Latest / Bloomberg Intelligence / Instant Reaction: Boeing Cuts Workforce By 10%

Transcript

Instant Reaction: Boeing Cuts Workforce By 10% · Bloomberg Intelligence

• 0:00
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. We do have some
• 0:07
  Speaker 1: breaking news out of Boeing. The CEO is saying that
• 0:11
  Speaker 1: the manufacturer needs to restructure operations. Here are some of
• 0:15
  Speaker 1: the details. Bowing to delay the launch of the seven
• 0:18
  Speaker 1: seven seven X airplane by one year to twenty twenty six,
• 0:21
  Speaker 1: and Boeing to cut ten percent of its workforce, warns
• 0:26
  Speaker 1: of deeper third quarter losses. It's going to cut its
• 0:29
  Speaker 1: total workforce by roughly ten percent. These job cuts to
• 0:33
  Speaker 1: include its executives, managers and employees. This all coming, of course,
• 0:37
  Speaker 1: amid a big cash burn by Boeing. Of course, we
• 0:41
  Speaker 1: just concluded the fourth week of its strike. A lot
• 0:44
  Speaker 1: of pain going on over at Boeing. You see the
• 0:46
  Speaker 1: shares bouncing around after hours, initially spiking. Now back to
• 0:50
  Speaker 1: unchanged traders trying to make sense of what's going on here.
• 0:53
  Speaker 1: But what we know right now is that Boeing of
• 0:56
  Speaker 1: course delaying the first delivery of its seven seven seventh
• 1:00
  Speaker 1: seven seven X program to twenty twenty six. Also those
• 1:03
  Speaker 1: job cuts. Boeing to cut its total workforce by roughly
• 1:06
  Speaker 1: ten percent.
• 1:06
  Speaker 2: Match. Yeah, this is awful news for Boeing, maybe worse
• 1:11
  Speaker 2: news for the union. You know, each month of this
• 1:17
  Speaker 2: strike is forecast to cost them one and a half
• 1:20
  Speaker 2: billion dollars, not according to JP Morgan, but they already
• 1:23
  Speaker 2: burned through eight and a half billion dollars in the
• 1:26
  Speaker 2: first half, and because of that cash burn, they had
• 1:29
  Speaker 2: to raise ten billion dollars in debt in the first half.
• 1:33
  Speaker 2: Now Bloomberg has reported they're likely to raise another ten
• 1:35
  Speaker 2: and a half or sorry, ten to fifteen billion dollars
• 1:39
  Speaker 2: in a secondary offering in this half. And they said
• 1:42
  Speaker 2: now that revenue is only going to be in the
• 1:44
  Speaker 2: third quarter seventeen point eight billion. It had been estimated
• 1:47
  Speaker 2: at eighteen point six billions. So they're not making any money,
• 1:52
  Speaker 2: they're burning through cash because of this strike, and now
• 1:55
  Speaker 2: they're going to have to cut or at least slow
• 1:58
  Speaker 2: the delivery of the seven seven seven X program by
• 2:02
  Speaker 2: another year. So it just really doesn't look good for
• 2:07
  Speaker 2: the unions, for the for the workers that have gone
• 2:10
  Speaker 2: on strike and have rejected an offer for a raise
• 2:14
  Speaker 2: of what twenty five percent or thirty percent was the
• 2:16
  Speaker 2: last offer something along those lines.
• 2:17
  Speaker 1: I mean, the negotiations we know have really been locked
• 2:20
  Speaker 1: and is stillmate, so really no progress being made again
• 2:24
  Speaker 1: fascinating to see these headlines coming out of Boeing.
• 2:27
  Speaker 2: We're going to get you, Bloomberg Intelligence senior Aerospace, Defense
• 2:31
  Speaker 2: and Airlines analyst George Ferguson right now to weigh in
• 2:35
  Speaker 2: on these headlines. George, really glad you could join us
• 2:40
  Speaker 2: on such short notice on a Friday. What do you
• 2:42
  Speaker 2: make first off of the delay of the seven seven
• 2:47
  Speaker 2: seven X program. They say they won't be giving their
• 2:50
  Speaker 2: first deliveries out until twenty twenty six. I don't know
• 2:54
  Speaker 2: when they were planning to do it in the first place,
• 2:56
  Speaker 2: so what do you know.
• 2:58
  Speaker 3: Yeah, there's supposed to be a toy twenty five event,
• 3:01
  Speaker 3: so pushed out what maybe about a year? This programs
• 3:07
  Speaker 3: has some challenges getting to the finish line. So you know, look,
• 3:12
  Speaker 3: it's not good. It's not a huge money maker for
• 3:15
  Speaker 3: the company. In fact, it's not a money maker for
• 3:16
  Speaker 3: the company right now, and so for the financials, not
• 3:21
  Speaker 3: that important. For the customers who are waiting for airplanes,
• 3:24
  Speaker 3: more disappointment. You always run the risk that they're going
• 3:26
  Speaker 3: to go away. Biggest airplane in the sky now at
• 3:30
  Speaker 3: the seven four to seven, A three eight are gone.
