CHICAGO (WCSC) - Boeing’s President and CEO said the company will be taking “tough and necessary action to navigate the unprecedented health crisis and adapt for a changed marketplace.”
David Calhoun sent out a message Wednesday morning to team members stating the COVID-19 pandemic is affecting every aspect of their business, including airline customer demand, production continuity and supply chain stability.
As the pandemic continues to reduce airline passenger traffic, Boeing is seeing significant impact on the demand for new commercial airplanes and services, with airlines delaying purchases for new jets, slowing delivery schedules and deferring elective maintenance.
In a letter to the Boeing Team, Calhoun said they are taking steps to keep liquidity flowing through the business and supply chain.
In Wednesday’s first-quarter earnings disclosure, Boeing announced they will be reducing commercial airplane production rates.
The 787 production rate will be reduced from 14 per month to 10 per month in 2020, and gradually reduced to 7 per month by 2022.
Commercial Airplanes delivered 50 airplanes during the quarter, including 29 787s. Commercial Airplanes captured an order for 12 787 aircraft for All Nippon Airways, and produced the 1,000th 787 at Boeing South Carolina.
Commercial Airplanes backlog include more than 5,000 airplanes valued at $352 billion.
The 777/777X combined production rate will be reduced to 3 per month in 2021. Production rate assumptions have not changed on the 767 and 747 programs.
Boeing expects to resume 737 MAX production at low rates in 2020, gradually increasing to 31 planes per month during 2021, with gradual increases to correspond to market demand.
But with the new reductions in production rates and the continued impact of COVID-19, Calhoun said they are being forced to reduce the size of the workforce.
“I’m sorry that I have to deliver this news, but I wanted you to hear it from me first,” Calhoun said.
Calhoun said they have started taking action to lower the number of employees by roughly 10% by the end of the year through a combination of voluntary layoffs, natural turnover and involuntary layoffs as necessary.
Boeing South Carolina spokesperson Libba Holland said the company “employs about 160,000 people worldwide,” meaning a 10% reduction would amount to the loss of some 16,000 jobs.
Calhoun added that is 10% in total for the enterprise. Boeing will have to make even deeper reductions in areas that are most exposed to the condition of Boeing’s commercial customers — more than 15% across commercial airplanes and services businesses, as well as corporate functions.”
“I know this news is a blow during an already challenging time,” Calhoun said. “I regret the impact this will have on many of you. I sincerely wish there were some other way.”
The VLO program provides eligible team members with an opportunity to depart the company with a pay and benefits package. Boeing will provide support for those affected by involuntary layoffs, including severance pay, COBRA health care coverage and career transition services.
“We are also making changes to start restructuring from the top so we’re ready for the new market reality — shrinking the size of my team by consolidating roles, simplifying processes and focusing accountabilities,” Calhoun said.
Additional steps Boing is taking include reducing operating costs and discretionary spending, suspending dividend payments, extending existing pause on stock buybacks, reducing or deferring R&D and capital expenditures, and accelerating some progress payment receipts with help from Boeing’s defense customers.
“Our chairman and I are also foregoing our salaries for the year,” Calhoun said. “And as you know, we’re exploring potential government funding options and advocating for access to credit for the entire aerospace manufacturing supply chain.”