Unprecedented challenge! After a month-long strike, Boeing announced a massive layoff of 17,000 employees, with the first batch of 777X aircraft deliveries delayed by a year

After negotiations with the company's largest union, the International Association of Machinists and Aerospace Workers (IAM), broke down, the cash-strapped American aviation giant Boeing, which was already in financial difficulties, could no longer withstand the impact of the ongoing strike and began announcing major layoffs, preparing to confirm that part of the losses were due to the strike.

On Friday, October 11th, Eastern Time, Boeing announced in a memo from CEO Kelly Ortberg to all employees that the company plans to reduce the total number of employees by approximately 10%, covering executives, managers, and staff in the layoffs. Next week, relevant leaders will announce specific layoff information to their respective teams and the impact on the teams. Following the layoff decision, Boeing will no longer proceed with the next round of unpaid leave.

The scale of the layoffs mentioned above means that over 17,000 employees will be laid off at Boeing. Public data shows that as of the end of 2023, Boeing had a total of 171,000 employees.

Ortberg stated at the beginning of the memo:

" Our business is in a difficult situation, and it is no exaggeration to say that we are all facing challenges together. In addition to addressing the current environment, the company's recovery also requires making difficult decisions. We must make structural changes to ensure competitiveness and long-term service to customers."

In addition to the layoffs, Ortberg also disclosed changes to several existing projects, including another delay in the delivery of the latest and largest model of the Boeing 777 series, the 777X. Ortberg stated that due to challenges in the development process, flight test suspensions, and work stoppages due to the strike, Boeing currently expects the first batch of 777X deliveries to be delayed until 2026, a one-year delay from the previous planned delivery time.

Ortberg mentioned that Boeing plans to produce and deliver the remaining 29 orders of the 767 freighter to customers, and then end the production of this civil aircraft project by 2027, while production of the KC-46A tanker will continue. He warned that Boeing's Defense, Space, and Security (BDS) business "is fundamentally underperforming on fixed-price development projects," with work stoppages on civilian derivative models, ongoing project challenges, and the decision to complete the production of the 767 freighter, leading to "a significant loss in this quarter for the BDS business."

At the same time, Boeing released preliminary financial data for the third quarter of this year, stating that in the third quarter financial report to be released on October 23rd, the expenses of certain projects in the commercial aircraft and BDS businesses, as well as the costs incurred by the IAM-organized strike during the third quarter reporting period, will be confirmed. Boeing expects revenue of $17.8 billion in the third quarter, a GAAP loss per share of $9.97, an operating cash flow loss of $1.3 billion, and cash and securities investments of $10.5 billion at the end of the quarter.

The above data indicates that Boeing's losses and cash shortfall will worsen. In the first half of this year, Boeing reported a GAAP loss per share of $2.90, an operating cash flow loss of over $7 billion, and liabilities of around $60 billion. The projected loss per share for the third quarter is approximately 3.4 times that of the first half of this year, marking the largest quarterly loss in nearly four years since the fourth quarter of 2020

In the civil aircraft and BDS business projects, Boeing expects that the civil 777X and 767 projects will incur pre-tax expenses of $3 billion. Due to the delay in the flight test of the 777-9 and the work stoppage impact related to the IAM organization strike, Boeing expects the 777-9 to be first delivered in 2026 and the 777-8 freighter to be delivered in 2028, resulting in pre-tax expenses of $2.6 billion.

In addition, the civil aircraft business plans to end the production of the 767 freighter and confirm pre-tax expenses of $400 million on this project, reflecting the impact of the IAM-related work stoppage.

Taking this into account, the total pre-tax expenses incurred by Boeing's aforementioned aircraft projects affected by the strike will reach $6 billion. Boeing stated that it expects civil aircraft business third-quarter operating revenue of $7.4 billion, with an operating profit margin of -54%.

After announcing the above plans and estimated data, Boeing's stock price rose 3% on Friday but quickly turned down after hours, falling nearly 3% at one point, wiping out the gains on Friday.

Before announcing the layoff plan and preliminary estimated related expenses, Boeing had just clashed with the IAM, the organization that went on strike this week. On Tuesday, Boeing stated that after two days of negotiations with a federal mediator, it had withdrawn the wage proposal to IAM because the union refused to seriously consider the labor agreement terms proposed by Boeing.

Wall Street News previously mentioned that Boeing's strike began on September 13, involving about 33,000 mechanics assembling Boeing's popular aircraft. Jefferies analyst Sheila Kahyaoglu stated last month that this labor conflict led to the production halt of Boeing's "cash cow" 737 Max and other jetliners, potentially causing Boeing to burn through an additional $1.3 billion in cash per month.

Earlier this week, Reuters reported that Boeing is exploring selling stocks and securities similar to stocks to raise tens of billions of dollars, including possible sales of common stock as well as mandatory convertible bonds and preferred shares. Recently, Boeing has received financing proposals from several investment banks including Goldman Sachs, JP Morgan, Bank of America, and Citigroup, proposing various financing options, some suggesting raising around $10 billion.

In April this year, international credit rating agency Moody's downgraded Boeing's credit rating from Baa2 to Baa3, just one level above the so-called "junk" rating, and gave a negative rating outlook, indicating a potential downgrade to junk status. Analysts estimate that Boeing needs to raise $10 billion to $15 billion to maintain its rating and avoid falling into junk status