Boeing, a titan of the aerospace industry, stands at a critical juncture. This Wednesday, CEO Kelly Ortberg faces his first earnings call, navigating the turbulent waters of a five-week-long machinists’ strike, a projected nearly $10-per-share loss for the third quarter, and the looming necessity of a significant company restructuring. The outcome of the impending union vote on a new contract proposal, coupled with Ortberg’s announcements regarding Boeing’s future direction, will dramatically shape the company’s trajectory and the broader aerospace industry’s landscape.
Key Takeaways: What to Expect from Boeing
- CEO Kelly Ortberg’s first earnings call: Ortberg will present his vision for Boeing’s future, outlining potential restructuring plans and offering clarity on production targets, all while a major strike hangs over the company.
- Union vote results: Over 32,000 striking machinists will be voting on a new contract proposal, potentially ending the costly work stoppage. The results, expected Wednesday night, will be a key factor affecting short-term financial stability.
- Significant restructuring: Boeing plans a substantial restructuring, including a 10% reduction in its global workforce (approximately 17,000 employees) and potential divestitures of assets to streamline operations and strengthen its financial position.
- Massive financial challenges: The company faces a significant $5 billion charge across its defense and commercial businesses, in addition to the already substantial financial repercussions of the ongoing strike and production delays. They’re looking to raise as much as $25 billion in debt or equity to bolster financial reserves.
- Supply chain disruptions: The strike has rippled through the supply chain, forcing major supplier Spirit AeroSystems to furlough 700 workers and potentially creating further issues if the strike continues.
Narrowing Businesses: Ortberg’s Vision for a Restructured Boeing
Kelly Ortberg, Boeing’s new CEO, inherited a company grappling with multiple crises. The year began with a near-catastrophic mid-air door-plug blowout on a 737 Max plane, highlighting persistent manufacturing and safety concerns. The incident further delayed Boeing’s recovery timeline, pushing it out to 2025. Ortberg’s strategy focuses on streamlining operations and concentrating resources on core competencies. This means focusing on key areas and potentially divesting non-core assets. The earnings call will likely offer details about these plans, prompting close scrutiny from investors eager to understand the future shape of the company.
The Impact of Workforce Reduction
The announced 10% workforce reduction, a significant move, is part of Ortberg’s broader plan to improve efficiency. While necessary, it highlights the severity of the challenges Boeing faces. Ortberg’s message to employees emphasized the need for “realistic about the time it will take to achieve key milestones” and the importance of focusing resources wisely and effectively.
Raising Cash: Addressing Urgent Financial Needs
Boeing’s third-quarter projections paint a concerning picture. The anticipated nearly $10-per-share loss, coupled with the $5 billion charge, underscores the urgency of its financial situation. The ongoing strike and various production problems, including delays on the Air Force One project and issues with 747 and 737 operations, have significantly impacted revenue and cash flow. Therefore, Boeing’s plan to raise up to $25 billion in new financing is a crucial element of its survival strategy.
The Implications of Potential Downgrades
The company’s financial difficulties have triggered warnings from rating agencies of a potential downgrade to its investment-grade status. This would significantly impact Boeing’s ability to secure further funding and could potentially erode investor confidence.
Mending Ties with Workers and Stabilizing the Supply Chain
The ongoing machinists’ strike remains a major hurdle for Boeing. The original contract proposal was rejected by workers, who cited insufficient compensation to meet the escalating cost of living in the Seattle area. The revised proposal, including a 35% raise and other benefits, aims to address these concerns but has yet to be ratified. The upcoming vote, due to conclude hours after the earnings call, will be pivotal in determining the short-term financial health of Boeing. The strike has caused delays and ultimately cost Boeing approximately $1 billion per month.
Reaching a Resolution: The Role of Labor and Government
The intervention of Acting Labor Secretary Julie Su underscores the significant economic impact of the dispute, highlighting the concern among officials over the potential consequences related to the strike extending beyond Boeing itself. The Aerospace Industries Association went as far as to ask for President Biden to put pressure on the parties to reach a resolution. The situation demonstrates how major labor disputes can disrupt the entire aerospace industry and trigger ripple effects throughout the supply chain. “With the help of Acting U.S. Secretary of Labor Julie Su, we have received a negotiated proposal and resolution to end the strike, and it warrants presenting to the members and is worthy of your consideration,” stated the International Association of Machinists and Aerospace Workers District 751.
Supplier Impact
The strike’s far-reaching impact is evident in the move by Spirit AeroSystems, a key supplier, to furlough 700 workers, highlighting the interconnectedness of the aerospace industry’s supply chain. Further disruptions are likely if the strike continues, potentially impacting the timelines for multiple Boeing programs. The widespread impact has resulted in Boeing reducing orders for components from several suppliers to maintain its liquidity in the short term and as a cost-cutting measure. “Because the aerospace supply chain is vast and interconnected, the ramifications of this strike extend beyond a single company, affecting countless suppliers across the nation,” the Aerospace Industries Association stated in a letter to President Biden.
