FreightWaves Benzinga March 23, 2020
Boeing Co. (NYSE: BA) said Monday it is shutting down production for two weeks at its aircraft manufacturing plants in northwest Washington to protect the health of employees and their families as the coronavirus pandemic continues to spread in the U.S.
Assembly lines will gradually reduce work levels through Wednesday and then close for 14 days, during which time the company will conduct deep cleaning and establish rigorous criteria for return to work.
2020 was already shaping up as a difficult year for Boeing, which stopped production of the troubled 737 MAX production line in January while waiting for safety regulators to approve its return to service following two deadly crashes in 2018 and 2019. Boeing has designed software fixes for the anti-stall system blamed for contributing to the accidents by pitching the nose sharply downward and is correcting other safety issues found in subsequent audits. Company officials had indicated they expected to get the green light to proceed by early summer.
The aerospace manufacturing industry, including Boeing, is seeking $60 billion from the federal government as part of a $1.6 trillion emergency economic package for businesses and workers. But a deal fell apart Sunday night over differences on what types of conditions should be placed on large corporations for aid.
Boeing's production delay means it will take longer for airlines to receive scheduled deliveries, but with the aviation market cratering because of COVID-19, lack of capacity will be the least of airlines' concerns once the spread is contained and economic activity resumes. Experts forecast travel demand will return slowly and that it could take a couple of years for airlines to get back to last year's traffic level.
Boeing employs nearly 66,000 people in Washington, where it makes the 737, 747-8 and 747-8 freighters, the 767 and 767 freighter, the 777, and the 787. The shutdown will also push back development of the 777X, the next-generation of the wide-body plane that Boeing intended to start delivering next year. Suppliers will also be hurt by Boeing's decision because Boeing will not accept any shipments during the shutdown.
General Electric Company (NYSE: GE) aviation arm, which manufactures engines, said it will cut its U.S. workforce by 10%. GE also said that there will be a temporary lack of work impacting about 50% of its U.S. maintenance, repair and overhaul employees for 90 days.
The aerospace giant's announcement made no mention of its Charleston, South Carolina, plant, where the 787 Dreamliner is also produced.
Boeing said employees in Everett and Renton will receive pay for the initial 10 working days of the suspension — double the company policy, which will provide coverage for the two-week period. Other employees will continue to work from home.
The company said it will restart production in an orderly fashion when the suspension is lifted. Critical distribution of parts to support airline, government and maintenance shop customers will continue.
"We continue to work closely with public health officials, and we're in contact with our customers, suppliers and other stakeholders who are affected by this temporary suspension. We regret the difficulty this will cause them, as well as our employees, but it's vital to maintain health and safety for all those who support our products and services, and to assist in the national effort to combat the spread of COVID-19," Boeing CEO David Calhoun said in a statement.
Meanwhile, Boeing's European rival Airbus, resumed partial production at plants in France and Spain after a four-day pause to sterilize equipment and develop efficient work protocols while practicing social distancing. The manufacturer said work stations will only reopen if they comply with new hygiene standards and safety measures, which are being implemented at all sites without full interruption.
Boeing sharply lagged Airbus in deliveries and orders last year due to the MAX crisis and is likely to lose even more ground this year.
In February, the Airbus assembly line in Tianjin, China, reopened following a temporary production stoppage related to mass quarantines in that country. Airbus said the plant is operating at normal levels now.
Airbus said it is canceling a planned dividend payment and lining up $16 billion in new credit to help keep its doors open.
Over the weekend, Airbus used an A330-800 test plane to transport about 2 million protective masks from Tianjin back to Europe to help protect people in France and Spain. Additional flights are planned to take place in the coming days, Airbus said.
Major truck and auto manufacturers are also temporarily closing plants because of the health risk associated with the coronavirus.
In related news, Canadian airline Transat A.T. announced it has temporarily laid off 3,600 people, about 70% of its workforce, in Canada due to the lack of business. Last week, the company said it was shutting down flight operations through the end of April.
Air Canada is laying off 3,600 flight attendants and 1,549 flight attendants at low-cost subsidiary Rouge, about 60% of its cabin crews, according to a post from the Canadian Union of Public Employees. The layoffs are effective until April 30, at the earliest. Air Canada is suspending most international and U.S. flights at the end of the month.
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Boeing CEO Touts 'Plenty' Of Alternatives To Massive Taxpayer Bailout
GILLIAN RICH 03/24/2020
Boeing (BA) CEO David Calhoun said Tuesday that the aerospace giant could survive without a taxpayer bailout and wouldn't accept government help if an equity stake was mandated. Boeing stock rose.
Calhoun said that Boeing has $15 billion in liquidity, which it could use to get through the coronavirus crisis. The company recently drew down the full amount of a $13.8 billion loan and has suspended its dividend to preserve cash as well as enacted cost controls.
