CNBC Exclusive: CNBC Transcript: Boeing CEO Dave Calhoun Speaks with CNBC’s Phil LeBeau on “Squawk on the Street” Today
WHEN: Today, Wednesday, April 29, 2020
WHERE: CNBC’s “Squawk on the Street”
ARK Invest is known for targeting high-growth technology companies, with one of its most recent additions being DraftKings. In an interview with Maverick's Lee Ainslie at the Robinhood Investors Conference this week, Cathie Wood of ARK Invest discussed the firm's process and updated its views on some positions, including Tesla. Q1 2021 hedge fund letters, Read More
CNBC’s full interview with Boeing CEO Dave Calhoun on Q1 earnings
All references must be sourced to CNBC.
PHIL LEBEAU: Let’s bring in Dave Calhoun, CEO of Boeing joining us remotely today. Dave, we’ve already gone over the numbers, the loss of $1.70 per share in the first quarter. Revenues down about 26%. Give us some perspective in terms of how bad the situation is right now in the commercial airplane market and what you’re hearing back from your customers in terms of future orders, possible deferrals, cancellations, et cetera?
DAVE CALHOUN: Hi, Phil. It’s good to be with you. Before I jump into that question, I’m going to add my thanks, like everyone else, to all of the health care workers, the industry supporting so many of us, trying their best and putting themselves at risk to keep us in good health. The market, as you know, we feel a little bit like we’re the tip of the spear, aviation, in light of all of the shutdowns. Not just here in the United States but pretty much everywhere in the world. The ramifications are big. For the most part, the industry is not interested in taking delivery of airplanes at the moment, and/or prepaying against contracts that we have in hand. It’s a rational result. There’s this moment in time where everyone is sort of frozen trying to contend with the dramatic reductions.
In the United States, passenger traffic at this moment is 95% down from where it was a year ago. That’s remarkable. Schedules -- flight schedules are not down as severely but they are down significantly, simply because the airlines have been allowed to continue with connections and points, just with much less frequently. So, the world market has been stunned. It is a bit frozen. But we remain confident that it will come back.
We talk to airline CEOs every day, every week. Most of the governments have come forward with their support, certainly, here in the United States they have. That has -- there’s been a real thaw with respect to the thinking and the planning forward with respect to markets. So, believe it or not, I’m more confident now than I have been in some time and I believe the thaw is beginning.
PHIL LEBEAU: Dave, you guys are announcing you’ll be cutting your payroll by 10%, basically 16,000 of the company’s 160,000 employees, with the biggest impact being on the commercial airplane division. Are you confident that those job cuts, along with the slower production rates that you’re introducing starting now all the way over the next couple of years, will be enough? In other words, that you guys are taking the steps that will avoid having to come back and perhaps cut even further, let’s say, nine months or a year down the road?
BOEING CEO DAVE CALHOUN: Well, I’m never going to say that with pure authority because I don’t know what the world will look like in nine months. But we have factored in everything we can think of. The recovery with respect to passenger traffic that we modeled is roughly three to five years getting back to the environment that existed pre-COVID. We get back to ’19 levels in three years, and then to get back on the growth track it might take another couple years. So, we’ve been conservative in that respect. Our plans is mostly built around the re-fleeting of airlines. Everyone is looking at their fleet plans.
The retirements are going to be significant, and the investments, while not what they used to be in a growth environment, will continue to be made to get more fuel efficient, cleaner airplanes in the sky and create competitive advantages for each of our airlines. So, that’s what we’ve modeled. We have stress tested the model in as many ways as we can think of. The production rates are tailored for that model. And we believe the markets, the credit markets and the liquidity will be there for us. But I don’t want to suggest that if in nine months there’s another spike, that things won’t be another change.
PHIL LEBEAU: Hey, Dave. Let’s talk about liquidity. You guys have $15.5 billion cash on hand. That’s how much you had at the end of the quarter. But you made it clear, you guys have to borrow billions more, likely from the private market but also potentially from the federal government. Where do things stand in your discussions with the Treasury Department?
BOEING CEO DAVE CALHOUN: Well, we have kept the Treasury Department apprised of our situation for quite some time. I think they know precisely our situation, our needs, broadly. The C.A.R.E.S. Act, the Fed program, in combination, when they got announced, credit markets loosened up a fair amount, which means they have private options or public options available to us. At this stage, just know that we’ll evaluate all of those options. We need liquidity. Our industry needs liquidity. Our supply chain needs liquidity. So, we’ll evaluate all of those options. We’ll file application where appropriate and we’ll be in the public markets.
JIM CRAMER: Cramer. Thank you for coming on. I want to follow up on what Phil just said. To me, the optimal thing for you would just -- because of the way the Federal Reserve is working, giant loans. I would like to think that you could take off the table that you want to go to Treasury and give them loans or stock. People don’t want that. They want to be shareholders of a company that is borrowing money. Not shareholders of a company that’s co-owners with the government. Can’t you take that off the table?
DAVE CALHOUN: Jim, I don’t want to predict outcomes here. We will be in the markets. We will explore all of these options. And we believe we have good credit. We believe in the future of our company and the ultimate ability to pay down debt. So, we’ll be in the credit markets. We’ll do what we have to do to secure liquidity, and we will explore all of these options. But we don’t want to predict an outcome, certainly not at this time.
JIM CRAMER: Okay. Yesterday, we had Gary Kelly on from Southwest, a good client of yours, and one of the things that he said was that a lot of people do want to fly but they don’t know where they want to go to. What it’s come down to for people is I don’t want to get sick, if I go on a plane, I’ll get sick. The truth is you can wear a mask to defend yourself against your next-door neighbor, isn’t it safer to be in a Boeing airplane than it is to be in an office building in terms of air circulation?
