In the aftermath of stalled talks with striking machinists, Boeing announced its plans to cut 10% of its workforce in the coming months. This move is expected to affect around 17,000 employees across various sectors, including executives, managers, and staff. The decision comes amidst a prolonged strike by 33,000 machinists in the Puget Sound region, who have been on strike since September 13.
The strike, which has disrupted production and deliveries of key Boeing models, including the 737, 767, and 777, was triggered by dissatisfaction with Boeing’s initial offer of a 25% pay increase over four years. While endorsed by local union leaders, the offer was overwhelmingly rejected by the union’s rank and file. Boeing later increased the offer to 30%, bypassing union leadership and setting a deadline for acceptance. However, the International Association of Machinists (IAM) did not consider the revised offer.
Boeing’s new CEO, Kelly Ortberg, communicated to employees on October 11 that the staff reduction plan would replace the next cycle of furloughs. The company is also facing challenges with its 777X program, which has been hampered by delays, including a halt in flight testing and a recent discovery of a severed thrust link assembly during routine FAA certification flights in Hawaii. This issue, which affected all four 777-9 test aircraft, has pushed the first expected delivery of the 777X to 2026.
Compounding Boeing’s woes, the company also announced it would incur a $2.6 billion pre-tax earnings charge in the third quarter due to the delayed 777-9 and 777-8 freighter deliveries. Additionally, it will conclude production of the 767F freighter, recognizing a $0.4 billion charge on the program, though it will continue to manufacture the 767-2C in support of the KC-46A Tanker program beginning in 2027.
As Boeing prepares to report its Q3 earnings on October 23, preliminary guidance suggests the company will post $17.8 billion in revenue. The commercial aircraft division anticipates revenues of $7.4 billion, while the Defense, Space & Security division expects $5.5 billion. Both sectors are operating with negative margins, signaling further financial strain.
In a broader context, the ongoing strike could end up costing Boeing more than what the union’s wage demands would have. Scott Mikus, VP of Aerospace and Defense Research at Melius Research, noted that labor costs make up only 3-5% of the total cost of a commercial aircraft program, whereas raw materials account for around 65%. Mikus suggested that Boeing could recoup some of these costs through contracts with airlines and pricing escalators.
“We are making important strategic decisions for our future and have a clear view on the work we must do to restore our company,” Ortberg said, stressing that these moves are essential to ensure Boeing’s long-term competitiveness.
PHOTO CREDIT: BOEING
