Boeing reports difficult Q1, cutting 16,000 jobs
The Boeing Company on April 29 reported 2020 first-quarter revenue of US$16.9 billion, a decrease of 26 per cent relative to its year ago quarter. The company also reported a net loss of US$641 million in its current first quarter, compared to US$2.1 billion profit a year earlier.
Shortly after announcing these financial results, Boeing president and CEO David Calhoun sent a letter to employees of the company about the decision to eliminate employee numbers by approximately 10 per cent, which roughly equates to 16,000 people. Calhoun noted this 10 per cent number applies to the entire enterprise, but deeper reductions of more than 15 per cent are being made in areas most exposed to the condition of Boeing’s commercial customers. This includes Boeing’s Commercial Airplanes and Services segments, as well as corporate functions.
Boeing points to the effects of both the COVID-19 pandemic and 737 MAX grounding as primary drivers of its 2020 first quarter results, impacted by significantly lower demand for new commercial airplanes and services, slowing delivery schedules, and airlines deferring elective maintenance.
“The pandemic is also delivering a body blow to our business — affecting airline customer demand, production continuity and supply chain stability,” Calhoun wrote, in his letter to employees. “The demand for commercial airline travel has fallen off a cliff, with U.S. passenger volumes down more than 95 per cent compared to last year. Globally, commercial airline revenue is expected to drop by [US]$314 billion this year.”
Boeing is further reducing its commercial airplane production rates to align for what the company describes as the new market reality. To reflect COVID-19 impacts on demand, Boeing expects 737 MAX aircraft production to remain at low rates in 2020 and gradually increase to 31 per month during 2021. The 787 production rate will be reduced from 14 per month to 10 per month in 2020, and gradually reduced to seven per month by 2022. The 777/777X combined production rate will be reduced to three per month in 2021. At this time, production rate assumptions have not changed on the 767 and 747 programs.
First-quarter revenue in Boeing’s Commercial Airplanes segment for 2020 was US$6.2 billion, a decrease of 48 per cent when compared to the corresponding 2019 quarter. Pointing again to the impact of the 737 MAX grounding and COVID-19, Boeing delivered 50 airplanes in the first quarter of 2020, down from 149 in the year ago quarter – a decrease of 66 per cent. This included the delivery of 29 787s.
Commercial Airplanes backlog included over 5,000 airplanes valued at US$352 billion. The company had an overall backlog of US$439 billion at the end of its current first quarter. Boeing’s free cash flow at the end of its 2020 first quarter was negative US$4.7 billion, compared to a positive cash flow of US$2.3 billion at the end of Q1 2019.
Boeing notes actions taken to manage near-term liquidity include a draw on a term-loan facility; reducing operating costs and discretionary spending; extending the pause on share repurchases and dividends; reducing or deferring research and development and capital expenditures; and eliminating CEO and chairman pay for the year.
“While COVID-19 is adding unprecedented pressure to our business, we remain confident in our long-term future,” said Calhoun. “We continue to support our defense customers in their critical national security missions. We are progressing toward the safe return to service of the 737 MAX, and we are driving safety, quality and operational excellence into all that we do every day. Air travel has always been resilient, our portfolio of products and technology is well positioned, and we are confident we will emerge from the crisis and thrive again as a leader of our industry.”
Boeing also notes first-quarter operating margin decreased to 33.3 per cent due to lower delivery volume, US$797 million of abnormal production costs from the temporary suspension of 737 MAX production, a US$336 million charge related to 737 Next Generation frame fitting component (pickle fork) repair costs, lower 787 margins primarily due to COVID-19, and US$137 million of abnormal production costs from the temporary suspension of Puget Sound operations in response to COVID-19.
Boeing explains the estimated abnormal production costs from the temporary suspension of 737 MAX production have increased by approximately US$1 billion due to updated production rate assumptions, bringing the estimated total to approximately US$5 billion.