be cut to three a month. The 747 and 767, which are primarily used by commercial customers as freighters for cargo, will maintain their current production levels.
Boeing suspended production of its bestselling jet, the 737 Max, in January, ahead of the pandemic's impact on most air travel. The halt was due to its prolonged grounding in March last year following two fatal crashes that killed 346 people.
Although the company recently resumed production of its other jets, the 737 Max line remains shut for now. Once Boeing resumes building those jets it will build only 31 each month, gradually build to that level. It had been building 52 planes a month at the time of the grounding.
The problems with the 737 Max's return to service, and the lower demand once it does resume, will raise the costs of that crisis by $1 billion, according to Boeing CFO Greg Smith. Boeing had previously estimated a $4 billion production cost from 737 Max crisis, as part of an overall $18.7 billion cost because of its 737 Max issues.
Boeing expects to resume production of the 737 Max at some point in the second quarter, even ahead of approval of the plane to fly again. Boeing built 450 of the 737 Max jets since the grounding, awaiting for approval to deliver them. It believes it will be able to start delivering those completed planes at some point in the third quarter.
Smith said Boeing expects to deliver a majority, but not all of those planes, over the first year after the resumption of deliveries. He said the pace of deliveries will now be slower than originally expected. That will hurt the company's cash flow, since most of the money comes at the time of delivery.
The company does not expect its cost-cutting efforts to delay development plans for new jets. It had previously announced that it is going back to the drawing board on the design its next commercial jet, which is expected to have longer range and larger capacity than existing narrow body planes like the 737 Max. The new plane is popularly referred to as the 797, but has not yet officially been given that name by Boeing.
Calhoun said that market uncertainty could push back the decision making process on that new plane. But he insisted Boeing will keep working to develop new aircraft, including that one, despite the difficult market conditions.
"With all market ramifications [of the COVID-19 outbreak] it will take us a little while before before we announce a big new airplane," he said. "But we're still in the development business."
Boeing insists that it has the cash it needs to get through the crisis. By drawing down $13 billion in cash from a line of credit, Boeing's cash balance rose to $15.5 billion by the end of the quarter, from $10 billion at the end of 2019.
Boeing rival Airbus has also been hit by a sharp drop in demand for jets because of canceled orders and postponed deliveries. It has cut production rates by about a third, and on Monday furloughed about 6,000 employees. Wednesday it report a net loss of €481 million, as CEO Guillaume Faury warned, "we are still at an early stage of this crisis."
Shares of Dow component Boeing moved nearly 9% higher in early-afternoon trading, both on its own news and investor hopes about an experimental drug that could help the world fight the coronavirus pandemic.