Ongoing strikes erode cash reserves Boeing (BA. US) wants to lay off 10% of its workforce to "save itself"

Zhitong Financial APP learned that United States aviation giant Boeing (BA. US) plans to cut about 10% of its global workforce and announced that its commercial aircraft and defense operations will incur expenses of up to $5 billion, underscoring the jetmaker's severe financial woes amid a series of negative events, including a sharp drop in aircraft production capacity due to regulatory pressures following the collapse of the Alaska Airlines Boeing 737 MAX 9 door plug and the recent ongoing general strike of Boeing employees.

Chief Executive Officer Kelly · Altberg told employees in a memo Friday that the layoffs would involve about 17,000 positions, including executives, managers and rank-and-file employees. The company also plans to delay the launch of its first Boeing 777X jetliner and separately announce preliminary sales for the third quarter, with data showing that Boeing's overall third-quarter sales were well below Wall Street consensus expectations.

"Our business is in a difficult situation, and the challenges we face together cannot be overstated." Altberg said in the memo. "Restoring our company requires difficult decisions and we have to make structural changes to ensure we can remain competitive and serve our customers for the long term."

Sheila ·Kahoyoglou, an analyst at Wall Street investment firm Jefferies, said in a note to clients Friday that layoffs could save about $1.7 billion in EBIT, assuming an average annual salary of $100,000. "For other aerospace manufacturers, Boeing's move is a warning for the industry."

"Earlier this week, we saw smaller aerospace suppliers laying off jobs, suggesting that the industry as a whole is facing larger layoffs," the analyst added. ”

The announcements underscore the daunting task facing Altberg as he tries to turn around the ailing aerospace and defense manufacturer. Boeing has unveiled these latest cost-cutting measures and preliminary financial results to alleviate the company's extremely difficult operating woes, while it is also trying to break the standoff with the International Association of Mechanics and Aerospace Workers. However, earlier this week, negotiations between the two sides broke down, and Boeing did not provide a clear timeline and recovery method.

It is understood that Boeing has twice proposed to raise wages, but the union representing United States West Coast hourly workers has refused. It is reported that about 33,000 employees have been on strike for more than a month, largely disrupting Boeing's production plans and almost depleting Boeing's cash reserves.

Shares of the aircraft maker fell as much as 2.5 percent in after-hours trading on Friday. As of Friday's U.S. stock market close, the company's stock price has plunged about 42% so far this year, catalyzed by a series of negative news.

Preliminary financial data

According to the average analyst estimate compiled by the agency, the company initially expects third-quarter revenue of about $17.8 billion, lower than the average Wall Street analyst estimate of about $18.6 billion. The company also expects a net loss of up to $9.97 per share based on GAAP, according to preliminary data released Friday.

In addition, Boeing's preliminary financial report also showed that the company's operating cash outflow was as high as $1.3 billion, making Boeing have about $10.5 billion in cash and marketable securities investments at the end of the period. The company will report its latest overall results on October 23.

Jefferies' Cahoyoglou said Friday that preliminary earnings data showed Boeing would have a whopping $1.8 billion in free cash outflows for the third quarter ending Sept. 30. That's more optimistic than she had expected for a $3 billion cash burn, and it also goes part to suggest that Boeing's cash flow crisis may not be as severe as some analysts predicted.

In its preliminary earnings report, Boeing expects combined pretax charges for its two main business units to total about $5 billion. Of that amount, about $2.6 billion is due to the further delay of the Boeing 777X wide-body airliner. Altberg said it had informed customers that the first deliveries of the aircraft would begin in 2026. He cited the ongoing shutdown and suspension of flight tests.

This is the latest setback for the jetliner, which is five years behind schedule in achieving United States Federal Aviation Administration certification. In August, Boeing announced that it had suspended critical testing due to a crack in a key component known as a thrust linkage. Thrust linkages help attach the aircraft's incomparably bulky General Electric aerospace engines to the wings.

Boeing said the first deliveries of the 777X freighter will also be delayed until 2028. Overall, Boeing's commercial aircraft business will shut down production of the 767 program in 2027, and the commercial aircraft business could record up to $3 billion in costs at that time after the remaining aircraft on the order book are built.

Boeing also said that its defense and space business will also incur $2 billion in pre-tax expenses. Altberg ousted the former head of the department, Ted · Colbert, in September due to mounting costs due to new developments and performance problems with improved versions of the F-15 fighter.

Boeing has launched a series of cost-cutting programs to deal with serious problems such as dwindling cash reserves and sluggish production. The company has furloughed some of its employees, frozen hiring and cut back on company travel.

Altberg said the company would not proceed with the next round of unpaid furlough as part of the layoff plan. The current round of unpaid leave is scheduled to end at the end of October.

Boeing is one step away from the "fallen angels".

From the burst of the door plug of a Boeing 737 MAX 9 plane of Alaska Airlines shortly after takeoff on January 5, to the whistleblower reporting that the company's aviation parts have long had obvious quality problems, to the recent general strike campaign launched by Boeing employees, Boeing, the aircraft manufacturer that once single-handedly led the development of the entire United States aviation industry, is now on the verge of business collapse due to a series of negative events.

Some United States bond market traders say they are preparing for the birth of the largest "fallen angel" in the history of the United States bond market. It is understood that on Tuesday, S&P Global Ratings has said that the international rating company is considering downgrading its rating to "junk" due to the ongoing general strike at the Boeing production base, which has damaged production plans and the timing of new product launches. This follows last month, Moody's Ratings and Fitch had already indicated that they were considering similar moves.

If Boeing's corporate grade bond rating is downgraded to "junk," it will be the largest corporate bond issuer in United States history to be stripped of its investment-grade rating and added to the junk bond index, which could lead to a record amount of new debt being forced for the junk bond market.

The JPMorgan Chase & Co. analysis team said that if this happens, Boeing will be the biggest "fallen angel" ever. In the United States bond market, "fallen angels" refer to bond issuers that were originally "investment grade" bonds, but have since fallen to a lower junk rating (BB+ and below) due to deterioration in the company's operating conditions or some special events. Once downgraded to "junk-rated" bonds, the default pressure will increase sharply for Boeing's $52 billion debt.