Boeing is going through one of the most serious crises in its history. Following one strike lasted weeks, the company announced the cuts of 17 thousand jobsequivalent to 10% of its global workforce. Financial difficulties could bring losses of up to $5 billion in the third quarter of 2024, as well as a potential credit rating downgrade. And it’s just the beginning.
After the strike comes the layoffs
Boeing’s decision to reduce staff comes as part of a drastic downsizing plan. The CEO Kelly Ortbergwho took office in August with the aim of reviving the company, justified this move by saying it was an adjustment to the “financial reality” Boeing faces. The downsizing includes not only workers, but also executives and managers, in an attempt to contain costs.
The month of strikes, involving around 33,000 workers on the US West Coast, have hit Boeing’s production hard, paralyzing key models such as the 737 MAX, 767 and 777. The closure of assembly lines has further slowed production. recovery of the company, which was already in difficulty due to problems related to the safety and certification of its aircraft.
After attempts to dodge the strike, some analysts see the cuts as a strategy to speed up the end of the protests, with the aim of putting pressure on the strikers, who may fear losing their jobs permanently. This, as Thomas Hayes, equity manager at Great Hill Capital, points out, could push workers to find an agreement: “Strikers who are not currently receiving a salary may not want to become unemployed indefinitely,” he commented.
Boeing also filed a complaint with the National Labor Relations Board, accusing the machinists’ union of failing to negotiate in good faithin an attempt to hasten the end of the stalemate. Meanwhile, the union responded by calling the complaint “baseless” and accused the company of wanting to distract attention from the need for direct dialogue with workers.
Boeing risks becoming “junk”
Another serious threat looms over Boeing: the possible downgrading of its credit rating by rating agencies. Among these, S&P estimates that the strike is costing Boeing approximately 1 billion dollars per month. The risk is that, if the situation does not improve soon, Boeing could lose its status as a high-quality investment and end up with a “junk bond” rating, which it would make it much more expensive to obtain financing on the market.
The downgrading it would be a major blow to a company that has already accumulated 60 billion dollars in debt and recorded negative cash flows of more than $7 billion in the first half of 2024 alone. Boeing, in response to the fateful forecasts, is exploring options to raise new capital, with the possibility of issuing shares and convertible bonds. Analysts estimate that the company may need to raise between 10 and 15 billion dollars to avoid downgrading.
To further complicate the situation, there are the delays in delivery of the new 777Xone of the company’s most anticipated models. Delivery of the aircraft was postponed to 2026 due to certification issues and a production halt.
The amount of the crisis: billions in smoke
The financial forecast for Boeing is far from rosy. The company announced that it expects to register losses of 5 billion dollars in the third quarter of 2024, a very hard blow that reflects not only the impact of the strike, but also the difficulties in its key sectors: defense and commercial aircraft. In fact, the defense sector has seen significant losses, partly due to problems with the space program and the replacement of the division chief, Ted Colbert.
Although analysts were already prepared for a difficult quarter, predicting a cash burn operating revenue of approximately $3.8 billion, Boeing surprised the market with a forecast of a smaller negative cash flow of “just” $1.3 billion. A fact that does not remove the company from the crisis zone; on the contrary, the difficult task of finding new sources of financing to stay afloat and overcome the production stall remains.
For this reason, among Boeing’s plans, the possible appears discontinuation of the 767 freighter program in 2027one of the last pillars of its commercial production.
