Deeper job cuts at Boeing as pandemic throttles air travel

Reuters I New York

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Boeing said Wednesday that it will cut 7,000 more jobs as it continues to bleed money during a pandemic that has smothered demand for new airline planes.

The company said that when retirements and other employee departures are included, its workforce will shrink to about 130,000 by the end of next year or 30,000 fewer people than it had at the start of 2020. Just three months ago, the company figured 19,000 workers would leave.

Boeing Co. outlined the job cuts on the same day it reported a $449 million loss for the third quarter, a swing from the $1.17 billion it earned in the same period last year. The loss was not as bad as feared, however.

Revenue tumbled 29% to $14.14 billion.

Boeing has been whipsawed by falling revenue since its 737 Max was grounded in March 2019 after two deadly crashes, and then a coronavirus pandemic that caused air travel to plunge and left airlines with more planes than they need.

It has been a bruising stretch for one of America’s preeminent manufacturers. Thursday marks the second anniversary of the crash of a Lion Air 737 Max off the coast of Indonesia. Less than five months later, another Max crashed in Ethiopia. In all, 346 people died.

The virus has intensified Boeing’s financial troubles.

Air traffic in the U.S. has only recovered to about one-third of pre-pandemic levels, European traffic is similarly depressed, although the picture looks brighter in Asia.

Most experts think it will take airlines three years or longer to make a full recovery. With customers in no mood to buy expensive new planes, Boeing expects to keep burning cash. Chief Financial Officer Greg Smith said the company won’t generate cash until 2022.

The Max was Boeing’s best-selling plane, but now the company has 450 in storage that it can’t deliver. Boeing expects to ship about half of those to customers by the end of 2021, and it may have to find new buyers and reconfigure seating or other features for some, Smith said. The company also has an inventory of about 50 unsold 787s or Dreamliners.

Boeing has spent about two years overhauling flight-control software and computers on the Max, and it continues to expect that regulators will allow it to resume deliveries before the end of the year ends.

Boeing has ambitious plans to ramp up production of the Max. Cowen analyst Cai von Rumohr said that suggests the company believes airlines will still take the plane, or that it is willing to whittle down its inventory more slowly.

Last week Boeing’s biggest customer, Southwest Airlines, said that it is looking at the Airbus A220 jet. Southwest’s fleet consists entirely of Boeing 737s, and the airline was forced to cancel thousands of flights last year because of the Max grounding.

Boeing CEO David Calhoun said Wednesday that Southwest’s fleet will be mostly Boeing “for a long time coming ... we hope it stays all Boeing.”

“The Max has cost us a lot of money” and has forced Boeing to borrow “to make up for the fact that we couldn’t ship the world’s most popular airplane,” Calhoun said on CNBC. “We are getting very close I believe to the finish line with respect to certifying the Max and to begin deliveries.”

After paying out $3.1 billion in cash and other compensation to Max owners, Boeing estimates it still owes customers about $6 billion for lost use of their planes.

The company has other challenges. Because of the Max crisis, it has delayed a decision whether to design a new and slightly larger plane — a hesitation that could result in ceding part of the airplane market to Airbus and its A321XLR.

Boeing’s defense business has remained mostly stable, but even that is not immune to the virus.

“We believe there will be pressure on defense spending as a result of all the COVID-related spending that, of course, governments around the world have been experiencing,” Calhoun said on a call with analysts. “So I don’t think we’re looking at that world through rose-colored glasses.”

The Chicago-based company, which has airplane assembly plants near Seattle and in South Carolina, has borrowed billions of dollars in private credit to get through the downturn, although it bypassed federal pandemic-relief funds. It is giving up office space to save money and will use company stock — not cash — to cover $4 billion in payments to employee pensions and retirement accounts.

Boeing said that excluding non-repeating gains, it lost $1.39 per share. Wall Street expected a loss of $2.35 per share, according to a FactSet survey. Revenue was lower than expected, however, with the FactSet survey pointing to sales of $14.20 billion.

Shares of Boeing closed Wednesday down $7.10, or 4.6%, at $148.14. They have dropped 54.5% this year, compared with an increase of 1.3% in the Standard & Poor’s 500 index.