Boeing to Cut 17,000 Jobs and Delay First 777X Delivery Amid Ongoing Strike
By Allison Lampert and David Shepardson (Reuters)
Boeing is facing a significant crisis as it announced plans to cut 17,000 jobs, delay the first deliveries of its 777X jet by a year, and report a staggering $5 billion in losses for the third quarter. This turmoil comes as the U.S. aerospace giant continues to grapple with the repercussions of a month-long strike involving 33,000 workers on the West Coast, which has severely disrupted its production lines.
CEO's Message to Employees
In a heartfelt message to employees, Boeing's CEO, Kelly Ortberg, emphasized the necessity of resizing the workforce to align with the company's current financial realities. He stated, "We must reset our workforce levels to align with our financial situation and focus on a more streamlined set of priorities." Ortberg indicated that the workforce reduction would encompass approximately 10% of the total employees, including executives, managers, and other staff. This decision reflects the company's urgent need to adapt to the ongoing challenges it faces.
Financial Implications and Stock Market Reaction
The announcement had an immediate impact on Boeing's stock, which fell by 1.7% in after-hours trading, highlighting investors' concerns regarding the company's financial health. The $5 billion in losses reported encompasses both its defense and commercial sectors, indicating widespread issues across the board. According to the credit ratings agency S&P, the strike is costing Boeing around $1 billion each month, which poses a significant risk to its investment-grade credit rating.
Significant Delay in 777X Deliveries
One of the most notable impacts of the current crisis is the delay in the delivery of the highly anticipated 777X aircraft. Ortberg disclosed that Boeing has informed its customers that the first delivery is now expected in 2026. This setback is attributed not only to the ongoing work stoppage but also to various challenges encountered during the development phase, which has already seen delays in certification.
Revised Financial Forecasts
As Boeing prepares for its third-quarter earnings report scheduled for October 23, it has revised its financial projections. The company now anticipates revenue of approximately $17.8 billion, with a projected loss of $9.97 per share and a negative operating cash flow of $1.3 billion. Despite these near-term adversities, Ortberg reassured stakeholders that Boeing is making strategic decisions aimed at securing a positive future. "While our business is facing immediate challenges, we are committed to making important strategic decisions for our future and have a clear roadmap for restoring our company," he stated.
Ending Programs and Restructuring Efforts
In light of the upcoming job cuts, Boeing announced it would be discontinuing its 767 freighter program in 2027, once it completes and delivers the remaining 29 ordered planes. However, production of the KC-46A Tanker will continue, reflecting the company’s focus on maintaining some levels of operational capacity amidst the restructuring.
Past Troubles and Future Strategies
Even before the strike commenced on September 13, Boeing was already facing severe financial strain, largely due to a mid-air incident in January involving a new aircraft. This incident revealed weaknesses in safety protocols, prompting U.S. regulators to impose restrictions on production. As part of a recovery strategy, reports indicate that Boeing is exploring options to raise billions of dollars through the issuance of stocks and equity-like securities.
Financial Strategies Under Review
The potential financial strategies being considered include the sale of common stock as well as various securities such as mandatory convertible bonds and preferred equity. Sources suggest that Boeing should aim to raise around $10 billion to help stabilize its financial situation. The company currently carries a substantial debt load of approximately $60 billion and has reported operating cash flow losses exceeding $7 billion for the first half of 2024.
Maintaining Credit Ratings
Analysts have estimated that Boeing needs to raise between $10 billion and $15 billion to maintain its credit ratings, which currently sit just above junk status. The potential loss of investment-grade credit rating would have far-reaching consequences for Boeing, complicating its ability to secure financing in the future.
Conclusion
Boeing is in the midst of a significant crisis, facing financial difficulties exacerbated by a prolonged strike and operational challenges. The company’s decisions to cut jobs and delay deliveries reflect a critical need for restructuring and adaptation. As it navigates these turbulent waters, all eyes will be on Boeing to see how it implements its recovery strategies and whether it can successfully restore its standing in the aerospace industry. Whether these steps will be sufficient to regain confidence from investors and customers remains to be seen in the coming weeks and months.
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