Boeing Is So Big That Its 737 Max Production Halt Will Slow The Economy

Dec 18, 2019
Originally published on December 18, 2019 11:15 am

If there's one company that can slow U.S. growth to a crawl, it's Boeing.

The aircraft and aerospace giant is so important to the economy — it's the No. 1 exporter — that its decision this week to suspend production of its troubled 737 Max airplane is expected to reverberate throughout the manufacturing sector.

Several analysts project that the move will slash economic growth by half a percentage point and eventually lead to layoffs.

"To some extent, we've already started to see the impact of reduced production at Boeing, and the impact has filtered through to [the overall economy]," says Gregory Daco, chief U.S. economist at Oxford Economics.

Daco estimates that the nation's gross domestic product will be about 0.5 percentage point lower than it otherwise would be during the first three months of 2020 because of the production halt. That view is shared by economists from JPMorgan Chase and Wells Fargo.

Regulators around the world grounded the 737 Max in March, after a total of 346 people were killed in a pair of plane crashes in Indonesia and Ethiopia. Boeing has continued to produce the planes at a reduced rate since then, parking them in facilities in Texas and Washington state.

But on Monday, the company was forced to acknowledge that the plane won't be in the air anytime soon and said it would halt production for now.

Boeing is the largest U.S. exporter by far, and its tentacles reach far into the industrial sector, so the suspension will affect large and small manufacturers in the United States and abroad.

They include General Electric, which makes jet engines, and Spirit AeroSystems, which sells a variety of aircraft parts, as well as many smaller companies.

These suppliers have been mostly insulated from the effects of the crisis because Boeing continued to build the planes. With this week's production halt, their bottom line will take a hit.

"As we go into the first quarter of 2020, the effect will be much larger, primarily because the tens of thousands of suppliers will not be producing as much as they have," says Sung Won Sohn, an economics professor at Loyola Marymount University.

"The sudden suspension of production — bringing production down from 40 planes a month to zero — would actually have a much bigger impact on [economic] growth," Daco says.

While Boeing says it won't lay off workers during the production halt, that could change as the months drag on, he says.

"Some of these employees will be geared toward other parts of Boeing's production chain, but that being said I wouldn't be surprised that as we move into 2020 there will be some layoffs announced," Daco says.

Among those affected by the crisis have been many of the U.S. and foreign airlines that fly the 737 Max, which is by far Boeing's most popular plane.

With large parts of their fleet grounded, carriers such as American and Southwest have been forced to cancel flights this year. Southwest said Tuesday that it would pull the plane from its schedule through April.

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NOEL KING, HOST:

Boeing's decision to suspend production of its 737 Max airplanes has hit the airline industry, but it probably won't stop there. Boeing is this country's most important industrial company, so important that the decision to stop making the plane is expected to cut into U.S. economic growth on the whole.

NPR's Jim Zarroli has the story.

JIM ZARROLI, BYLINE: In October, Boeing CEO Dennis Muilenburg appeared before a congressional committee to apologize for the 737 Max crashes in Indonesia and Ethiopia that killed 346 people. And he said government officials should keep the plane on the ground as long as necessary.

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DENNIS MUILENBURG: Regulators around the world should rigorously scrutinize the Max and only approve its return to flight when they are completely satisfied with its safety.

ZARROLI: And that's what regulators around the world have done, refusing to say when the 737 Max will fly again. Throughout this crisis, Boeing has continued to build the planes and parked them in giant facilities in Texas and Washington state. Now it's shutting down production.

Boeing is just one company, but it's an enormously important one. It's the biggest U.S. exporter. And the 737 Max is by far its biggest selling plane, says Gregory Daco of Oxford Economics.

GREGORY DACO: Boeing is a big company, and the 737 is the largest share of its production of aircraft. About 80% of the planes produced by Boeing are the 737s.

ZARROLI: Daco says because of the decision to stop making the plane, U.S. economic growth will tumble over the next few months at an annual rate of half a percentage point. It's a view shared by other economists. The impact will be so great because Boeing has tentacles throughout the manufacturing sector, says aviation consultant Ross Aimer.

ROSS AIMER: There are hundreds of subcontractors whom supply engines and other parts to Boeing. They're going to be affected.

ZARROLI: That includes big companies like General Electric, which makes engines for the 737, and Spirit Aviation Services, which makes assorted aircraft parts. They and many smaller companies will now have to decide how long they can afford to keep their factories open and their workers working.

As for Boeing, it says it won't lay off anyone. With the job market so tight, the company is reluctant to see skilled workers walk out the door. But the company has lost billions of dollars since the plane was grounded. And Gregory Daco says it could be forced to cut jobs as the months drag on.

DACO: Some of these employees will be geared towards other parts of Boeing's production chain. But that being said, I wouldn't be surprised that as we move into 2020, there will be some layoffs announced.

ZARROLI: Daco says that could lead to the loss of thousands of jobs next year alone. None of this includes the potential impact on Boeing's customers, the airlines. Both domestic and foreign carriers have had to reduce flights in recent months because they haven't been able to fly their 737 Maxs, and that's cut into the money they make. One of the worst hit has been Southwest, which operates more of the plane than any other carrier. Yesterday, Southwest said it would have to cancel more flights, at least through April.

Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.