(Bloomberg) — Boeing Co. said it is implementing a series of cost-cutting measures as the planemaker braces for a lengthy and costly strike by workers at its main hub near Seattle, including a hiring freeze and temporary furloughs “for many employees.”
Most read from Bloomberg
Chief Financial Officer Brian West outlined the steps in a memo to employees, which he shared with Bloomberg News, informing employees of necessary and “immediate” actions to support the company’s recovery.
The sweeping measures also include a freeze on non-essential travel, a halt to any promotion-related pay increases, cuts to air show spending and charitable donations, and “significant reductions in supplier spending.” The planemaker will stop issuing “a majority” of its supplier orders for the 737, 767 and 777 jetliner programs affected by the strike, the memo said.
“Our company is in a difficult time,” West said in the memo. “This strike significantly jeopardizes our recovery and we must take the necessary steps to preserve cash and secure our collective future.”
About 33,000 workers represented by the International Association of Machinists And Aerospace Workers shut down Boeing’s jetliner factories in Puget Sound last week after overwhelmingly rejecting a proposal to raise wages by 25% over four years.
The two sides plan to meet again this week to try to reach a new agreement. Union leadership warns that the strike could last for some time.
West’s moves underscore Boeing’s difficult financial position, which is threatening to drop below investment grade and is losing money as aircraft production declines.
RBC Capital Markets analyst Ken Herbert estimates that Boeing will burn through about $500 million in cash every week that workers remain on the picket line.
Other measures Boeing will take include eliminating first and business class travel, including for senior managers, laying off non-essential contractors and halting spending on team events, the memo said.
Boeing shares fell 1.5% at 11:47 a.m. in New York.
Maintaining its credit rating is a top priority for the company, West said last week at an analyst conference. Boeing has been in crisis since a Jan. 5 accident involving a 737 Max plane forced it to cut production to get production back on track.
S&P Global Ratings said Monday it could cut Boeing’s credit rating below investment grade if the planemaker faces a prolonged strike, echoing similar comments last week from Fitch Ratings and Moody’s Ratings. The latter put the planemaker on its downgrade list on Friday.
S&P said a shorter strike of several weeks “would likely be manageable for Boeing and would not result in a negative rating action. However, we believe a longer strike would be costly and difficult to absorb given the company’s already strained financial position.”
Boeing’s credit rating at all three major rating agencies is one notch above junk. For its $58 billion debt pile to leave the investment-grade index and move to speculative-grade, two of the three rating agencies would have to downgrade its score.
Financing debt in junk markets is harder than in high-grade. Average interest payments are much higher and the pool of potential investors is smaller, making refinancing more expensive. The company has $4 billion of debt due in 2025 and another $8 billion due in 2026, Moody’s said.
The planemaker is evaluating its capital structure to ensure it can meet its debt obligations over the next 18 months, West said last week.
(Updates with stocks, S&P statement and additional details from third paragraph.)
Most read from Bloomberg Businessweek
©2024 Bloomberg LP
