Boeing will ask suppliers to stop shipping most parts to its Pacific Northwest aircraft assembly sites and is considering furloughing employees as part of a broader plan to save cash amid an ongoing machinists’ strike.
The company is also pausing hiring and significantly curtailing non-essential spending, moves coming as financial analysts warn the walk-out threatens to leave Boeing in a cash crunch.
“This strike jeopardises our recovery in a significant way and we must take necessary actions to preserve cash and safeguard our shared future,” Boeing chief financial officer Brian West said in a 16 September email to all employees.
“We are planning to make significant reductions in supplier expenditures and will stop issuing the majority of supplier purchase orders on the 737, 767 and 777 programmes.”
Members of the International Association of Machinists (IAM), which represents some 33,000 Boeing employees – most of them in Washington state – began striking on 13 September after voting down Boeing’s proposed new employment contract.
Production of 737s in Renton and of 767s and 777s in Everett remains halted due to the walk-out, while Boeing’s assembly of 787s at its non-unionised site in South Carolina continues.
A source familiar with Boeing’s plan confirms the company has asked suppliers of its 737, 767 and 777 programmes to stop the vast majority of shipments from their sites to the airframer’s assembly lines.
West’s message reviewed other steps the company is taking to save money.
“We are also considering the difficult step of temporary furloughs for many employees, managers and executives in the coming weeks,” he writes.
Additionally, Boeing will:
- Institute “a hiring freeze across Boeing for all levels”
- Pause pay increases for executives and managers
- Halt non-critical travel and eliminate first- and business-class travel, including for top executives
- Cancel off-site meetings
- Reduce “company participation in air shows, trade shows and special events”
- Suspend “non-essential capital expenditures and facilities spending”
- Pause spending on advertising, marketing, charitable contributions and employee recognition
“I know that these actions will create some uncertainty and concern, as well as many questions. We’ll be sharing additional information in the coming days,” West’s email adds.
Because the company typically pays suppliers at the time shipments are made or upon receipt, halting shipments will “stop the clock on payment terms” – which could cause financial challenges within segments of the supply chain, says Alex Krutz, managing director at aerospace and defence advisory Patriot Industrial Partners.
“They will probably delay and push out orders, and adjust their master schedule, which will be problematic for suppliers that will have to hold finished goods” in the near term, Krutz adds. “Most suppliers will be able to handle a several-week to one-month disruption… [But] there could be a select group of suppliers with financial challenges.”
The move will also minimise logistic challenges, adds Krutz, noting that the strike has left Boeing without the employees needed to process inbound shipments. Boeing’s receiving docks also lack space needed to store the vast quantities of incoming components that support high-rate 737 production.
Analysts say a strike exceeding several weeks could leave the company short on cash and prompt credit downgrades.
“Boeing’s investment-grade credit rating has limited headroom for a strike,” says Fitch Ratings managing directly Dino Kritikos. “If the current strike lasts a week or two, it is unlikely to pressure the rating. However, an extended strike could have a meaningful operational and financial impact, increasing the risk of a downgrade.”
Boeing ended June with $10.9 billion in cash, which analysts generally view as about the minimum it needs to operate.
JP Morgan estimates the strike could cost Boeing $1.5 billion monthly – one reason it suspects the company might reach agreement with IAM relatively quickly.
“Boeing is likely to need more cash,” the bank says in a 16 September report. “Incremental cash-burn from a strike may leave Boeing with inadequate liquidity.”
On 13 September, West said Boeing would take steps maintain its credit rating and to ensure it has enough cash, including by possibly raising funds although he gave no specifics.
Boeing could raise cash by selling stock, but that would dilute the value of its shares, or by issuing new debt, but that could prompt ratings cuts, Bloomberg Intelligence analysts George Ferguson has said.
Rating agency Moody’s said on 13 September it was reviewing Boeing’s credit ratings for possible downgrades, saying a strike threats to “fracture the recovery of the Commercial Airplanes business”.
“The ratings could be downgraded if the IAM strike is prolonged, leading to material reduction in Boeing’s liquidity after considering proceeds from any capital raising the company may undertake,” Moody’s says.
Boeing had aimed to hike 737 production to 38 jets monthly before year-end, though a strike makes that goal seem less achievable.
Airlines globally will also be impacted by the strike, which leaves Boeing unable to deliver jets – except for perhaps a few that have already received airworthiness certificates from the Federal Aviation Administration.
Carriers including Air India, Alaska Airlines, Ryanair, Southwest Airlines and United Airlines are likely to be most impacted, Bloomberg says.
