Boeing Plans 10% Layoffs Amid Cash Drain from Strikes

Boeing Co. (BA.US), a titan in the American aviation industry, plans to lay off approximately 10% of its workforce globally and has announced that its commercial aircraft and defense operations will incur costs of up to $5 billion. This highlights the dire financial situation the aircraft manufacturer faces following a series of negative events, including a regulatory crackdown that led to a sharp decrease in aircraft production after a Boeing 737 MAX 9 cabin door explosion on an Alaska Airlines flight, and ongoing major strikes by Boeing employees.

It is understood that Chief Executive Officer, Calhoun, informed employees in a memo on Friday that the layoffs would affect around 17,000 positions, including executives, managers, and regular staff. The company also plans to delay the launch of its first Boeing 777X jetliner and separately announced preliminary third-quarter sales figures, showing that Boeing's expected overall third-quarter sales are significantly lower than the consensus expectations on Wall Street.

"Our business is in trouble, and the challenges we face together cannot be overstated," Calhoun stated in the memo. "Restoring our company requires tough decisions, and we must make structural changes to ensure we can remain competitive and serve our customers in the long term."

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Analyst Sheila Kahyaoglu from the Wall Street investment firm Jefferies said in a report to clients on Friday that, assuming an average annual salary of $100,000, the layoffs could save about $1.7 billion in earnings before interest and taxes. "For other aerospace manufacturers, Boeing's move is a warning for the industry."

The analyst also stated, "Earlier this week, we saw smaller aerospace suppliers laying off staff, indicating that the entire industry is facing larger-scale layoffs."

These announcements underscore the formidable task Calhoun faces in trying to turn around the struggling aerospace and defense manufacturer. In an effort to alleviate the extremely difficult operational challenges the company is facing, Boeing has announced these latest cost-cutting measures and preliminary financial performance, while also attempting to break the strike deadlock with the International Association of Machinists and Aerospace Workers. However, negotiations between the two parties broke down earlier this week, and Boeing has not provided a clear timetable or method for resumption.

It is understood that Boeing has twice offered to raise wages, but both offers have been rejected by the union organization representing hourly workers on the U.S. West Coast. It is reported that about 33,000 employees have been on strike for over a month, significantly disrupting Boeing's production planning and nearly exhausting the company's cash reserves.

On Friday, the aircraft manufacturer's stock price fell by 2.5% in after-hours trading. As of the close of the U.S. stock market on Friday, the company's stock price has plummeted by about 42% this year, catalyzed by a series of bearish news.

Preliminary Financial Data

According to the average expectations compiled by analysts, the company preliminarily estimates third-quarter revenue to be around $17.8 billion, lower than the average expectation of about $18.6 billion by Wall Street analysts. Based on the preliminary data released on Friday, the company also expects a net loss per share of up to $9.97 according to Generally Accepted Accounting Principles (GAAP).In addition, Boeing's preliminary financial report also shows that the company's operating cash outflow reached as high as $1.3 billion, leaving Boeing with approximately $10.5 billion in cash and marketable securities investments at the end of the period. The company will announce its latest overall performance on October 23.

Caesar Yorglu from Jefferies said on Friday that the preliminary financial report data shows that Boeing will have a free cash outflow of up to $1.8 billion during the third quarter ending September 30. This is more optimistic than her previous estimate of $3 billion in cash consumption, which also indicates to some extent that Boeing's cash flow crisis may not be as extremely severe as some analysts predicted.

Boeing estimated in the preliminary financial report that the total pre-tax combined expenses of its two main business departments will be about $5 billion. About $2.6 billion of this is due to the further postponement of the Boeing 777X wide-body aircraft. Altberg said that the company has notified customers that the first delivery of the aircraft will start in 2026. He cited the ongoing suspension of work and flight test suspensions.

This is the latest setback for this jet aircraft, which has been five years behind schedule in obtaining certification from the Federal Aviation Administration. In August, Boeing announced that it had suspended key testing due to cracks in a key component known as the thrust link. The thrust link helps connect the incredibly heavy General Electric Aero Engine to the wing.

Boeing said that the first delivery of the 777X freighter will also be postponed until 2028. Overall, Boeing's commercial aircraft business will close the production of the 767 program in 2027, and the commercial aircraft business may record up to $3 billion in expenses at that time after the remaining aircraft on order are built.

Boeing also said that the company's defense and aerospace business will also generate $2 billion in pre-tax expenses. Due to the continuous increase in costs caused by new development projects and performance issues with the upgraded version of the F-15 fighter, Altberg dismissed the former head of the department, Ted Colbert, in September.

Boeing has launched a series of cost-cutting plans to deal with serious issues such as reduced cash reserves and low production. The company has allowed some employees to take leave, frozen recruitment, and reduced the scale of corporate travel.

Altberg said that as part of the layoff plan, the company will not continue with the next round of unpaid leave. The current round of unpaid leave is scheduled to end at the end of October.

Boeing is only one step away from the "Fallen Angel"

From the explosion of the cabin door seal on a Boeing 737 MAX 9 aircraft of Alaska Airlines shortly after takeoff on January 5th, to the whistleblower's report that Boeing's aviation components have long had obvious quality hidden dangers, and to the recent continuous large-scale strike movement initiated by Boeing employees, Boeing, the aircraft manufacturer that once drove the development of the entire US aviation industry with its own strength, is now on the verge of business collapse due to a series of negative major events.Bond traders in the United States have indicated that they are preparing for the emergence of the largest-scale "fallen angel" in the history of the U.S. bond market. It is understood that on Tuesday this week, S&P Global Ratings has stated that due to the ongoing strike at Boeing's production base, which has disrupted production schedules and the timing of new product launches, the international rating agency is considering downgrading its rating to "junk grade." Prior to this, last month, Moody's Ratings and Fitch Ratings also indicated that they are contemplating similar actions.

Should Boeing's corporate bond rating be downgraded to "junk grade," it would become the largest issuer of corporate bonds in U.S. history to be stripped of its investment-grade rating and added to the junk bond index, potentially forcing the junk bond market to absorb a record number of new bonds.

JPMorgan's analysis team has stated that if this situation occurs, Boeing would become the largest "fallen angel" in history. In the U.S. bond market, a "fallen angel" refers to a bond issuer that was originally classified as "investment grade" but later, due to the deterioration of the company's operating conditions or specific events, saw its creditworthiness decline to a lower junk grade (BB+ and below). Once downgraded to "junk grade" bonds, the default pressure for Boeing's debt, which amounts to $52 billion, would be significantly increased.