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Jan 29, 2009

Boeing to lay off 10,000 this year

Company to cut 5,500 more; loses order for 15 787s

The sky has not fallen for aerospace giant Boeing, but it has gotten darker.

The Boeing Co. is facing "one of the most difficult commercial and financial environments that most of us have ever seen," Chairman and Chief Executive Jim McNerney said in a conference call Wednesday as Boeing reported a huge fourth-quarter loss because of the Machinists strike last year and a significant charge related to the delayed 747-8 program.

Among the sobering details:

  • McNerney said Boeing will cut about 10,000 jobs, or about 6 percent of its work force, this year because of the global recession and industry downturn. That's up from the 4,500 commercial job losses in the Puget Sound area in 2009 that Boeing announced earlier in the year. The additional 5,500 job cuts, to come mostly through layoffs and attrition, will be across the company, including Washington state, where nearly half of Boeing's 162,000 employees worked at the end of last year.

  • Boeing has lost its first significant 787 order. A Russian airline group canceled an order for 15 Dreamliners. Boeing said it was because of the uncertain global economic climate and not because of delays on the 787 program that now stretch about two years.

  • Airlines and leasing companies are likely to cancel more orders of all Boeing models this year, and defer delivery of an unknown number of jets.

  • Design changes and other issues forced Boeing to take an unexpected fourth-quarter charge of $685 million related to the 747-8 that is now in development and is about a year late.

  • The company had a net loss of $56 million in the fourth quarter, or 8 cents a share, compared with net income of $1.03 billion, or $1.36 a share, a year earlier. Much of the loss was because of the nearly two-month-long Machinists strike, which reduced earnings by an estimated $1.2 billion. Boeing said it delivered 105 fewer planes because of the strike. It was Boeing's first loss since the second quarter of 2006, when it lost $160 million, or 21 cents a share.

  • Boeing lowered its earnings outlook for 2009 and would not make a forecast for 2010 because the economy remains so uncertain.

    Despite the gloomy picture reflected by the financial results and new job cuts, there were bright spots.

    The still-grounded 787, after an embarrassing two-year delay, is on track to fly in the second quarter.

    Also, Boeing met enough of its 2008 financial targets to trigger an employee incentive plan, which will pay out six extra days. In Washington state, about 48,120 eligible employees will receive an estimated payout of $96.5 million. Companywide, 110,000 eligible recipients will receive an estimated $220 million.

    The extra pay should show up in employee checks next month.

    The Machinists union, which represents about 27,000 Boeing employees in the Puget Sound area, is not included in the plan.

    Boeing did much better in exceeding its 2007 financial goals and the plan paid an additional 15 days' pay in February 2008.

    "Fundamentally, this is a solid company with a strong growing core business," McNerney said.

    Boeing plans to deliver 480 to 485 planes this year, less than its July estimate of 500 to 505. Because of the strike, and 787 delays, Boeing delivered only 375 planes in 2008, well below its estimate of 475.

    Significantly, Boeing should be able to maintain current production rates even if a lot of orders are deferred or even canceled in 2009. That's because Boeing overbooked production slots. Keeping assembly lines at current rates means Boeing is less likely to need production-related job cuts.

    In 2008, customers canceled six orders and deferred the delivery of 110 jets. McNerney would not speculate on how many orders might be deferred or canceled in 2009, only that the number is likely to be more than last year. U.S. carriers American and Southwest recently said they won't take as many Boeing jets in 2009 as planned. Last week, UBS Investment Research said in a report that it expected nearly a third of the world's airlines to defer deliveries in 2009.

    McNerney acknowledged things could change for the worse because of "continued market uncertainty."

    Boeing has a record commercial backlog of $279 billion, which grew by 9 percent last year. That represents about eight times the annual revenue of Boeing Commercial Airplanes.

    Because of a global credit crunch airlines and leasing companies will find it more difficult to get financing to pay for planes already on order. Most of the money for a new jet is paid at the time of delivery. Boeing said it expected to make about $1 billion in jet financing available this year through Boeing Capital Corp. Earlier this week, the French government said it would provide about $6.5 billion to banks to support rival Airbus jet purchases this year.

    Boeing orders are expected to fall this year to below what it builds, so that backlog will start to decline.

    If there was a surprise in the earnings call, it was the number of job cuts.

    Boeing had said late last year that it would cut about 1,000 defense jobs at its facility in Wichita, Kan. And earlier this month it announced the 4,500 job cuts in its commercial airplanes business, or about 6.6 percent of Boeing's total commercial work force of 67,659 at the end of December.

    The additional 5,500 jobs will be eliminated in Boeing's military and space business and in support services.

    Most of the cuts will come in the first half of the year, McNerney said, and will be spread geographically throughout the company.

    Boeing had 76,417 employees in Washington at the end of last year. Boeing has a number of defense-related programs in the area and some of the job reductions will likely come there. McNerney did not say how many more jobs besides the 4,500 in commercial would be cut in Washington.

    The Machinists union urged Boeing to cut contract employees before its full-time workers.

    "If Boeing's intention is to deliver 480 to 485 planes in 2009 as they indicated today, they can only accomplish this with the full contingent of our membership," Tom Wroblewski, president of District 751 of the International Association of Machinists and Aerospace Workers, said in a statement after the latest job cuts were announced.

    "To date, Boeing has only told us the impact will be 'minimal,' but they will provide details on how our membership will be affected on Feb. 6th."

    McNerney gave no indication Boeing may make more jobs cuts this year than what it has so far announced. But he did make it clear that these are uncertain times.

    "The global economy continues to weaken and is adversely affecting air traffic growth and financing," McNerney said. "We are also expecting pressure on defense budgets in light of the economic recovery and financial rescue packages put forth by various governments."

  • Source : Seattlepi
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