Boeing airplane unit to cut more jobs in 2017, shares rise

SEATTLE (Reuters) - Boeing Co's BA.N commercial airplane unit said on Monday it would cut an as-yet-undetermined number of jobs in 2017 after slashing its workforce by 8 percent in 2016, as it struggles to sell planes in the face of a strong dollar.

Boeing facilities are seen in Los Angeles, California, U.S. April 22, 2016. REUTERS/Lucy Nicholson/File Photo - RTX2UQSR

Chicago-based Boeing and European rival Airbus AIR.PA are battling especially slow demand for their lucrative, long-range twin-aisle jetliners, such as the Boeing 777 and Airbus A330, in a global climate of political and economic uncertainty.

Boeing said last week that it would cut 777 production to five a month in August 2017, a 40 percent reduction from the current rate of 8.3 a month, because of slow sales.

The company did not say how many jobs it will cut next year, noting it is still assessing its 2017 budget and employment needs.

But the announcement shows the world’s biggest plane maker is axing jobs more aggressively than it forecast earlier this year, and that it will not let up the pressure to cut costs under the new chief executive of the airplane unit, Kevin McAllister, who succeeded Ray Conner on Nov. 21. Conner is now vice chairman of Boeing Co.

“To successfully compete and win new orders that will fund future product development and growth requires us to achieve much better performance,” Conner and McAllister said in a memo to Boeing Commercial Airplanes employees on Monday, which was made public.

Boeing “will need to do more in 2017” to lower costs and make its planes more affordable, the memo said.

Its shares closed up 1.1 percent at $156.18.

Boeing is contending with a strong dollar that makes its products more expensive overseas, a non-functioning U.S. Export-Import Bank that hampers aircraft financing, and President-elect Donald Trump’s provocation of China, one of Boeing’s biggest markets.

Trump has also targeted Boeing for criticism, saying the United States should cancel a pending order to buy modified Boeing 747s as new presidential aircraft, Air Force One, because the cost was too high.

A Boeing spokesman said plane sales are getting more competitive, requiring additional cost-cutting beyond what was envisioned in 2016. “We’ve got to perform better,” he said. “It’s an ongoing process.”

Boeing has booked just 468 net jetliner orders this year, down from 768 last year and 1,432 in 2014. The figure is also well below Boeing’s target of having sales roughly match the 745 to 750 aircraft Boeing expects to deliver to customers this year.

Boeing gets the majority of the payment on a plane when it is delivered.

The company also is under pressure to cut costs as it tries to hit Chief Executive Dennis Muilenburg’s goal of lifting its operating profit margins to the mid-teens by 2020. The figure has averaged 6.9 percent over the last decade.

By comparison, Airbus’ margins have averaged about 3.7 percent over the past 10 years. The company said last month it would cut about 900 jobs to restructure, reduce costs and prepare for tougher competition.

For 2016, Boeing said it expects job reductions to total 8 percent of the commercial airplane workforce, including a 10 percent reduction in the ranks of executives and managers.

The unit cut 6,115 jobs, or 7.3 percent, through November compared with the tally on Dec. 31, 2015, according to Boeing’s employment data. That suggests a further 565 job reductions in 2016, and more next year. In March, the company said it planned to cut about 4,000 jobs at the unit.

The company is offering a voluntary layoff program in early 2017, according to Monday’s memo, which added that involuntary layoffs may occur in some cases. A spokesman said employees participating in the voluntary layoff program will receive a lump sum payment of one week’s pay for each year served, for a maximum of 26 weeks.

Additional reporting by Anya George Tharakan in Bengaluru; Editing by Saumyadeb Chakrabarty, Tom Brown and Bill Rigby