Boeing will cut 16,000 jobs after loss

Staggering from two consecutive crises of its best-selling aircraft of Lion Air Flight crash on October 29, 2018, followed by Ethiopian Airlines Flight 302 on March 10, 2019, Boeing’s 737 Max that collectively cost the company $18.7 billion besides 346 lives, 737 MAX now has been stranded by the Federal Aviation Regulations (FARs) worldwide.

While the company was looking forward to raising in demand for inventory, the COVID-19 has aggressively dried up demand for this quarter. Where pandemic is severely impacting many other industries such as textiles, an impact created for aircraft manufacturers such as Boeing is that for the first time in the last 80 years since 1942, it is suspending the dividends of shareholders as compared to $4.6 billion paid during last year.

Impacted by widening the spread effects of the pandemic, even one of its best customers, Southwest Airlines has decided to change its preset deliveries schedule, compared to more than 100 deliveries last year. The airline has cut new orders to only 48 till the end of 2021 that includes 27 deliveries for the year 2020, which are already parked in BA’s storage premises.

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Another principal cause behind the production cut was the weak passenger demand for International travel, leading to a severe decline in output of 787 wide-body Dreamliners to 10 per month in 2020. 747 and 767, whereas, are expected to maintain their current production levels.  

Since grounding, 450 of 737 MAX Jets have been built, the majority of them are expected to be delivered till the 3rd quarter of the current year. The cost-cutting strategy for production and staff will not impact on development plans for the new jets.  

A loss of $41 million in the first quarter with revenue of $16.91 billion only has been posted for the first quarter. The clientele is expected to be reduced even more during the quarantine. To avoid further significant losses, the company is planning a strategy to cut its production by 10%, which will directly affect its payroll, especially in the commercial sector.

Boeing having one sixty thousand employees at the end of 2019, the CEO Mr. Dave Calhoun stated that the reductions would be through a combination of both involuntary and voluntary measures including layoffs. ”Higher percentage [of cuts] will be from the whit-collar world”, Calhoun added, ”The pandemic is also delivering a body blow to our business _ affecting Airline customer demand, operations continuity and supply chain sustainability. The commercial airline has fallen off a cliff”.  

Just the provisional shutdown of its factories in Washington state because of health concerns cost about $137 billion. Currently reported buyouts and other involuntary reductions after reporting financial position in Financial Statements for the current quarter are expected to be 10%.

Boeing sixth-largest investment-grade

Since the company’s policy is to receive money only when the risks and rewards attached to goods have been transferred to the customer, this has created a risk for the company’s cash flow position due to seemingly delayed future deliveries. In order to manage its financial risk, besides suspension of dividends, Boeing has also raised $25 billion in the sixth-largest investment-grade bond offering to date. This will help the company avoid taking Government aid. The company recently produced a statement: 

“The robust demand for the offering reflects strong support for the long-term strength of Boeing and aviation industry. We will continue to assess our liquidity position as the health crisis and our dynamic business environment evolve”.



Else ways, President Trump, is considering Boeing a crucial character in the country’s economy and is underpinning the Federal government’s intervention to assist the company. Airbus (a rival company) has also reported a loss of $515 million for the last quarter, leading it to halt production activities by one-third, imposing significant staff redundancies and taking billions of loans. Its CEO Guillaume Faury has demonstrated a need to take measures to setback passenger confidence in air travel.

Online shared pics demonstrating violation of virus protection guidelines has also outbreak a wave of fear among travelers as well as unions. Fairy, whereas, is still insisting on the company’s behalf that in situations like such pandemics outbreaks, airplanes are the best place to be because of the strong air filtration systems.

The company still claims to be at the earliest stage of crises, trying to work in collaboration with aviation authorities to calm the public.  Despite the collapse of air travel and long term grounding, the Dow component of the Boeing is still trading 7% higher after it reported a loss of $1.79 per share. Boeing is currently expecting 737 MAX to be again in airs in the third quarter. Also, the company may opt for other loan aid commitments to repay the significant loss-depicting financial statements. 

BY: RAMEEN CHAUDHRY



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