As losses continue to rapidly rise due to decreased revenue associated with the pandemic, Boeing Co. announced that it will cut an additional 7,000 jobs in order to shore up lower demand for new aircraft, according to an article by the Associated Press.
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 anticipated a 19% cut in the workforce.
Boeing outlined the job cuts on the same day it reported a $449 million loss for the third quarter 2020, a swing from the $1.17 billion it earned in the same period last year. Revenue fell 29% to $14.14 billion.
Boeing has been hammered by declining revenue since its 737 Max was grounded in March 2019 after two deadly crashes followed by the coronavirus pandemic which caused air travel to plunge and left airlines with more planes than needed.
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 coronavirus pandemic only intensified the aerospace manufacturer’s financial hardship.
Air traffic in the U.S. has only recovered to about one-third of pre-pandemic levels. European air traffic is similarly depressed, although the outlook is more positive in Asia.
Most experts believe it will take three or more years for airline companies to make a full recovery. With customers in no mood to buy expensive new planes, Boeing expects to keep burning cash. Boeing Chief Financial Officer Greg Smith said the company will not generate cash until 2022.
The Max was Boeing’s best-selling plane, but now the company has 450 in storage that it cannot deliver. Boeing expects to ship about half of those to customers by the end of 2021. It may have to find new buyers and reconfigure seating or other features, according to CFO Smith. Boeing also has an inventory of about 50 unsold 787s, also known as Dreamliners.
Boeing has spent about two years overhauling flight-control software and computers on the Max. It continues to expect that regulators will allow it to resume deliveries before the end of 2020. Boeing has ambitious plans to ramp up production of the Max.
Last week, Dallas-based Southwest Airlines, Boeing’s biggest customer, said that it is looking at the Airbus A220 jet. Southwest’s fleet consists entirely of Boeing 737s. The airline was forced to cancel thousands of flights last year because of the Max grounding issue.
“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,” said David Calhoun, Boeing’s CEO. “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 — 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 coronavirus pandemic.
“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,” said Calhoun.
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 rather than 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 while Wall Street expected a loss of $2.35 per share. Revenue was lower than expected, with reported sales of $14.20 billion.