Boeing lost $2.4 billion over the past three months, the company revealed Wednesday. It’s just the latest sign of trouble for the aerospace giant as it continues to grapple with the fallout over its beleaguered 737 Max aircraft and the COVID-19 pandemic.
In a note to employees, Boeing CEO Dave Calhoun said that the “prolonged impact” of the virus will require the company to “further assess the size of our workforce,” signalling Boeing will cut more jobs than the 16,000 — about 10% of its workforce — it previously announced.
Wall Street wasn’t shocked by the numbers. Investors already knew Boeing’s deliveries 10 jets last month as it began ramping up production after its factory was shuttered by the pandemic.
But Calhoun also revealed that Boeing is planning to further scale back production of all its commercial jets and, potentially, shuttering entire assembly lines of its 787 Dreamliner jets.
“We will also need to evaluate the most efficient way to produce the 787, including studying the feasibility of consolidating production in one location,” Calhoun said. He declined to share further details with reporters. Boeing manufactures the 787 Dreamliner at a dedicated facility in Charleston and at the company’s massive plant near Seattle.
Boeing is now looking to produce just six 787s per month in 2021, according to the company, down from the current rate of 10 per month. Boeing is also planning to reduce its monthly output of 777 widebody aircraft to two per month, down from five.
The company is still in the early stages of resuming production of its 737 Max jets, which was Boeing’s best-selling aircraft but has been grounded since March 2019 following two crashes that killed 346 people. But Boeing said Wednesday it would slow down its plans to ramp up that production as well. It’s aiming to produce 31 of those jets per month by 2022 — a target Boeing was expecting to hit next year.
Boeing (BA) stock was up slightly during pre-market trading. But it fell about 4% in the early hours of Wednesday’s trading session.
The company revealed earlier in July that it was able to deliver only 20 commercial airplanes last quarter — the lowest number of commercial airplanes delivered in a quarter by Boeing since 1977.
And 60 Boeing aircraft orders were cancelled in last month, adding to the 150 orders cancelled in March, 108 in April, and 18 more in May.
Boeing’s customer base, airlines, have been among the hardest hit by the pandemic. The nosedive in demand for air travel has forced carriers to move thousands of jets into storage, leaving the airlines to bleed tens of millions of dollars every day with no end in sight.
That’s left little appetite for buying new jets from aircraft manufacturers like Boeing.
“The reality is the pandemic’s impact on the aviation sector continues to be severe,” Calhoun, Boeing’s CEO, said in his letter to employees Wednesday. “While there have been some encouraging signs, we estimate it will take around three years to return to 2019 passenger levels.”
But Boeing was already on the rocky ground before the pandemic hit because of the 737 Max crisis.
The company said Wednesday it has “made steady progress toward the safe return to service of the 737, including completion of FAA certification flight tests” last quarter. But, the pandemic has prevented Boeing executives from travelling abroad and holding the meetings it needs to regain international approval for the jet.
Executives told investors Wednesday that Boeing has more than 457 of the jets sitting in inventory, and the company is planning to produce them at “very low rates for the remainder of 2020.”
Boeing previously said it expects the 737 Max troubles to cost the company a total of about $19 billion.
Still, Boeing has more than 4,500 orders in its backlog — enough to keep its factories working for years to come. But the June results mean Boeing has 843 cancelled or uncertain orders in 2020, compared to only 59 new orders.
The company counted only one new sale last month: a 767 freighter destined for FedEx (FDX). Thanks to a surge in e-commerce orders and demand for hauling medical equipment across the globe, cargo carriers have proved to be the sole bright spot in the airline industry.
To help ease the financial pressure, Calhoun said the company has temporarily stopped paying investor dividends, halted its stock buyback program, cut spending and costs, and taken on $25 billion in debt.
“The diversity of our portfolio and our government services, defence and space programs provide some stability in the near term as we take these tough but necessary steps,” Calhoun said of Boeing’s planned job cuts.
Boeing is able to reduce staff because it chose not to accept grants and loans via the CARES Act, though the company had previously said it needed a $60 billion bailout to survive the pandemic. The government barred companies that accepted CARES Act funds from cutting jobs at least until October.
Major US airlines, however, did accept CARES Act funding. But those funds are quickly drying up, and carriers are now warning tens of thousands of airline workers may lose their jobs when the layoff ban is lifted in October.
