Honeywell: Slowdown In Aerospace, Layoffs Ahead

A Mish reader who works at Honeywell (NYSE:HON) informed me last week that a huge slowdown was coming in the aerospace/aircraft business.

I now have the internal memo from Tim Mahoney, Chief Executive Officer of Honeywell Aerospace, with comments from the reader who went through a similar layoff and forced furlough situation last November as well.

Obviously, things have not improved.

Honeywell Employee “HE” writes:

Hi Mish,

Here’s a heads up for you regarding upcoming aerospace layoffs.

We got word a few days ago that Honeywell is planning a new “reduction in force”, which is the company’s PC term for layoffs. We received an e-mail indicating that the action is coming up in August, where employees have been solicited to voluntarily apply to participate.

This is a repeat of the situation that made the news last November in which Honeywell announced At Least 1,000 Phoenix Valley Workers to Lose Jobs following mandatory holiday furloughs.

In March, the Seattle Times reported Boeing Cuts Could Reach 10 Percent.

History is about to repeat. Layoffs for the entire industry are coming because business is in a huge slow down.

Best regards,

“HE”

Turbine Engine Orders Down 10-20%

In a followup email, “HE” writes:

We’re starting to see numbers for the coming jobs reduction. The pipeline for orders for turbine engines is down by 10-20% with job cuts going to be that range. About 40K people in Honeywell’s aero division. Because we have production backlog to keep revenue up, cuts are going to hit the aero division’s engineering and supply chain positions harder. Number of layoffs tough to predict because this portion of HON’s workforce is top-heavy by age with many folks near retirement who benefit from volunteering for the reduction.

The slowdown in order pipeline is not just from business jet makers. We also see a slowdown in commercial transport OEMs.

Internal Honeywell Memo

From: Tim Mahoney
Sent: Wednesday, July 13, 2016 10:38 AM
Subject: Message from the Aerospace Leadership Team

This message was sent to Aero employees in the U.S., Puerto Rico and Canada*

MESSAGE FROM THE AEROSPACE LEADERSHIP TEAM

As witnessed with our recent cost-saving measures, Aerospace continues to experience the effects of a slowdown in certain business segments. The industry has experienced more than 30,000 job reductions in the last year along with ongoing earnings volatility. Customers continue to cut costs in their supply chain and reduce inventory in their factories, resulting in uneven short-term customer demand for our business.

To navigate this challenging environment, we must move faster, make quicker decisions, and be more effective and efficient. Improving our organizational speed by addressing our workforce and management structure, including the number of organizational levels and reporting scope, will help drive faster growth and better serve our customers.

Based on these factors, we are conducting a workforce reduction in Honeywell Aerospace for the United States, Canada and Puerto Rico. We fully understand the individual and collective burden and stress this decision creates so will move as quickly as possible through the process and inform affected employees as soon as details are finalized.

Individual employee selection requests will be considered following established consistent and equitable policies and procedures. Employees who wish to express interest in being selected for this reduction should do so confidentially by sending an email to their Human Resources contact by close of business on Friday, July 29, 2016.

Eligible employees selected through this process will be offered the same benefits as other employees impacted by these reductions, including severance and outplacement assistance. Honeywell reserves the right to accept or reject self-nomination requests based on business needs. The Honeywell reduction in force policy for non-represented U.S. employees is available online. For Canada and Puerto Rico, please see your HR representative.

We remain focused on driving sales to prevent the need for further cost actions. However, additional actions may be necessary should market conditions continue to deteriorate, including in other regions of the world, which would be determined on a country-by-country basis, following local laws and practices.

Please do your best to remain focused on serving our customers, improving operations and execution and increasing sales to help us accelerate growth and remain competitive in a difficult global economic environment.

The Aerospace Leadership Team

Airbus Lowers Delivery Expectations

On July 12, USA Today reported Airbus to Slow A380 Production; Boeing (NYSE:BA), Airbus Win Jet Orders.

Airbus tamped down delivery expectations for its Airbus A380 superjumbo jet while. Separately, both Boeing and Airbus racked up significant jet orders. The company said Tuesday it expects to deliver 12 of the planes per year starting in 2018, down from 27 in 2015.

Airbus has delivered 193 of the A380s, which can carry more than 500 passengers. But demand has been soft lately, and airlines including Air France-KLM indicated they don’t plan to take all the A380s they have ordered.

Airbus said it reached break-even financially at 27 deliveries last year and hopes to cut production costs to lower its break-even point.

Boom Time Over for Aerospace

The Wall Street Journal reports Boom Times Wane for Airplane Makers.

Plane makers Boeing Co. and Airbus Group are confronting the stark reality that years of record order bookings are over even as they try to reassure investors with rosy outlooks for the long-term prospects for airliner sales.

Both plane makers have enjoyed a booming multiyear surge in aircraft orders, outpacing deliveries. Their backlogs for planes to be built now stretch many years. That’s changing, though.

Aircraft deals at the start of the year have been slow as weakening economies and geopolitical woes from Latin America to the Middle East have caused bookings to dry up. And that was before the U.K. voted last month to leave the European Union, creating a shock to one of the world’s biggest plane markets.

The continuation of the order boom is crucial to the financial goals of each company. While the largest chunk of payment from airlines and lessors comes at delivery, booking new orders means pre-delivery payment cash that sustains each manufacturer’s operations.

Airbus and Boeing also sought to soothe investor anxiety by raising 20-year demand forecasts. Boeing said it expected a $5.9 trillion market. The plane maker expects airlines will require nearly 40,000 jetliners between 2016 and 2035, an increase of 5% over its 2015 expectation.

Aerospace Boom Over This Cycle

Layoffs are coming for the second time in a year and previous orders are being cancelled.

Yet, CEOs tell investors don’t worry because the 20-year forecast is up.

Yeah right.

The aerospace boom is over for this cycle.