Plane maker will halt production of grounded jetliner involved in two fatal crashes
Boeing Co. said it would suspend production of its 737 MAX jetliner, in an escalation of the crisis facing the giant plane maker that will ripple through the global aerospace industry.
The company said Monday that it plans to halt production in January, having assembled around 40 planes a month at its plant near Seattle since the MAX was grounded globally in March following two fatal crashes of the aircraft within five months. The two accidents in Indonesia and Ethiopia claimed a combined 346 lives.
Chicago-based Boeing plays a big role in the U.S. economy: It is the largest U.S. manufacturing exporter and one of the nation’s top private employers. And the MAX is its best-selling plane.
The plane maker employs around 12,000 workers at its 737 assembly plant in Renton, Wash. Production of the 737 MAX also supports thousands of jobs across a network of over 600 suppliers and hundreds of other smaller firms in the global MAX supply chain.
Boeing said that it planned to reassign its workers and didn’t expect furloughs or layoffs. The company didn’t share details on the expected duration of a production shutdown that will impact suppliers around the world.
“It would be hard to have any other single company stop the production of a single product and have it hit the economy as hard as this would,” said Luke Tilley, chief economist at investment-management firm Wilmington Trust. He estimated that stopping MAX production for one quarter would shave 0.3 of a percentage point from quarterly annualized GDP growth.
The MAX grounding has dragged on the U.S. economy this year, denting exports and durable-goods orders, federal figures show
“It’s not catastrophic, but we don’t need anything more corrosive in manufacturing right now,” said Diane Swonk, chief economist at Grant Thornton LLP. “It erodes our ability to grow because it’s such a big-ticket item.”
Boeing is facing a mounting financial squeeze resulting from the buildup of undelivered jets. The production halt could help the plane maker weather that pressure.
The temporary suspension in production will halve the $4.4 billion in cash that Boeing has burned through each quarter by making and storing jets, Jefferies LLC analyst Sheila Kahyaoglu estimated.
Still, suspending production will also likely inflate costs over time by spreading fixed expenses over fewer planes. Boeing has set aside $3.6 billion to cover higher production costs and $6.1 billion for compensation. Ms. Kahyaoglu said both figures could double.
The plane maker also said it would leave its annual dividend unchanged for the first time in eight years.