Instant Reaction: Boeing Cuts Workforce By 10%

Bloomberg Audio Studios, Podcasts, radio News. We do have some 0:00:07.800 --> 0:00:11.239 breaking news out of Boeing. The CEO is saying that 0:00:11.280 --> 0:00:15.400 the manufacturer needs to restructure operations. Here are some of 0:00:15.440 --> 0:00:18.040 the details. Bowing to delay the launch of the seven 0:00:18.120 --> 0:00:21.439 seven seven X airplane by one year to twenty twenty six, 0:00:21.920 --> 0:00:26.040 and Boeing to cut ten percent of its workforce, warns 0:00:26.079 --> 0:00:29.040 of deeper third quarter losses. It's going to cut its 0:00:29.040 --> 0:00:33.320 total workforce by roughly ten percent. These job cuts to 0:00:33.360 --> 0:00:37.840 include its executives, managers and employees. This all coming, of course, 0:00:37.920 --> 0:00:41.519 amid a big cash burn by Boeing. Of course, we 0:00:41.680 --> 0:00:44.800 just concluded the fourth week of its strike. A lot 0:00:44.840 --> 0:00:46.600 of pain going on over at Boeing. You see the 0:00:46.600 --> 0:00:49.960 shares bouncing around after hours, initially spiking. Now back to 0:00:50.040 --> 0:00:53.519 unchanged traders trying to make sense of what's going on here. 0:00:53.560 --> 0:00:56.120 But what we know right now is that Boeing of 0:00:56.160 --> 0:00:59.880 course delaying the first delivery of its seven seven seventh 0:01:00.120 --> 0:01:03.160 seven seven X program to twenty twenty six. Also those 0:01:03.240 --> 0:01:06.319 job cuts. Boeing to cut its total workforce by roughly 0:01:06.360 --> 0:01:06.919 ten percent. 0:01:06.959 --> 0:01:11.679 Match. Yeah, this is awful news for Boeing, maybe worse 0:01:11.800 --> 0:01:16.959 news for the union. You know, each month of this 0:01:17.120 --> 0:01:20.280 strike is forecast to cost them one and a half 0:01:20.360 --> 0:01:23.600 billion dollars, not according to JP Morgan, but they already 0:01:23.640 --> 0:01:26.200 burned through eight and a half billion dollars in the 0:01:26.240 --> 0:01:29.800 first half, and because of that cash burn, they had 0:01:29.840 --> 0:01:32.919 to raise ten billion dollars in debt in the first half. 0:01:33.400 --> 0:01:35.840 Now Bloomberg has reported they're likely to raise another ten 0:01:35.880 --> 0:01:39.039 and a half or sorry, ten to fifteen billion dollars 0:01:39.200 --> 0:01:42.839 in a secondary offering in this half. And they said 0:01:42.880 --> 0:01:44.800 now that revenue is only going to be in the 0:01:44.840 --> 0:01:47.440 third quarter seventeen point eight billion. It had been estimated 0:01:47.440 --> 0:01:52.120 at eighteen point six billions. So they're not making any money, 0:01:52.280 --> 0:01:55.800 they're burning through cash because of this strike, and now 0:01:55.800 --> 0:01:58.520 they're going to have to cut or at least slow 0:01:58.600 --> 0:02:01.880 the delivery of the seven seven seven X program by 0:02:02.000 --> 0:02:07.080 another year. So it just really doesn't look good for 0:02:07.160 --> 0:02:10.120 the unions, for the for the workers that have gone 0:02:10.160 --> 0:02:14.040 on strike and have rejected an offer for a raise 0:02:14.160 --> 0:02:16.320 of what twenty five percent or thirty percent was the 0:02:16.360 --> 0:02:17.919 last offer something along those lines. 0:02:17.960 --> 0:02:20.600 I mean, the negotiations we know have really been locked 0:02:20.600 --> 0:02:24.320 and is stillmate, so really no progress being made again 0:02:24.440 --> 0:02:26.800 fascinating to see these headlines coming out of Boeing. 