Boeing's Bottom Line Reels From Coronavirus, 737 Max Groundings
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On this morning when the United States is reporting how badly the overall economy did in the first quarter - and it was pretty bad - Boeing is reporting how badly it did, losing $641 million in the first quarter. Boeing's CEO sent a note to employees announcing plans to reduce the size of the workforce by about 10%. Dave Calhoun is the leader of the company that was in trouble even before the pandemic because of the grounding of a popular airplane. NPR's David Schaper reports from Chicago.
DAVID SCHAPER, BYLINE: As the face of a company, it's a CEO's job to put the best possible spin on bad situations. In Boeing Chief Executive David Calhoun's case, there's no sugar-coating the bitter taste of an industry crushed by an invisible virus.
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DAVID CALHOUN: The health crisis is unlike anything we have ever experienced.
SCHAPER: In an annual shareholders' meeting held over the phone Monday, Calhoun talked about the steep drop in air travel. The number of people flying is down more than 95% from the beginning of March. Airlines around the world have parked more than 17,000 passenger jets - nearly two-thirds of the global fleet - and are on pace to lose more than $300 billion this year. So Calhoun says they won't be buying new planes anytime soon.
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CALHOUN: It will be years before this returns to pre-pandemic levels. And it is difficult to estimate when the situation will stabilize. But when it does, the commercial market will be smaller. And our customers' needs will be different.
SCOTT HAMILTON: Boeing is just in a world of hurt.
SCHAPER: Scott Hamilton is an aviation industry consultant with Leeham Company. He says Boeing's rival, Airbus, is hurting, too, and will dramatically scale back production and lay off workers. But Boeing might be worse off.
HAMILTON: Now, in Boeing's case, of course, it's exacerbated by the fact that the 737 MAX has been grounded since March 13 of last year.
SCHAPER: That was after the second of two MAX plane crashes that killed 346 people. The grounding of the bestselling commercial jet ever has cost Boeing billions. And it now appears the MAX will stay grounded at least through August. Southwest Airlines, the largest MAX customer, just drastically reduced the number of the planes that it'll take next year.
Add to that the fact that Boeing is still under investigation for how it got a flawed flight control system certified. And according to The Wall Street Journal, investigators are also looking into widespread problems on the 737 MAX assembly line. And lawsuits filed by the families of those killed are still pending. Analyst Sheila Kahyaoglu at Jeffries & Company says, despite the MAX problems, Boeing still has about $15 billion on hand.
SHEILA KAHYAOGLU: If they continue paying their suppliers at the rate they've been doing, they're depleting that cash reserve pretty quickly.
SCHAPER: So that'll only last a few more months. CEO Calhoun told shareholders the company will need to borrow money to get by. But he wouldn't say if Boeing will ask for federal loans by this Friday's deadline, as he's balked at giving the government an equity stake in return. I asked longtime Boeing analyst Scott Hamilton just what it'll take for the company to make money again.
HAMILTON: (Laughter) Good question. I think, predominantly, they're going to rely on defense contracts. And, well, it's a good question. I don't have an answer for that.
SCHAPER: Hamilton says it depends on when air travel demand returns to a level where airlines will buy new planes again. But he worries that could take four to eight years.
David Schaper, NPR News, Chicago.
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