(Reuters) -Boeing said on Wednesday it will temporarily furlough tens of thousands of employees after about 30,000 machinists went on strike on Friday, halting production of its best-selling 737 MAX and other airplanes.
“We are initiating temporary furloughs over the coming days that will impact a large number of US-based executives, managers and employees,” CEO Kelly Ortberg said in an email to employees. “We are planning for selected employees to take one week of furlough every four weeks on a rolling basis for the duration of the strike.”
The strike, Boeing (NYSE:BA)’s first since 2008, adds to a tumultuous year for the planemaker which began when a door panel blew off a new 737 MAX jet in mid-air in January.
Ortberg also said he and other Boeing leaders “will take a commensurate pay reduction for the duration of the strike.”
Boeing and the International Association of Machinists and Aerospace Workers held two days of discussions in the presence of federal mediators. The union, which said on Tuesday it was frustrated with the first day of mediation, said late on Wednesday it had concluded another day of talks with “no meaningful progress.”
“While we remain open to further discussions, whether directly or through mediation, currently, there are no additional dates scheduled,” the union said. “We are fully committed to fighting for the contract our members deserve.”
Boeing did not immediately respond to a request for comment on the IAM statement.
The extensive furloughs show Ortberg is preparing the company to weather a prolonged strike that is not likely to be easily resolved given the anger among rank-and-file workers.
A protracted labor battle could cost Boeing several billion dollars, further straining finances and threatening its credit rating, analysts said.
“It’s unlikely that the cuts will fully offset the costs of a prolonged strike,” said Ben Tsocanos, aerospace director at S&P Global Ratings.
The union has been pushing for a 40% raise over four years in its first full contract negotiations with Boeing in 16 years, well above the planemaker’s offer of 25%, which was resoundingly rejected.
Brian Bryant, the IAM’s international president, said actions like furloughs and the cutback in salaries amounted to “smoke and mirrors,” given earlier company spending on bonuses and compensation for top executives.
“This is just part of their plan to make it look like they’re trying to save money,” added Bryant, who was in the Seattle area picketing on Wednesday with the “resilient” membership.
“The ball is in Boeing’s court. They could settle this strike tomorrow,” Bryant said, adding it would take fair pay, pension, restoring a bonus and health insurance.
In the email to employees, Ortberg said the company would not take any “actions that inhibit our ability to fully recover in the future. All activities critical to our safety, quality, customer support and key certification programs will be prioritized and continue, including 787 production.”
The company employs about 150,000 people in the United States. It is unclear exactly which employees are affected by the furloughs. A union representing Boeing’s engineers said their members were not affected.
The strike, now six days old, also carries risks for the company’s vast network of suppliers, some of whom are also considering furloughs, several told Reuters.
“Certainly suppliers are worried,” said Nikki Malcom, CEO of the Pacific Northwest Aerospace Alliance. “It’s going to have a significant impact on suppliers if it goes on a long time.”
PRODUCTION HALTS
The strike has halted production of Boeing’s 737 MAX narrowbody jets, along with its 777 and 767 widebody aircraft, delaying deliveries to airlines.
A major Chinese lessor, however, said it placed a fresh order on Wednesday for 50 MAX jets for delivery from 2028 to 2031, in a sign that longer-term demand for Boeing planes remains intact.
The manufacturer said on Monday it was freezing hiring to cut costs as its balance sheet is already burdened with $60 billion of debt.
The company has also stopped placing most orders for parts for all Boeing jet programs except the 787 Dreamliner, in a move that will hurt its suppliers.
One senior supplier dismissed the latest announcement as “panic mode” and said it underscored Boeing’s lack of room to maneuver due to its already-strained balance sheet.
“They would be better to settle; they are getting very near the precipice,” said the supplier, who asked not to be named.
Boeing shares have fallen about 40% so far this year.
