Boeing Co. shocked the market late Friday night by announcing that it would be laying off about 10% of its staff. The company also told investors that it expects a much bigger loss and weaker sales in the third quarter than Wall Street had thought.
In a statement, CEO Kelly Ortberg said, “Our business is in a tough spot, and it’s hard to overstate the challenges we face together.”
Boeing said earlier this week that talks with the strike machinists in Washington state had broken down. S&P Global Ratings says the strike, which is now in its fourth week, costs Boeing about $1 billion a month.
“Hard choices will have to be made, and structural changes will have to be made to make sure we can stay competitive and deliver for our customers over the long term,” Ortberg said.
In the memo, he said that leaders and managers would be let go. It said in its most recent 10-K that it had about 171,000 workers, most of whom were in the United States.
For the third quarter, the aerospace and defense company planned to make $17.8 billion in sales, have a GAAP loss of $9.97 per share, and have negative operating cash flow of $1.3 billion. They said they had $10,500,000,000 in cash at the end of the quarter.
Analysts polled by FactSet thought the company would lose $1.61 per share and make $18.49 billion in sales for the quarter. Boeing will share its full quarterly financial data on October 23.
Boeing also pushed back the delivery dates of its 777-9 passenger jet to 2026 and its 777-8 freighter to 2028. This will cost the company $2.6 billion in pre-tax profit. It also stopped making one of its freighter planes.
Shares of Boeing fell almost 2% during the extra session on Friday. They had been up 3% at the end of the normal trading day.
Ortberg, who became CEO in August, said that the company needs to take “decisive actions” and “structural changes” to stay competitive in the long term.
Tuesday, S&P Global Ratings said that Boeing’s bonds could be downgraded. This is the third and final big credit rating agency to say that it is worried about Boeing’s ability to pay its debts.
The lowest level of investment grade is given to Boeing’s bonds by S&P, Moody’s, and Fitch Ratings. If these ratings are lowered, the bonds would be considered speculative grade, or “junk.”
That would make it harder for Boeing to borrow money at a time when it is trying to get back on its feet after a string of production mistakes and the strike.
A lot more buyers, like pension funds, who can only own investment-grade debt would not be able to buy the bonds either.
The stock hasn’t done well either; it’s down 42% this year, while the S&P 500 average SPX 0.61% has gained about 22%.
