Reading time ( words)
The COVID-19 pandemic’s devastating impact on the airline industry will result in continued “deep cuts” to Boeing’s U.S. facilities, according to an email released to employees today by President and CEO Dave Calhoun.
Employees were notified this week that Boeing will cut 6,770 jobs in the United States. International locations are also “working through workforce reductions,” he said, that will be communicated on a different timeline.
While he sees “eventual signs of recovery,” Calhoun said the global health and economic crisis is not over, and remaining employees will face “enormous challenges” that include keeping employees healthy and safe, supporting customers and suppliers through the recovery, and working with its customers to assure the traveling public that it can fly safely from infection.
“We will also have to adjust our business plans constantly until the global pandemic stops whipsawing our markets in ways that are still hard to predict,” Calhoun wrote.
In April, the company made a reduction-in-force announcement that resulted in a voluntary layoff program. On Wednesday, Calhoun said, “We have come to the unfortunate moment of having to start involuntary layoffs.”
The near-shutdown of the airline industry has had a ripple effect on Boeing. Its reported first-quarter earnings were $16.9 billion, with a GAAP loss per share of ($1.11) and core loss per share (non-GAAP) of ($1.70), primarily reflecting the impacts of COVID-19 and the 737 MAX grounding. This reflects a 26% decrease from the first quarter of 2019.
The Boeing leader also addressed employees after the release of the company’s first-quarter earnings, relating that commercial airline revenue is expected to drop by $314 billion this year.
In his April letter, Calhoun stated, “The COVID-19 pandemic's devastating impact on the airline industry means a deep cut in the number of commercial jets and services our customers will need over the next few years, which in turn means fewer jobs on our lines and in our offices. We have done our very best to project the needs of our commercial airline customers over the next several years as they begin their path to recovery.” He then added, “I wish there were some other way.”
Calhoun outlined Boeing’s strategy, but added, “The pandemic is also delivering a body blow to our business—affecting airline customer demand, production continuity, and supply chain stability,” he wrote. “The demand for commercial airline travel has fallen off a cliff, with U.S. passenger volumes down more than 95% compared to last year.”
The voluntary reductions were expected to reduce the total workforce by 10%, he said, with even deeper cuts in areas that are most exposed to the condition of its commercial customers, “more than 15% across our commercial and service businesses, as well as our corporate functions.”
He said the aviation industry will take years to recover and announced other steps the company was taking to “meet that new reality,” which included reducing commercial airplane reduction rates.
- 737 MAX production is expected to resume in 2020 at lower rates, increasing to 31 planes per month during 2021, with gradual increases to correspond to market demand.
- Reduce the 787 production rate to 10 per month in 2020 and to seven per month by 2022, continuing to evaluate the rate after that.
- Reduce the combined 777/777X production rate to three per month in 2021 and take a measured approach to the 777X rate ramp.
- Production rates for 767 and 747 will remain unchanged.
He assured Boeing employees that its Defense, Space and Security and defense service teams are stable, stating they have “achieved a number of milestones recently, including the successful return to orbit of the reusable and autonomous X-37B Orbital Test Vehicle.”
He also stated the company is moving forward with its plan to restart 737 MAX production in Renton, Washington, and the Global Services team is changing its organization to ensure “it is lean and focused on the post-COVID needs of its customers.”
Calhoun believes there is reason to be optimistic as some customers are reporting that reservations are outpacing cancellations on their flights for the first time since the pandemic started.
“Some countries and U.S. states are starting cautiously to open their economies again,” he said. “And some parts of our business, most notably on the defense side, will continue hiring to meet customer commitments and fill critical skill positions.”