SEATTLE — Boeing Co. is freezing new hiring and overtime except in certain critical areas to preserve cash, the U.S. planemaker’s CEO said on Wednesday, as the coronavirus outbreak compounds the fallout from a year-old grounding of its 737 Max.
The twin global crises, and news that Boeing is planning to draw down the rest of a $13.8 billion loan it took last month, sent shares down almost $42, or more than 18%, to $189, almost a three-year low, amid a broader market dip over the spreading virus.
Boeing Chief Executive Dave Calhoun told employees on Wednesday the company was taking steps to address the business pressures that result from “the pain our customers and suppliers are feeling.”
“It’s critical for any company to preserve cash in challenging periods,” Calhoun wrote in a memo seen by Reuters.
Layoffs or furloughs were also a “real possibility” but were seen as a separate, later action, said one person familiar with the company’s thinking. A second industry source said job cuts were likely as the aviation industry is squeezed by plummeting travel demand and a year-old safety ban that was imposed on the 737 Max after two fatal crashes.
A Boeing official said there were no plans at this time for job cuts but the company was closely monitoring business conditions.
The cash preservation strategy comes as Boeing scrambles to curb ongoing fallout from the year-old grounding of the 737 Max jet after crashes in Ethiopia and Indonesia killed 346 people five months apart.
The worldwide safety ban wiped billions off the company’s value and sparked hundreds of lawsuits from bereaved families.
Boeing took in 18 new orders for widebody planes in February but saw more customers cancel 737 Max orders.
Separately, a person familiar with the matter said Boeing was drawing down the loan because of overall market volatility and not due to the changing of the return to service date for the 737 Max, which has been pushed back for months and is now expected at earliest around midyear.
Boeing took the extraordinary step of preserving production staffing levels when shutting down 737 Max production earlier this year in order to be ready to ramp back up when the 737 Max wins regulatory approvals to return to service.
But the depth of the coronavirus outbreaks and the demand by airlines to defer orders and delay pre-delivery payments has increased pressure on Boeing and forced it to consider tougher steps to reduce cash outflow, the people said.
Boeing will want to avoid cutting into the resources needed for a smooth ramp-up in production, however, the people said. Losing workers to other companies in a tight labor market or training new ones would complicate such efforts.
“You’ll hear from us often through this uncertain period ahead,” Calhoun told employees. “We’ll be clear about the challenges. And we’ll be transparent as we consider additional affordability measures.”
Boeing is a major St. Louis employer, where it builds fighter aircraft and guided missile systems, among other products. It has approximately 16,000 workers in the St. Louis area.
Hepher reported from Paris. Additional reporting by Tracy Rucinski in Chicago, David Shepardson in Washington, and Rachit Vats in Bangalore.
Updated at 2:13 p.m.
Our earlier story, posted at 10:33 a.m.
WASHINGTON — Boeing Co. is planning to draw down the rest of a $13.8 billion loan it agreed last month, a source told Reuters on Wednesday, as the coronavirus outbreak adds to pressure on the U.S. plane-maker due to the grounding of its 737 Max jets.
The source said that the company was taking the step because of overall market volatility and not due to the changing of the return to service date of its 737 Max aircraft, which has been steadily pushed out and is now expected at earliest mid-year.
Boeing’s shares fell as much as 11% to $205.56 on news of the loan drawdown, initially reported by Bloomberg News, broadly in line with a collapse in airline and other aerospace shares across the board.
The planemaker may draw down the money as early as Friday, the source said.
Boeing had no immediate comment.
U.S. companies have been rushing to borrow more money and boost their cash coffers this week, as market turmoil fueled by a plunge in oil prices and the coronavirus outbreak raised the prospect of an economic downturn.
Airlines have been among the worst hit, as a collapse in bookings and business travel forced radical cuts in flight schedules, capacity and annual results forecasts.
Boeing’s total debt nearly doubled to $27.3 billion in 2019, as it compensated airlines and grappled with additional production costs for the 737 Max even as the grounding prevented it from delivering the aircraft to buyers.
Media reported last month that the planemaker had raised a total of $13.825 billion in a fund raising round from lenders including Bank of China and PNC. Analysts estimated last year that the company was leaking around $1 billion monthly as a result of the Max grounding.
Boeing, which has seen orders collapse in the face of the Max crisis, said separately on Wednesday that it won 18 new orders for wide-body planes in February although Max cancellations meant overall it lost 28 orders last month.
The planemaker has been encouraging customers to swap the Max for more expensive 787 or 777 planes, but analysts say the cuts in capacity by airlines may weaken any such demand.
Boeing, which has said it expects the 737 Max to be recertified by the middle of this year, is also facing the possibility of additional delays after it failed to win the backing of U.S. aviation regulators earlier this week to leave wiring bundles in place on the grounded plane.
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