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Quicktake: How Boeing's 737 Max production freeze will rattle the aerospace industry

Shutdown to disrupt suppliers, further pressure airlines and dent the US economy

Boeing employees discussed deep unease with the 737 Max and problems in flight simulators used to train pilots on the new jetliner. AP.
Boeing employees discussed deep unease with the 737 Max and problems in flight simulators used to train pilots on the new jetliner. AP.

Boeing will halt production of its troubled 737 Max, its best-selling plane, starting January, as the crisis following two deadly crashes extends into the new year. The company assembled about 42 planes a month at its factory in Renton, Washington since the Max was grounded globally in March. The tragedies in Ethiopia and Indonesia claimed 346 lives.

The US plane maker’s biggest manufacturing suspension in more than 20 years is sending shockwaves through the aviation industry with wide-reaching repercussions expected for global airlines, plane part suppliers and the US economy.

How will the production suspension for Max impact airlines?

Airlines could face further financial pressure from the halt in production as the prolonged delays in Max deliveries would raise their operating costs. Airlines are paying higher rates to lease planes to make up for the loss in capacity, while delays to their growth plans are hurting revenues.

Southwest Airlines, the largest operator of the narrow-body jet said it will suspend the aircraft from its flight rotation until April 13. The US airline had earlier projected it would reintroduce the jet by early March. Last week the airline said it has reached a "confidential agreement" with Boeing to compensate Southwest for a portion of projected financial damages related to the ban on Max fleet. American Airlines also followed suit and suspended flights until April.

Dubai's low-cost airline Flydubai, the biggest customer of the Max outside the US, said it is "aware of the latest statement issued by Boeing regarding the grounded Max aircraft" without outlining the impact on its operations.

How will the production freeze affect part suppliers?

Max suspension will jolt a supplier base of about 600 companies that stretches from fuselage makers to seat makers and engine manufacturers. Some suppliers, such as fuselage maker Spirit AeroSystems, are highly dependent on the jet. Spirit is the largest supplier for Max and dropped 4.8 per cent. In Europe, suppliers including Safran and Senior plummeted.

What does this mean for Boeing's European rival Airbus?

As the Max crisis is deepening, Boeing's French rival Airbus has the problem of accelerating production of its competing narrow-bodies.

What does it mean for the US economy?

Analysts say the Max freeze will make a dent in the US economy, albeit in the short term, of about 0.5 to one percentage points.

Bloomberg Economics analyst Andrew Husby estimates the first-quarter impact on the economy would be at most a subtraction of 1 percentage point from total gross domestic product growth. Chief US economist Michael Feroli for JP Morgan Chase estimates the indefinite suspension will subtract around a 0.5 percentage point from first-quarter growth. He said the eventual resumption of production should boost economic expansion.

Updated: December 19, 2019 05:17 PM

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