Boeing furloughs thousands as it hunkers down for extended strike

By David Shepardson

(Reuters) -Boeing said on Wednesday it will temporarily furlough tens of thousands of employees after about 30,000 machinists went on strike on Friday, halting production of its 737 MAX and other airplanes.

“We are initiating temporary furloughs over the coming days that will impact a large number of US-based executives, managers and employees,” CEO Kelly Ortberg said in an email to employees. “We are planning for selected employees to take one week of furlough every four weeks on a rolling basis for the duration of the strike.” 

Ortberg also said he and other Boeing (NYSE:) leaders “will take a commensurate pay reduction for the duration of the strike.”

The extensive furloughs show Ortberg is preparing the company to weather a prolonged strike that is not likely to be easily resolved given the anger among rank-and-file workers.

The strike, Boeing’s first since 2008, adds to a tumultuous year for the planemaker which began when a door panel blew off a new 737 MAX jet in mid-air in January.

A protracted labor battle could cost Boeing several billion dollars, further straining finances and threatening its credit rating, analysts said. 

“It’s unlikely that the cuts will fully offset the costs of a prolonged strike,” said Ben Tsocanos, aerospace director at S&P Global Ratings.

Boeing and the International Association of Machinists and Aerospace Workers were set to resume talks on Wednesday in the presence of federal mediators. The union said Tuesday that it was frustrated with the first day of mediation, which it said Boeing was not taking seriously.

The union has been pushing for a 40% raise over four years in its first full contract negotiations with Boeing in 16 years, well above the planemaker’s offer of 25%, which was resoundingly rejected.

“We won’t take any actions that inhibit our ability to fully recover in the future,” Ortberg said on Wednesday. “All activities critical to our safety, quality, customer support and key certification programs will be prioritized and continue, including 787 production.” 

The company employs about 150,000 people in the United States. It is unclear exactly which employees are affected by the furloughs. A union representing Boeing’s engineers said their members were not affected.

The strike, now six days old, also carries risks for the company’s vast network of suppliers, some of whom are also considering furloughs, several told Reuters.

PRODUCTION HALTS

The strike has halted production of Boeing’s best-selling 737 MAX jets, along with its 777 and 767 widebody aircraft, delaying deliveries to airlines.

Boeing said on Monday it was freezing hiring to cut costs as its balance sheet is already burdened with $60 billion of debt. 

The company has also stopped placing most orders for parts for all Boeing jet programs except the 787 Dreamliner, in a move that will hurt its suppliers.

One senior supplier dismissed the latest announcement as “panic mode” and said it underscored Boeing’s lack of room to maneuver due to its already-strained balance sheet.

“They would be better to settle; they are getting very near the precipice,” said the supplier, who asked not to be named.

Boeing shares have fallen about 40% so far this year.