Supply chain at risk in Boeing MAX jet halt

Boeing's decision to temporarily halt production of the 737 MAX jet may ripple through the US economy and could especially hurt 600 large and small subcontractors in the airplane manufacturer's supply chain.

But Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics in Washington, said the fallout could be greater.

"This is serious,'' he told China Daily in an email. "If the shutdown lasts six months, I expect it to shave 0.2 percent from GDP growth. There will be a lot of pain to suppliers and the loss of exports to Airbus."

Rival Airbus has already picked up orders and is on course to surpass Boeing as the world's largest aircraft manufacturer, but it's operating at or near capacity, and the MAX shutdown won't be catastrophic to Boeing, analysts said.

In a research note to investors Tuesday, Goldman Sachs said it expects the MAX to be certified in April with deliveries resuming in July.

Boeing also remains confident. On Monday, the company approved a regular quarterly dividend of $2.055 per share. Boeing is one of 30 stocks tracked daily to compile the Dow Jones Industrial Average. On Tuesday, Boeing's stock lost 7 cents a share, or 0.02 percent, and closed at $326.93.

Last year, Boeing reported sales of $101.1 billion, so the immediate hit to the economy from the temporary shutdown of MAX production could be psychological.

"It's a blow to the collective psyche," Mark Zandi, chief economist at Moody's Analytics, told The New York Times. "But the American economy is performing well, job growth is strong, and the stock market is near a record high. If there was a time when the economy could digest something like this, it is now."

In October 2018, a MAX jet crashed in Indonesia, and in March 2019, another MAX crashed in Ethiopia. The crashes killed all 346 passengers and crew onboard. All MAX aircraft have been grounded since March 2019.

The companies in Boeing's supply chain are already feeling the hit.

General Electric, supplier of the MAX's engines in a joint venture with France's Safran, took a $400 million hit last April when Boeing cut production to 42 planes a month from 52. A prolonged shutdown would further erode GE's revenue.

But in filings with the US Securities and Exchange Commission, GE said the downturn is temporary, and cash flow will rebound.

"One (aircraft) engine program cannot make or break the fortunes of this company, John Inch, an analyst at Gordon Haskett, told The Wall Street Journal on Tuesday.

But Wichita, Kansas-based Spirit Aerosystems, builder of fuselages for the MAX, is a much smaller company and will be harder hit.

The company announced a cost-reduction program that includes less overtime for workers, a voluntary retirement plan, shortened workweeks for some employees, a hiring freeze and deferred capital spending.

In Renton, Washington, where MAX jets are assembled, Boeing's workforce of 12,000 is on holiday break. The company said workers will be reassigned to other duties to avoid layoffs.