WEBVTT - Instant Reaction: Boeing Cuts Workforce By 10%

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. We do have some

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<v Speaker 1>breaking news out of Boeing. The CEO is saying that

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<v Speaker 1>the manufacturer needs to restructure operations. Here are some of

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<v Speaker 1>the details. Bowing to delay the launch of the seven

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<v Speaker 1>seven seven X airplane by one year to twenty twenty six,

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<v Speaker 1>and Boeing to cut ten percent of its workforce, warns

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<v Speaker 1>of deeper third quarter losses. It's going to cut its

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<v Speaker 1>total workforce by roughly ten percent. These job cuts to

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<v Speaker 1>include its executives, managers and employees. This all coming, of course,

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<v Speaker 1>amid a big cash burn by Boeing. Of course, we

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<v Speaker 1>just concluded the fourth week of its strike. A lot

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<v Speaker 1>of pain going on over at Boeing. You see the

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<v Speaker 1>shares bouncing around after hours, initially spiking. Now back to

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<v Speaker 1>unchanged traders trying to make sense of what's going on here.

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<v Speaker 1>But what we know right now is that Boeing of

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<v Speaker 1>course delaying the first delivery of its seven seven seventh

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<v Speaker 1>seven seven X program to twenty twenty six. Also those

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<v Speaker 1>job cuts. Boeing to cut its total workforce by roughly

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<v Speaker 1>ten percent.

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<v Speaker 2>Match. Yeah, this is awful news for Boeing, maybe worse

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<v Speaker 2>news for the union. You know, each month of this

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<v Speaker 2>strike is forecast to cost them one and a half

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<v Speaker 2>billion dollars, not according to JP Morgan, but they already

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<v Speaker 2>burned through eight and a half billion dollars in the

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<v Speaker 2>first half, and because of that cash burn, they had

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<v Speaker 2>to raise ten billion dollars in debt in the first half.

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<v Speaker 2>Now Bloomberg has reported they're likely to raise another ten

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<v Speaker 2>and a half or sorry, ten to fifteen billion dollars

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<v Speaker 2>in a secondary offering in this half. And they said

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<v Speaker 2>now that revenue is only going to be in the

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<v Speaker 2>third quarter seventeen point eight billion. It had been estimated

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<v Speaker 2>at eighteen point six billions. So they're not making any money,

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<v Speaker 2>they're burning through cash because of this strike, and now

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<v Speaker 2>they're going to have to cut or at least slow

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<v Speaker 2>the delivery of the seven seven seven X program by

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<v Speaker 2>another year. So it just really doesn't look good for

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<v Speaker 2>the unions, for the for the workers that have gone

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<v Speaker 2>on strike and have rejected an offer for a raise

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<v Speaker 2>of what twenty five percent or thirty percent was the

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<v Speaker 2>last offer something along those lines.

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<v Speaker 1>I mean, the negotiations we know have really been locked

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<v Speaker 1>and is stillmate, so really no progress being made again

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<v Speaker 1>fascinating to see these headlines coming out of Boeing.

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<v Speaker 2>We're going to get you, Bloomberg Intelligence senior Aerospace, Defense

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<v Speaker 2>and Airlines analyst George Ferguson right now to weigh in

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<v Speaker 2>on these headlines. George, really glad you could join us

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<v Speaker 2>on such short notice on a Friday. What do you

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<v Speaker 2>make first off of the delay of the seven seven

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<v Speaker 2>seven X program. They say they won't be giving their

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<v Speaker 2>first deliveries out until twenty twenty six. I don't know

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<v Speaker 2>when they were planning to do it in the first place,

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<v Speaker 2>so what do you know.

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<v Speaker 3>Yeah, there's supposed to be a toy twenty five event,

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<v Speaker 3>so pushed out what maybe about a year? This programs

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<v Speaker 3>has some challenges getting to the finish line. So you know, look,

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<v Speaker 3>it's not good. It's not a huge money maker for

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<v Speaker 3>the company. In fact, it's not a money maker for

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<v Speaker 3>the company right now, and so for the financials, not

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<v Speaker 3>that important. For the customers who are waiting for airplanes,

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<v Speaker 3>more disappointment. You always run the risk that they're going

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<v Speaker 3>to go away. Biggest airplane in the sky now at

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<v Speaker 3>the seven four to seven, A three eight are gone.

