Oil Blues Force Companies to Cut Back

In the wake of high oil prices, three companies aim to shore up finances by deferring deliveries, raising prices, and cutting employees.
Stephen TaubMay 28, 2008

At least two major companies made decisions this week in response to the surging price of oil, while a third is mulling a big change due to the weak economy.

JetBlue Airways announced it plans to defer the delivery of 21 Airbus A320 aircraft, originally scheduled for delivery between 2009 through 2011. The company will start taking delivery in 2014, say officials. “In the face of escalating fuel costs, we believe it is essential to take a more financially conservative approach to managing our business,” said Dave Barger, JetBlue’s CEO.

He added that the aircraft deferrals will help the airline “further moderate our growth rate in 2009 and beyond,” which will enhance liquidity and defer future debt obligations.

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Meanwhile, Dow Chemical said it will raise the price of all of its products by up to 20 percent — depending on their exposure to rising energy, feedstock and transportation costs — and will review all terms to all customers. Chairman and CEO Andrew Liveris, said the huge price increases and reviews are essential as the company tries to mitigate “the extraordinary rise” in energy and related raw material costs.

“Our first quarter feedstock and energy bill leapt a staggering 42 percent year over year, and that trajectory has continued, with the cost of oil and natural gas climbing ever higher,” Liveris said. “The new level of hydrocarbons and energy costs is putting a strain on the entire value chain and is forcing difficult discussions with customers about resetting the value proposition for our products.” The company pointed out that it spent $8 billion on energy and hydrocarbon-based feedstock costs in 2002. At the current rate, those costs would climb to $32 billion this year.

“For years, Washington has failed to address the issue of rising energy costs and, as a result, the country now faces a true energy crisis, one that is causing serious harm to America’s manufacturing sector and all consumers of energy,” Liveris said. “The government’s failure to develop a comprehensive energy policy is causing U.S. industry to lose ground when it comes to global competitiveness, and our own domestic markets are now starting to see demand destruction throughout the U.S.”

Dow also said in addition to its aggressive cost-control plan, it is accelerating its existing top-down competitiveness review for all of its businesses and manufacturing facilities in the light of the rising feedstock and energy prices.

The third corporation that may be forced to make a change because of the economic slowdown is Ford Motor Company. The Detroit News reported that Ford plans to cut its U.S. salaried work force by up to 12 percent after its turnaround plan stalled because of the downturn in the U.S. economy.