• 3:33
  Speaker 3: So there are not a lot of good substitutes. So
• 3:35
  Speaker 3: I'd say, yeah, disappointing, but not terrible.
• 3:39
  Speaker 1: Talk to us about the labor picture here, because I
• 3:42
  Speaker 1: mean the headline that's catching everyone's attention, in addition to
• 3:45
  Speaker 1: the financial details that we got and those delays, is
• 3:48
  Speaker 1: that Boeing to cut its total workforce by roughly ten percent,
• 3:52
  Speaker 1: and interestingly, those reductions include executives, managers, employees. We know
• 3:57
  Speaker 1: that Boeing is locked in that strike right now, that's
• 4:00
  Speaker 1: stalemate with its union that has been going on for
• 4:03
  Speaker 1: a month that they haven't been able to do manufacturing
• 4:07
  Speaker 1: over on the West Coast. I mean, how does that
• 4:09
  Speaker 1: factor into that month long strike?
• 4:12
  Speaker 3: Yeah, tough times are ahead, and that's what CEO Kelly
• 4:16
  Speaker 3: or Berg told the company when he told him there's
• 4:18
  Speaker 3: going to be a ten percent cut. Tightening their belt here.
• 4:22
  Speaker 3: It looks to me like they're posturing for the long haul,
• 4:24
  Speaker 3: right they're telling to me, I think they're telling the union,
• 4:27
  Speaker 3: you know, we're going to slim down. We need to
• 4:30
  Speaker 3: save a bunch of money, and we're ready to kind
• 4:32
  Speaker 3: of go to long haul on our negotiations with you.
• 4:35
  Speaker 3: We're going to take pain on the executive side as well.
• 4:39
  Speaker 3: And I think look, once the strike is over, there's still,
• 4:43
  Speaker 3: you know, some pretty big challenges here for profitability, and
• 4:48
  Speaker 3: so I think this is part of how they're going
• 4:50
  Speaker 3: to address it. Yeah, a little bit surprising to me.
• 4:53
  Speaker 1: But yeah, yeah, I know this coming from the Wall
• 4:55
  Speaker 1: Street Journal, Ortberg saying in a message to employees while
• 4:59
  Speaker 1: outlining this plan that we need to be clear eyed
• 5:02
  Speaker 1: about the work we face the root and realistic about
• 5:04
  Speaker 1: the time it will take to achieve key milestones. Clear
• 5:09
  Speaker 1: Eyed definitely a phrase to underline there. We were talking
• 5:12
  Speaker 1: a little bit about what this means for the space program.
• 5:14
  Speaker 1: For example, we were having that conversation with David Weston
• 5:17
  Speaker 1: and then you know, now we're having it too. When
• 5:19
  Speaker 1: you think about what could go where Boeing could trim,
• 5:23
  Speaker 1: what's the potential future of the space program here?
• 5:27
  Speaker 3: Yeah, I mean there's a lot of small pieces and
• 5:29
  Speaker 3: Boeing that you might be able to get rid of
• 5:31
  Speaker 3: and make a little bit of money. But you know,
• 5:33
  Speaker 3: I've heard a lot of people sort of talk about
• 5:36
  Speaker 3: ge and their turnaround and how they hived off a
• 5:38
  Speaker 3: bunch of businesses to raise cash. I just don't see
• 5:40
  Speaker 3: that potential here. We even saw that at Rolls Royce
• 5:43
  Speaker 3: or they hipped off a bunch of businesses. I think
• 5:45
  Speaker 3: there's small stuff they could make cash with. I honestly
• 5:48
  Speaker 3: don't think space is something they could make much in selling.
• 5:52
  Speaker 3: I think musks, you know, musk SpaceX is really kind
• 5:57
  Speaker 3: of taking it to the government launchers. I should say, you.
• 6:01
  Speaker 1: Don't think SpaceX will buy the Boeing space program.
• 6:05
  Speaker 3: I don't think so. Actually, I think that SpaceX has
• 6:08
  Speaker 3: got the rockets they need, They've got the capsules they need.
• 6:13
  Speaker 3: I personally think long term, I think Boeing does want
• 6:17
  Speaker 3: to be in this space. I no pun attended, and
• 6:21
  Speaker 3: so I think that they will push through with their
• 6:24
  Speaker 3: space program. I think it's part of their government contracting.
• 6:27
  Speaker 3: It should be part of their core competencies. I think
• 6:31
  Speaker 3: they'll retain it, but I guess we'll see.
• 6:34
  Speaker 1: And I'm hugging this conversation. Do you want to question
• 6:37
  Speaker 1: mat Miller?
