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Boeing returns to profitability, drops layoff plans

CNN logo CNN 7/28/2021 By Chris Isidore, CNN Business
a large passenger jet flying through the air: A United Airlines Boeing 737 Max 9 aircraft lands at San Francisco International Airport on March 13, 2019 in Burlingame, California. The United States has followed countries around the world and has grounded all Boeing 737 Max aircraft following a crash of an Ethiopia Airlines 737 Max 8. © Justin Sullivan/Getty Images A United Airlines Boeing 737 Max 9 aircraft lands at San Francisco International Airport on March 13, 2019 in Burlingame, California. The United States has followed countries around the world and has grounded all Boeing 737 Max aircraft following a crash of an Ethiopia Airlines 737 Max 8.

Boeing returned to profitability in the second quarter, posting net income for the first time since the start of the Covid-19 pandemic last year, a recovery that will save 10,000 jobs at the company.

Boeing earned $567 million in the quarter, compared to a $2.4 billion loss a year earlier. Analysts had forecast another loss of $161 million, and had not expected Boeing to return to profitability until later this year.

But revenue of $17 billion exceeded estimates by nearly $500 million, helping to lift results. Shares of Boeing jumped 5% in midday trading on the news.

Boeing CEO Dave Calhoun cautioned the company's problems are not necessarily behind it.

"While our commercial market environment is improving, we're closely monitoring Covid-19 case rates, vaccine distribution and global trade as key indicators for our industry's stability," he said.

Layoffs canceled

But Calhoun did announce that the company is shelving plans to cut staff by another 10,000 workers this year. In a message to employees, Calhoun said Boeing will keep its workforce at its current level of approximately 140,000 employees due to "encouraging recovery trends."

The company had previously announced plans to reduce its workforce to about 130,000 by the end of 2021. "Going forward, the pace of the commercial market recovery, trade relations with China and our own performance will be key enablers to overall employment levels," he said in the message.

Boeing first announced plans to cut 19,000 jobs in April of last year as air travel cratered and losses mounted. It announced a second reduction target of another 7,000 jobs in October. The company had completed about about 16,000 of those job cuts before Wednesday's announcement.

Although thousands of Boeing employees took voluntary buyout packages there where thousands who were involuntarily laid off. Among the cuts, Boeing closed a unionized plant in Washington that built the 787 Dreamliner and consolidated production to a non-union factory in South Carolina.

Air travel has rebounded in recent months, particularly in US domestic markets, with a surge of leisure travel this summer, driven by pent-up demand. Business travel is expected to rebound in the fall.

Most major US airlines said they expect a return to profitability in the second half of this year. But international travel, a key to the many overseas airlines operations, remains stalled by pandemic-related measures limiting cross-border flights.

Still, expectations of a rebound in air travel is good news for Boeing. Last month, United Airlines booked the largest plane order in its history — for 270 737 Max jets.

Boeing's commercial airline business still lost money in the quarter, but it shaved its operating loss significantly, to $472 million from $2.7 billion a year ago.

'We are turning a corner'

The company overall was able to turn a profit thanks to improved earnings from its other units. The defense, space and security division posted operating income of $958 million, up from $600 million a year ago. Its services business swung to a $531 operating profit from a $672 million loss a year ago. Boeing Capital also swung from a narrow loss to a narrow profit.

"While there are still ways to go before a full recovery, we're encouraged by the continued progress on vaccine distribution and the uptick in domestic travel," Calhoun told investors in a conference call. "We are turning a corner, and the recovery is gaining momentum."

Boeing's problems predate the pandemic. Its best-selling plane, the 737 Max, was grounded in March 2019, halting deliveries for 20 months, following two fatal crashes that killed 346 people. Orders for more than 1,000 of the jets were canceled during the grounding, especially when the pandemic hit demand for flying and caused airlines to conserve cash. Boeing is still working to deliver the jets it built during the grounding, sometimes looking for new buyers for some of the completed aircraft.

Although most airline regulators around the world have approved the 737 Max to fly again following the FAA clearance in November, Chinese aviation authorities have not cleared the plane as of yet, blocking deliveries to airlines there. Deliveries are a key for Boeing since it gets most of its revenue at the time of delivery.

Dreamliner problems

Boeing continues to deal with other quality problems. Earlier this month it disclosed a new issue with the 787 Dreamliner widebody jet, which has been dogged with problems since August. The company said some of the planes' fuselage was not joined together to meet precise standards and there are questions about the verification process to make sure those standards are met. Those questions will delay the delivery of some of those jets that Boeing has already built.

Analysts said though it was the defense and services business that carried Boeing over the line into profitability in the second quarter, its commercial airline business is still the key to its success going forward.

"A key driver for shares will be the pace of travel recovery and Boeing's ability to deliver commercial planes," said Jeff Windau, an analyst for Edward Jones who has a buy recommendation on Boeing shares. "Longer-term, we believe there will be demand for commercial aircraft as travel improves and global flights get back to pre-coronavirus numbers. We like Boeing's position."

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