Boeing Announces 10% Workforce Reduction Amid Challenges
Boeing, the beleaguered aircraft manufacturer, has declared that it will reduce its workforce by 10%. This decision comes as the company grapples with financial difficulties due to an ongoing strike and persistent quality control issues.
CEO's Statement on the Workforce Reduction
Kelly Ortberg, the CEO of Boeing, communicated this decision to the employees through a memo. He stated that the cuts would affect all levels of the company, including executives, managers, and employees. Ortberg acknowledged the difficulties the company is facing, stating, "Our business is in a difficult position, and it is hard to overstate the challenges we face together."
As of the end of 2023, Boeing employed 171,000 people.
Boeing's Financial Situation
The company anticipates reporting third-quarter revenue of $17.8 billion and a loss per share of $9.97, based on preliminary figures. These measures and financial figures are part of Boeing's effort to resume negotiations with labor unions.
Despite making two offers for wage increases, Boeing has not been able to reach an agreement with its workers. Approximately 33,000 employees at its primary facilities in the Seattle area have been on strike for a month, significantly impacting production and depleting the company's reserves. The most recent negotiations fell through earlier this week, and it remains unclear when and how they will resume.
Impact on Boeing's Shares and Deliveries
Following the announcement, Boeing's shares took a hit, wiping out the day's gains. Ortberg also informed customers that the first deliveries of the 777X are now expected in 2026, due to the ongoing strike and a pause in flight testing.
Press Release from Boeing
In a press release, Ortberg said, "While our business is facing near-term challenges, we are making important strategic decisions for our future and have a clear view on the work we must do to restore our company. These decisive actions, along with key structural changes to our business, are necessary to remain competitive over the long term. We are also focusing on areas that are critical to our future and will ensure we have the balance sheet necessary to invest, support our people and deliver for our customers."
Financial Implications of the Decision
Commercial Airplanes, a division of Boeing, expects to recognize pre-tax earnings charges of $3.0 billion on the 777X and 767 programs. The company now anticipates the first delivery of the 777-9 in 2026 and the 777-8 freighter in 2028, resulting in a pre-tax earnings charge of $2.6 billion. This schedule and the resulting financial impact are based on an updated assessment of the certification timelines to address the delays in flight testing of the 777-9, as well as anticipated delays associated with the work stoppage.
Future Plans for Boeing
Beginning in 2027, the company plans to solely produce 767-2C aircraft in support of the KC-46A Tanker program. Commercial Airplanes expects to report third-quarter revenue of $7.4 billion and an operating margin of (54.0) percent.
Defense, Space & Security, another division of Boeing, expects to recognize pre-tax earnings charges of $2.0 billion on the T-7A, KC-46A, Commercial Crew, and MQ-25 programs. This division expects to report third-quarter revenue of $5.5 billion and an operating margin of (43.1) percent.
Bottom Line
Boeing's decision to cut its workforce by 10% is a clear indication of the challenges it faces. The ongoing strike, quality control issues, and financial difficulties have put the company in a tough position. However, it appears that Boeing is taking decisive steps to address these issues and ensure its long-term competitiveness. What are your thoughts on this development? Do you think Boeing's strategy will help it overcome its current challenges? Please share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6 pm.
