Boeing restarts 737 production, cuts 12K jobs

Yahoo Finance's Adam Shapiro breaks down the latest from the major airlines amid coronavirus.

Video Transcript

MYLES UDLAND: All right, let's move on now and talk a bit about what's happening in the airline space. And we've had some news in last couple of days about what companies will be doing to slim down their workforces when those restrictions, I guess we could call them, the conditions of the bailout they got from Congress expire on September 30. Adam Shapiro joins us now for a bit more, Adam, on what we've learned in the last 24 hours, and I guess just broadly, what the next few years look like for the airlines. Because right now, it seems like some very big decisions are being made that things are going to be quite a bit different for these companies.

ADAM SHAPIRO: Hey, Myles. It's going to be a bumpy ride-- fasten your seat belts, forgive the bad pun. But we know that on September 30 when the agreement to not lay people off and to cut salaries expires-- that was the deal the airlines made to get billions from the Treasury-- when that is done-- that expires September 30, October 1-- the layoff notices go out.

Now, I want to give you a heads up-- Delta and American, United, they have all warned their staff that they're going to be smaller airlines. The most recent was from American. It actually came from Alisa Everwine, who's the executive vice president, head of PR, essentially, who sent a letter last evening to employees which said, look, we have 39,000 of our employees-- team members, they call them-- who have taken voluntary leave or early retirement.

But going forward, they need to be even smaller. So they've announced they're going to cut their managerial and administrative staff by 30%. That's roughly 5,000 people. They've also given us a hint of what air travel for Americans is going to look like, say, a year from now. Because they're saying not this summer, next summer they will fly still 100 fewer aircraft than they do now.

So they've cut capacity, all the airlines, dramatically. But even as they ramp back up very slowly, next summer is not going to be anywhere near what we have seen in years past. We also got a memo from Delta-- Ed Bastian was telling his employees that they still need to downsize. And he said, quote, "we've enhanced the retirement package for long term employees who are nearing retirement age or have more than 25 years of service." They're looking for volunteers to step down.

They've already had more than 40,000 people at Delta take temporary paid leaves of absence. But this is going to grow, and that deadline is September 30. The layoffs would begin October 1. The final thing on that is to give you a sense of how bad the airlines are taking it, despite a minuscule increase in air travel, on Tuesday, 264,843 people went through TSA at the nation's airports. That's down 89% compared to the same period one year ago. So we're still down almost 90% from where they should be, especially the all-important summer flying season.

MYLES UDLAND: And you know, Adam, as you know, on your program, economists come through and they talk about, oh, the rate of change, things are getting better, things are opening back up. And I've heard TSA checkpoint data cited as it's up 20% week over week. But I think your gross numbers actually tell the real story. And we've, seen that from the airlines.

But also, we're starting to get a sense of what you know one of the two biggest airplane-makers might do-- Boeing announcing their own move earlier this week. And I guess a follow on to that is, is the tension between the airlines and Boeing? Because Boeing executives came out a couple of weeks ago and said an airline-- like, is that tension ever going to be resolved? Does that maybe play into what the future of this whole industry looks like over the next few years?

ADAM SHAPIRO: Well, if you're Ed Bastian or Doug Parker or Scott Kirby at United, you might want to call up Dave Calhoun at Boeing and say, what the you know what are you talking about? It was Calhoun on the "Today Show" two weeks ago who said a US airline will go out of business. So you know, the fingers are being pointed, and we did the article where we looked at who's in trouble of the four biggies-- that's Southwest, Delta, United, and American. It's American. That's what Rapid Ratings, the risk assessment firm, said.

And to give you some quick metrics-- they have the smallest amount of cash on hand-- six months. They're desperately trying to improve their liquidity. They addressed that in that letter to their employees. Doug Parker today at the 36th annual Bernstein Conference actually said, no airline is going to go bankrupt. Now, he didn't say, we're not going to go bankrupt, he said, no airline's going to go bankrupt.

So yeah, they are, for lack of a better term, it starts with a p and ends in issed. They are angry with Calhoun for what he said. He would not identify which airline. But in the meantime, he's telling you what's happening to this business. They're going to start-- believe it or not, he's going to start production again of the 737 MAX-- it hasn't gotten approval from the FAA, and whatever orders they have for that-- look, American's already re-fleeted. They don't need new planes. Delta and United need to re-fleet, but they were looking at Airbus because of the 737 Max issue. So they're probably going to try and squeeze Boeing for better deals through the leasing process than they would have before this problem.

MYLES UDLAND: And I mean, you kind of go through who needs to re-fleet, orders, suppliers, retooling-- Delta, for example, they love to use used aircraft, and what does that business look like and the companies that supply that stuff?

ADAM SHAPIRO: And you also got Boeing, they're laying off-- it's close to 10% of the global workforce. That's 160,000 people. Most of it's going to be over in the Seattle area, and that's almost 12,000. It's about 7,000, those jobs are gone. They're trying to get early retirement from 5,000.

MYLES UDLAND: Certainly a story that really-- I think this feels, Adam, to me, like the biggest second domino to fall, right? We get to the fall. Who knows what's happening with unemployment, maybe we're going back to school, but we feared, like, what happens to other white collar workers. And you know, this is where I think a lot of that pressure might come in.

ADAM SHAPIRO: I think that a lot of people are sweating right now, and it's not just because of the airline industry. But we all have friends who have either taken pay cuts or have lost their jobs. And where do you go in an economy where 40 million people are right now unemployed?

MYLES UDLAND: Yeah-- big question. All right, Adam Shapiro, always great to get your thoughts. Thanks so much for joining today.