Boeing reports pandemic-impacted first-quarter results

Cleveland, Ohio – The Boeing Co. reported first-quarter revenue of $16.9 billion, down 26% from Q1 2019, primarily reflecting the impacts of COVID-19 and the 737 MAX grounding. The company posted an operating cash loss of $4.3 billion for the quarter.

Commercial airplane deliveries dropped 66% in Q1 2020 compared to Q1 2019, from 149 to 50, with a corresponding 48% loss in revenue. A bright spot: the plane maker reports a total backlog of $439 billion, including more than 5,000 commercial airplanes.

Defense, Space & Security revenues were off 8% from Q1 2019, but the backlog is $64 billion, 28% representing orders from customers outside the U.S.

Global Services Q1 2020 revenue was $4.6 billion, with operating margin increased to 15.3% primarily due to favorable government services volume.

Boeing President and CEO Dave Calhoun issued a letter to employees addressing “aerospace market realities.”

“The COVID-19 pandemic is affecting every aspect of our business, including airline customer demand, production continuity, and supply chain stability. Our primary focus is the health and safety of our people and communities while we take tough but necessary action to navigate this unprecedented health crisis and adapt for a changed marketplace,” Calhoun wrote.

To align the business for the new market reality, Boeing is taking actions that include reducing commercial airplane production rates, leadership and organizational restructuring to streamline roles and responsibilities, and reducing staff.

Boeing management expects to resume 737 MAX production at low rates in 2020, gradually increasing to 31 planes per month during 2021, with further gradual increases to correspond to market demand.

The 787 production rate will be reduced from 14 per month to 10 per month in 2020 and to 7 per month by 2022, the rate to be evaluated after that.

The combined 777/777X production rate is reduced to 3 per month in 2021 and the company will “take a measured approach” to the 777X rate ramp. Production rates for the 767 and 747 remain unchanged.

In addition to production rate reductions, Boeing is reducing the size of its workforce.

“We have begun taking action to lower our number of employees by roughly 10% through a combination of voluntary layoffs (VLO), natural turnover, and involuntary layoffs as necessary,” Calhoun announced. “We’ll have to make even deeper reductions in areas that are most exposed to the condition of our commercial customers – more than 15% across our commercial airplanes and services businesses, as well as our corporate functions.”

Without the ongoing stability of defense, space, and related services businesses, the cuts would be worse.

To manage cash near-term, the company has drawn on a term loan; reduced operating costs and discretionary spending; extended the existing pause on share repurchases; suspended dividends until further notice; reduced or deferred research and development and capital expenditures; and eliminated CEO and chairman pay for the year.

“Access to additional liquidity will be critical for Boeing and the aerospace manufacturing sector to bridge to recovery, and the company is actively exploring all of the available options. Boeing believes it will be able to obtain sufficient liquidity to fund its operations,” the statement said.

Calhoun reiterated the April 25, 2020 announcement on Boeing’s decision to terminate joint ventures with Embraer. “We had reached a point where continued negotiation was no longer helpful, so we exercised the rights set out in the Master Transaction Agreement (MTA) to terminate the agreement.” Embraer officials strenuously disagree with that assertion.

Despite cutting aircraft production and jobs, Calhoun voiced some optimism. “Our industry and our company will get through this,” he wrote. “Air travel has always been resilient over the long term, and our portfolio of products, services, and technology is well-positioned for the recovery that will come.”