By Allison Lampert and David Shepardson
(Reuters) -Boeing will cut 17,000 jobs – 10% of its global workforce – delay first deliveries of its 777X plane by a year and post a $5 billion loss in the third quarter as the U.S. planemaker continues to soar for a month -long strike.
CEO Kelly Ortberg said in a message to employees that the significant downsizing is necessary “to align with our financial realities” after an ongoing strike by 33,000 workers on the U.S. West Coast halted production of the 737 MAX, 767 and 777 jets stopped.
“We have realigned our workforce to align with our financial realities and provide a more focused set of priorities. Over the coming months, we plan to reduce the size of our overall workforce by approximately 10%. These reductions will affect executives, managers and employees,” Ortberg’s message said.
Shares of Boeing (NYSE:) fell 1.1% in after-hours trading.
The sweeping changes are a major step by Ortberg, who took the helm of the beleaguered aircraft manufacturer in August and vowed to restore relations with the union and its employees.
Boeing posted pretax revenues totaling $5 billion for its defense operations and two commercial aircraft programs. On September 20, Boeing ousted the head of its troubled space and defense unit Ted Colbert.
Boeing, which reports third-quarter results on Oct. 23, said in a separate press release that it now has revenue of $17.8 billion, a loss per share of $9.97 and better-than-expected negative operating cash flow of $1.3 billion. to expect.
On average, analysts expected Boeing to generate $3.8 billion in cash burn each quarter, according to LSEG data.
Thomas Hayes, equities manager at Great Hill Capital, said the sacked workers could put pressure on them to end the strike.
“Striking workers who are temporarily without wages do not want to become unemployed workers who are permanently without wages,” Hayes said in an email. “I estimate that the strike will be resolved within a week because these workers do not want to be caught in the next round of 17,000 cuts.”
Reaching a deal to end the work stoppage is critical for Boeing, which filed an unfair labor practice charge with the National Labor Relations Board on Wednesday, accusing the machinists’ union of failing to bargain in good faith. Ratings agency S&P estimates the strike is costing Boeing $1 billion a month and puts the company at risk of losing its prized investment-grade credit rating.
Ortberg also said Boeing has informed customers that it now expects first delivery of its 777X in 2026 due to challenges in development, the testing pause and the work stoppage. Boeing had already faced certification issues with the 777X, which had 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 view of the work we need to do to recover our business,” Ortberg added.
Boeing will end its 767 freighter program in 2027 when it completes and delivers the remaining 29 aircraft on order, but production for the KC-46A Tanker will continue.
The International Association of Machinists and Aerospace Workers (IAM), the union representing striking workers, said in a statement that Boeing’s announcement about the 767 commercial freighter was troubling and that it would assess its implications.
IAM also described Boeing’s claims against the union with the National Labor Relations Board as baseless.
It said both these claims and the suspension of the 767 freighter appeared intended to divert attention from the group’s “inability to return to the negotiating table with their frontline workers”.
Jon Holden, president of IAM District 751, said in the statement that Boeing’s attempt to negotiate in the press “will not work and is detrimental to the negotiation process.”
He also said an unwillingness to negotiate would only prolong the strike.
Boeing said it would end a furlough program for salaried employees announced in September in light of the job cuts.
Even before the strike began on September 13, the company had burned cash as it struggled to recover from a January panel explosion on a new plane that exposed weak safety protocols and prompted U.S. regulators to curb production .
Boeing faced a hearing in Texas on Friday before a judge who will decide whether to accept the plane maker’s offer to plead guilty to fraud under a deal with the Justice Department.
Boeing has agreed to pay a fine of up to $487.2 million, spend at least $455 million on improving safety and face three years of court-supervised probation and independent supervision.
Also Friday, a national watchdog said the Federal Aviation Administration was “ineffective” in overseeing Boeing production.
Reuters reported this week that Boeing is exploring options to raise billions of dollars through the sale of shares and stock-like securities.
According to the sources, these options include the sale of common shares as well as securities such as mandatory convertible bonds and preference shares. One of the sources said they had proposed to Boeing to raise about $10 billion.
The company has a debt load of about $60 billion and posted operating cash flow losses of more than $7 billion in the first half of 2024.
Analysts estimate Boeing would need to raise between $10 billion and $15 billion to maintain its ratings, which are now a step above junk.
Michael Ashley Schulman, partner at Running Point Capital Advisors, said the delayed delivery of the 777X and workforce reductions were not a big surprise.
“Their creditworthiness and share price have been at risk for over a decade due to mismanagement and the stubbornness displayed by the strike could well be the straw that breaks the camel’s back,” he said.
