Production halt puts thousands of US manufacturing jobs on the line

One of the United States' top manufacturers and the single biggest component of the US stock benchmark, Boeing plays a significant role in the US economy.
One of the United States' top manufacturers and the single biggest component of the US stock benchmark, Boeing plays a significant role in the US economy.PHOTO: REUTERS

WASHINGTON • Boeing's move to halt production of its signature B737-Max jets indefinitely could send ripples across the US economy and put tens of thousands of manufacturing jobs in jeopardy.

As one of the country's top manufacturers and the single biggest component of the US stock benchmark, the Dow Jones Industrial Average, Boeing plays a significant role in the US economy.

Boeing said the decision would not immediately lead to any layoffs among its staff, numbering 153,000, saying that the workers will "continue 737-related work, or be temporarily assigned to other teams".

But Boeing's supply chain includes hundreds of other US ma-nufacturers, from Kansas-based Spirit AeroSystems, which builds fuselages for the 737 and relies on Boeing for nearly half its business, to engine assembly teams outside Cincinnati. Collins Aerospace, based in Iowa, handles much of the jet's complicated electronics.

Many of these smaller companies may not have the cash flow or breadth of work to keep their employees through a protracted stoppage.

Bloomberg Intelligence analyst George Ferguson said: "When you get down to the suppliers, they are not so well heeled as Boeing, so they can't necessarily hold on."

Since the aviation authorities in the United States and abroad grounded the planes in March, Boeing has continued producing the jets at a cost of US$1.5 billion (S$2 billion) a month in the hope that the Federal Aviation Administration (FAA) would quickly approve their return to use.

That optimism now appears to have been badly misplaced, as the timeline for approval has been pushed back repeatedly. As delays mounted, Boeing and its more than 900 suppliers continued building planes at a pace of 42 per month, adding a glut of 400 new planes to the nearly 400 that were grounded.

Dartmouth College economist Matthew Slaughter said many of the hundreds of companies that are part of the 737 Max supply chain are likely, at a minimum, to be more circumspect with pay rises, capital investments and new hires for the foreseeable future, and that could have a broader effect on manufacturing as well as rail and trucking companies responsible for shipping the giant metal components.

 
 
 
 

"This is going to be something that curtails activity in the broad US manufacturing sector," he said.

Some White House officials had hoped there would be a bump in economic growth if Boeing was able to quickly solve its problems.

US Commerce Secretary Wilbur Ross told CNBC in August that problems with the 737 Max had been big enough to shave 0.4 per cent off the entire US gross domestic product for a period this year. Mr Ross said he expected an uptick when the problems were fixed, but it was unclear what the impact might be if production were completely halted.

Boeing's stock was down more than 4 per cent in after-hours trading on Monday, a move that was expected to weigh on the Dow in regular trading yesterday. Shares of its publicly traded suppliers similarly tumbled.

The Boeing planes have been grounded worldwide since the March 10 crash of an Ethiopian Airlines flight. It was the second crash involving a 737 Max in less than five months. In all, 346 people died in the tragedies.

The production stoppage caps a financially disastrous year for Boeing's commercial airplanes division. Since the grounding, almost 400 737 Max jets have accumulated at the company's facility in Renton, Washington, where the unpainted green jets loiter in a massive parking area.

Former FAA administrator Randy Babbitt said that maintaining a single 737 Max typically requires at least two or three "touches", or maintenance updates, each week.

"It takes a lot of work to store them," he said.

The costs of production, storage and maintenance added up quickly. At its recent production rate of 42 jets per month, Boeing was burning through an estimated US$4.4 billion every three months, according to an estimate from the Jefferies investment bank. Halting production is expected to save half that.

WASHINGTON POST

A version of this article appeared in the print edition of The Straits Times on December 18, 2019, with the headline 'Production halt puts thousands of US manufacturing jobs on the line'. Print Edition | Subscribe