Boeing begins hiring freeze, considers furloughs

(Bloomberg) — Boeing Co. said it is taking a series of cost-cutting measures in response to a costly, prolonged strike by workers at its main hub near Seattle, including a hiring freeze and furloughing “many employees.”

The steps were laid out in a memo to employees from Chief Financial Officer Brian West, who outlined necessary and “immediate” actions to support the company’s recovery.

The sweeping measures also include halting non-essential travel, suspending any salary increases tied to promotions, cutting spending on air shows and charitable donations, and “significant reductions in supplier spending.” The planemaker will stop placing “most” purchase orders with suppliers for the 737, 767 and 777 passenger jet programs affected by the strike, the memo said.

“Our business is going through a difficult period. This strike seriously jeopardizes our recovery, and we must take the necessary steps to preserve cash and safeguard our shared future,” West said in the memo.

Last week, about 33,000 workers represented by the International Association of Machinists and Aerospace Workers overwhelmingly rejected a proposal to raise wages by 25% over four years, bringing Boeing’s jetliner factories on the Puget Sound to a standstill.

The two sides plan to meet again this week to try to reach a new agreement, with union leadership warning that the strike could continue for some time.

West’s proposed move highlights Boeing’s struggling financial situation, with its credit rating at risk of falling below investment grade and the company hemorrhaging cash as aircraft production slumps.

Ken Herbert, an analyst at RBC Capital Markets, estimated that Boeing would lose about $500 million in cash each week if workers continued to picket.

Other steps Boeing will take include canceling first- and business-class travel, including for senior executives, laying off nonessential contractors and suspending spending on team activities, the memo said.

Boeing shares were down 1.5% as of 11:47 a.m. in New York.

West said at an analyst conference last week that maintaining its credit rating is a top priority for the company. Boeing has been in crisis since the Jan. 5 crash of a 737 Max aircraft, which forced it to cut output to restore production.

S&P Global Ratings said on Monday that Boeing could cut its credit rating to below investment grade if the company faces a prolonged strike, echoing similar comments last week from Fitch Ratings and Moody’s Investors Service, which on Friday put Boeing on review for downgrade.

S&P said a shorter strike of a few weeks “could likely be tolerated by Boeing without negative rating action. However, we believe a prolonged strike would be costly and unaffordable given the company’s already strained financial condition.”

Boeing’s credit rating is one notch above junk at all three major ratings agencies. For its $58 billion of debt to move out of the investment-grade index and into speculative grade, two of the three agencies would have to lower their scores.

Raising money in the junk bond market is more difficult than raising money in the highly rated bond market. The average interest expense in the junk bond market is much higher, while the pool of potential investors is smaller, making refinancing more expensive. Moody’s said the company has $4 billion of debt maturing in 2025 and another $8 billion of debt maturing in 2026.

West said last week that the aircraft maker was reviewing its capital structure to ensure it could repay debts within the next 18 months.

(Updates with stock, S&P statement and additional details in third paragraph.)

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