A Boeing 737 MAX during a test flight in Seattle in September. The company maintained its guidance to gradually increase MAX production through next year. PHOTO: MIKE SIEGEL/BLOOMBERG NEWS
Aerospace giant reviewing jetliner production rates as airline traffic stalls
By Doug Cameron – The Wall Street Journal.
Boeing Co. BA +0.44% said it will cut more jobs and review jetliner production rates in an effort to stop bleeding cash as the coronavirus pandemic roils global air travel.
Faced with a pileup of undelivered aircraft, the company said it would review its commercial aircraft production levels as airlines are either unable or unwilling to accept its newly produced jets amid a prolonged slump in passenger demand for flights.
Executives said Wednesday Boeing wouldn’t likely generate cash in 2021, when the plane maker expects to hand over half of its some 450 undelivered 737 MAX jets that have been grounded for nearly two years.
The company expects to reduce its headcount by another 11,000, including 7,000 layoffs, on top of almost 20,000 already announced and end next year with around 130,000 employees, about 40% less than when it merged with McDonnell Douglas in 1997.
The collapse in airline traffic and reduced aircraft production have already cost the U.S. aviation industry around 100,000 jobs so far this year and another 220,000 are at risk, according to the Aerospace Industries Association, a trade group.
“The reality is that our industry as a whole will simply build less in the coming years,” said Boeing Chief Financial Officer Greg Smith on an investor call.
Boeing said it still expects to gradually increase MAX production through next year. It will also reduce output of the 787 Dreamliner when it moves all assembly to South Carolina. Deliveries of the aircraft would remain relatively slow in coming months due to inspections following previously disclosed quality-control lapses, Mr. Smith said.
However, Boeing executives said it could reduce production further if airlines are unable to take delivery because of a lack of demand or financing. Wide-body planes like the 787 are under particular scrutiny because of the collapse in long-haul international flying.
The International Air Transport Association, a trade group, this week cut its revenue outlook for the global airline industry in 2021 by a quarter from its previous guide in August as rising coronavirus cases and quarantines restricted travel.
“We will monitor as we prudently manage supply and demand,” said Boeing Chief Executive David Calhoun on the investor call.
The existing production cuts and pandemic-driven restrictions are forecast to limit Boeing’s jetliner deliveries to airlines and leasing companies to 170 this year compared with about 500 at rival Airbus SE, according to analysts. Boeing handed over 28 planes to customers in the September quarter compared with 62 a year earlier. It has become more reliant on its defense business, where sales were double those of the commercial arm in the latest quarter.
Boeing lost $466 million in the September quarter as overall sales fell 29% from a year ago and the company used $4.8 billion in cash during the quarter, further evidence of the mounting financial cost from the MAX crisis and fallout from the pandemic. Liquidity declined to $27 billion and debt remained around $61 billion.
Boeing shares were recently down 3%, off earlier lows.
The per share loss of 79 cents in the quarter compared with a $2.05 profit a year earlier. The adjusted loss of $1.39 was ahead of the $2.35 consensus among analysts polled by FactSet, helped by a lower-than-expected tax charge.
Boeing’s commercial jetliner arm reported a loss of $1.4 billion in the quarter as sales fell 56%. Rival Airbus reports earnings on Oct. 29, and has said it is planning to reverse some of its own production cuts next summer in anticipation of any future rebound in air travel.
The defense business produced a profit of $628 million, down 2% from a year ago, but executives said they were watching a potential slowdown. Lockheed Martin Corp. and Northrop Grumman Corp. last week forecast low double-digit sales growth next year, reflecting expectations for a flat or declining Pentagon spending over the next several years because of federal budget pressures.
Mr. Calhoun said Boeing wouldn’t strangle investment at the defense business, which he expected to return to growth as development work on programs such as the new presidential aircraft fleet moved into the more profitable production phase.
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