"If there is no government support and the credit markets don't reopen, it will be fairly quick, but we can still make it to the other side," Calhoun told CNBC when asked about the cash burn rate. "Now if this goes on for eight months, probably not."
Boeing is asking Congress for a $60 billion package for the overall aerospace manufacturing sector to "maintain the health of the supply chain." But it was unclear how much Boeing would receive vs. its smaller suppliers.
While Boeing said it could survive without a taxpayer bailout, the government aid would "keep our industry and people warm so when the recovery comes we're ready to go," Calhoun told CNBC.
But instead of a government equity stake like the Treasury Department took in banks during the 2008 financial crisis, Boeing wants access to taxpayer-funded loans.
"I don't have a need for an equity stake," Calhoun told Fox Business. "If they forced it, we'd just look at all the other options, and we have got plenty."
Boeing Stock Climbs Despite Cash Concerns
Shares soared 21% to close at 127.68 on the stock market today as the Dow Jones jumped on reports that Congress was near a deal for a Covid-19 stimulus package. Boeing stock is still well below its 50-day and 200-day lines and has weak IBD Composite Rating and Relative Strength Rating.
Top Boeing 737 Max supplier Spirit AeroSystems (SPR) jumped 20.7%. Jet-engine supplier General Electric (GE) climbed 14.7%.
Cash flow has been a growing issue at Boeing as collapsing travel demand has caused airlines to defer orders, while the grounded 737 Max has been an added pressure.
The company is burning a lot of that cash by continuing to pay its suppliers and employees. But its revenue stream is slowing to a trickle. The 737 Max is still grounded and airlines are now deferring orders since the virus has brought global travel to a near standstill.
Spirit AeroSystems said Tuesday it would suspend Boeing production March 25 until April 8. That comes as Boeing shutters its production facilities in the Puget Sound area for the next two weeks. During that time, the company will perform additional deep cleaning activities at impacted sites.
Follow Gillian Rich on Twitter @IBD_GRich for aviation news and more.
Boeing CFO says aerospace industry needs credit urgently, markets closed to new debt
By Eric M. Johnson, David Shepardson and Tim Hepher Reuters March 24, 2020
FILE PHOTO: The Boeing logo is displayed on a screen, at the NYSE in New YorkMore
By Eric M. Johnson, David Shepardson and Tim Hepher
SEATTLE/WASHINGTON/PARIS (Reuters) - Boeing Co's
Greg Smith also stressed the strategic value of a $4.2 billion deal to acquire the commercial planemaking arm of Embraer
The comments on credit in an interview with Reuters appeared to underscore the U.S. planemaker's opposition to granting equity as part of an industry-wide government bailout deal.
U.S. lawmakers have said they could demand stock or equity-based instruments like warrants or options as a condition of government loans.
"Having access to the credit markets is really important for us right now," Boeing CFO Greg Smith said when asked whether Boeing could issue such instruments in return for support.
Chief Executive Dave Calhoun told Fox Business earlier on Tuesday that Boeing could "take a different course" if lawmakers "attach too many things" to a stimulus package.
Boeing has sought $60 billion in U.S. government loans or loan guarantees for itself and the aerospace industry.
Congress was expected reach agreement on a stimulus and rescue package worth up to $2 trillion to respond to economic damage from the coronavirus pandemic as soon as Tuesday.
Smith said Boeing, which drew down a $13.8 credit line it took in February but has a further $9.6 billion in reserve, was not in discussions to add new commercial debt facilities.
"Not right now. The markets essentially are closed," Smith said. "I mean, there's really not much opportunity to raise any additional debt. That's one of the challenges."
Rating agency Fitch Ratings meanwhile downgraded Boeing to 'BBB' from 'A-', citing the rapid escalation of the pandemic and its effect on Boeing's aviation markets and operations.
Despite such immediate pressures, Smith said Boeing was beginning to see signs of a recovery in China, echoing comments by Airbus
Smith also said a tie-up with Brazil planemaker Embraer
“As you know it’s in the middle of regulatory approval and so we are continuing to monitor that and working closely with the Embraer team," Smith said.
"Strategically, it’s still a great partnership and we have to get through the regulatory hurdles and we’ll see how long that takes. But it still remains a priority for us.”
Shares in Embraer soared as much as 37% on his comments. In later trading they were up 24%.
Smith's comments were the first by a senior Boeing executive since market turmoil raised uncertainty over the deal last week, because of an apparent mismatch between Embraer's market value and the price that Boeing is due to pay for control of its commercial aircraft unit.
The tie-up has also been held up by delays in winning European Union approval.
(Reporting by Eric M. Johnson in Seattle, Tim Hepher in Paris, and David Shepardson in Washington; Editing by Steve Orlofsky)
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