29 Apr 2020
Posted in Aerospace, Defense & Security
Boeing cuts expenses to face long-term effects of COVID-19
Following today’s (Wednesday 29th April) release of Boeing’s earning results for Q1 2020, Nicolas Jouan, Aerospace and Defense Analyst at GlobalData, a leading data and analytics company, offers his view on Boeing’s strategy:
“Boeing’s results showed dire figures, especially for its Commercial Airplanes business. Boeing President and CEO David Calhoun pointed to the COVID-19 pandemic as the root of the company’s troubles. The fall in revenues for Commercial Aircrafts, declining from US$11,822bn to US$6,205bn year-on-year and featuring US$2bn in operating losses, could be foreseen from the recent succession of cancellations that stroke Boeing’s backlog, especially the B737.
“Boeing’s troubles started last year with the grounding of the B737 MAX after two successive crashes. Boeing’s commercial aircrafts’ order backlog is 80% composed of single-aisles in unit terms, according to GlobalData. However, this figure tends to diminish in relative terms with cancellations such as Avolon’s (75 MAXs) or GE Capital Aviation’s (69 MAXs) in April this year. The crisis of air travel generated by the pandemic is another nail in the single-aisle fuel-efficient coffin. The jetliner market was confronted to a slowdown of the Asian market already before the COVID-19 outbreak and narrow-body also have to live with the growing irrelevance of fuel efficiency since the collapse of oil price.
“Boeing has announced that it intended to lay off 10% of its workforce in order to face the crisis. It is still planning on the return to service of the B737 MAX during 2020, but will keep its production rate at 31 planes per month until 2021. Airbus announced similar measures with a limit of 40 planes per month for the A320neo. Overall, Boeing is taking the path of realism and intends to reduce its output on the long run instead of betting on a more immediate recovery. True to Mr. Calhoun words, the plane maker has not tapped in the CARES Act stimulus funds in order to avoid governmental involvement, and has rather let its supply chain keep afloat this way. The announced measures were therefore unfortunate, but unsurprising considering the situation of the market.”