Boeing announced further strategic actions after the market closed on 11 October in a bid to remain competitive in the face of the ongoing strike by machinist workers in Portland and Seattle.
The US company announced that it was expecting to report third quarter revenue of $17.8bn, GAAP loss per share of ($9.97), and operating cash flow loss $1.3bn. Based on an “updated assessment of the certification timelines to address the delays in flight testing of the 777-9, as well as anticipated delays associated with the IAM work stoppage”, Boeing Commercial Airplanes expects to recognise pre-tax earnings charges of $3.0bn on the 777X and 767 programs. The company now anticipates first delivery of the 777-9 in 2026 and the 777-8 freighter in 2028, resulting in a pre-tax earnings charge of $2.6bn.
Boeing announced plans to conclude production of the 767 freighter and recognize a $0.4bn pre-tax charge on the program, which it said also “reflects impacts from the IAM work stoppage”. Beginning in 2027, the company will solely produce 767-2C aircraft in support of the KC-46A Tanker program. Commercial Airplanes expects to report third quarter revenue of $7.4 billion and operating margin of (54.0) percent.
"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," said Kelly Ortberg, Boeing president and chief executive officer. "These decisive actions, along with key structural changes to our business, are necessary to remain competitive over the long term. We are also focusing on areas that are critical to our future and will ensure we have the balance sheet necessary to invest, support our people and deliver for our customers."
In a message to employees, Ortberg said that the business was in “a difficult position” and that it is “hard to overstate the challenges we face together” adding that restoring the company would require “tough decisions” and structural changes in order to stay competitive. Ortberg said that the changes would focus resources on “performing and innovating in the areas that are core to who we are, rather than spreading ourselves across too many efforts that can often result in underperformance and underinvestment”.
Aside from the 777X delay and the end of the commercial 767F program Boeing also announced a 10% cut in its total workforce – approximately 17,000 employees. Ortberg said that this reduction in headcount would include “executives, managers and employees” promising more “tailored information” later this week. Due to this decision, Boeing will now not proceed with the next cycle of furloughs.
This is the third delay to the 777X program, which was originally slated for 2020, then pushed back to 2022, then 2025, and now 2026. Boeing’s 777X orderbook stands at 300, the largest from Emirates with 115 on order, Qatar Airways has ordered 40, Singapore Airlines has 31 on order, Cathay Pacific and Lufthansa have 20 each on order, British Airways and ANA both have 18 on order, Etihad with 17 and Air India on 10, with 10 more order from unidentified customers.
Gary Crichlow, senior vice president – appraisals at Airline Economics+ said that “given all of Boeing’s issues since 2019, I don’t think anyone could take a look at the sheer scale of what Boeing has on its plate and be surprised by yet another delay. In fact, two of the programme’s major customers – Emirates and Lufthansa – earlier this year voiced scepticism that they’d receive their first aircraft in 2025.”
The delay will prolong the economic lives of existing large widebody lift, added Crichlow. “The 777-300ER is the most obvious beneficiary, but we could possibly see a few more A380s come back into service,” he said. “We are already in a situation where supply is extremely tight, and this latest announcement by Boeing indicates that the market conditions we are seeing currently, with upward pressure on values and lease rates, could persist for some time yet, barring any exogenous market shocks.”
The end of the 767F commercial program in 2027 poses less of a surprise to some, since ICAO emissions rules coming into force in 2028 would in theory have disallowed operation of any 767Fs built from January 1, 2028 in any country implementing those rules. However, earlier this year the US Government exempted the 767F from having to comply with the ICAO rules until 2033. This would allow operators – at this point UPS and Fedex as they have outstanding orders – to operate 767Fs built between 2028 and 2033. The exemption would only apply within the United States. “Prior to the US enacting an exemption, Boeing would have been barred from producing the 767F after 2027,” said Crichlow. “Under the exemption, Boeing theoretically could continue production until 2033; and other countries could issue their own exemptions to allow operations outside the United States. But it’s tall ask for an operator to invest in an expensive new built freighter with that level of uncertainty over where it could operate it. For Fedex and UPS, as long as their aircraft orderbooks are built before 2028 they will be exempt from ICAO’s emissions rules. It therefore doesn’t seem surprising to me that Boeing would sunset the 767F and focus its increasingly stretched resources on addressing the challenge of getting its more viable aircraft models back on track.”
Boeing has around $52bn in debt and the company is on downgrade watch by S&P, Fitch and Moody’s. Any downgrade to junk status would make that debt much more expensive and difficult to refinance. The company has cash and investments in marketable securities of $10.5 billion at the end of the third quarter, according to Boeing’s preliminary third quarter results. Boeing’s share price started the year at $257.28, at close on October 11, it was a little over $151.00
The ongoing strike (see next page for more details) is lingering with little progress being made. Chris Broad, senior vice president, airline analysis at Airline Economics+ said: “It is hard to say what the future holds for Boeing. They don’t seem too far apart on the strike with Boeing offering a 30% increase with the union holding out for 40% over the next four years but there is still some daylight between them on the pension arrangements. I doubt the strike will be resolved this month, if it can be closed in November the question is how quickly (and robustly) Boeing can ramp up deliveries again.”
Boeing has been criticised for the slow restart following the pandemic, partly because the company had laid off so many staff that they could get the skilled workforce back again, which may have contributed to the quality issues plaguing the company. There is the danger with the recently announced cut to 10% of the workforce that the same situation could repeat once the manufacturer tries to ramp up production.