Boeing will shed 10 percent of its 160,000-strong workforce by the end of the year and significantly cut production of both widebody and narrowbody airplanes through 2022 as it adjusts to what it characterizes as a new market reality created by the Covid-19 crisis.

Speaking during the company’s first-quarter earnings call Wednesday, Boeing CEO David Calhoun detailed the production rate cuts starting with the 787, which will see a reduction from the current 14 a month to seven per month in 2022, while 777/777X rates will fall from five this year to three next year.

Plans call for 737 Max production, which Calhoun estimated will resume in the third quarter, to accelerate even slower than originally planned following the narrowbody’s year-and-half-long grounding. In a drastic departure from plans to raise the 737’s peak rate of 57 a month to as many as 63, Boeing now sees 737 Max rates gradually increasing to just 31 per month next year and modestly rising with any increased market demand thereafter.

Finally, the company envisions no change in the three-per-month rate for the 767, split between freighters and tankers, nor does it plan a change from the six-airplanes-a-year rate for the 747.

In a letter sent to the company’s employees Wednesday, Calhoun called the pandemic “a body blow” to the business, created by a decline in passenger volumes of more than 95 percent compared with last year’s figures and an expected $314 billion fall in airline revenue in 2020. He opined that a recovery from the Covid crisis to 2019 levels would take two to three years and that it would take “a few years beyond that” for the industry to return to long-term growth trends.

“As a result, airlines are delaying purchases for new jets, putting the brakes on delivery schedules, and deferring elective maintenance,” said Calhoun. “We’re also seeing a dramatic impact on our commercial services business, as grounded airline fleets decrease the demand for our offerings...All of this puts near-term pressure on our cash flow." 

Boeing saw this year's first-quarter cash flow turn negative in the amount of $4.3 billion compared with positive cash flow for the same period in 2019 of $2.8 billion. Now holding some $15 billion in cash and $5 billion in short-term debt, the company recently allowed the deadline for a $4.2 billion purchase of Embraer’s commercial airplane business to lapse. Although Boeing blamed the collapse of the negotiations on the Brazilian airframer's failure to meet certain conditions in the master transaction agreement, the resulting savings in capital expenditure came at an undeniably opportune time for the U.S. manufacturer.

“We are intensely focused on ensuring liquidity through the immediate crisis,” said Calhoun. “We believe that government support will be critical to ensuring our industry’s access to liquidity. We continue to evaluate options in the capital markets as well as funding options from the U.S. government via the U.S. Treasury and various federal reserve programs.”

Measures to strengthen Boeing's cash position have included drawing down on a term loan, reducing operating costs, suspending dividend payments, terminating share repurchase authorization, and reducing or deferring “non-critical spend.”

Boeing’s parallel efforts to “resize and reshape” its business will include reducing the workforce by some 16,000 through voluntary layoffs, natural attrition, and involuntary layoffs “as necessary.” The cuts will disproportionately affect the commercial airplane and services business, amounting to about a 15 percent reduction in the workforce among those divisions.    

“We will be a smaller company for a while,” said Calhoun. “We’ve worked hard to maintain the stability of our workforce…But the sharp reduction in demand for our airplanes that we see for the next several years won’t support the size of the workforce we have today.”