Boeing still hasn’t publicly revealed whether it will accept a bailout, but the company has announced a sizable round of layoffs due to the coronavirus. If the plane manufacturer takes a bailout too, we have to wonder why the layoffs are also needed. Wall Street rewarded Boeing’s behavior, which some may go so far as to call predatory, by boosting its stock price in response to the announcement about the layoffs. Guess investors could care less about the economy or people’s livelihoods.
Boeing announces layoffs while bailout is pending
The company announced today that it will slash 10% of its workforce, amounting to approximately 16,000 jobs. It will cut jobs through a combination of natural attrition, involuntary layoffs and employee buyouts. The commercial airplane unit will see the deepest cuts, losing approximately 15% of its positions. Boeing also said it will significantly cut production of its 787 Dreamliner and 777 aircraft.
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Boeing CEO Dave Calhoun noted that the coronavirus demand has sent demand for commercial air travel "off a cliff." He also said the pandemic is "delivering a body blow to our business."
The company burned $4.3 billion in cash during the first quarter dealing with fallout from the coronavirus pandemic and the 737 MAX issue. Boeing's core operations lost $1.7 billion, which was a little more than what analysts had been expecting.
Revenue came in at $16.9 billion, compared to the $17.01 billion that had been expected. The company posted an adjusted loss of $1.70 per share, which was a little better than the $1.76 per share loss that had been expected. The GAAP loss was $1.11 per share, which was better than the $1.24 per share that had been expected.
Big problems for Boeing
The COVID-19 pandemic and the 737 MAX crisis combined to deal a severe blow to the plane maker during the first quarter. Airlines have been delaying and even canceling orders for new planes due to the pandemic. Production of the 737 MAX was suspended in January after all planes of that type were grounded in March 2019 due to two crashes that claimed 346 lives.
Boeing also temporarily shut down its factories in Washington due to health concerns, which cost it $137 million. That shutdown was only during the last week of the first quarter, which means it will occur additional expenses related to it during the second quarter.
Boeing could receive a $17 billion bailout after layoffs
As Boeing announces the layoffs today, one issue that hasn't been talked about in a few weeks is the topic of a bailout. The company was seeking federal aid in connection to the COVID-19 pandemic. Although the company wasn't named specifically in the CARES Act, USA Today noted that it was eligible for up to $17 billion in bailout funds.
As of now, Boeing hasn't confirmed that it will definitely seek bailout funds, but if it decides to do so after announcing such a steep round of layoffs, it's sure to raise more than a few eyebrows. On the other hand, the layoffs could be the company's response to the government's call for compensation in exchange for bailout funds. Boeing hasn't said one way or the other.
The company did attract attention for shelling out billions of dollars in share buybacks for investors, leaving it vulnerable at a time when it needs cash the most.