Boeing cuts output of big jets as pandemic hammers sales
- 29th July 2020
- Posted by: Hakeem
- Category: Business plans
(Reuters) – Boeing Co (BA.N) slashed production on its widebody programs, delayed the arrival of its newest jet, and confirmed the demise of its iconic 747, as it reported a bigger-than-expected quarterly loss on Wednesday amid fallout from the COVID-19 pandemic.
The U.S. planemaker, which is also grappling with the 16-month-old ban on its 737 MAX after fatal crashes, delayed its timeline to hit build rates of 31 narrowbodies monthly to early 2022 from 2021, as the pandemic decimates new jet demand.
It now expects to resume 737 MAX deliveries to airline customers before year-end in the United States, a slip from earlier guidance of end-September. That means the jet’s U.S. return to service could slip to 2021.
The production cuts reflect concern among aviation companies about the pace of the coronavirus recovery. Global airlines warned on Tuesday it would take a year longer than expected for air traffic to return to normal, with long-range travel hit harder than short hops.
The outbreak has crippled passenger travel and pushed major airlines to the brink of bankruptcy, resulting in many carriers deferring aircraft deliveries – when Boeing gets paid most of the money for new jets.
Boeing also confirmed the last 747, the iconic hump-topped jumbo jet that democratized global air travel in the 1970s but fell behind modern twin-engine aircraft, would roll out of its Seattle-area factory in around two years.
Boeing Chief Executive Dave Calhoun told analysts the Chicago-based company was making payments to its sprawling supply chain and also working closely with airlines to manage a COVID-19 recovery process that could take three years.
The 737 MAX grounding has cost Boeing some $20 billion, ousted executives, halted production and hobbled its supply chain, with criminal and congressional investigations and lawsuits still ongoing.
The coronavirus pandemic has exacerbated this crisis.
The majority of some 450 737 MAX aircraft in storage will be delivered during the first year after Boeing resumes deliveries, Boeing Chief Financial Officer Greg Smith told analysts.
“We still see a path in positive cash flow in 2021,” Smith added.
Boeing will now reduce 787 production to six jets a month in 2021 – a third rate drop from a year ago, when it was producing the Dreamliners at a record monthly rate of 14 planes.
Calhoun told employees in a memo Wednesday Boeing would study “the feasibility of consolidating production in one location.” That means Boeing could close its 787 assembly line north of Seattle. It also builds the 787 Dreamliner in South Carolina, and the largest 787-10 can only be built there.
Such a move would imply an expansion of the South Carolina plant as rates go up again, industry sources say.
Boeing also said it would again reduce the combined production rate of the 777 and 777X jets to two planes per month in 2021, while delaying the 777X’s entry into service by up to a year, as Reuters previously reported.
Boeing’s commercial airplanes operating profit was hit by $845 million in abnormal production costs on 737 and factory closures related to COVID-19 fears. Boeing also logged $468 million in severance expenses related to reducing its roughly 160,000 workforce by 10%, saying on Wednesday deeper cuts were possible.
“We’ll have to further assess the size of our workforce,” Calhoun told employees.
Shares fell 4.3%.
“Downside risks are not fully reflected in Boeing’s current share price,” Vertical Research Partners analyst Rob Stallard said.
On an adjusted basis, Boeing lost $4.79 per share, bigger than analysts’ average estimate of a loss of $2.54, according to IBES data from Refinitiv.
The company’s sales tumbled 25% to $11.81 billion in the quarter, missing estimates of $13.16 billion.