Boeing’s stock experienced a notable decline of 2% in after-hours trading this past Friday as the aerospace giant announced plans to significantly reduce its workforce by 10%, equating to approximately 17,000 jobs. This decision comes alongside a delayed delivery of the much-anticipated 777X jet, now set for 2026, mainly due to an ongoing strike by the company’s largest labor union.
In a message to employees, Boeing’s CEO Kelly Ortberg expressed the company’s dire situation, citing substantial challenges ahead. He emphasized the need for “tough decisions and structural changes” to maintain competitiveness and continue fulfilling customer needs over the long term. The layoffs will affect a range of positions, from executives to frontline workers. As of December 2023, Boeing’s workforce stood at about 171,000 people.
Aviation consultant Mike Boyd characterized Boeing’s predicament as extremely serious, indicating that the company is grappling with severe issues. He stated, “What they did here is not a drill,” highlighting the urgency of the situation.
The strike initiated by the International Association of Machinists and Aerospace Workers (IAM) has proven costly, hampering Boeing’s recovery efforts as it aims to increase its production of the popular 737 Max jets. Current projections suggest that the work stoppage could cost the company approximately $1 billion each month, despite attempts to implement cost-saving measures.
Credit rating agency S&P Global responded to these developments by placing Boeing on CreditWatch with a Negative outlook, signaling a potential downgrade if the strike persists beyond the year. Fiscal forecasts indicate a cash outflow of around $10 billion for Boeing in 2024, raising expectations among analysts that the company will need to pursue equity fundraising.
At the end of June, Boeing’s total debt was reported to be around $58 billion, with cash reserves at approximately $12.6 billion, making the need for liquidity all the more pressing. Analysts at JPMorgan believe that an equity raise of over $10 billion is likely, especially if the labor dispute extends further.
Boeing’s recent actions include a shift towards a firmer stance with IAM, following unsuccessful negotiations that have dashed hopes for a quick resolution. The company filed an unfair labor practice charge against union representatives after negotiations stalled again this week.
As the strike entered into its fourth week, IAM members had rejected a tentative contract that fell short of their demands for wage increases and reinstatement of benefits. The labor group plans to hold a rally soon to express their grievances.
The repercussions of the strike are evident, with Boeing’s stock down nearly 40% year-to-date, reflecting growing investor concern. In the face of these challenges, Boeing remains committed to finding solutions and continues to assert that it is willing to negotiate with IAM to reach a compromise.
Overall, the next steps for Boeing will be crucial as it navigates through turbulent waters, facing both workforce cuts and looming financial uncertainties. The coming weeks will test the resilience of both the company and its workforce amid these industry challenges.