Boeing Announces Massive Layoffs and Delays 777X Delivery Amid Strike

Following the breakdown of negotiations with the company's largest union—the International Association of Machinists and Aerospace Workers (IAM)—Boeing, the American aviation giant already struggling with cash flow shortages, could no longer withstand the impact of a continuous strike and began announcing significant layoffs, preparing to confirm some of the losses suffered due to the strike.

On Friday, October 11th, Eastern Time, Boeing released a memo from CEO Kelly Ortberg to all employees, notifying them that the company plans to reduce the total number of employees by about 10%, with layoffs affecting executives, managers, and staff. Next week, relevant leaders will announce specific layoff information and its impact on their respective teams. According to the decision to lay off, there will be no further furloughs within Boeing.

The above layoff scale means that Boeing will lay off more than 17,000 employees. Public data shows that as of the end of 2023, Boeing had a total of 171,000 employees.

At the beginning of the memo, Ortberg pointed out:

"Our business is in a difficult situation, and the challenges we face together cannot be overstated. In addition to dealing with the current environment, the company's recovery also requires tough decisions. We must make structural changes to ensure that the company can remain competitive and serve customers in the long term."

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In addition to layoffs, Ortberg also disclosed changes in several existing projects, including the delivery time of the latest and largest model of the Boeing 777 series, the 777X, being delayed again. Ortberg said that due to challenges faced during development, suspension of flight tests, and the strike causing the ongoing work of the project to be halted, Boeing currently expects that the delivery time for the first batch of 777X will be postponed to 2026, which is equivalent to postponing the previously planned delivery time by one year.

Ortberg said that Boeing plans to produce and deliver the remaining 29 orders of the 767 freighter to customers, and then end the production of this civil aircraft project in 2027, while the production of the KC-46A tanker will continue. He warned that Boeing Defense, Space & Security (BDS) "is fundamentally not performing at the level it should on fixed-price development projects." Due to the suspension of civil derivative aircraft, ongoing project challenges, and the decision to complete the production of the 767 freighter, the BDS business "will incur substantial losses this quarter."

At the same time, Boeing announced preliminary financial data for the third quarter of this year, stating that it will confirm in the third-quarter financial report to be released on October 23rd, the costs of certain projects in the civil aircraft and BDS businesses, as well as the costs brought by the IAM-organized strike during the third-quarter reporting period. Boeing expects third-quarter revenue of $17.8 billion, a GAAP loss per share of $9.97, an operating cash flow loss of $1.3 billion, and cash and marketable securities investments of $10.5 billion at the end of the quarter.

The above data means that Boeing's losses and cash shortages will be more severe. In the first half of this year, Boeing had a GAAP loss per share of $2.9, an operating cash flow loss of more than $7 billion, and debts of about $60 billion. The per-share loss expected by Boeing in the third quarter is about 3.4 times that of the first half of this year, creating the largest single-quarter loss since the fourth quarter of 2020, nearly four years.

In the projects of civil aircraft and BDS businesses, Boeing expects that the civil 777X and 767 projects will confirm a pre-tax cost of $3 billion, because the 777-9 flight test is delayed, and the IAM-organized strike-related suspension impact, Boeing expects the 777-9 to be delivered for the first time in 2026, and the 777-8 freighter to be delivered in 2028, thus generating a pre-tax cost of $2.6 billion.Additionally, the civil aircraft business plan intends to cease production of the 767 freighter and recognize a pre-tax charge of $400 million on the project, which also reflects the impact of the IAM-related work stoppage. Based on this calculation, partially affected by the strike, the total pre-tax charges generated by the aforementioned aircraft projects at Boeing will amount to $6 billion. Boeing stated that it expects the civil aircraft business to have an operating income of $7.4 billion in the third quarter, with an operating profit margin of -54%.

Following the announcement of the aforementioned plans and estimated data, Boeing's stock price, which had risen by 3% on Friday, quickly turned negative after the market closed, falling nearly 3% at one point, erasing Friday's gains.

Before announcing the layoff plan and preliminary estimates of related costs, Boeing had just broken with the IAM, which organized the strike. On Tuesday, Boeing stated that after two days of negotiations with federal mediators in the United States, it had withdrawn its salary proposal to the IAM, as the union refused to seriously consider the terms of the labor agreement proposed by Boeing.

Wall Street Journal had mentioned that Boeing's strike began on September 13th, involving approximately 33,000 mechanics who assemble Boeing's best-selling aircraft. Sheila Kahyaoglu, an analyst at Jefferies, said last month that the labor dispute led to a halt in the production of Boeing's "cash cow" 737 Max and other jetliners, potentially costing Boeing an additional $1.3 billion in cash each month.

Boeing is considering raising billions of dollars by selling stocks and equity-like securities, including the possible sale of common stock as well as mandatory convertible bonds and preferred shares. Recently, Boeing has received financing advice from several investment banks, including Goldman Sachs, J.P. Morgan, Bank of America, and Citigroup, proposing various financing options, with some suggesting raising about $10 billion.

In April of this year, the international credit rating agency Moody's downgraded Boeing's credit rating from Baa2 to Baa3, just one level above the so-called "junk" rating, and gave a negative rating outlook, indicating a possible downgrade to junk status. Analysts estimate that Boeing needs to raise between $10 billion and $15 billion to maintain its rating and avoid falling into junk status.