Market Analysis

Thousands of Boeing (NYSE:) employees are set to receive layoff notifications in the coming weeks, as confirmed by union representatives and industry insiders. This announcement follows a visit from Acting U.S. Labor Secretary Julie Su to Seattle, aimed at addressing a significant strike and the growing turmoil surrounding the company.

Su’s first in-person meeting comes shortly after Boeing revealed plans to eliminate 17,000 positions and take $5 billion in financial charges, marking a tumultuous year for the manufacturer. A spokesperson for the Department of Labor stated, "Acting Secretary Su is meeting with both parties today to assess the situation and encourage progress in negotiations."

Although Su has previously engaged with Boeing and the union representing striking West Coast factory workers, this marks her first direct interaction with both sides in Seattle.

The International Association of Machinists and Aerospace Workers (IAM) reported that its lead negotiator, Jon Holden, updated Su on ongoing discussions, emphasizing the union's commitment to a negotiated contract that recognizes the skills and dedication of its members.

Both Boeing and a White House representative declined to comment on Su’s visit.

Around 33,000 workers have been on strike since September 13, demanding a 40% wage increase over the next four years. Boeing plans to issue 60-day layoff notices to thousands of employees next month, particularly in its commercial aviation sector, resulting in staff departures around mid-January, according to a source familiar with the situation. A second round of notices could follow in December if necessary.

A representative for the Society of Professional Engineering Employees in Aerospace, which represents Boeing engineers, stated that the company notified the union that 60-day notices would be sent to its members on November 15.

A Boeing spokesperson indicated that the company has informed managers about plans for a 10% workforce reduction in its commercial division, which will affect both union and non-union staff. However, the spokesperson noted that IAM employees currently on strike would not be impacted.

Brian Bryant, the IAM’s international president, condemned the job cuts as “corporate greed at its worst,” asserting that Boeing has turned its back on the very workers who have supported the company through multiple crises.

Following the announcement of job cuts and delays in production, Boeing’s stock dropped 1.3%, closing at $148.99 on Monday. The unexpected announcement included a delay for the 777X jetliner and the cessation of civil 767 freighter production.

Sources indicated that Boeing will avoid soliciting voluntary departures to manage severance costs and retain essential skills, relying solely on involuntary layoffs. Competitors are actively recruiting scarce labor to alleviate pressure on aerospace supply chains.

"Retaining the 10% of employees you want to keep is critical, especially in today's post-pandemic labor market," noted Agency Partners analyst Nick Cunningham.

Boeing has been in the process of hiring to prepare for higher production rates, which have not materialized due to regulatory caps following a door plug failure on an Alaska Airlines jet earlier this year.

INDUSTRY CONCERNS

The one-year delay in 777X deliveries until 2026 was anticipated and extends the timeline for the jet's introduction to six years, amid ongoing certification and testing delays.

Tim Clark, President of Emirates Airline, who initially ordered 150 jets that helped launch the world’s largest twin-engine aircraft, indicated potential commercial consequences. “We will be having a serious conversation with them in the coming months,” he stated. “I struggle to see how Boeing can make reliable delivery forecasts.”

Clark also became the first prominent industry figure to express concerns, which have been whispered among industry leaders, regarding Boeing's ability to navigate its most significant crisis successfully. He cautioned, “Unless the company can raise funds through a rights issue, I foresee an imminent investment downgrade with Chapter 11 on the horizon.”

Emirates is the largest operator of the 777 jet family, a long-haul workhorse whose success has been overshadowed by delays to its successor and ongoing crises affecting Boeing’s smaller 737 model over safety and quality issues.

The recent announcement package indicated that Boeing has slightly over $10 billion in gross cash, a level that analysts believe may alleviate some short-term pressure. However, they also warned that the company needs to secure additional funding by the end of the year.

Most analysts expect Boeing to raise up to $15 billion through a share offering. Still, perceptions of Boeing's financial risk remain a sensitive issue for major airlines, many of which have significant deposits with the manufacturer, prompting some to reconsider their exposure due to ongoing delays, according to industry sources.

Paraphrasing text from "Reuters" all rights reserved by the original author.