Boeing Co said on Wednesday it would cut its 160,000-person workforce by about 10 percent, further reduce 787 Dreamliner production and try to boost liquidity as it prepares for a years-long industry recovery from the coronavirus pandemic that drove its second consecutive quarterly loss.
S&P lowered its credit rating for Boeing to BBB- after the market close, one step above junk, saying that earnings and cash flow over the next few years are likely to be lower than it had previously expected due to the effects of the coronavirus.
Chicago-based Boeing declined to say how much government assistance it may seek, or under which part of a significant United States stimulus package it would seek it.
Reuters news agency reported on Tuesday that Boeing is working with investment banks on a potential bond deal worth at least $10bn. Last month it drew down its entire $13.8bn credit line and is also weighing seeking government aid.
Boeing shares closed 5.9 percent higher at $139 after the company said it was confident of getting sufficient liquidity to fund operations and would have positive cash flow next year as it ramps up production of the grounded 737 MAX.
Planemakers, airlines and suppliers have been left reeling by the pandemic, which has crippled passenger travel and catapulted key economies into recession.
“Our industry is going to look very different as a result of this pandemic,” Boeing Chief Executive Dave Calhoun told investors. “We will be a smaller company for a while.”
Many of the job cuts, to be completed by the end of the year through voluntary and involuntary layoffs as well as natural turnover, will be at the company’s commercial aircraft division, where it was already grappling with a production freeze and year-long grounding of the 737 MAX following two fatal crashes.
Boeing expects to resume 737 MAX deliveries in the third quarter following regulatory approvals, Chief Financial Officer Greg Smith said, with production restarting at low rates in the second quarter before gradually increasing to 31 per month during 2021.
Further gradual production increases will correspond with market demand. Meanwhile, Boeing will focus on delivering jets that it has already built in order to unlock frozen cash.
Aerospace analyst Josh Sullivan said Boeing’s comments on the 737 MAX and cash pleased investors.
“They provided guideposts that people can sink their teeth into and gain confidence,” he said.
Reuters reported Tuesday 737 MAX approval is not expected until at least August.
The pandemic has also aggravated a slump in demand for wide-body jets like the 787, sapping a key remaining source of cash for Boeing as the 737 MAX remains grounded.
Boeing plans to reduce the production of the 787 to seven a month by 2022 – half the planned rate of just a year ago when it was implementing a record monthly rate of 14. It had already progressively reduced the target to 10 on the back of US-China trade tensions. It will also reduce the 777/777X combined production rate to three per month in 2021 from five.
The planemaker had $15.5bn in cash at the end of March after burning through $4.7bn in the quarter.
The company’s adjusted loss stood at $1.7bn, or $1.70 per share in the first quarter, compared with a profit of $1.99bn, or $3.16 per share, a year earlier.
Over the weekend, Boeing cancelled a $4.2bn deal for Embraer SA’s commercial aviation unit, prompting the Brazilian company to initiate arbitration.
It is also facing lawsuits related to the 737 MAX crashes and federal prosecutors aided by the FBI and the Department of Transportation’s inspector general are investigating the aircraft’s certification. Boeing paid out $700m in 737 MAX compensation to customers in the first quarter.
Calhoun said it could be a while before the company rolls out a new jet design.
European rival Airbus on Wednesday posted a 49 percent slump in first-quarter core profit and called for an industry-wide campaign to restore confidence in flying.
In a memo to employees, Calhoun said: “The aviation industry will take years to return to the levels of traffic we saw just a few months ago. We have to prepare for that.”