Boeing is making a series of moves to conserve cash as the company faces a machinists’ strike. This strike has halted production at its Pacific Northwest assembly sites. In a report from FlightGlobal, the company is suspending most supplier shipments. It is also considering employee furloughs. Additionally, it is reducing non-essential spending. These actions are according to an email from Boeing’s Chief Financial Officer, Brian West, sent on September 16, 2023.
Members of the International Association of Machinists (IAM) began a strike on September 13, 2023. The union represents around 33,000 Boeing employees. They began the strike after rejecting a proposed new employment contract. The strike has brought production of Boeing’s 737, 767, and 777 aircraft to a halt at its Washington state facilities in Renton and Everett. Meanwhile, production of the 787 Dreamliner continues at Boeing’s non-unionized site in South Carolina.
Boeing’s decision to halt most supplier shipments is part of a broader plan to mitigate the financial impact of the strike. West’s email outlines a series of cost-cutting measures aimed at preserving cash flow during this challenging period.
Major Cost-Cutting Measures
As part of its strategy to manage the financial strain, Boeing is taking several key actions, including:
- Suspending most supplier shipments for the 737, 767, and 777 programs.
- Pausing hiring across the company.
- Temporarily furloughing employees and considering furloughs for managers and executives.
- Halting pay increases for executives and managers.
- Cutting non-essential spending, such as travel, advertising, and participation in air shows and trade events.
- Delaying capital expenditures and pausing spending on employee recognition programs.
West acknowledged the uncertainty these actions may create, stating, “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.”
By halting shipments, Boeing will also stop payments to suppliers, a move that could cause disruptions in the supply chain. Alex Krutz, managing director at Patriot Industrial Partners, noted that most suppliers could handle a short-term disruption, but an extended strike might pose financial challenges for some.
Krutz explained that the decision to suspend shipments will help Boeing manage logistics, as the company currently lacks the staff needed to process incoming deliveries due to the strike.
Financial analysts warn that the strike could quickly strain Boeing’s cash reserves. The company ended June 2023 with $10.9 billion in cash, a figure that analysts view as the minimum needed for ongoing operations. JP Morgan estimates that the strike could cost Boeing $1.5 billion monthly, leading the bank to suggest that Boeing might seek a quick resolution with IAM to avoid further financial damage.
Credit rating agencies are also monitoring the situation closely. Fitch Ratings’ managing director, Dino Kritikos, stated that while a brief strike may not immediately affect Boeing’s credit rating, an extended work stoppage could lead to credit downgrades. Moody’s has already placed Boeing’s credit ratings under review, citing concerns that the strike could derail the recovery of Boeing’s commercial airplanes business.
Impact on Airlines and Aircraft Deliveries
Airlines worldwide could face delays in receiving new aircraft from Boeing due to the strike. Carriers such as Air India, Alaska Airlines, Ryanair, Southwest Airlines, and United Airlines may see delivery disruptions, particularly for the 737 Max, which is produced in Renton. Boeing had aimed to increase 737 production to 38 jets per month by the end of 2023, but the strike makes achieving this target unlikely.
As Boeing navigates the financial and operational challenges posed by the strike, the company is exploring options to raise cash, including the possibility of issuing new debt or selling stock. However, these moves could lead to credit downgrades or dilute shareholders’ equity.
With no immediate resolution to the strike in sight, Boeing faces increasing pressure to balance its cash flow and operational demands. The company’s swift actions, including suspending supplier shipments and considering furloughs, underscore the severity of the financial challenges brought on by the machinists’ walkout. As negotiations with IAM continue, Boeing will need to carefully manage its financial resources to weather the ongoing disruption and avoid further impacts on production and deliveries.
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