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Boeing cuts jobs and production as coronavirus slashes demand

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Via Financial Times

Boeing plans to cut its workforce by 10 per cent, as the coronavirus pandemic throttles global demand for jets and forces the manufacturer to lower production rates for nearly its entire portfolio of commercial aeroplanes.

The company had total of 160,000 employees at the end of last year. The commercial aeroplane division, which makes up about two-thirds of Boeing, will bear the brunt with a 15 per cent cut in jobs. Chief executive David Calhoun said in a memo to staff that the cuts would come through a mix of voluntary and involuntary lay-offs.

The Chicago-based company on Wednesday posted a $641m net loss in the first quarter compared with $2.1bn in net income for the same period last year. Revenue fell more than a quarter to $16.9bn. Boeing also reported a flurry of charges totalling $2.3bn.

The aerospace manufacturer shut plants in Washington state, South Carolina and suburban Philadelphia for weeks due to the spread of Covid-19. Though they have since reopened, the company’s airline customers continue to suffer from plummeting demand for air travel, prompting them to defer deliveries on jets.

“The Covid-19 pandemic is affecting every aspect of our business, including airline customer demand, production continuity and supply chain stability,” said Mr Calhoun.

The 737 Max will have a “slower than planned” ramp-up once production resumes, increasing to 31 a month in 2021. Boeing slowed the production rate to 42 a month last year from 52 after two fatal crashes resulted in a worldwide grounding. It halted production in January.

The wide body 787 Dreamliner unit will halve production. Boeing said previously that it would cut the rate from 14 a month to 10 a month by 2021. Now, it will reach the lower figure by the end of this year, and it will fall to seven by 2022.

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The 777 and 777x production will go from five planes a month to three in 2021. The company will continue to make 767s and 747s at the same rates.

The charges reported by the group included an additional $1bn in “abnormal production” costs on the 737 Max, due to Covid-19. Last quarter the company estimated these charges at $4bn, and about $800m of the figure was expensed in the first quarter.

Boeing logged another $137m charge due to the shutdown of its operations in Washington state unrelated to the Max. It is taking a $336m charge for repairing the so-called “pickle fork” on its 737 NG planes, which are in widespread use, and a pre-tax $827m charge on the flawed KC-46A tanker that the US Air Force has insisted Boeing pay to repair.

Boeing also reported a free cash outflow of $4.7bn, compared with a positive free cash flow of $2.3bn in the first quarter last year. Free cash flow, a measure of cash minus capital expenditures, is a key metric by which investors judge the aerospace manufacturer.

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