Boeing corporation crisis Essay

Attached is a report of the biggest crisis that the Boeing Corporation has ever faced in its existence. First it will describe the events leading up to the problem before it became a public issue. Then we will discuss in extensive detail exactly what the problem is that Boeing is facing and how they can overcome it. The team of xxx completed the research and the written report of the crisis. Boeing is an international supplier of commercial airline planes, military defense aircraft, and surveillance. Partially due to the September 11th attacks on the United States, the Boeing Corporation will be laying off 30,000 employees from their nationwide facilities. The layoffs will affect cities such as Los Angeles, Seattle, Houston, St. Louis, Philadelphia, and will affect employees from entry level to executive offices. The announcements of these issues have caused Boeing’s stock to fall to a surprising low and production levels to drop dramatically. XXX would like to thank XXX for giving us the opportunity to complete this research assignment. The research helped us learn how to more efficiently utilize the different databases available to us and put it into a format so it can be presented to a public organization or the media. The skills learned in the duration of completing this report will be able to be utilized when presenting to upper management a detailed issue and solutions to a specific problem. Boeing Corporation Crisis Cal State Fullerton Jean Fuller May 28, 2002 Executive Summary Today the Boeing Corporation is facing one of the largest crises in the history of the company. They are in the process of laying off a total of 30,000 employees from their facilities nationwide. The layoffs will take place in cities such as Los Angeles, Seattle, St. Louis, Philadelphia, and Atlanta. Most of the layoffs affect the commercial airline division, but the military defense and aerospace divisions will also be affected. The plan for the reduction in employee size began in July 2001, but the attacks on the United States on September 11th left the company having to lay off more employees. At the present time, Boeing is mainly focusing on reducing the amount of mandatory layoffs. This is going to be hard to accomplish because of the reduced demand for the company’s goods and services. In the future, Boeing’s focus will be on returning to a high level of production and profitability. They will be focusing on competing with the competition by increasing product innovation and reducing expenses that the company incurs during production in an effort to keep prices low. Due to economic slowdown and reduced spending by consumers, the Boeing Corporation was beginning to experience loss in revenues and a decline in production. Not more than three months later, the attacks on the World Trade Center in New York impacted the demand for commercial aircraft because of fear to travel by airplane. Also, heavy competition with Lockheed Martin and Northrop Grumman, Boeing is not being awarded as many contracts with the United States military, which is causing a decline in revenues for the aerospace and military defense divisions. There are not many ways to overcome the entire problem, but there are some alternatives that the company can consider in order to reduce them. The alternatives are to distribute hours equally among the employees, reallocate employees into different divisions, offer severance pay, and to continue to layoff employees. Boeing has to be careful in the way that this particular situation is handled. If employees feel as though they are being treated unfair, they will not have job satisfaction and production may decrease. The best possible solution for the Boeing’s problem is to equally distribute the hours among the employees. By doing this employees will maintain their jobs. This will result in higher job satisfaction than other alternatives, and Boeing will not have to go through an extensive process to rehire when they return back to a stage of profitability. Boeing Problem Statement As Boeing faces one of the greatest financial crises in the history of the airline industry, Boeing plans to cut production workers, engineers and support staff by mid-2002 (Nyhan, September 2001). Because of a declining economy as well as terrorist attacks that occurred on September 11th, Boeing is laying off a total of 30,000 employees in all divisions of the corporation: aerospace, commercial aviation, and military defense. The layoffs will happen in Los Angeles, St. Louis, Seattle, Oklahoma, and the Puget Sound area, and will affect everyone from salaried executives to the hourly paid maintenance employees. Layoffs are a sign of company turmoil and should be avoided to maintain the company stockholders. Short and Long-Term Goals Boeing’s primary short-term objective is to maintain a reasonable level of profitability given the recent occurrences. It will attempt to accomplish this by reducing the amount of dollars that are paid to the current employees by either reducing their hours, or completely terminating their employment with the company. Because of current supply and demand of the company, profits will be reduced if the current level of employees is maintained. Boeing’s long-term objective is to be the number one supplier of commercial, aerospace, and military aircraft and technology. They aim to accomplish this by maintaining a level of profitability that satisfies the stockholders and corporate executives. They also want to maintain a high level of competition with the current competition: Northrop Grumman and Lockheed