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<v Speaker 3>So there are not a lot of good substitutes. So

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<v Speaker 3>I'd say, yeah, disappointing, but not terrible.

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<v Speaker 1>Talk to us about the labor picture here, because I

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<v Speaker 1>mean the headline that's catching everyone's attention, in addition to

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<v Speaker 1>the financial details that we got and those delays, is

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<v Speaker 1>that Boeing to cut its total workforce by roughly ten percent,

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<v Speaker 1>and interestingly, those reductions include executives, managers, employees. We know

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<v Speaker 1>that Boeing is locked in that strike right now, that's

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<v Speaker 1>stalemate with its union that has been going on for

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<v Speaker 1>a month that they haven't been able to do manufacturing

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<v Speaker 1>over on the West Coast. I mean, how does that

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<v Speaker 1>factor into that month long strike?

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<v Speaker 3>Yeah, tough times are ahead, and that's what CEO Kelly

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<v Speaker 3>or Berg told the company when he told him there's

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<v Speaker 3>going to be a ten percent cut. Tightening their belt here.

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<v Speaker 3>It looks to me like they're posturing for the long haul,

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<v Speaker 3>right they're telling to me, I think they're telling the union,

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<v Speaker 3>you know, we're going to slim down. We need to

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<v Speaker 3>save a bunch of money, and we're ready to kind

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<v Speaker 3>of go to long haul on our negotiations with you.

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<v Speaker 3>We're going to take pain on the executive side as well.

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<v Speaker 3>And I think look, once the strike is over, there's still,

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<v Speaker 3>you know, some pretty big challenges here for profitability, and

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<v Speaker 3>so I think this is part of how they're going

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<v Speaker 3>to address it. Yeah, a little bit surprising to me.

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<v Speaker 1>But yeah, yeah, I know this coming from the Wall

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<v Speaker 1>Street Journal, Ortberg saying in a message to employees while

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<v Speaker 1>outlining this plan that we need to be clear eyed

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<v Speaker 1>about the work we face the root and realistic about

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<v Speaker 1>the time it will take to achieve key milestones. Clear

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<v Speaker 1>Eyed definitely a phrase to underline there. We were talking

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<v Speaker 1>a little bit about what this means for the space program.

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<v Speaker 1>For example, we were having that conversation with David Weston

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<v Speaker 1>and then you know, now we're having it too. When

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<v Speaker 1>you think about what could go where Boeing could trim,

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<v Speaker 1>what's the potential future of the space program here?

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<v Speaker 3>Yeah, I mean there's a lot of small pieces and

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<v Speaker 3>Boeing that you might be able to get rid of

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<v Speaker 3>and make a little bit of money. But you know,

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<v Speaker 3>I've heard a lot of people sort of talk about

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<v Speaker 3>ge and their turnaround and how they hived off a

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<v Speaker 3>bunch of businesses to raise cash. I just don't see

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<v Speaker 3>that potential here. We even saw that at Rolls Royce

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<v Speaker 3>or they hipped off a bunch of businesses. I think

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<v Speaker 3>there's small stuff they could make cash with. I honestly

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<v Speaker 3>don't think space is something they could make much in selling.

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<v Speaker 3>I think musks, you know, musk SpaceX is really kind

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<v Speaker 3>of taking it to the government launchers. I should say, you.

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<v Speaker 1>Don't think SpaceX will buy the Boeing space program.

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<v Speaker 3>I don't think so. Actually, I think that SpaceX has

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<v Speaker 3>got the rockets they need, They've got the capsules they need.

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<v Speaker 3>I personally think long term, I think Boeing does want

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<v Speaker 3>to be in this space. I no pun attended, and

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<v Speaker 3>so I think that they will push through with their

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<v Speaker 3>space program. I think it's part of their government contracting.

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<v Speaker 3>It should be part of their core competencies. I think

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<v Speaker 3>they'll retain it, but I guess we'll see.

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<v Speaker 1>And I'm hugging this conversation. Do you want to question

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<v Speaker 1>mat Miller?

