Boeing Co (BA) said it plans to cut 10% of its workforce and announced reductions in its plane production rates as it braces for years-long industry recovery from the aviation crisis induced by the coronavirus pandemic.
The aerospace company said that the staff reductions will include voluntary layoffs (VLO), natural turnover and involuntary cuts as necessary.
“We’ll have to make even deeper reductions in areas that are most exposed to the condition of our commercial customers – more than 15% across our commercial airplanes and services businesses, as well as our corporate functions,” Boeing President and CEO Dave Calhoun said in a letter to employees. “The aviation industry will take years to return to the levels of traffic we saw just a few months ago.”
Calhoun added the demand for commercial airline travel has fallen off a cliff, with U.S. passenger volumes down more than 95% compared to last year. Globally, commercial airline revenue is expected to drop by $314 billion this year, according to Boeing.
As a result, airlines are delaying purchases for new jets, putting the brakes on delivery schedules and deferring elective maintenance.
“We’re also seeing a dramatic impact on our commercial services business, as grounded airline fleets decrease the demand for our offerings,” said Calhoun. “We will have to reduce commercial airplane production rates. The sharp reduction in demand for our products and services over the next several years simply won’t support the higher levels of output.”
The workforce and jet production reduction announcement comes as Boeing posted an adjusted first-quarter loss of $1.70 billion, or $1.70 per share, compared with a profit of $1.99 billion, or $3.16 per share, a year earlier.
The coronavirus pandemic has put pressure on Boeing’s cash flow. The company has taken steps to preserve liquidity by reducing operating costs and discretionary spending, suspending dividend payments and stock buybacks, and by cutting or deferring R&D and capital expenditures. In addition, Boeing is exploring potential government funding options.
As of the end of March, Boeing had $15.5 billion in cash and marketable securities after burning through $4.7 billion in the quarter, mainly reflecting the impact of the 737 MAX grounding and COVID-19. Following the earnings release, S&P Global Ratings cut the company to BBB-, the lowest investment grade level, citing the Covid-19 impact.
“Earnings and cash flow over the next few years are likely to be lower than we had previously expected due to the impact of the coronavirus on aircraft demand, with the pace of recovery in air travel still highly uncertain,” S&P said.
Investors welcomed Boeing’s crisis recovery steps as shares in the aerospace company rose 5.9% in U.S. trading on Wednesday closing at $139. The stock plunged as much as 60% this year.
TipRanks data shows that Wall Street analysts, have a Moderate Buy consensus rating on Boeing’s stock based on 13 Holds and 5 Buys. The $179.44 average price target foresees 29% upside potential in the shares in the next 12 months. (See Boeing’s stock analysis on TipRanks).