Jet Prices Take Center Stage as Boeing Cuts Jobs

Boeing announced that it would cut 4,500 positions from its 161,000 strong workforce by June amid competition against Airbus in the global commercial aviation industry. 4,000 cut employees will come from its commercial unit sector which has $431 billion backlog of about 5,800 aircrafts. Backlog is the accumulation of orders to be filled in the aviation industry and can determine the future growth of the industry.

Until recently, Boeing’s strategy has been to follow the Partnering for Success program which included investing heavily in automated manufacturing equipment, making incremental moves to trim development costs and renegotiating supplier contracts to lower expenses, but this hasn’t been enough. Following Airbus’s release of improved jets such as the A320, Boeing has been faced with a narrower performance advantage against Airbus. This meant that Boeing could no longer afford the price flexibilities that it had before.

Boeing’s CEO, Dennis Muilenburg, informed employees of the internal cost cuts by Boeing. The company will begin by making voluntary layoffs, leaving open positions unfilled, scaling back on business trips and trimming the ranks of managers and executives, but if needed it will make involuntary layoffs. This layoff plan is different from Boeing’s traditional layoff history because the previous times were on September 11th and following the global financial crisis. This time, however, it has happened when the aviation industry was booming. This is in large part because Boeing is trying to gain more market share in its industry and is competing against Airbus which has captured 57% of the orders despite Boeing delivering more jets than Airbus in 2015.

Price is carrying more weight in sales for the global commercial aviation industry and Boeing is making its move to gain ground in the industry. Market share is what Boeing is focusing on and it is trying to edge out its competitors in the process.

Source: WSJ

By: Kenny Wang

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