BOEING CEO DAVE CALHOUN: Jim, you’re making a great point. And, oftentimes, the public confuses this because it looks like a confined space. But the air on an airplane in the fuselage and in the flight deck gets replaced between every two and three minutes. And the air that recirculates is filtered in that same cycle through a HEPA filter, which is the equivalent of the filter in many ICUs. So, believe it or not, that environment is an amazingly safe environment, with respect to aerosol impacts. And with masks, you’re correct. And that prevents that – that proximity question. So, it really is a much safer environment than most of the public understands.
I do see the industry beginning to rally around all of the protocols that will be required going forward. I don’t want to go too fast because I want it to be as fact-based as it can. And I think all of the agencies that are involved in this, the FAA, the TSA, the CDC, they all similarly want the facts, they want to lay it out the protocols and guidelines, I think, will be reasonable and it will lead to a recovery of our industry.
DAVID FABER: Mr. Calhoun, it’s David Faber. I just want to see if I can get a bit more clarity from you in terms of your various efforts to raise capital. You said you will go to the public markets. There’s some reporting that says you will be offering bonds, a large amount of bonds in the public market soon. Is that going to be the case? And if so, when? And does it mean in any way that you don’t access government aid?
DAVE CALHOUN: I hate to give the same answer to a slightly different question, but we are going to look at all of our options. The public markets are in better shape than they were several weeks ago, post the C.A.R.E.S. Act, post the Fed program. So, we’re going to look at those. We are going to look at the tools that are embedded in the C.A.R.E.S. Act. We’ll look at the Fed program. And we’re going to make decisions that are in the best interest of the Boeing company and our shareholders. It’s -- I don’t want to get ahead of ourselves. And I can’t predict the outcomes.
DAVID FABER: Okay.
CARL QUINTANILLA: Hey, Dave. Workforce reduction, 10%, there had been reports that you told some union officials that that percentage could be much higher. Is 10% firm?
DAVE CALHOUN: I don’t know of any facts or reasons why anyone would speculate other than what we’ve announced this morning, which is a 10% enterprise number and a bigger percentage, obviously, in our commercial business. Roughly 45% of our revenue comes from the defense department, the government, and defense programs internationally. So, the headcount reductions in those areas are far, far less as we continue to invest in what are otherwise growth opportunities in those markets.
PHIL LEBEAU: Dave, it’s Phil LeBeau again. You guys have – with the 737 Max -- not publicly said the timeline is slipping and pushing a little bit further into the third quarter for the 737 Max, but from everyone we’ve talked to, it’s clear that’s happening. What seems to be the issue when it comes to the software glitches, that it seems like you guys identify them, there’s work being done on them, but it seems like a process, a bit of a Groundhog Day where these continue to pop up? Are you confident you can hit that third-quarter delivery or at least, un-grounding of the Max?
BOEING CEO DAVE CALHOUN: Yeah, Phil, we are. Let me start out with saying that the Max program, believe it or not, despite these deferrals or extenuating moments, it’s going very well. The work is going well. The flight tests are going well. We had almost 400 ferry flights, all of them without a hitch. So, it’s all going well. There is a mountain of documentation that has to be completed. Sometimes, the documentation work is confused with what is referred to as a software glitch. We have not had software glitches in the performance of our airplane at all on our test flights or otherwise. So, we are going to complete the documentation.
There’s no doubt COVID and the virtual work that now has to get done between our folks and the FAA, that’s taken a little bit of a toll on this process as well. But I remain confident and constructive about the whole thing. And if I could put a bigger context on it, as you know, the Max for us was a supply issue of course in the first quarter because we paused our production, et cetera. But there was a market, a significant market that has transitioned to a demand issue. Yes, we have 450 airplanes that are ready to be shipped. But we’re working with all of our customers to defer, and to move deliveries, et cetera.
We’re confident we can do it. It’s a priority for us. We’ve moved from a bit of a supply issue to what is now a demand issue. We’ll work our way through it, and we’ll work our way through it steadily. But that’s the big picture.
PHIL LEBEAU: Dave, one last question. And it has to do with COVID-19 and the impact, not only with your company but really all for all industrial manufactures and all really all companies around the world as they start to open up again and get back to work. How slow will you expect this process to be? Because clearly, you’re not going to have people reporting to shifts in the same fashion. There will be safety protocols that have been put in place. How slow do you expect this ramp-up in, not just production, but getting back to work, to be?
DAVE CALHOUN: Well, I’ll describe is a couple of ways. First, we are opening factories as we speak. We are getting back to work. Our big locations are in the Puget Sound and in South Carolina. Our supply chains, believe it or not, are in a little bit of better shape than three weeks ago. If we can rely on the supply chains, and now with our reduced production rates, we do think we can steadily improve.
It will cost us in terms of productivity because of the circumstances you’re describing. We’ve engineered the work differently. We do have different shifts coming in at different times. So, there will be productivity penalties associated with that, probably for a quarter or two. And then, I think we can achieve the kind of stability and maybe even better stability than we had pre-virus, simply because of the reduced rates.
So, I think that’s the way, at least for Boeing, it’s likely to unfold the next couple of quarters. We’re focused first and foremost on the safety of our people. We have taken every precaution we can think of. We get data every day. If we see any trends that work against us, we will not be afraid to take the right actions and suspend again. But at any rate, we’re in a decent place. And like I said at the beginning, I’m feeling a bit of a thaw, and I’m hoping it’s a thaw. We’re going to continue working towards reopening.
PHIL LEBEAU: Boeing CEO Dave Calhoun joining us remotely. Guys, just within a couple hours, the company reporting its first quarter results. We appreciate you joining us. Carl, I’ll send it back to you. Busy morning. I know you have a lot of other big guests and news coming up.