0:02:27.160 --> 0:02:31.639 We're going to get you, Bloomberg Intelligence senior Aerospace, Defense 0:02:31.720 --> 0:02:34.960 and Airlines analyst George Ferguson right now to weigh in 0:02:35.400 --> 0:02:39.799 on these headlines. George, really glad you could join us 0:02:40.000 --> 0:02:42.720 on such short notice on a Friday. What do you 0:02:42.800 --> 0:02:47.200 make first off of the delay of the seven seven 0:02:47.320 --> 0:02:50.600 seven X program. They say they won't be giving their 0:02:50.639 --> 0:02:54.800 first deliveries out until twenty twenty six. I don't know 0:02:54.840 --> 0:02:56.560 when they were planning to do it in the first place, 0:02:56.600 --> 0:02:57.280 so what do you know. 0:02:58.320 --> 0:03:01.480 Yeah, there's supposed to be a toy twenty five event, 0:03:01.800 --> 0:03:06.960 so pushed out what maybe about a year? This programs 0:03:07.000 --> 0:03:11.680 has some challenges getting to the finish line. So you know, look, 0:03:12.480 --> 0:03:15.080 it's not good. It's not a huge money maker for 0:03:15.120 --> 0:03:16.800 the company. In fact, it's not a money maker for 0:03:16.800 --> 0:03:21.400 the company right now, and so for the financials, not 0:03:21.480 --> 0:03:24.200 that important. For the customers who are waiting for airplanes, 0:03:24.720 --> 0:03:26.920 more disappointment. You always run the risk that they're going 0:03:26.960 --> 0:03:30.320 to go away. Biggest airplane in the sky now at 0:03:30.400 --> 0:03:33.440 the seven four to seven, A three eight are gone. 0:03:33.760 --> 0:03:35.680 So there are not a lot of good substitutes. So 0:03:35.960 --> 0:03:39.360 I'd say, yeah, disappointing, but not terrible. 0:03:39.960 --> 0:03:42.400 Talk to us about the labor picture here, because I 0:03:42.480 --> 0:03:45.480 mean the headline that's catching everyone's attention, in addition to 0:03:45.520 --> 0:03:48.440 the financial details that we got and those delays, is 0:03:48.440 --> 0:03:52.440 that Boeing to cut its total workforce by roughly ten percent, 0:03:52.640 --> 0:03:57.080 and interestingly, those reductions include executives, managers, employees. We know 0:03:57.200 --> 0:04:00.720 that Boeing is locked in that strike right now, that's 0:04:00.760 --> 0:04:03.360 stalemate with its union that has been going on for 0:04:03.440 --> 0:04:06.960 a month that they haven't been able to do manufacturing 0:04:07.240 --> 0:04:09.240 over on the West Coast. I mean, how does that 0:04:09.320 --> 0:04:11.520 factor into that month long strike? 0:04:12.680 --> 0:04:16.520 Yeah, tough times are ahead, and that's what CEO Kelly 0:04:16.640 --> 0:04:18.400 or Berg told the company when he told him there's 0:04:18.400 --> 0:04:21.359 going to be a ten percent cut. Tightening their belt here. 0:04:22.200 --> 0:04:24.279 It looks to me like they're posturing for the long haul, 0:04:24.360 --> 0:04:27.159 right they're telling to me, I think they're telling the union, 0:04:27.800 --> 0:04:30.760 you know, we're going to slim down. We need to 0:04:30.760 --> 0:04:32.640 save a bunch of money, and we're ready to kind 0:04:32.640 --> 0:04:35.240 of go to long haul on our negotiations with you. 0:04:35.320 --> 0:04:38.599 We're going to take pain on the executive side as well. 0:04:39.200 --> 0:04:43.040 And I think look, once the strike is over, there's still, 0:04:43.200 --> 0:04:48.520 you know, some pretty big challenges here for profitability, and 0:04:48.560 --> 0:04:50.440 so I think this is part of how they're going 0:04:50.480 --> 0:04:53.040 to address it. Yeah, a little bit surprising to me. 0:04:53.040 --> 0:04:55.760 But yeah, yeah, I know this coming from the Wall 0:04:55.760 --> 0:04:59.400 Street Journal, Ortberg saying in a message to employees while 0:04:59.400 --> 0:05:02.320 outlining this plan that we need to be clear eyed 0:05:02.440 --> 0:05:04.839 about the work we face the root and realistic about 0:05:04.880 --> 0:05:09.119 the time it will take to achieve key milestones. Clear 0:05:09.160 --> 0:05:12.000 Eyed definitely a phrase to underline there. We were talking 0:05:12.000 --> 0:05:14.560 a little bit about what this means for the space program. 