BLOOMBERG, APRIL 2, 2020
CEO sees coronavirus depleting aircraft market for years | ‘It’s important we start adjusting to our new reality now’
By Julie Johnsson and Siddharth Vikram Philip for Bloomberg – Boeing Co. will offer voluntary buyouts to its entire staff of 161,000, in a bid to shed costs and adapt the massive manufacturer to a coronavirus crisis that could depress the aircraft market for years.
“When the world emerges from the pandemic, the size of the commercial market and the types of products and services our customers want and need will likely be different,” Chief Executive Officer David Calhoun said in a message to employees Thursday. “It’s important we start adjusting to our new reality now.”
The move will preserve much-needed cash at Boeing, which is facing a sharp contraction in demand along with its European archrival Airbus SE. Airline customers around the world have slashed schedules, with some parking their entire fleets as the coronavirus pandemic guts travel. About 44% of aircraft across the globe are in storage, according to an estimate by Cirium, and with virus cases approaching 1 million worldwide, there’s no telling when carriers will return to normal schedules, no less buying planes.
“As painful as it is going to be, Boeing needs to reduce workers,” said Nick Cunningham, an analyst at Agency Partners based in London, adding that salaries make up the biggest portion of the company’s fixed costs. “If you don’t, you’ll destroy the company.”
The buyout is being offered companywide to all eligible employees of Chicago-based Boeing, the second-largest U.S. defense contractor and one of its biggest exporters. The company will provide information on the terms within four weeks.
“This move aims to reduce the need for other workforce actions,” Calhoun said.
Boeing shares advanced about 2.5% in pre-market trading in New York. The stock is down 60% so far this year.
Boeing was already reeling from a prolonged grounding of its 737 Max when the coronavirus pandemic hit, with revenue and cash flow depleted. The disease has slowed work on recertifying the single-aisle workhorse while clouding the outlook for sales once it returns.
The company is also facing a falloff in demand for twin-aisle aircraft like its 787 Dreamliner and the coming 777X, as long-distance travel has been hit harder than shorter hops. Wide-body jetliner production could tumble by 60% over the next three years, Jefferies analyst Sheila Kahyaoglu predicted in a March 31 report.
The need to downsize has created a dilemma for CEO Calhoun. Forced layoffs would give Boeing more control over where and how it cuts costs. But they would surely stir up a backlash that could complicate any effort by the manufacturer to access government aid.
While the company has told Congress that the industry needs some $60 billion, Calhoun has blanched at the strings that would potentially be attached, telling Fox News that the company has “other options.”
Voluntary buyouts keep the government-bailout option viable, should Calhoun ultimately choose to pursue it. Boeing is analyzing the funding options available, people familiar with its review said last week.
As it pares back its staff, another challenge for Boeing will be maintaining essential skills that will be needed when the market bounces back, Cunningham said. “But you have to actually survive as a company in order to come back again.”
— With assistance by Harry Suhartono
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