Boeing Starts Hiring Freeze, Weighs Temporary Furloughs
(Bloomberg) -- Boeing Co. said it’s instituting a range of cost-cutting measures as the planemaker prepares for a drawn-out and expensive strike by workers at its main hub near Seattle, including a hiring freeze and temporary furloughs “for many employees.”
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Chief Financial Officer Brian West laid out the steps in a memo to employees shared with Bloomberg News, in which he informed workers of the necessary and “immediate” actions to support the company’s recovery.
The sweeping measures also include a halt of non-essential travel, pausing any pay increase associated with promotions, cutting back outlays for air shows and charitable donations and “significant reductions in supplier expenditures.” The planemaker will stop issuing “a majority” of its supplier purchase orders for the 737, 767 and 777 jetliner programs affected by the walkout, according to the memo.
“Our business is in a difficult period,” West said in the memo. “This strike jeopardizes our recovery in a significant way and we must take necessary actions to preserve cash and safeguard our shared future.”
Roughly 33,000 workers represented by the International Association of Machinists And Aerospace Workers, or IAM District 751, brought Boeing’s jetliner factories in the Puget Sound to a standstill last week after they overwhelmingly rejected a proposal that would have boosted wages 25% over four years.
IAM District 751 said in a statement that its negotiating committee will enter mediation with Boeing on Tuesday in the US. It noted that in mediation, the mediator doesn’t have the authority to force either side to agree on specific terms of a contract, but rather serves as a neutral party that works to help both sides reach agreement.
The steps laid out by West underscore the difficult financial position in which Boeing finds itself, with its credit rating at risk of dropping below investment grade and the company bleeding cash as aircraft output sputters.
RBC Capital Markets analyst Ken Herbert estimates Boeing will burn about $500 million in cash each week that workers remain on picket lines.
Other actions that Boeing will undertake include the elimination of first and business-class travel, including for senior executives, releasing non-essential contractors and pausing team-event spending, according to the memo.
Boeing’s shares fell 1.5% as of 11:47 a.m. in New York.
Preserving its credit rating is a key priority for the company, West said at an analyst conference last week. Boeing has been in crisis since a Jan. 5 accident with a 737 Max aircraft forced the company to cut back output to get its manufacturing in order.
S&P Global Ratings on Monday said it could lower Boeing’s credit rating below investment grade should the planemaker suffer an extended strike, echoing similar comments made last week by Fitch Ratings and Moody’s Ratings. The latter placed the planemaker on review for downgrade on Friday.
S&P said a shorter walkout of several weeks “would likely be manageable for Boeing and not lead to a negative rating action. However, we believe an extended strike would be costly and difficult to absorb, given the company’s already strained financial position.”
Boeing’s credit rating at all three of the major graders sits one level above junk. For its $58 billion debt pile, to leave the investment-grade index and move to speculative grade, two of the three rating firms would need to lower its score.
Financing debt in junk markets is more difficult than in high-grade. The average interest payments are much higher and the pool of potential investors smaller, making refinancing more costly. The company has $4 billion of debt coming due in 2025 and also $8 billion coming due in 2026, according to Moody’s.
The planemaker is evaluating its capital structure to ensure it can meet its upcoming debt payments over the next 18 months, West said last week.
(Updates with union statement in 6th paragraph.)
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