0:05:14.880 --> 0:05:17.480 For example, we were having that conversation with David Weston 0:05:17.520 --> 0:05:19.880 and then you know, now we're having it too. When 0:05:19.880 --> 0:05:23.719 you think about what could go where Boeing could trim, 0:05:23.880 --> 0:05:26.320 what's the potential future of the space program here? 0:05:27.320 --> 0:05:29.240 Yeah, I mean there's a lot of small pieces and 0:05:29.360 --> 0:05:31.039 Boeing that you might be able to get rid of 0:05:31.080 --> 0:05:33.560 and make a little bit of money. But you know, 0:05:33.720 --> 0:05:35.480 I've heard a lot of people sort of talk about 0:05:36.040 --> 0:05:38.400 ge and their turnaround and how they hived off a 0:05:38.400 --> 0:05:40.960 bunch of businesses to raise cash. I just don't see 0:05:40.960 --> 0:05:43.920 that potential here. We even saw that at Rolls Royce 0:05:43.960 --> 0:05:45.960 or they hipped off a bunch of businesses. I think 0:05:45.960 --> 0:05:48.839 there's small stuff they could make cash with. I honestly 0:05:48.880 --> 0:05:52.240 don't think space is something they could make much in selling. 0:05:52.320 --> 0:05:57.040 I think musks, you know, musk SpaceX is really kind 0:05:57.040 --> 0:06:01.880 of taking it to the government launchers. I should say, you. 0:06:01.880 --> 0:06:05.360 Don't think SpaceX will buy the Boeing space program. 0:06:05.800 --> 0:06:08.920 I don't think so. Actually, I think that SpaceX has 0:06:08.960 --> 0:06:12.320 got the rockets they need, They've got the capsules they need. 0:06:13.040 --> 0:06:17.000 I personally think long term, I think Boeing does want 0:06:17.000 --> 0:06:21.640 to be in this space. I no pun attended, and 0:06:21.720 --> 0:06:24.640 so I think that they will push through with their 0:06:24.640 --> 0:06:27.680 space program. I think it's part of their government contracting. 0:06:27.720 --> 0:06:31.400 It should be part of their core competencies. I think 0:06:31.440 --> 0:06:34.000 they'll retain it, but I guess we'll see. 0:06:34.520 --> 0:06:37.080 And I'm hugging this conversation. Do you want to question 0:06:37.120 --> 0:06:37.560 mat Miller? 0:06:37.680 --> 0:06:41.040 Well, I just don't know how much leverage workers have, 0:06:41.240 --> 0:06:44.120 or if the workers have far less leverage. When the 0:06:44.160 --> 0:06:46.560 CEO comes in and says, you know what, I got 0:06:46.560 --> 0:06:49.120 to fire ten percent of this company, I'm not going 0:06:49.200 --> 0:06:51.000 to be able to deliver the products that I wanted 0:06:51.040 --> 0:06:54.839 to next year. How then, can the workers say thirty 0:06:54.880 --> 0:06:56.960 percent is not enough of a raise for us. 0:06:59.000 --> 0:07:00.680 Yeah, so I think again, and this is part of 0:07:00.720 --> 0:07:03.520 that posturing. I think if you're the union, though, you say, 0:07:03.560 --> 0:07:05.360 look at you know, a decade ago, we didn't get 0:07:05.480 --> 0:07:08.640 much at all. It's our turn to get our increase. 0:07:10.280 --> 0:07:13.960 And and they're seeing, I think, organized labor get it 0:07:14.280 --> 0:07:18.640 all over all over the economy. And I guess I 0:07:18.680 --> 0:07:22.160 would come back to you can't build the airplanes without 0:07:22.200 --> 0:07:28.119 the union. So I still think that despite this announcement today, 0:07:28.200 --> 0:07:33.320 I still think that there's more power with the workers 0:07:33.360 --> 0:07:35.240 right now. Again, now we're gonna and this is part 0:07:35.280 --> 0:07:39.040 of any Kelly orper getting ready to you know, ger 0:07:39.200 --> 0:07:41.400 the company to go a bit of a distance in 0:07:41.440 --> 0:07:45.640 the strike, maybe to get the union to rethink their position. 