Facing a sharp contraction in demand along with its European rival Airbus due to a coronavirus crisis that has undermined aircraft sales, Boeing moved quickly to shed costs by offering voluntary buyouts to eligible employees, Arabian Business reported.
“When the world emerges from the pandemic, the size of the commercial market and the types of products and services our customers want and need will likely be different,” Chief Executive Officer David Calhoun said in a message to Boeing’s work force of 161,000 employees Thursday.
“It’s important we start adjusting to our new reality now.”
Airline customers around the world have slashed schedules, with some parking their entire fleets as the coronavirus pandemic guts travel, the report said.
About 44% of aircraft across the globe are in storage, according to an estimate by Cirium, and with virus cases approaching 1 million worldwide, there’s no telling when carriers will return to normal schedules, no less buying planes.
“With no cash coming in, you have to cut your fixed costs quickly,” said Nick Cunningham, an analyst at Agency Partners based in London, adding that salaries make up the biggest portion of the company’s fixed costs. “As painful as it is going to be, Boeing needs to reduce workers. If you don’t, you’ll destroy the company.”
Boeing was already reeling from a prolonged grounding of its 737 MAX 8 when the coronavirus pandemic hit, with revenue and cash flow depleted, the report said. The disease has slowed work on recertifying the single-aisle workhorse, while clouding the outlook for sales once it returns.
The company is also facing a falloff in demand for twin-aisle aircraft like its 787 Dreamliner and the coming 777X, as long-distance travel has been hit harder than shorter hops, the report said.
Wide-body jetliner production could tumble by 60% over the next three years, Jefferies analyst Sheila Kahyaoglu predicted in a March 31 report, the report said.
The need to downsize has created a dilemma for CEO Calhoun. Forced layoffs would give the company more control over where and how it cuts costs. But they would surely stir up a backlash that could complicate any effort by the manufacturer to access government aid, the report said.
While the company has told Congress that the industry needs some US$60 billion, Calhoun has blanched the strings that would potentially be attached, telling Fox News that the company has “other options.”
Voluntary buyouts keep the bailout option viable, should he ultimately choose to pursue it. Boeing is analyzing the funding options available, people familiar with its review said last week.
Meanwhile, the US Federal Aviation Administration (FAA) has ordered Boeing 787 operators to switch their aircraft off and on every 51 days to prevent what it called “several potentially catastrophic failure scenarios” — including the crashing of onboard network switches, The Register reported.
The airworthiness directive, due to be enforced from later this month, orders airlines to power-cycle their B787s before the aircraft reaches the specified days of continuous power-on operation, the report said.
According to the directive, if the aircraft is powered on for more than 51 days this can lead to “display of misleading data” to the pilots, with that data including airspeed, attitude, altitude and engine operating indications, the report said.
On top of all that, the stall warning horn and overspeed horn also stop working.