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Boeing announces layoffs, guides Q3 revenue below expectations as machinist strike hits one month

AInvestMonday, Oct 14, 2024 8:37 am ET
2min read

Boeing has announced a significant workforce reduction, planning to cut 10% of its employees, amounting to approximately 17,000 jobs. These layoffs, which will impact executives, managers, and workers, come alongside new guidance that sees Q3 revenue falling below expectations at $17.8 billion. The company is also preparing for substantial one-time charges totaling $5.4 billion across its Commercial Airplanes and Defense, Space & Security segments, largely tied to the 777X, 767, T-7A, and KC-46A programs. These charges reflect ongoing challenges, including a strike by the International Association of Machinists (IAM), which has exacerbated financial difficulties.

The machinists' strike, now in its second month, is proving costly, with analysts estimating it costs Boeing around $1 billion per month. This work stoppage is severely disrupting production, notably affecting programs like the 777X, and contributing to the $400 million charge recognized on the 767 program. Despite CEO Kelly Ortberg’s efforts to manage the situation, including wage increase proposals, the strike persists, causing significant financial strain and leaving no planes worked on at Boeing's key facilities since mid-September.

The prolonged strike and Boeing's cash depletion have raised concerns about a potential downgrade to junk status by credit rating agencies. The company is walking a tightrope as its cash reserves dwindle—currently sitting just above $10 billion, which Boeing needs to maintain its investment-grade credit rating. Without quick resolution to the strike and improvement in its financial outlook, Boeing may have to issue new debt or equity to stabilize its balance sheet.

Boeing’s new guidance and announced charges reflect deeper structural issues, particularly in its defense and space divisions. The company expects $2 billion in pre-tax losses in these sectors, compounding its struggles. These losses stem from fixed-price contracts that are underperforming, including the T-7A trainer and the MQ-25 unmanned aircraft programs, further highlighting the financial and operational challenges the company faces.

In addition to the strike and financial strain, Boeing is also grappling with the timeline delays of its critical 777X program, now pushing the first delivery back to 2026. This delay adds to a series of setbacks for Boeing’s widebody aircraft, which has already been delayed for years due to development issues and work stoppages. Boeing’s commercial freighter programs are also winding down, with the 767 Freighter program set to conclude by 2027.

The current crisis has laid bare Boeing’s deep-rooted cultural and operational challenges, dating back decades. Production quality issues and aggressive cost-cutting measures have plagued the company, resulting in major mishaps, including fatal accidents, regulatory scrutiny, and now a strike crippling production. These events prompted Boeing’s board to overhaul its leadership, bringing in Ortberg in August to spearhead the turnaround.

With the strike dragging on and financial losses mounting, observers are questioning why Boeing has not moved more aggressively to resolve the dispute. Some analysts argue that the cost of the strike is less about labor itself and more about the broader disruption it is causing across Boeing's production lines. Further prolongation of the strike could push Boeing deeper into financial trouble.

Moving forward, Boeing’s strategy remains uncertain. Ortberg has hinted that further drastic measures may be necessary to restore the company, with the upcoming earnings call on October 23 providing a crucial opportunity for him to outline a more comprehensive turnaround plan. The company may need to realign its focus on core areas like commercial aviation and address underperforming segments like defense and space.

As Boeing fights to stabilize, the stakes are high. The potential for a downgrade to junk status, along with mounting costs from the strike and program delays, places immense pressure on Boeing’s leadership to execute a successful recovery. Industry experts believe Boeing’s path to recovery will likely take years, rather than months, to fully materialize.

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