Boeing cuts rates, warns on 787 consolidation and jobs
Boeing will further scale back production, reduce employment levels while evaluating where to build the 787 after losing $2.4 billion during the past three months.
“Regretfully, the prolonged impact of COVID-19 causing further reductions in our production rates and lower demand for commercial services means we’ll have to further assess the size of our workforce. This is difficult news, and I know it adds uncertainty during an already challenging time. We will try to limit the impact on our people as much as possible going forward. And as always, we will communicate openly, honestly, and transparently with you,” Boeing chief executive officer Dave Calhoun said in a letter to employees following the second-quarter results.
Boeing cut 16,000 jobs about 10% of its workforce previously.
The original equipment manufacturer updated its production rate assumptions to “reflect impacts of COVID-19 on its demand outlook and will continue to assess them on an ongoing basis”. Boeing is now looking to produce just six 787s per month in 2021, down from the current rate of 10 per month and possibly shuttering one production facility.
“With this lower rate profile, we will also need to evaluate the most efficient way to produce the 787, including studying the feasibility of consolidating production in just one location,” the letter states.
The 787 is currently produced in North Charleston and at the company’s Everett, Washington, facility.
It is also planning to reduce its monthly output of 777/777X aircraft to two per month, down from five. The 777X first delivery is targeted for 2022. At this time, production rate assumptions have not changed on the 767 and 747 programmes.
The OEM expects to slow down its plans to ramp up of 737 Max production. It's aiming to produce 31 of those aircraft per month by 2022 — a target Boeing was expecting to hit next year. Estimated potential concessions and other considerations to customers related to the 737 MAX grounding increased by $551 million in the quarter. There was no material change to estimated abnormal production costs.
Boeing reported second-quarter revenue of $11.8 billion, primarily reflecting the impacts of COVID-19 and the 737 Max grounding. Operating cash flow totalled ($5.3) billion.
Cash and investments in marketable securities increased to $32.4 billion, compared with $15.5 billion at the beginning of the quarter, driven by the issuance of new debt.
Debt was $61.4 billion, up from $38.9 billion at the beginning of the quarter due to the issuance of new debt, partially offset by repayment of maturing debt. Total company backlog at quarter-end was $409 billion.
Second-quarter revenue and operating margin at the Commerical Airplanes unit decreased reflecting lower delivery volume, partially offset by a lower 737 Max customer consideration charge of $551 million in the quarter compared with a $5.6 billion charge in the same period last year.
Second-quarter operating margin was also negatively impacted by $712 million of abnormal production costs related to the 737 programme, $468 million of severance expense and $133 million of abnormal production costs from the temporary suspension of operations in response to COVID-19.
Commercial Airplanes delivered 20 aircraft during the quarter, and backlog includes over 4,500 aircraft valued at $326 billion.
"We remained focused on the health of our employees and communities while proactively taking action to navigate the unprecedented commercial market impacts from the COVID-19 pandemic," says Calhoun. "We're working closely with our customers, suppliers and global partners to manage the challenges to our industry, bridge to recovery and rebuild to be stronger on the other side."