Martin. If Boeing loses government aerospace and military defense contracts to the competition, there is a high probability that the company will become insolvent and declare bankruptcy. Details of the Problem Prior to September 11th, Boeing was going through trying times. Their satellite manufacturing operations were in a recession. This was due to the bursting of the internet and telecom bubbles (Laing, 2002). The Commercial Airline Industry was also facing a slowdown. This was a result of high fuel prices, labor cost increases, a softening of the national economy and low passenger traffic (Smith, 2001). Also, improvements in production efficiency for Boeing led to a plan to decrease up to 15% of its employees in the commercial-aircraft business. This efficiency in production was due to the industry’s first ever-moving assembly line for the final phase of the production process, which cuts unneeded steps (Holmes, 2001). Likewise, by the end of 2001, Boeing lost out on the largest military contract ever when the Pentagon picked rival Lockheed Martin to build the Joint Strike Fighter for shared use by the Air Force, Navy and Marines. This next generation manned fighter is expected to flow more than $200 billion in revenues over the next 20 years (Laing, 2002). But most traumatic for Boeing were the terrorist attacks on September 11th. They transformed what had been shaping up as a mild downturn in commercial jet orders into a veritable collapse in demand (Laing, 2002). After the attacks, the need to fly drastically declined due to fear and security issues that made flying a nuisance. This left the US Airline Industry in a serious crisis. Companies such as Continental, US Airways, American, and Delta cut up to 20% of their capacity (Smith, 2001). Source: www.bloomber.com The terrorist attacks resulted in Boeing’s stock to plummet. Prior to September 11th, Boeing’s stock was falling because of the downturn in the economy. From the graph above, we can see that the attacks made the stock price to fall from $50 a share to $30. This was a sign that investors knew the impact the terrorist attacks had on Boeing’s industry. After September 11th, Boeing planned to respond to these problems by cutting production rates by 50 percent (Nyhan, November 2001). On September 18th, one week after the attacks, Boeing announced at a press conference that it would layoff up to 30,000 employees by the middle of 2002 (Smith, 2001). On that day, Boeing reduced the level of employees by 12,000: 3,000 through retirement and attrition, and 9,000 through layoffs (Farley, 2001). Boeing also stated that their jetliner orders would decrease drastically. In the next three years 80% of their 2001 orders would be delivered (Smith, 2002). They also planned to cut their monthly production of aircraft by half, from 48 to 24. The director of people at Boeing’s commercial airplane unit said, â€Å"In order to match our reduced production rate, we will need to accomplish the majority of the 20,000 to 30,000 reductions in 2002 employment by midyear†. Members of the Associated Press and Kiro 7 Eyewitness News stated, â€Å"Last week Boeing officials announced plans to layoff as many as 30,000 employees, mostly in the Puget Sound area, by the end of next year because of plummeting demand for new planes and postponed deliveries since the terrorist attacks.† Boeing’s commercial airplane division is not the only division that the layoffs will effect. Surprisingly 5,000 of the 30,000 layoffs are predicted to come from the military division. The military division cutbacks are also due to the September 11th attacks, but they are mainly due to global economic slowdown (Klein, 2001). This comes as a surprise because the military division is expected to grow in a time of war or terrorist attacks. Stockholders may assume that the government will request an increased level of production of fighter jets and military bombers so that the United States can dominate in the war against terrorism. In addition, the layoffs will not only affect the Boeing employees, but also people outside the company. As many as 20,000 of the Boeing layoffs may occur in the Seattle area alone, resulting in an additional 34,000 jobs lost by Boeing suppliers, subcontractors, and others (Klein, 2001). Alternatives Before Boeing implements any solutions they must maintain a good level of communication with their employees. The employees must know the reasons for a particular action taken by Boeing in order to avoid any mistrust and confusion (Hoffman, 2001). For example, an employee will wonder why layoffs are taking place when Phil Condit, Boeing’s CEO, is making an annual bonus of $1.13 million (Webber, 2002). Boeing must carefully explain their plans and what they are hoping to accomplish through their actions. Boeing can reduce the amount of layoffs by implementing any of the following solutions: Distribute Hours Among Employees The first solution for Boeing is to spread the hours among the employees for each department. Every department is given so many hours it can use for each week at the beginning of the quarter, depending on the amount of business Boeing has. If those hours taken and spread among the employees for each department, not as many layoffs will occur. The hours will be spread out by reducing the workweek from five days to four. By cutting one day out of an employee’s schedule Boeing is able to give those hours to another employee, which under the circumstances would be laid off. Once four employees each receive a deduction in their workweek one employee will be able to maintain their job and not be laid off. The