A worker stands on a lift near the open rear door of a Boeing Dreamlifter, which is used to carry large parts for airplane assembly, while it is parked at Paine Field near Boeing’s manufacturing facility in Everett on March 23. (AP Photo/Ted S. Warren)

A worker stands on a lift near the open rear door of a Boeing Dreamlifter, which is used to carry large parts for airplane assembly, while it is parked at Paine Field near Boeing’s manufacturing facility in Everett on March 23. (AP Photo/Ted S. Warren)

Boeing to offer buyouts, weighs wide-body production cuts

The buyouts would keep a $60 billion bailout option viable. Forced layoffs would complicate that effort.

The Boeing Co. is offering employee buyouts and weighing additional measures such as new output cuts as the coronavirus pandemic threatens to depress aircraft sales for years.

While the company has yet to alter production plans, it’s taking a closer look at manufacturing rates for wide-body jets, which are made in Everett and North Charleston, South Carolina, amid plunging demand, said a person familiar with the matter. Boeing was already planning to make fewer 787s this year and is still assessing the rapidly changing market and public health issues as the outbreak guts travel demand and batters airlines.

The company shuttered its Puget Sound-area factories on March 25 as a precaution after more than two dozen workers tested positive for COVID-19. One of them died.

For now, Boeing plans to reopen Seattle-area plants next week, with workers reporting for an overnight shift that begins Tuesday. But that situation remains fluid, and the decision to restart production in an epicenter for the coronavirus could be revisited, said the person familiar with the planning, who asked not to be identified because the discussions are confidential.

Boeing is changing procedures in factories to protect workers, with an emphasis on cleaning and maintaining physical distance between employees, the person said.

The buyout offer will preserve much-needed cash at Boeing, which along with European rival Airbus is facing a sharp contraction in the jetliner market. Airlines around the world have slashed schedules and parked aircraft. About 44% of planes are in storage, according to data provider Cirium. And with global virus cases approaching 1 million, there’s no telling when carriers will return to normal schedules, much less start buying jets again.

“When the world emerges from the pandemic, the size of the commercial market and the types of products and services our customers want and need will likely be different,” Chief Executive Officer David Calhoun said in a message to Boeing’s 161,000 employees Thursday. “It’s important we start adjusting to our new reality now.”

“As painful as it is going to be, Boeing needs to reduce workers,” said Nick Cunningham, an analyst at Agency Partners based in London, adding that salaries make up the biggest portion of the company’s fixed costs. “If you don’t, you’ll destroy the company.”

Boeing shares have tumbled 60% this year through Wednesday — the biggest drop on the Dow Jones Industrial Average.

The market pressures are roiling smaller aerospace manufacturers, as well. TransDigm Group announced Thursday that it would reduce its workforce by 15%.

National Aerospace Technologies, a subsidiary of Safran, which designs aircraft cabin interiors, started laying off 73 workers earlier this week from an office near Boeing’s factory in Everett, according to a notice published by the state Employment Security Department.

Calhoun told Boeing managers Wednesday that he wants to make sure that the company is sized appropriately for the market tumult, while taking care not to damage the commercial division by cutting too deep, too early, said the source.

While Boeing’s sprawling defense division is relatively unchanged by the pandemic, Boeing’s services unit faces a tough outlook in the short term as cash-strapped airlines postpone aircraft maintenance and overhauls. Meanwhile, the jetliner business, Boeing’s largest, faces a difficult path to recovery, the person said.

The buyout is being offered to all eligible employees of Chicago-based Boeing. The company, the second-largest U.S. defense contractor and one of the nation’s biggest exporters, will provide information on the terms within four weeks.

“This move aims to reduce the need for other workforce actions,” Calhoun said.

Boeing was already reeling from the prolonged grounding of the Renton-built 737 Max when the coronavirus pandemic hit, with revenue and cash flow depleted. The disease has slowed work on recertifying the single-aisle workhorse while clouding the outlook for sales once it returns.

The company is also facing a drop in demand for twin-aisle aircraft like the 787 and the coming 777X because long-distance travel has been hit harder than shorter airline service. Wide-body jetliner production could tumble by 60% over the next three years, Jefferies analyst Sheila Kahyaoglu wrote in a March 31 report.

While Boeing had announced plans to slow 787 output to a pace of 10 jets a month by early next year from the current rate of 14, Kahyaoglu predicts the company will have to take drastic measures to bring supply in line with demand. She assumes Boeing will make about four 787s a month in 2020, stepping up to six the following two years.

The need to downsize has created a dilemma for Calhoun. Forced layoffs would give Boeing more control over where and how it cuts costs. But they would surely stir up a backlash that could complicate any effort by the manufacturer to access government aid.

While the company has told Congress that the industry needs some $60 billion, Calhoun has blanched at the strings that would potentially be attached.

Voluntary buyouts keep the government-assistance option viable, should Calhoun ultimately choose to pursue it. Boeing is analyzing the funding options available, people familiar with its review said last week.

As it pares back staff, another challenge for Boeing will be maintaining essential skills that will be needed when the market bounces back, said Cunningham, the Agency Partners analyst. “But you have to actually survive as a company in order to come back again.”

Bloomberg’s Harry Suhartono contributed to this report.

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