Marketplace (6:30 PM ET) October 12, 2001
Boeing announces first wave of layoffs
DAVID BRANCACCIO, anchor:
Boeing today announced details its first wave of layoffs in light of the dramatic downturn in air travel. The world's biggest commercial aircraft maker says it'll cut about 12,000 employees by the 14th of December. Since the 11th of September, Boeing has taken a serious hit to its business, serious enough, the company says, to lay off up to 30,000 workers by 2002. MARKETPLACE's Sarah Gardner reports on how the company will try to ride out the current crisis.
SARAH GARDNER reporting:
Boeing has suffered through the ups and downs of the airline business for years, but nothing could prepare the company for this sort of downturn. 'Never in our wildest dreams did we believe we'd be in this kind of situation,' said one executive. This kind of situation is airlines not being able to pay for planes they've already ordered and telling Boeing they don't plan on ordering any new ones. This kind of situation is analysts projecting a 35 percent to 45 percent drop in profits in Boeing's commercial airline business next year, and, of course, plans to lay off tens of thousands of workers mostly in the state of Washington. Former airline executive and industry consultant Scott Hamilton.
Mr. SCOTT HAMILTON (Former Airline Executive; Industry Consultant): Boeing has no choice but to downsize. Even Southwest Airlines, which has never ever deferred an airplane, is deferring 11 of them for the balance of this year, including one that was supposed to be delivered on September 11th.
GARDNER: Still, many are shocked at the number of layoffs. Many expect Boeing will make more money on the defense side of its business as the US ramps up the so-called war on terrorism. But many of Boeing's new businesses, like air traffic management, aren't even making money yet. John Pike, director of GlobalSecurity.org, says commercial jets still account for 60 percent of Boeing's sales.
Mr. JOHN PIKE (GlobalSecurity.org): The cutback in air travel and orders for passenger planes was quite immediate, whereas any increase in the Defense budget is something that Boeing wouldn't benefit from for some time to come.
GARDNER: This week, Boeing vice chairman Harry Stonecipher predicted that over the next three to five years, commercial aircraft will shrink to less than half of the company's sales. In the near term, the company will try to make up for the loss by boosting revenues in missiles, space and communications equipment.
In the Seattle area, meanwhile, where Boeing assembles the 737 and the 747, the Society of Professional Engineering Employees in Aerospace seems to have accepted the inevitable; at least 1,000 of the union's members were expected to get pink slips today, says union spokesman Bill Dugovich.
Mr. BILL DUGOVICH (Union Spokesman): We're doing what we can in the union to help people bridge that gap and make it through the holidays with a paycheck.
GARDNER: And employees at Boeing's 1,900 subcontractors may need help with a paycheck as well. When the giant aircraft maker sneezes, hundreds of smaller aerospace companies catch a cold; some may even go out of business. But analysts expect Boeing to weather the current crisis. Aviation consultant Scott Hamilton.
Mr. HAMILTON: Boeing got through the Gulf War situation 10 years ago, got through a couple of recessions, one of which came at a time they were developing the 747, which nearly bankrupted the company. The company, I think, is in much better shape overall than any of those prior events, so the company's going to survive just fine.
GARDNER: Boeing analysts expect the entire company will turn in a respectable profit next year. Unfortunately, as many as 30,000 Boeing workers may pay the price for it. I'm Sarah Gardner for MARKETPLACE.
BRANCACCIO: Boeing shares fell 28 cents or 8/10ths of a percent today.
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