Boeing to slash 7,000 more jobs as hopes for ‘cash’ fade

Bloomberg

Boeing Co is almost doubling its planned job cuts as the coronavirus pandemic and prolonged grounding of the 737 Max jet dim prospects for a financial recovery next year.
With the outlook for aircraft sales still uncertain, executives abandoned a forecast that Boeing would stop burning cash next year and said they would eliminate an additional 7,000 jobs. That will bring the expected loss from layoffs, retirements and attrition to 30,000 people by the end of 2021 — or 19% of the pre-pandemic workforce. Boeing announced a 10% cut earlier this year.
The planemaker is “taking tough but necessary action to adapt to the new market reality and transform our business to be sharper and more resilient for the long term,” Chief Executive Officer Dave Calhoun told analysts after the company reported earnings. “Covid-19’s continued impacts have had a more prolonged and deeper impact on our industry, and we’ll have to further reduce our workforce.”
Once a prodigious cash generator, Boeing is now carefully monitoring its liquidity and soaring debt while navigating the deep slump in air travel and working with regulators to lift the Max’s flying ban.
Boeing has burned through about $22 billion in free cash since March 2019, when regulators grounded the company’s best-selling jet after two fatal accidents. The cash outflow will probably continue until 2022, said Chief Financial Officer Greg Smith.
Robert Stallard, an analyst at Vertical Research Partners, chopped his target price to $137 from $150, citing uncertainly around the company’s recovery.
“Boeing is essentially a play on a coronavirus vaccine, increased testing and government lifting their travel restrictions,” Stallard, who has a hold rating on Boeing, said in note to clients. “Even if there is progress on all these items, we would argue that there are better ways to invest in a future aerospace recovery than Boeing.”
The Chicago-based company went through about $5 billion in free cash during the third quarter, in line with analyst estimates and about $620 million less than a quarter earlier. Boeing didn’t announce additional production cuts for its 787 and 737 Max, defying analyst expectations, but executives cautioned they may do so if the market deteriorates.
The manufacturer reported an adjusted loss of of $1.39 a share, better than the average shortfall of $2.08 expected by analysts. Sales dropped 29% to $14.1 billion. Wall Street had predicted $13.8 billion.
Meanwhile Boeing’s inventory ballooned to $87 billion, jumping 64% from a year earlier as the company stores about 50 of its 787 Dreamliners and more than 450 of its Max jets. The manufacturer churned out the single-aisle 737 models during the grounding but can’t deliver them until regulators lift the flying ban.
The results didn’t contain any surprises, said Robert Spingarn, an analyst at Credit Suisse Group AG.
“I don’t think people expected an epiphany — there’s not enough information,” he said. “The situation just won’t get clearer until there’s a tangible solution of some type for the virus.”
Analysts are already looking ahead to 2021, when Boeing plans to clear about half of the stored Max planes — if it can find takers. Rising coronavirus cases are heaping additional pressure on airlines, which
have leverage to scrap or renegotiate terms for Max aircraft with deliveries delayed more than a year.
Boeing could generate about $12 billion in cash by getting the Max planes off its inventory, Spingarn said, but that’s no easy task in a depressed market.
“Those airplanes are basically a big pile of cash for Boeing,” he said. “Boeing paid for them when they were built. So when Boeing delivers an airplane, the cash-capture goes straight to Boeing.”
Airbus SE has also been buffeted by the pandemic. But the European planemaker has seen fewer cancellations for its narrow-body jets than Boeing and has even signaled suppliers to be prepared to raise production rates late next year if the market rebounds.
Boeing has revealed little about how it will counter a product lineup that includes Airbus A321neo jetliners — particularly longer-range versions of the narrow-body jet that are capable of replacing wide-body aircraft on trans-Atlantic routes.