In an extraordinary step, the company said it would put a hold on all new hires pending a “review of priorities and critical needs.” There are no plans to lay off employees at Boeing, said Bill Dugovich, spokesman for the Society of Professional Engineering Employees in Aerospace, a union that represents Boeing employees.
The company’s stock price closed a whopping 18 percent lower than the previous day’s close, riding a broader stock selloff that pushed the market into bear market territory, ending 11 years of gains. The cash-out decision was reported earlier by Bloomberg News and separately confirmed by the person familiar with the matter, who spoke on the condition of anonymity because he was not authorized to discuss it publicly.
In a letter to employees Wednesday, Boeing’s top managers said the company is taking steps to “preserve cash” and relieve pressure on its suppliers.
“We’re also taking steps to address the pressures on our business that result from the pain our customers and suppliers are feeling,” wrote CEO Dave Calhoun and Chief Financial Officer Greg Smith. “It’s critical for any company to preserve cash in challenging periods. That’s why we’re implementing steps similar to what many companies are doing right now.”
A Boeing spokesman declined to comment.
The move comes as airlines are preparing for a global decline in air traffic related to the spread of the novel coronavirus, something that could take a toll on orders for new aircraft.
In a research note on Wednesday, Goldman Sachs analysts predicted a 7 percent decline in air traffic this year will result in more airlines deferring plans to buy new planes. The investment bank lowered its price target on Boeing shares, saying the manufacturer will produce fewer 737 Max and 787 jetliners in coming years than previously expected.
“Airlines around the globe have cut capacity plans, and will likely implement the majority of these through parkings and retirements, but we also expect more deferral announcements,” the analysts wrote.
Whether Boeing will have access to cash in the event that its business deteriorates further is also a concern. Boeing has been unable to deliver the 737 Max, its signature jet, for the past year as regulators remain unsatisfied with its safety features.
The once-promising jet was grounded in response to two crashes that killed hundreds of people in Indonesia and Ethiopia. Equipment problems were found to have played a role in both crashes.
Although Boeing’s size has allowed it to absorb historic losses for the time being, some of the company’s suppliers have been forced to lay off employees. Spirit AeroSystems, among Boeing’s most vulnerable suppliers, is relying on Boeing to keep buying fuselages and other raw materials for the Max even though Boeing’s production lines are paused.
“If anything gets worse ― the Max, the markets, coronavirus ― they will need capital,” said George Ferguson, an aerospace analyst with Bloomberg Intelligence.
“There are suppliers that [Boeing] needs to be healthy in order to get the Max going again, and some of them don’t have deep pockets,” Ferguson added.
Analysts said Boeing’s decision to halt hiring is almost certainly a reaction to problems with the company’s underlying business, and not the more recent Coronavirus-related market disruption.
Given that the company is “hemorrhaging cash,” Richard Aboulafia, an aerospace analyst at the Teal Group, a consulting firm, said “it makes sense” that Boeing would freeze hiring. The company had been on a bit of a hiring spree as it worked to return the 737 Max line to service, he said.
“This suggests they just don’t see a huge call for the Max to return to service, and they no longer have the immediate needs to putting jets in the market,” he said. Airline traffic across the country “is getting pretty ugly,” he said, further compounding Boeing’s woes.
Christian Davenport contributed.