Wednesday, January 28, 2009

Boeing to lay off 10,000 workers in 2009

This is from The New York Times:

The chief executive of the Boeing Company said on Thursday that the plane maker expected to cut a total of 10,000 jobs this year, about 6 percent of its work force.

The number includes 4,500 layoffs announced earlier this month by Boeing’s commercial plane unit.

Boeing also reported an unexpected fourth-quarter loss Wednesday and forecast 2009 earnings well below Wall Street estimates as it grapples with a dip in demand for its planes while airlines feel the pain of recession.

Boeing’s chief, W. James McNerney Jr., said the cuts were necessary given the uncertainty over the country’s military budget and because the company was expecting more cancellations of plane orders.

But Boeing, which is struggling to recover from a two-month strike by its assembly workers, was also able to calm some investors, who had been braced for a worse outlook amid the aerospace sector’s severe downturn.

Boeing shares, which had fallen about 45 percent in the last 12 months, were essentially unchanged at midday.

“The guidance could have been much lower if Boeing had forecast a more conservative build rate for commercial airplanes in 2009,” an analyst at Macquarie Securities, Rob Stallard, said.

Boeing reported a quarterly loss of $56 million, or 8 cents a share, compared with a profit of $1.03 billion, or $1.36 a share, in the quarter a year ago.

A couple quick comments. I do not think that Boeing's current troubles are to be solely blamed by the strike. According to the NY Times story, the $56 million quarterly loss "was caused by the 58-day strike by Boeing’s machinists union, which straddled the third and fourth quarters, cutting plane deliveries in both, along with extra costs on the delayed 747 and a one-time litigation charge." However, Boeing did report a quarterly profit of 62 cents a share, below Wall Street's average forecast of 78 cents a share. That profit excludes the 747 costs and litigation charge. The NY Times story also reports that a two-year delay of Boeing's new 787 Dreamliner plane has reduced the number of orders to 895 planes from 910 aircraft orders Boeing received in December 2008. The International Air Transport Association (IATA) reported that the U.S. airline industry expects to lose $2.5 billion for 2009. This 2009 loss is a result of higher fuel costs, a decrease in passenger traffic by around 3 percent, and a decrease in cargo traffic by around 5 percent. If the airline industry is feeling the pinch of the U.S. recession, then they are certainly going to attempt to cut back on costs. One area the airlines could cut back on is in the purchase of new aircraft, such as the Boeing 787, or the airlines could shop around for current aircraft on the market. Remember that Boeing's Dreamliner aircraft has been delayed by two years. Airlines that need new aircraft could purchase other Boeing products, or may choose to purchase rival Airbus' aircraft. But then again, Airbus is also seeing a decline in aircraft orders:

Airbus expects aircraft orders to drop sharply in 2009, and suspects that deliveries may have peaked in 2008.

Along the way, the aircraft maker also is scaling back expectations on its flagship A380. Only 18 deliveries are now forecast for the year--down from 21--which was already a revision from an earlier plan for 26.

Airbus has been struggling to catch up with production plans for some time. Airbus missed its A380 order target for 2008, which originally was 30 aircraft and then revised to 20.


Overall, Airbus CEO Tom Enders indicates A380 issues are gradually being overcome, but are not fully resolved. He would not give a delivery target for 2010, but notes that the plan is to have the program running apace in 2011 after problems with aircraft wiring disrupted the program.

Total order intake for 2009 is estimated at around 300 to 400 units, with Airbus COO for customers, John Leahy, noting that the low end is more likely. "This is clearly going to be a slow year for all aircraft orders," he notes.

In reality, it is the U.S. recession that is causing the Boeing slowdown in aircraft production. I'll admit that the strike exasperated Boeing's quarterly economic pain. But if American consumers are cutting back on spending due to job and housing worries, they are not going to be purchasing airline tickets for travel. If companies are trying to cut costs and inventory, they are not going to be spending money on air freight. Thus, airlines are hurting by the downturn in passenger and freight traffic--they are not going to be spending money on new Boeing, or Airbus, planes. The economic pain of this U.S. recession is hurting all areas of the market and all companies. Boeing is facing a serious economic slowdown, and they are slashing 10,000 jobs in the wake of this slowdown.

You can bet that those 10,000 soon-to-be-unemployed Boeing workers are not going to be taking any airline trips in the future.

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