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 the 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."
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 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 cost 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 from 12. The 777, of which it is about to debut a new version, will be cut to three a month. The 747 and 767, which Boeing is building primarily only as freighters for cargo use, 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. Instead the halt was due to its prolonged grounding in March last year following two fatal crashes that killed 346 people.
While it recently resumed production of its other jets, the 737 Max line remains shut for now. Boeing said it will build only 31 of the jets each month when it does resume, and said it will only 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.
But 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 during the quarter, Boeing's cash balance rose to $15.5 billion by the end of the quarter, from $10 billion at the end of 2019.
It also has suspended its dividend, on which it spent $4.6 billion last year. Calhoun told investors at the annual meeting Monday that it would be years until it resumes paying a dividend.
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 one third, and on Monday it 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 5% higher.