0:07:46.760 --> 0:07:50.000 But I still feel like the union has has has 0:07:50.440 --> 0:07:56.000 more strength here unless Boeing's willing to take a longer term, right, 0:07:56.640 --> 0:07:59.800 you know. I think that bear in mind they're building 0:07:59.800 --> 0:08:02.520 this seven thirty seven, which is the money maker and 0:08:02.560 --> 0:08:05.080 the way out of this out of this mess too. 0:08:05.200 --> 0:08:08.600 So to me, that's kind of like having one of 0:08:08.600 --> 0:08:11.560 the better chess pieces. I guess it's the Queen right. 0:08:11.440 --> 0:08:14.200 And George really quickly here. You think back to just 0:08:14.240 --> 0:08:15.560 a couple of days ago, you had S and P 0:08:15.680 --> 0:08:20.080 Global Ratings warning that they could downgrade Boeing to junk. 0:08:20.120 --> 0:08:23.160 I have to imagine maybe that's put a little bit 0:08:23.240 --> 0:08:26.960 more urgency at Kelly Orberg's heels. Do you think that 0:08:27.400 --> 0:08:31.040 these moves will save them necessarily, at least when it 0:08:31.040 --> 0:08:32.040 comes to the credit rating? 0:08:33.040 --> 0:08:35.040 You know, so this is a pre announcement. We don't 0:08:35.040 --> 0:08:38.920 typically see pre announcements out of Boeing. I personally think 0:08:38.960 --> 0:08:42.080 that this is a precursor to an equity issuance, and 0:08:42.120 --> 0:08:44.440 that maybe it comes next week. And I think they're 0:08:44.480 --> 0:08:47.440 gonna I think they're going to try to shore up 0:08:47.440 --> 0:08:51.160 the finances here next to go this long haul against 0:08:51.160 --> 0:08:55.520 the union, and I think it's you know, I think 0:08:55.520 --> 0:08:58.440 that the rating uncies are concerned. I will tell you 0:08:58.480 --> 0:09:02.800 the cash burn right we're looking very quickly at these numbers. 0:09:03.800 --> 0:09:06.800 Wasn't as bad as I feared. I think they're about 0:09:06.840 --> 0:09:08.800 ten and a half billion. Did they say in cash 0:09:08.880 --> 0:09:12.719 right now? That's enough to run the company? I thought 0:09:12.760 --> 0:09:15.440 they might be sub ten billion. Wasn't as bad as 0:09:15.480 --> 0:09:18.560 I had feared, So that might help the credit rating 0:09:18.840 --> 0:09:21.520 agencies and if you raise some equity here, if you 0:09:21.679 --> 0:09:25.480 raise ten twenty billion of equity, that might keep the 0:09:25.559 --> 0:09:28.600 rating acies happy as well, and that this might be 0:09:28.640 --> 0:09:30.760 designed to try to stay I think it is designed 0:09:30.760 --> 0:09:32.640 to save that off ten or twenty. 0:09:33.280 --> 0:09:35.520 I mean, there's a big difference between those two numbers. 0:09:35.760 --> 0:09:37.720 I've heard fifteen. Is that what you're hearing as well? 0:09:39.320 --> 0:09:41.000 I've heard between ten and twenty, So I don't know, 0:09:41.000 --> 0:09:42.760 maybe that is fifteen. I mean when you go to 0:09:42.760 --> 0:09:45.640 the equity markets, you know, I don't know what's the 0:09:45.640 --> 0:09:47.120 difference between ten and twenty. I think you know. 0:09:48.600 --> 0:09:51.520 Anyway, what's the difference was ten billion dollars between friends. 0:09:51.559 --> 0:09:53.679 George Great having on the program, Thank you so much 0:09:53.720 --> 0:09:57.600 for joining us on such short notice to talk about 0:09:57.600 --> 0:10:00.680 this breaking news. So Boeing to cut ten percent of 0:10:00.720 --> 0:10:04.319 its workforce and delay seven seven seven X deliveries