Aerospace & Defense

What Boeing Could Gain From More Voluntary Layoffs

In early April, Boeing Co. (NYSE: BA) CEO David Calhoun said the company would cut its global workforce of 160,000 by 10% through a series of steps, including voluntary layoffs for eligible employees. On Monday, according to reports, Calhoun sent a similar letter to employees offering a second chance at the voluntary layoff programs.

Calhoun did not set a target number or percentage of employees who will be let go, but he did say that Boeing expects to see a “significantly smaller marketplace” for its commercial jets and services businesses over the next three years. The company has to reduce its headcount to “preserve liquidity and position ourselves for the eventual return to growth.”

According to Reuters, which saw a copy of Calhoun’s note, the CEO said that the company is extending its voluntary layoff offer “in response to employee feedback.” That likely means that more employees want to bail than want to count on Boeing staging a roaring comeback anytime soon.

Boeing workers in the company’s Renton, Washington, 787 plant may be taking advantage of the offer in larger numbers than other Boeing employees. The production rate for the Dreamliner is dropping to six per month and the company’s two assembly lines are not going to be kept busy enough to justify keeping both running.

The betting is that the North Charleston, South Carolina, assembly plant will get the 787 and that the Renton plant will be set up for the next Boeing Airplane (dubbed the NBA). There’s a reasonable question of how long the 737 Max will be produced in Everett, Washington, once the airplane is recertified. According to Scott Hamilton at Leeham News and Analysis, Boeing’s contract with fuselage maker Spirit Aerosystems runs until 2033.

Now 2033 is quite a ways off, but Boeing will have to begin thinking about a replacement for the 737 Max well before then. Will the company rejuvenate its discussions with Embraer for a smaller 100- to 150-seat aircraft? Will the 737 assembly plant be retooled to build Boeing’s next airplane or will the company relocate the plant to South Carolina where non-union labor costs are lower?

All this is just speculation. Boeing did receive some $8.7 billion in incentives from the State of Washington to build its 777X plant in the state after Boeing took a $900 million gift from South Carolina to build the 787 plant there. Will Washington pay up to keep Boeing plants running on the shores of Puget Sound? Too soon to tell, but this will play out over the next several years.

Meanwhile, Boeing shares traded down about 1.1% in the late morning Tuesday, at $170.15 in a 52-week range of $89.00 to $391.00. The price target on the stock is $173.50. Whereas investors usually respond favorably to projected layoffs, this time it could be that they see a further weakening in what was once the nation’s largest industrial firm.