Boeing (BA) to Cut Jobs to Compete With Airbus, Trim Costs

The aerospace behemoth The Boeing Co. BA has chalked out a new cost-cutting path that would include job cuts at its largest as well as most important business unit – Boeing Commercial Airplanes BCA. The company's move is inspired by its effort to maintain competitiveness as well as profit margin.

BCA's Chief Executive Ray Conner announced that their aim is to reduce costs and compete with their European rival Airbus Group SE in a booming but fiercely competitive industry.

Although Conner did not specify either the number of jobs the company is seeking to eliminate or the time frame in which to do so, he mentioned that the company will first seek to cut executive and managerial positions. He further added that involuntary cuts may be required as a last resort following attrition and voluntary departures. He said that the number of cuts "will depend on how effectively [they] bring down costs as a whole."

There is no denying that Boeing is flying high on the back of rising demand for its fuel-efficient commercial airplanes. The aircraft manufacturing behemoth once again reported higher deliveries driven by strong commercial numbers. But one cannot overlook the fact that the company's commercial division saw a 4% decline in revenues on lower delivery volume during the fourth quarter 2015. Even operating margin contracted 580 basis points (bps) year over year to 3.5%.

As it is, Boeing faces stiff competition from Airbus in a primarily duopolistic market. Conner also highlighted the fact that Boeing will decide on a new midsize airplane "as early as this year" to counter Airbus' success with A321neo. A midsize aircraft will fill the gap between the 737 and the 787 Dreamliner, but the move would obviously put financial pressure on the company.

The commercial aerospace market is dominated by Boeing and Airbus. Both companies are producing planes at record rates and have bagged enough orders to keep factories running for almost a decade.

Boeing reported record deliveries in 2015, thereby retaining its position as the world's biggest airplane maker. However, at the Pacific Northwest Aerospace Alliance's annual conference, Airbus Americas' marketing director Simon Pickup highlighted a "hole" in Boeing's product line. He boasted that Boeing has no plane with the capacity and range to compete against the A321neo.

Boeing shares fell 1.21% yesterday on the NYSE.

Zacks Rank

Boeing currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include Spirit AeroSystems Holdings, Inc. SPR, Aerojet Rocketdyne Holdings, Inc. AJRD and Leidos Holdings, Inc. LDOS. While Spirit AeroSystems and Aerojet Rocketdyne sport a Zacks Rank #1 (Strong Buy), Leidos Holdings carries a Zacks Rank #2 (Buy).

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