• 6:37
  Speaker 2: Well, I just don't know how much leverage workers have,
• 6:41
  Speaker 2: or if the workers have far less leverage. When the
• 6:44
  Speaker 2: CEO comes in and says, you know what, I got
• 6:46
  Speaker 2: to fire ten percent of this company, I'm not going
• 6:49
  Speaker 2: to be able to deliver the products that I wanted
• 6:51
  Speaker 2: to next year. How then, can the workers say thirty
• 6:54
  Speaker 2: percent is not enough of a raise for us.
• 6:59
  Speaker 3: Yeah, so I think again, and this is part of
• 7:00
  Speaker 3: that posturing. I think if you're the union, though, you say,
• 7:03
  Speaker 3: look at you know, a decade ago, we didn't get
• 7:05
  Speaker 3: much at all. It's our turn to get our increase.
• 7:10
  Speaker 3: And and they're seeing, I think, organized labor get it
• 7:14
  Speaker 3: all over all over the economy. And I guess I
• 7:18
  Speaker 3: would come back to you can't build the airplanes without
• 7:22
  Speaker 3: the union. So I still think that despite this announcement today,
• 7:28
  Speaker 3: I still think that there's more power with the workers
• 7:33
  Speaker 3: right now. Again, now we're gonna and this is part
• 7:35
  Speaker 3: of any Kelly orper getting ready to you know, ger
• 7:39
  Speaker 3: the company to go a bit of a distance in
• 7:41
  Speaker 3: the strike, maybe to get the union to rethink their position.
• 7:46
  Speaker 3: But I still feel like the union has has has
• 7:50
  Speaker 3: more strength here unless Boeing's willing to take a longer term, right,
• 7:56
  Speaker 3: you know. I think that bear in mind they're building
• 7:59
  Speaker 3: this seven thirty seven, which is the money maker and
• 8:02
  Speaker 3: the way out of this out of this mess too.
• 8:05
  Speaker 3: So to me, that's kind of like having one of
• 8:08
  Speaker 3: the better chess pieces. I guess it's the Queen right.
• 8:11
  Speaker 1: And George really quickly here. You think back to just
• 8:14
  Speaker 1: a couple of days ago, you had S and P
• 8:15
  Speaker 1: Global Ratings warning that they could downgrade Boeing to junk.
• 8:20
  Speaker 1: I have to imagine maybe that's put a little bit
• 8:23
  Speaker 1: more urgency at Kelly Orberg's heels. Do you think that
• 8:27
  Speaker 1: these moves will save them necessarily, at least when it
• 8:31
  Speaker 1: comes to the credit rating?
• 8:33
  Speaker 3: You know, so this is a pre announcement. We don't
• 8:35
  Speaker 3: typically see pre announcements out of Boeing. I personally think
• 8:38
  Speaker 3: that this is a precursor to an equity issuance, and
• 8:42
  Speaker 3: that maybe it comes next week. And I think they're
• 8:44
  Speaker 3: gonna I think they're going to try to shore up
• 8:47
  Speaker 3: the finances here next to go this long haul against
• 8:51
  Speaker 3: the union, and I think it's you know, I think
• 8:55
  Speaker 3: that the rating uncies are concerned. I will tell you
• 8:58
  Speaker 3: the cash burn right we're looking very quickly at these numbers.
• 9:03
  Speaker 3: Wasn't as bad as I feared. I think they're about
• 9:06
  Speaker 3: ten and a half billion. Did they say in cash
• 9:08
  Speaker 3: right now? That's enough to run the company? I thought
• 9:12
  Speaker 3: they might be sub ten billion. Wasn't as bad as
• 9:15
  Speaker 3: I had feared, So that might help the credit rating
• 9:18
  Speaker 3: agencies and if you raise some equity here, if you
• 9:21
  Speaker 3: raise ten twenty billion of equity, that might keep the
• 9:25
  Speaker 3: rating acies happy as well, and that this might be
• 9:28
  Speaker 3: designed to try to stay I think it is designed
• 9:30
  Speaker 3: to save that off ten or twenty.
• 9:33
  Speaker 2: I mean, there's a big difference between those two numbers.
• 9:35
  Speaker 2: I've heard fifteen. Is that what you're hearing as well?
• 9:39
  Speaker 3: I've heard between ten and twenty, So I don't know,
• 9:41
  Speaker 3: maybe that is fifteen. I mean when you go to
• 9:42
  Speaker 3: the equity markets, you know, I don't know what's the
• 9:45
  Speaker 3: difference between ten and twenty. I think you know.
• 9:48
  Speaker 2: Anyway, what's the difference was ten billion dollars between friends.
• 9:51
  Speaker 2: George Great having on the program, Thank you so much
• 9:53
  Speaker 2: for joining us on such short notice to talk about
• 9:57
  Speaker 2: this breaking news. So Boeing to cut ten percent of
• 10:00
  Speaker 2: its workforce and delay seven seven seven X deliveries