Written by Alison Lambert and David Shepardson
(Reuters) – Boeing Co plans to cut 17,000 jobs – 10% of its global workforce – delaying the first deliveries of its 777 – Long strike.
CEO Kelly Ortberg said in a letter to employees that the significant downgrade was necessary “to adjust to our financial reality” after the ongoing strike by 33,000 workers on the US West Coast, which halted production of the 737 MAX, 767 and 777 aircraft.
“We have realigned our workforce levels to align with our financial realities and with a more focused set of priorities. Over the coming months, we plan to reduce the size of our total workforce by approximately 10%. These reductions will include executives, managers, and employees,” Ortberg’s letter said. .
Boeing (NYSE:) shares fell 1.1% in after-market trading.
The sweeping changes represent a major move by Ortberg, who arrived in August at the helm of the beleaguered planemaker, promising to reset relations with the union and its employees.
Boeing recorded pre-tax earnings charges totaling $5 billion for its defense business and two commercial aircraft programs. On September 20, Boeing fired the head of its troubled space and defense unit, Ted Colbert.
Boeing, which reports third-quarter earnings on October 23, said in a separate statement that it now expects revenue of $17.8 billion, a loss per share of $9.97, and better-than-expected negative operating cash flow of $1.3 billion.
Analysts on average expected Boeing to generate a quarterly cash burn of negative $3.8 billion, according to LSEG data.
Thomas Hayes, equity director at Great Hill Capital, said the layoffs could put pressure on employees to end the strike.
“Striking workers who are temporarily unpaid do not want to become unemployed workers who are permanently unpaid,” Hayes said in an email. “I expect the strike to be resolved within a week because these workers do not want to find themselves on the next batch of 17,000 cuts.”
Reaching an agreement to end the work stoppage is crucial for Boeing, which filed an unfair labor practices accusation with the National Labor Relations Board on Wednesday accusing the machinists union of failing to bargain in good faith. Rating agency Standard & Poor’s estimated that the strike was costing Boeing $1 billion a month and that the company risked losing its valuable investment-grade credit rating.
Ortberg also said Boeing has notified customers that it now expects delivery of the first 777X in 2026 due to development challenges, flight testing pauses and work stoppages. Boeing has already faced certification issues for the 777X, which has significantly delayed the plane’s launch.
“While our business faces near-term challenges, we are making important strategic decisions for our future and have a clear vision of the work we need to do to restore our company,” Ortberg added.
Boeing will end its 767 freighter program in 2027 when it completes and delivers the remaining 29 aircraft on order, but said production of the KC-46A carrier will continue.
The International Association of Machinists and Aerospace Workers, the union representing the striking workers, said in a statement that Boeing’s announcement about the 767 commercial freighter was troubling, and that it would evaluate its implications.
IAM also described Boeing’s anti-union allegations with the National Labor Relations Board as baseless.
She said the allegations and the grounding of the 767 cargo plane appeared to be aimed at distracting attention from the group’s “failure to return to the negotiating table with front-line workers.”
John Holden, president of IAM District 751, said in the statement that Boeing’s attempt to bargain in the press “will not work and is damaging to the bargaining process.”
He also said that an unwillingness to negotiate would only prolong the strike.
In light of the job cuts, Boeing said it would end a leave program for paid employees that was announced in September.
Even before the strike began on September 13, the company was burning cash as it struggled to recover from a mid-air panel explosion in January on a new plane, which exposed weak safety protocols and prompted US regulators to limit its production.
Boeing on Friday faced a court hearing in Texas before a judge who will decide whether to accept the plane maker’s offer to plead guilty to fraud under an agreement with the Justice Department.
Boeing agreed to pay a fine of up to $487.2 million, spend at least $455 million on safety improvements and face three years of court-supervised probation and independent oversight.
A national watchdog also said Friday that the FAA is “ineffective” in overseeing Boeing’s production.
Reuters reported this week that Boeing is considering options to raise billions of dollars through the sale of stocks and stock-like securities.
These options include selling common shares as well as securities such as mandatory convertible bonds and preferred shares, according to the sources. One of the sources said that they proposed to Boeing to raise about ten billion dollars.
The company has about $60 billion in debt, and posted operating cash flow losses of more than $7 billion in the first half of 2024.
Analysts estimate that Boeing will need to raise between $10 billion and $15 billion to maintain its ratings, which are now one notch above junk ratings.
Michael Ashley Shulman, a partner at Running Point Capital Advisors, said the 777X delivery delays and workforce cuts were not a huge surprise.
“Their credit rating and stock prices have been at risk for the better part of a decade due to mismanagement and the stubbornness shown in the strike may have been the straw that broke the camel’s back,” he said.