Analysts say Boeing’s decision to suspend production of its troubled 737 Max jet will have far-ranging economic ripple effects.
The airplane manufacturer said on Monday it would temporarily halt production of the Max, which has been grounded by worldwide aviation regulators since March, after two crashes within five months killed 346 people.
A JPMorgan analyst estimated that, even idled, the Max program will still cost Boeing $1 billion a month, and could deal a blow to the broader U.S. economy. Mark Zandi, chief economist at Moody’s Analytics, said the shutdown could shave one- to two tenths of a percentage point from first-quarter GDP growth in 2020.
“It probably will show up in GDP in Q1,” he said. “It’ll impact the monthly data. It will show up in industrial production.”
Zandi also said Boeing’s travails will be reflected in trade flow data. “Boeing is the largest exporter in the country. This means there will be fewer exports, so the trade deficit will be bigger as a result,” he said — making President Donald Trump’s goal of narrowing the trade deficit even more elusive. “This makes it all but impossible to reduce the trade deficit anytime soon,” he said.
Although the company said it plans to redeploy rather than lay off workers, Boeing’s sheer size means suspending production on the Max threatens the financial health of its suppliers.
Let our news meet your inbox. The news and stories that matters, delivered weekday mornings.
“What I think is unknown here is the effect on the supply chain,” said airline industry consultant Robert W. Mann. “Although Boeing won’t be laying people off, it’s unclear what happens to people like Spirit AeroSystems or suppliers in Japan, Korea… That supply chain goes literally around the world,” he said.
“There are roughly 600 companies that are part of the 737 Max supply chain, so the ripple effect of this suspension is going to have extensive implications on the global economy,” said Henry Harteveldt, travel industry analyst and founder of Atmosphere Research Group. “The timing of this couldn’t be worse — announcing this just before Christmas and injecting a lot of uncertainty into the minds of the people who work at these companies.”
Manufacturing is already in recession, so this will just ensure that it stays in recession, at least in early 2020.
In the U.S., the shutdown will cause the loss of thousands of jobs in the already-contracting manufacturing sector, Zandi estimated. “Manufacturing is already in recession, so this will just ensure that it stays in recession, at least in early 2020,” he said.
Boeing had already slowed the pace of production on the Max, but the grounding — the length of which is unprecedented in modern aviation for a commercial airplane — has created a backlog of more than 400 undelivered planes, tying up capital as well as physical space.
“That’s a huge financial hole when you have 450 aircraft,” Mann said, since Boeing doesn’t get paid in full until airlines take delivery of their planes. “You’ve essentially paid all the suppliers, paid all the labor, and you still haven’t received half the value of the aircraft.”
Mann said the burgeoning stockpile of planes and parts was evident on a recent trip to a Boeing production facility. “You literally can’t find a place to park an airplane anymore,” he said.” As it stood two weeks ago, there were literally fuselages stacked like cordwood.”
The full brunt of the economic impact depends, of course, on when Boeing can get the Max back in the air. The company said it remains “fully committed” to work with the FAA and global aviation regulators, but there has been tension in recent days.
Last week, the FAA issued a rare rebuke to Boeing, saying its timetable for certifying the Max as safe to fly was “not realistic.” Boeing has already missed multiple self-imposed deadlines to clear the Max. Analysts now estimate that, even if regulators sign off in January or February, the Max might not fly until the second quarter of 2020.
“The FAA controls the clock,” Mann said.
Visit the Source: https://www.nbcnews.com/business/business-news/boeing-s-max-suspension-could-have-impact-jobs-trade-deficit-n1103226?cid=public-rss_20191218