Boeing to Cut 4,500 Jobs (Update)
Ted Reed
01/09/09 - 04:05 PM EST
Updated from 2:08 p.m. EST
The slowing economy has caught up with
Boeing(BA Quote), which saw 2008 orders decline by 53% and now says it will cut 4,500 jobs this year.
Despite the slowdown, Boeing still has a backlog of 3,700 aircraft, so the principal question facing the aircraft maker -- and the largest U.S. exporter -- is whether the orders hold up.
"With a balanced base of customers from all regions of the world, from airlines with varied business models, and with strong orders across our product line, we are now focused on executing this strong backlog position," Scott Carson, CEO of Boeing Commercial Airplanes, said Thursday, in a prepared statement.
However, in a report Friday, CreditSights noted that Boeing is facing "weak demand for air travel and uncertainty surrounding the availability of aircraft financing."
Global airline traffic is forecast to fall by 3% this year, only the second decline in 35 years, according to a recent report by the International Air Transport Association. IATA says it will be 2011 before global traffic growth is again above 4%. Moreover, the group is forecasting a slump so deep that even in 2016, passenger traffic will be 9% lower than earlier forecasts had indicated.
"As consumer confidence remains low, demand for air travel will continue to come under pressure and as a result airlines are adjusting their fleet expansion and growth strategies," according to Credit Sights.
Boeing shares traded Thursday afternoon at $44.59, down 20 cents. After reaching a high of $107.83 in July 2007, the shares tumbled to as low as $36.17 in November 2009.
The job cuts will bring Boeing Commercial Airplanes employment to approximately 63,500, similar to its level at the start of 2008. Boeing said an unspecified number of layoffs will occur, in addition to normal attrition and a reduction in contract labor. Employment reached 68,000 by the end of 2008.
"We are taking prudent actions to make sure Boeing remains well positioned in today's difficult economic environment," Carson said. "We believe that acting now will allow us to be in a financial position to adapt to market uncertainties, meet our customer commitments, continue investing in our current and future product lines, and protect our competitiveness in a fiercely competitive business environment."
On Thursday, Boeing reported that it captured 662 net commercial airplane orders in 2008, down from a record 1,413 orders in 2007. Rival Airbus has reported 878 orders through November, assuring that it will lead Boeing in orders for the first time since 2005.
Meanwhile, Boeing said it delivered 375 aircraft in 2008, down from 441 in 2007, largely as a result of a two-month strike by the International Association of Machinists. Macquarie Research forecasts 450 aircraft deliveries in 2009 and 426 deliveries in 2010.
In a recent report, Macquarie Research analyst Rob Stallard said the strike and various production problems made 2008 an "annus horribilis" In 2009, he said, Boeing still faces problems "due to deteriorating aerospace fundamentals and 787 development risk.
"On the plus side, we think much of the bad news is reflected in the lowly valuation," Stallard wrote, while Boeing's defense division "is likely to remain a solid EPS contributor through the downturn." He rates the stock outperform, with a target price of $51.