advantage to this solution is that fewer employees will have to be laid-off. Employees will have their hours cut according to seniority. Some employees that have been with the company for a number of years will not be affected by the action. By holding onto the employees and not laying them off Boeing will be prepared to handle new contracts as they arise. Boeing is predicting that the recent decline in contracts is only short-term and business will soon return to their previous levels. The disadvantage to the solution is that some employees will not be able to afford a reduction in hours. In this scenario employees will not be satisfied and hold each other responsible for less hours. If employees are not satisfied then their production will decrease due to their dissatisfaction. Re-Allocate Employees The second solution for Boeing is to train employees in other departments within the company. This will allow Boeing to reallocate employees in different departments rather than laying them off. With the commercial airline department being hit the hardest by the recent terrorist events, employees in that department could transfer to other departments if they possessed the knowledge. The advantage in training employees outside their departments is the value it will add to the employee. If an employee has the knowledge and know how to be productive and efficient in other departments, not just his own, they become an instant asset to the company. Due to their flexibility Boeing can move the employee around in accordance with demand. A disadvantage to this solution is that Boeing will incur high costs for training employees to do other jobs. A slowdown in production will also result due to the time spent on training. The transition for an employee to move from one department to another is difficult because the employee will not be as efficient. Severance Pay Early retirement packages will be available to qualified employees. The retirement packages to be offered will vary depending on the number of years an employee has with the company. For each full year of service an employees has with the company, up to twenty-six years, they will receive one week of pay (Hoffman, 2001). The employee can take the severance pay in either a lump sum or as an income continuation. The single lump sum plan pays the severance pay to the person in one check within one month of leaving the company. The income continuation plan will pay the severance pay on the regular paydays every two weeks (Boeing, 2000). The advantage to this solution is each individual makes their own decision and they have total control of what they want to do. Also high salaries will be eliminated as management personnel take the package. Once management leaves, the ones that find early retirement appealing, Boeing will be able to promote employees into those positions without having to pay the large salaries. The disadvantage to this solution is that not many jobs will be saved because not many employees will go for the early retirement package. Boeing will also lose experienced managers if they decide to take the early retirement package. If this solution is implemented Boeing will continue to layoff employees because not enough jobs will be cut. Continue Layoffs The last solution is to continue to layoff employees as necessary. This will allow Boeing to keep revenues high because the layoffs will occur according to the market. If Boeing does not get as many contracts as they expected for a particular quarter, the layoffs will help the company’s finances. The disadvantage to this alternative is the potential of business picking backup. The market for commercial jetliners is expected to boom in two years and Boeing needs to be able to handle the new contracts. If Boeing has to constantly train new employees as business increases, in an effort compensate for the ones that were laid-off, they will not be operating at full efficiency. Solution Boeing realizes that layoffs can’t be completely eliminated, however they want to reduce layoffs to the lowest possible amount. Boeing will accomplish that by distributing the hours in each department among the employees. This solution will allow Boeing to save jobs by reducing the employee’s workweek from forty hours to thirty-two hours. The management of each department will determine the hours to be cut and the number of employees that are affected. This will be implemented on June 1, 2002 throughout all departments. Most employees will be affected by the reduction in hours, and management must be prepared to cope with the initial negative reaction. In order to measure the results of the solution, Boeing must evaluate the impact on its bottom line along with the toll it’s taking on their employees. An evaluation will occur every six months and will be lead by top executives and the department managers. Once evaluated, a decision will be made by the board of directors on whether or not to continue with the reduction of hours or to incorporate a different action. The thirty-two hour workweek is expected to be temporary as analysts are predicting a turn around in demand for planes (Holmes, 2001). As production returns to capacity, hours will be returned back to employees according to seniority.    Reference List Airlines slash workforces. (n.d.) retrieved April 10, 2002, from www.proquest.com . Airwise News. (2001, September 22). Majority of Boeing layoffs in aircraft sector. Retrieved April 10, 2002, from www.dowjonesinteractive.com Associated Press Newswires. (2002, March). More Boeing layoff notices. 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