Boeing May Lay Off 10,000 Workers

Boeing executives said Jan. 28 that the company is considering cutting 10,000 jobs.

The Chicago-based defense and aerospace giant announced a loss of $56 million, or 8 cents a share, for the fourth quarter of 2008, though most analysts were predicting a profit of 76 cents a share.

While revenue fell in both the commercial and defense portions of the company, it was the commercial side that got the most attention during Boeing's fourth-quarter conference call.

The loss was due in large part to a strike by Boeing machinists last fall, Boeing executives said. That hurt potential fourth-quarter revenue by $4.3 billion and earnings per share by $1.02, the company said.

James McNerney, Boeing's chairman, president and chief executive, acknowledged that 2008 was a "challenging year," and said Boeing is aiming to cut 6 percent of its workforce while also cutting discretionary capital expenditures and "unnecessary work."

The job cuts will happen through a combination of layoffs, cuts in contract labor, attrition and retirements, McNerney said.

Another hit to fourth-quarter earnings came from delays on the company's 747-8 jumbo jet program. Boeing put the impact to earnings from those delays at 61 cents a share. McNerney said the company underestimated how much engineering work was needed on the aircraft, resulting in "substantial" design changes.

Boeing had revenue of $12.7 billion in the fourth quarter, down from $17.5 billion in the same quarter in 2007. Fourth-quarter earnings were $1.36 a share in 2007.

In contrast to the commercial division, Boeing's defense division had a much smaller drop in revenue. In defense activities, which make up roughly half of Boeing's business, fourth-quarter revenues were $8 billion, down from $8.4 billion a year ago. Executives highlighted international contract wins, such as agreements to sell P-8 maritime patrol aircraft to India and C-17 transport planes to NATO.

McNerney also said Boeing is sticking to the schedule it issued in December for the 787 Dreamliner, with the first flight planned for the second quarter of 2009, despite delays from the machinists' strike and the need to replace certain fasteners. Boeing plans to produce 10 787 airliners a month in 2012. The backlog for the 787 is about 900 planes, McNerney said.

Boeing's total backlog at the end of 2008 stood at $352 billion, $73 billion of which was for the company's defense division.

McNerney said Boeing is expecting more pressure on defense budgets in the United States and other countries because of spending on economic recovery programs. Moreover, financing for airplanes continues to be challenging, he said.

There were six order cancellations in Boeing's commercial division in 2008, and about 110 aircraft deferrals, but there will likely be more cancellations and deferrals in 2009, the CEO said.

"We are indeed facing one of the more difficult commercial and financing markets that most of us have ever seen," McNerney said. "However, we have a solid foundation from which to work through this environment, with half our business in defense, strong commercial products and a large backlog. Equally important is the fact that the actions we are taking now are not business as usual."

McNerney said Boeing is working to reform its operating model to move away from business units operating as "islands."

He said the company "waited too long" to integrate functions that span the entire company and foster the sharing of best practices. Boeing has already started doing that, with reorganization in its commercial airplanes business late last year, but more changes will come, he said.

Within the commercial division, "We are reintroducing rigorous functional discipline, with clear lines of sight and accountability and tighter integration to program, business unit and corporate decision making," McNerney said. "It's time to end the era where development programs were stood up to operate as islands of their own. While this structure served a purpose to foster the kind of tremendous innovation like the 787, our recent experience has shown it to do so at the expense of execution and predictable performance."