SEATTLE- Boeing revealed extensive cost-cutting initiatives on Monday in response to a massive strike involving over 30,000 factory workers.
The aerospace giant has instituted a hiring freeze, suspended nonessential staff travel, and slashed supplier spending to conserve cash during this critical period.
Boeing Stop Hiring Workers
The strike began early Friday and has brought most of Boeing’s aircraft production to a standstill. Factory workers, primarily in Seattle, overwhelmingly rejected a tentative labor agreement, leading to widespread walkouts.
CFO Brian West detailed the company’s strategy in a staff memo, announcing “significant reductions” in supplier spending.
Boeing will halt most purchase orders for its 737 MAX, 767, and 777 jetliners, signaling the strike’s far-reaching impact on its extensive supplier network.
West emphasized Boeing’s commitment to reaching a new contract agreement, stating, “We are working in good faith to reach a new contract agreement that reflects their feedback and enables operations to resume.”
However, he also stressed the gravity of the situation, warning, “This strike jeopardizes our recovery in a significant way and we must take necessary actions to preserve cash and safeguard our shared future.”
CFO Remarks
Boeing’s CFO Brian West outlined the company’s strategy to mitigate the financial fallout from the ongoing worker strike. Speaking at a Morgan Stanley conference on Friday, West emphasized Boeing’s focus on cash conservation, acknowledging that the strike’s duration will determine its economic impact.
The company’s newly appointed CEO, Kelly Ortberg, is pushing for an immediate return to negotiations to secure a new deal with the striking workers. This proactive approach underscores the urgency of resolving the labor dispute.
West revealed a potential escalation in cost-cutting measures, stating, “We are also considering the difficult step of temporary furloughs for many employees, managers, and executives in the coming weeks.” This move signals the far-reaching consequences of the strike across all levels of the organization.
The strike has already triggered responses from credit rating agencies. Moody’s placed all of Boeing’s credit ratings under review for a potential downgrade, while Fitch Ratings warned that a prolonged strike could jeopardize the company’s credit rating. These actions could significantly increase Boeing’s borrowing costs, further straining the manufacturer’s already substantial debt burden.
Boeing’s financial challenges predate the current strike. The company reported a cash burn of approximately $8 billion in the first half of the year, a result of production slowdowns following a near-catastrophic door-panel blowout incident earlier in the year.
Boeing Settles Embraer Dispute
In a separate issue, Boeing has agreed to pay Embraer $150 million to resolve a dispute stemming from its 2020 decision to abandon a planned acquisition of Embraer’s commercial aircraft division.
Embraer announced the settlement on September 16, marking the conclusion of arbitration proceedings between the two aerospace giants.
The dispute originated from a 2018 agreement where Boeing sought to acquire 80% of Embraer’s commercial aircraft and services business for $4.2 billion.
Boeing’s motivation for the deal centered on gaining a competitive edge against Airbus’s A220, while Embraer aimed to leverage Boeing’s global supply chain and sales network to enhance E-Jet competitiveness.
However, the Covid-19 pandemic and Boeing’s ongoing 737 MAX crisis led the U.S. company to withdraw from the agreement in 2020. Embraer promptly accused Boeing of breaching contract terms and initiated legal action for damages.
Embraer had invested significant resources in preparing for the acquisition, including the complex task of separating its commercial aircraft business into a distinct unit. This process disrupted operations and slowed E-Jet deliveries, further fueling Embraer’s grievances.
Boeing’s response to the settlement emphasizes its longstanding relationship with Brazil, stating, “We’re pleased to have concluded the arbitration process with Embraer. More broadly, we are proud of our more than 90 years of partnership with Brazil and look forward to continuing to contribute to the aerospace industry in Brazil.”
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