Abu Dhabi, UAESaturday 31 October 2020

Boeing prepares deeper cost cuts to offset plunging aircraft sales

More than 170 mid-level executives are expected to accept a buyout offer that includes a year's salary

Boeing is planning more cost cuts to counter falling aircraft sales and mounting costs for the grounded 737 Max. Reuters
Boeing is planning more cost cuts to counter falling aircraft sales and mounting costs for the grounded 737 Max. Reuters

Boeing is thinning its corps of vice presidents and winnowing real estate holdings, including a splashy outpost near the Massachusetts Institute of Technology, as the plane maker works to counter plunging aircraft sales and mounting costs for the grounded 737 Max.

About 170 mid-level executives, 70 of them based at Boeing’s commercial airplane division, are taking a buyout offer that includes a year’s salary, according to people familiar with the matter. The first of the vice presidents and senior managers to accept the terms will leave the company on October 2, followed by a second wave later in the year.

The cuts go deeper and wider than the 19,000 jobs pared earlier this year when the coronavirus pandemic sent air travel into an unprecedented collapse. Stemming the cash outflow has become a paramount concern for Boeing, and the company is also wringing savings from investments in futuristic technology as well as its businesses and organisational structure.

Boeing is shedding assets “like King Midas in reverse”, said Richard Aboulafia, an aerospace analyst with Teal Group.

The biggest and most controversial of the cost-saving measures mulled by Boeing would be to build the 787 Dreamliner at a single site, most likely its South Carolina factory, and close a second final-assembly line in Everett, Washington.

The decision on production amid a steep plunge in wide-body jet deliveries is expected to be announced as soon next month, according to two of the people, who asked not to be named because they weren’t authorised to speak publicly.

Boeing is also jettisoning holdovers from the days when it was flush with cash. One example: a lavish executive retreat, modelled after a French chateau, in the countryside near St. Louis. The Boeing Leadership Center is closing indefinitely, with 81 workers from chefs to waiters losing their jobs, according to a WARN report.

Chief executive Dave Calhoun and chief financial officer Greg Smith warned in July that the company faced a shrinking market that’s likely to remain depressed for years. The Chicago-based company could see a staggering $23.3 billion (Dh85.5bn) cash outflow this year, according to an estimate by Melius Research analyst Carter Copeland, before the resumption of Max deliveries starts to fill the company’s coffers in 2021.

Mr Smith, who’s orchestrating the shake-up, said in August that Boeing needs to be “clear-eyed about the market” and how to mitigate its risks.

Boeing is shedding assets like King Midas in reverse

Richard Aboulafia, Teal Group

Boeing signalled last month that a new voluntary exit offer would take workforce reductions well beyond the 10 per cent it initially targeted. The package was aimed at the commercial aircraft and services businesses, the most damaged by the pandemic, as well as the corporate operation, which employed 37,862 people at the start of the year. Fewer employees in the company’s defence, space and government business were eligible for the buyouts.

Boeing is trimming research and development spending in part by phasing out Boeing NeXt, a two-year-old unit focused on futuristic concepts from flying cars to a supersonic business jet.

Aurora Flight Sciences, among the highest profile of the ventures, remains a wholly-owned subsidiary with work proceeding “full steam ahead”, a Boeing representative said.

But the company has tapped the brakes on the Autonomous Flight Research Center it had planned to open this year in MIT’s Kendall Square Initiative in Cambridge, Massachusetts, near the university’s campus.

Boeing is trying to sublease about half of the 100,000 square-feet space it had secured, said Peter Conway, director of research for Boston-based Lincoln Property, which doesn’t represent Boeing or the landlord. Aurora no longer plans to move its Cambridge-based team to the building, Boeing said.

The company plans to decide by year-end whether to maintain or monetise its stakes in three ventures: Aerion, which is developing a supersonic business jet; SkyGrid, which is making an air-traffic management system for drones; and Wisk, a joint venture with Kitty Hawk Corp, an autonomous flight venture backed by Google founder Larry Page.

“It’s a different world now,” said Stephen Perry, an investment banker who specialises in aerospace and defense deals at Janes Capital Partners. “They’re all cash-draining businesses in the short run, with an uncertain future.”

Boeing, Mr Perry said, needs to focus on its core businesses because it’s “in a fight for survival”.

Updated: September 26, 2020 08:00 PM

Editor's Picks
Sign up to our daily email