Boeing to cut 17,000 jobs and delay first 777X delivery as strike hits finances

In this July 13, 2021, photo, the logo for Boeing appears on a screen above a trading post on the floor of the New York Stock Exchange. (AP Photo/Richard Drew, File)

Boeing will cut 17,000 jobs -- 10 per cent of its global workforce -- delay first deliveries of its 777X jet by a year and record US$5 billion in losses in the third quarter, as the U.S. planemaker continues to spiral during a month-long strike.

CEO Kelly Ortberg said in a message to employees that the significant downsizing is necessary "to align with our financial reality" after an ongoing strike by 33,000 U.S. West Coast workers halted production of its 737 MAX, 767 and 777 jets.

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"We reset our workforce levels to align with our financial reality and to a more focused set of priorities. Over the coming months, we are planning to reduce the size of our total workforce by roughly 10 per cent. These reductions will include executives, managers and employees," Ortberg's message said.

Boeing shares fell 1.1 per cent in after-market trading.

The sweeping changes are a big move by Ortberg, who arrived in August at the helm of the beleaguered planemaker promising to reset relations with the union and its employees.

Boeing recorded pre-tax earnings charges totalling US$5 billion for its defence business and two commercial plane programs. On Sept. 20, Boeing ousted the head of its troubled space and defence unit Ted Colbert.

Boeing, which reports third-quarter earnings on Oct. 23, said in a separate release it now expects revenue of US$17.8 billion, a loss per share of US$9.97, and a better-than-expected negative operating cash flow of US$1.3 billion.

Analysts on average were expecting Boeing to generate quarterly cash burn of negative US$3.8 billion, according to LSEG data.

Thomas Hayes, equity manager at Great Hill Capital, said by email that the layoffs could put pressure on employees to end the strike.

“Striking workers who temporarily do not have a paycheque do not want to become unemployed workers who permanently do not have a paycheque," Hayes said. "I would estimate the strike will be resolved within a week as these workers do not want to find themselves in the next batch of 17,000 cuts.”

Reaching a deal to end the work stoppage is critical for Boeing, which filed an unfair-labour-practice charge on Wednesday accusing the machinists union of failing to bargain in good faith. Ratings agency S&P estimated the strike is costing Boeing US$1 billion a month and the company risks losing its prized investment-grade credit rating.

Ortberg also said Boeing has notified customers that it now expects first delivery of its 777X in 2026 due to challenges in development, the flight-test pause and the work stoppage. Boeing had already faced issues with certification of the 777X that had significantly delayed the plane's launch.

"While our business is facing near-term challenges, we are making important strategic decisions for our future and have a clear view on the work we must do to restore our company," Ortberg added.

Boeing will end its 767 freighter program in 2027 when it completes and delivers the remaining 29 planes ordered but said production for the KC-46A Tanker will continue.

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The company said in light of the job cuts it would end a furlough program for salaried employees announced in September.

Even before the strike began on Sept. 13, the company had been burning cash as it struggled to recover from a January mid-air panel blowout on a new plane that exposed weak safety protocols and spurred U.S. regulators to curb its production.

Boeing on Friday faced a court hearing in Texas in front of a judge who will decide whether to accept the planemaker's offer to plead guilty to fraud under a deal with the Justice Department.

Boeing has agreed to pay up to a US$487.2 million fine, spend at least US$455 million on improving safety and face three years of court-supervised probation and independent oversight.

Also Friday, a federal watchdog said the Federal Aviation Administration was "not effective" in overseeing Boeing production.

Reuters reported this week Boeing is examining options to raise billions of dollars through a sale of stock and equity-like securities.

These options include selling common stock as well as securities such as mandatory convertible bonds and preferred equity, according to the sources. One of the sources said they suggested to Boeing that it should raise around US$10 billion.

The company has about US$60 billion in debt and posted operating cash flow losses of more than US$7 billion for the first half of 2024.

Analysts estimate that Boeing would need to raise between US$10 billion and US$15 billion to maintain its ratings, which are now one notch above junk.

"For those of us that have watched Boeing closely, the company's announcement of delayed delivery and labour downsizing across all management and employment levels is not much of a surprise as their cash and credit reserves dwindle," said Michael Ashley Schulman, partner at Running Point Capital Advisors. "Their credit rating and share price has been at risk for the better part of a decade because of mismanagement and the stubbornness displayed in the strike may be the straw that breaks the camel's back."

(Reporting By Allison Lampert and David Shepardson. Additional reporting by Shivansh Tiwary; editing by Rod Nickel, David Gregorio and Diane Craft)