Aerospace supplier Woodward is cutting the equivalent of 15% of its full-time workforce through the year as the COVID-19 pandemic’s effects ripple through the aerospace supply chain, the company quietly disclosed April 10.
The moves are part of the company’s salvage efforts in response to the novel coronavirus outbreak and the almost complete collapse in near-term commercial air travel. The restructuring and related charges should cost Woodward about $13 million, including layoff compensation, through June 30, the company said in a regulatory filing.
The changes began April 8–two days after Woodward and aerospace composites provider Hexcel publicly canceled their proposed merger. At the time, Woodward hinted that cost-saving measures such as employee reductions could be coming, but no details were provided.
According to the latest filing, Woodward’s measures for 2020 include a reduction in work hours for certain employees globally and company-wide overtime restrictions, as well as a hiring freeze, a company-wide wage freeze, a cut to corporate officers’ salaries and directors’ base retainers, and the elimination of annual bonus payments.
Those measures amount to a 4% reduction in full-time equivalents. The company is also fully laying off 11% of its workforce. Separately, furloughs for up to two months have begun, primarily at its aerospace fuel systems and controls facilities in Loves Park, Illinois.
With so many parked airliners–trade associations are saying passenger air traffic is down around 95%–and older air transports a key target for retirement after COVID-19, financial analysts think Woodward’s business will take a big hit from a double whammy of fewer new airliners being built by Airbus and Boeing, as well as dramatically lower aftermarket revenue.
Credit Suisse analysts said Woodward’s current second-quarter aftermarket revenue could fall 65% compared with the same period the year before.
“We see two primary long-term negatives for Woodward: (1) Premature retirements of legacy aircraft will reduce aftermarket demand, while the associated increase in the availability of used serviceable material (USM) may result in market share erosion/pricing pressure for aftermarket parts on the remaining fleet; and (2) A near-term reduction in operating cycles on new aircraft (particularly A320neo and MAX) will likely defer the aftermarket demand wave (previously expected in 2023/2024) on those aircraft by at least a year,” they said.
Jefferies analysts said Woodward’s commercial OEM sales, 39% of the company’s 2019 revenue at $600 million, could fall 45% this year as Airbus cuts monthly production of large commercial aircraft by about a third and Boeing could announce even worse cutbacks April 14.
While many analysts think OEM production could take a couple of years to return to pre-COVID-19 levels, aftermarket work is expected to start growing again far sooner, perhaps later this year. In turn, Woodward could start recognizing earnings growth in later quarters after the current, sudden contraction.
