Boeing Co (NYSE:BA) announced plans to cut about 4000 jobs in its commercial airplanes division by the middle of this year, along with another 550 job cuts in a flight and lab test division. The job cuts are part of an effort to reduce costs to stave off fierce competition from rival Airbus Group SE (EPA:AIR). Boeing stock has declined about 12% over the past year.
BA stock could fall on the news, as investors are usually not well receptive to company layoffs. Pre-market analysis though shows BA stock was up $0.96 or 0.73%.
The plane maker will reduce about 1,600 positions in the commercial airplanes division through voluntary layoffs under a voluntary program announced last month. The rest of the job cuts will come from leaving open positions unfilled or through attrition.
In February, CEO of Boeing’s airplane business, Ray Conner, warned employees that job cuts were necessary to “win in the market, fund out growth and operate as a healthy business.” (Source: “Boeing says it will cut more than 4,500 jobs,” Reuters, March 30, 2016.)
Boeing is also restructuring management in the commercial airplane division to create a “more streamlined and nimble organization that can respond to marketplace demands,” said Marc Birtel, a Boeing spokesperson. (Source: “Boeing to Trim 4,000 Jobs Amid Makeover of Commercial Unit,” Bloomberg, March 30, 2016.) The division accounted for about 68% of Boeings 2015 profit.
The layoffs aren’t the only initiative the company is taking to reduce costs. Boeing is also renegotiating supplier contracts, consolidating programs, slashing business travel and working to boost productivity, quality and reduce excess inventory, Birtel said. (Ibid Bloomberg.) Birtel also said that the number cuts could vary depending on how successful the company is in these initiatives.
The layoffs might come as a bit of surprise considering that 2015 was a record year for the company. Boeing earned its highest ever revenue, $96.1 billion and delivered 762 commercial planes which is also a record, but it’s adjusted profit fell 13% from the previous year to $7.74 billon. Accounting losses related to the development of the KC-46 tanker and its declining 747 program are largely to blame.
Boeing is expected to deliver somewhere between 740 and 745 airplanes this year as it plans to reduce the output of its older 747 jumbo jet and begins manufacturing a new version of the 737. The 737 is Boeings best selling and most profitable jet.
According to the company, the new 737 jets will be assembled at a slower pace this year but will boost delivery totals in 2017 when it’s expected to make its commercial debut.