There were no plans at this time for job cuts, but the company was closely monitoring business conditions: Boeing

Boeing Co is freezing new hiring and overtime except in certain critical areas to preserve cash, the United States planemaker’s CEO said on Wednesday. The move came as the coronavirus outbreak compounds the fallout from a year-old grounding of the company’s money-spinning 737 MAX. 

The twin global crises, and news that Boeing is planning to draw down the rest of a $13.8bn loan it took last month, sent shares down more than 14 percent to almost a three-year low on Wednesday amid a broader market dip over the spreading virus.

Boeing Chief Executive Dave Calhoun told employees on Wednesday that the company was taking steps to address the business pressures that result from “the pain our customers and suppliers are feeling.”

“It’s critical for any company to preserve cash in challenging periods,” Calhoun wrote in a memo seen by Reuters.

Layoffs or furloughs were also a “real possibility” but were seen as a separate, later action, one person familiar with the company’s thinking said. A second industry source said job cuts were likely as the aviation industry is squeezed by plummeting travel demand and a safety ban on the 737 MAX after two fatal crashes hit the one-year mark.

A Boeing official said there were no plans at this time for job cuts, but the company was closely monitoring business conditions.

The cash preservation strategy cames as Boeing scrambles to curb fallout from the year-old grounding of the 737 MAX jet after crashes in Ethiopia and Indonesia killed 346 people five months apart.

The worldwide safety ban wiped billions from the company’s value and sparked hundreds of lawsuits from bereaved families.

Boeing took in 18 new orders for widebody planes in February but saw more customers cancel 737 MAX orders.

Separately, a person familiar with the matter told Reuters News Agency that Boeing was drawing down the loan because of overall market volatility and not due to the changing of the return-to-service date for the 737 MAX. That date has been pushed back for months and is now expected at earliest mid-year.

Boeing took the extraordinary step of preserving production staffing levels when shutting down 737 MAX production earlier this year to be ready to ramp back up when the 737 MAX wins regulatory approvals to return to service.

But the depth of the coronavirus outbreaks and the demand by airlines to defer orders and delay pre-delivery payments has increased pressure on Boeing and forced it to consider more stringent steps to reduce cash outflow, according to the sources.

United Airlines, for example, slashed its 2020 capital expenditure on Tuesday, a move that will halt jet deliveries and push back its timeline for future deliveries.

“To be clear, we will not be taking delivery of even a single aircraft in that CapEx forecast unless it is fully financed until the crisis is over,” United President Scott Kirby told investors.

As of January 21, United’s main 2020 aircraft delivery commitments were with Boeing, including two 777-300s and 15 787s. It was also due to receive 28 737 MAXs, pending regulatory approval.

Boeing will want to avoid cutting into the resources needed for a smooth ramp-up in 737 production, however, Reuters’s sources said. Losing workers to other companies in a tight labour market or training new ones would complicate such efforts.

“You’ll hear from us often through this uncertain period ahead,” Calhoun told employees. “We’ll be clear about the challenges. And we’ll be transparent as we consider additional affordability measures.”