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<v Speaker 2>Well, I just don't know how much leverage workers have,

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<v Speaker 2>or if the workers have far less leverage. When the

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<v Speaker 2>CEO comes in and says, you know what, I got

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<v Speaker 2>to fire ten percent of this company, I'm not going

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<v Speaker 2>to be able to deliver the products that I wanted

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<v Speaker 2>to next year. How then, can the workers say thirty

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<v Speaker 2>percent is not enough of a raise for us.

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<v Speaker 3>Yeah, so I think again, and this is part of

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<v Speaker 3>that posturing. I think if you're the union, though, you say,

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<v Speaker 3>look at you know, a decade ago, we didn't get

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<v Speaker 3>much at all. It's our turn to get our increase.

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<v Speaker 3>And and they're seeing, I think, organized labor get it

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<v Speaker 3>all over all over the economy. And I guess I

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<v Speaker 3>would come back to you can't build the airplanes without

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<v Speaker 3>the union. So I still think that despite this announcement today,

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<v Speaker 3>I still think that there's more power with the workers

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<v Speaker 3>right now. Again, now we're gonna and this is part

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<v Speaker 3>of any Kelly orper getting ready to you know, ger

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<v Speaker 3>the company to go a bit of a distance in

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<v Speaker 3>the strike, maybe to get the union to rethink their position.

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<v Speaker 3>But I still feel like the union has has has

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<v Speaker 3>more strength here unless Boeing's willing to take a longer term, right,

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<v Speaker 3>you know. I think that bear in mind they're building

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<v Speaker 3>this seven thirty seven, which is the money maker and

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<v Speaker 3>the way out of this out of this mess too.

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<v Speaker 3>So to me, that's kind of like having one of

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<v Speaker 3>the better chess pieces. I guess it's the Queen right.

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<v Speaker 1>And George really quickly here. You think back to just

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<v Speaker 1>a couple of days ago, you had S and P

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<v Speaker 1>Global Ratings warning that they could downgrade Boeing to junk.

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<v Speaker 1>I have to imagine maybe that's put a little bit

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<v Speaker 1>more urgency at Kelly Orberg's heels. Do you think that

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<v Speaker 1>these moves will save them necessarily, at least when it

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<v Speaker 1>comes to the credit rating?

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<v Speaker 3>You know, so this is a pre announcement. We don't

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<v Speaker 3>typically see pre announcements out of Boeing. I personally think

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<v Speaker 3>that this is a precursor to an equity issuance, and

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<v Speaker 3>that maybe it comes next week. And I think they're

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<v Speaker 3>gonna I think they're going to try to shore up

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<v Speaker 3>the finances here next to go this long haul against

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<v Speaker 3>the union, and I think it's you know, I think

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<v Speaker 3>that the rating uncies are concerned. I will tell you

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<v Speaker 3>the cash burn right we're looking very quickly at these numbers.

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<v Speaker 3>Wasn't as bad as I feared. I think they're about

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<v Speaker 3>ten and a half billion. Did they say in cash

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<v Speaker 3>right now? That's enough to run the company? I thought

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<v Speaker 3>they might be sub ten billion. Wasn't as bad as

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<v Speaker 3>I had feared, So that might help the credit rating

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<v Speaker 3>agencies and if you raise some equity here, if you

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<v Speaker 3>raise ten twenty billion of equity, that might keep the

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<v Speaker 3>rating acies happy as well, and that this might be

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<v Speaker 3>designed to try to stay I think it is designed

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<v Speaker 3>to save that off ten or twenty.

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<v Speaker 2>I mean, there's a big difference between those two numbers.

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<v Speaker 2>I've heard fifteen. Is that what you're hearing as well?

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<v Speaker 3>I've heard between ten and twenty, So I don't know,

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<v Speaker 3>maybe that is fifteen. I mean when you go to

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<v Speaker 3>the equity markets, you know, I don't know what's the

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<v Speaker 3>difference between ten and twenty. I think you know.

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<v Speaker 2>Anyway, what's the difference was ten billion dollars between friends.

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<v Speaker 2>George Great having on the program, Thank you so much

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<v Speaker 2>for joining us on such short notice to talk about

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<v Speaker 2>this breaking news. So Boeing to cut ten percent of

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<v Speaker 2>its workforce and delay seven seven seven X deliveries