Boeing Considers Layoffs as Strike Hits Cash Flow
Boeing is contemplating temporary layoffs and other cost-saving measures as the company faces a significant financial strain due to a strike by machinists. The strike, which began last week, has prompted Boeing to implement a hiring freeze, reduce travel, and cut spending on suppliers to conserve cash.
In a memo to employees, Chief Financial Officer Brian West outlined ten immediate cutbacks. These include halting hiring across all levels, pausing pay increases for newly promoted managers and executives, and suspending all non-essential travel. The memo also mentioned the possibility of temporary furloughs affecting a broad range of employees, managers, and executives in the coming weeks.
West emphasized the gravity of the situation, noting that the strike was jeopardizing the company's recovery. About 33,000 workers, represented by the International Association of Machinists and Aerospace Workers (IAMAW), began their walkout early Friday after rejecting Boeing's offer of a 25% pay increase over four years. The union's initial demand was a 40% raise.
Negotiations between Boeing and the union are ongoing, with federal mediators set to facilitate discussions. The union is also surveying its members to determine their priorities for a new contract. Meanwhile, striking workers have been picketing at various locations across Washington State, Oregon, and California.
The dispute has highlighted the contentious issue of bonuses. Workers argue that the proposed pay increase effectively amounts to just 9% when annual bonuses, which have been a crucial part of their compensation, are not factored in. Boeing's proposal to replace these bonuses with automatic $4,160 annual contributions to each employee's 401(k) retirement account has been met with resistance.
Boeing's financial struggles are significant, with over $25 billion in losses since early 2019 and a $4.3 billion cash burn in the second quarter of 2024. The strike's impact on new plane deliveries, a key revenue stream for the company, exacerbates the situation. The company's total debt stands at $60 billion, a factor that Stephanie Pope, head of Boeing's commercial airplanes division, highlighted in urging workers to accept the contract offer. Despite her endorsement and that of the union's local leadership, workers voted against the offer—a rare occurrence since 1995.
In response to the strike, Boeing is also implementing additional cost-cutting measures. These include eliminating first- and business-class travel for critical trips and halting spending on external consultants. Significant reductions in supplier expenditures are planned, with a suspension of most supplier purchase orders related to the 737, 767, and 777 aircraft models.
The financial impact of the strike has led to a review of Boeing's credit rating. Moody's has placed Boeing on review for a possible downgrade, while Fitch has indicated that a strike extending beyond two weeks could increase the likelihood of a downgrade. Both agencies currently rate Boeing's debt just above junk status, underscoring the financial pressures facing the company.
Overall, Boeing's response to the strike reflects the company's urgent need to manage its cash flow and stabilize its operations amidst ongoing labor disputes and financial challenges.