In the latest blow to the local economy, Boeing said it will cut “more than 15%” of jobs at its commercial jet business, principally in its Seattle-area operations, as the aerospace company adjusts to an aviation marketplace decimated by COVID-19.
“We will be a smaller company for a while,” CEO Dave Calhoun told analysts after the company announced a first-quarter loss of $641 million and a 26% drop in revenues. “The sharp reduction in demand for our airplanes we see out over the next several years won’t support the size of the workforce we have today.”
The company will also significantly slow production of the jets it builds in Renton and Everett.
The job cuts, which Calhoun warned might rise further “if there’s another spike somewhere down the road,” are part of a 10% cut in Boeing’s total workforce as the company struggles with the impact of pandemic as well as ongoing troubles with several aircraft programs, including the 737 MAX, which was grounded after two fatal crashes.
Boeing declined to say exactly how many jobs in its Puget Sound operations would be lost. But even a 15% reduction would mean a loss of nearly 10,000 jobs for Boeing Commercial Airplanes, which employs some 65,000 workers, most of them in Washington state.
There are about 36,000 employees at Everett and thousands more in Renton, as part of Boeing’s statewide workforce of more than 70,000 in commercial, defense and services operations. During a later call with reporters, Calhoun said the “higher percentage” of the cuts would fall on “white-collar,” or nonmanufacturing, workers.
Boeing hopes to make many of the cuts on a voluntary basis, and has already offered voluntary layoff packages to some 70,000 workers. But “ultimately, we will have to do something on an involuntary basis at the end,” Calhoun predicted.
Bill Dugovich, a spokesman for Boeing’s engineering union, the Society of Professional Engineering Employees in Aerospace (SPEEA), said the union is “hoping a lot of these cuts are absorbed by the voluntary layoffs,’’ enticed by a Boeing package that includes a week’s salary for each full year of service up to 26 weeks maximum. “We’re working with our folks to get them as much information about that and their options as possible.’’
The job cuts come as the novel coronavirus pandemic has all but shut down air travel and sharply reduced demand for new aircraft, as well as the services Boeing provides for existing aircraft.
On Tuesday, Southwest Airlines, a key 737 MAX customer, announced it had cut planned deliveries of the troubled aircraft through 2021 to 48, down from the 123 aircraft it originally intended to purchase or lease.
“Our industry is going to look very different as a result of this pandemic and the economic impact it has had on airlines and schedules around the world,” Calhoun said.
Boeing anticipates that the damage to the airline industry won’t be short-lived. “While we currently expect two to three years for travel to reach 2019 levels, it will be a few years after that until the commercial market returns to long-term trend growth,” Calhoun said in a separate message to employees on Wednesday.
That forecast is also reflected in its plans to cut output.
Production of the Renton-built 737 MAX will resume “at low rates in 2020, gradually increasing to 31 planes per month during 2021, with gradual increases to correspond to market demand,” Calhoun said.
Through Boeing has continued to build the MAX during the 14-month grounding, its pre-pandemic plans were to resume producing 42 per month once the Federal Aviation Administration and other regulators gave the go-ahead for the plane to return to commercial service.
Boeing was building 52 MAX jets a month before regulators around the world grounded the plane in March 2019 after the crashes that killed 346 people.
On Wednesday, Calhoun said the pandemic had complicated the process of recertifying the 737 MAX with regulators, but that the company expects to have “the necessary regulatory approvals” in time “to support resumption of several  MAX deliveries during the third quarter.” Calhoun acknowledged that the “actual timing will ultimately be determined by our regulators.”
Boeing also will slow production in Everett of the 777 and 777X, to three per month in 2021 from the current five a month. It will “take a measured approach” to ramping up the new 777X, which is in flight tests.
Production of the 787 will fall to 10 per month in 2020 and to seven per month by 2022, with the company “continuing to evaluate the rate after that,” Calhoun said. Boeing has been building 14 per month, seven each in Everett and in North Charleston, S.C., and in January said it would go down to 10 per month in late 2021.
Now that timetable has been accelerated, and a key question is how production will be divided between the final assembly sites in South Carolina, where some fuselage sections are also built, and Everett.
Calhoun declined to say how that would impact employment in Everett and North Charleston.
“We haven’t made any decisions on the ’87 in particular in light of the two production locations,” Calhoun said, adding that because production won’t drop to seven until 2022, “we’ve got plenty of time to figure out exactly the way to go about that the smart way, so we’re not going to get ahead of ourselves. We’re going to do it the right way [and] respect our contracts with the union.”
Production of the 767 will remain at three per month, and the 747 jumbo jet will continue to be built at a snail’s pace of one plane every two months.
Calhoun also acknowledged that the layoffs could ultimately climb higher.
During the call with journalists, Calhoun said that the announced job cuts were based on a “medium-term assessment of the pandemic and then the beginning of the recovery” along with intensive discussions with Boeing’s airline customers, and were meant to “carry us all the way through in to 2022.”
However, “if there’s another spike [in COVID-19 cases] somewhere down the road, and/or another major event associated with the pandemic, that’s a different scenario,” Calhoun said.
Calhoun made a similar point during the conference call with analysts. “Of course, we will continue to monitor market conditions closely in light of the unpredictable factors currently driving it and we will make ongoing adjustments as appropriate,” he said.
The company began the year with about 161,000 employees worldwide.
The planned job cuts will be deepest in the commercial jet division, as well as its services business and corporate functions, “simply because those are the markets that have contracted so much,” Calhoun said.
By contrast, Boeing’s defense and space unit will likely see the fewest jobs eliminated, in part because those areas continue to benefit from government contracts.
Boeing was in financial trouble before the virus outbreak. The grounding of the MAX added billions in costs and cut deeply into revenue last year, leading to Boeing’s first money-losing year in two decades. The company faces criminal and civil investigations and a flurry of lawsuits by families of the people killed in the crashes.
Boeing has now lost money in three of the past four quarters, and its share price, which closed up Wednesday at $139, has fallen nearly 70% since March 2019. During the same quarter last year, Boeing earned $2.15 billion.
As the crisis has cut into Boeing’s all-important cash flow, which is now negative, the company has suspended dividend payments and share repurchases, and has borrowed billions of dollars to get through its worsening situation.
The company ended March with $15.5 billion in cash, up from $10 billion three months earlier, but it piled on $11.6 billion in new debt to bring its total to $38.9 billion. On Wednesday, Calhoun indicated that the extra borrowing would help insure the company had enough liquidity to “keep us operating and keep us safe.”
Over the weekend, Boeing terminated a deal with Brazilian aircraft maker Embraer, which analysts said will help Boeing conserve cash but weaken its position in the market of building smaller passenger jets.
Despite all the bad news, the market reacted positively to Wednesday’s announcement. Boeing’s share price finished up 6% for the day and industry analysts at Credit Suisse noted the company had burned though less cash than expected.
Calhoun made an effort to strike a note of optimism. “History tells us that our industry will recover,” he wrote in the Wednesday note to employees. “We have seen this happen after 9/11, after SARS and after other economic disruptions in earlier decades – and we expect air travel to play an important role again in global trade after the coronavirus pandemic eases.”
Seattle Times reporter Geoff Baker contributed to this report.
Information from The Associated Press is included in this report.