In a preview of the company’s second-quarter earnings report, Boeing Co. President and CEO David Calhoun laid out concerns the company has as demand continues to fall amid the global COVID-19 pandemic.
“These past few months have been unlike anything we’ve seen,” Calhoun began in a message sent to employees and shared with the media. “The pandemic’s effect on our communities and industry is ongoing. And the challenges we face as a company are still unfolding.”
One of the options on the table is consolidating production of the 787 Dreamliner to one location, which could mean closing operations in North Charleston, moving all operations to North Charleston or a third option.
Calhoun didn’t give specific details, but he said Boeing would reduce production of the 787 to six per month in 2021, down from 10 per month, which led the company to consider the consolidation.
“With this lower rate profile, we will also need to evaluate the most efficient way to produce the 787, including studying the feasibility of consolidating production in one location,” Calhoun said.
The company hopes to get back to a production of seven each month by 2022.
Boeing builds Dreamliners using a global supply chain, including final assembly, paint and delivery center operations in North Charleston. Sections of each 787 jetliner go through the company’s North Charleston site, but the Lowcountry is the only location in the world that does final assembly for the largest of the Dreamliners, the 787-10.
The company also has a final assembly operation for the 787 in the company’s largest manufacturing site, in Washington state.
Calhoun stressed that the production rate changes were not a reflection of work produced by employees at each of the company’s manufacturing facilities.
“The market simply won’t support higher output levels at this time, and we need to adapt accordingly,” he said.
The impact on air travel and cargo flights continues to be “severe” because of the ongoing global coronavirus pandemic, said Calhoun, who added that he anticipates the industry will need about three years to return to 2019’s passenger numbers.
Along with other measures, the company is issuing $25 billion in new debt to handle the fallout from the pandemic, he said.
“Though some fliers are returning slowly to the air, their numbers remain far lower than 2019, with airline revenues likewise reduced,” Calhoun said. “This pressure on our commercial customers means they are delaying jet purchases, slowing deliveries, deferring elective maintenance, retiring older aircraft and reducing spend — all of which affects our business and, ultimately, our bottom line.”
“While these steps help us navigate the pandemic, they don’t change the fact that the commercial marketplace is different, and we must change with it. To align to a smaller market, we lowered commercial production rates and took tough workforce actions throughout the quarter.”
The company had previously announced a 10% workforce reduction, using buyouts, attrition and layoffs; however, he said the prolonged impact of the pandemic means more reductions are likely to occur.
“This is difficult news, and I know it adds uncertainty during an already challenging time. We will try to limit the impact on our people as much as possible going forward,” he said.