It’s been a rough year for Boeing and its big ol’ MAX airliner. The plane was grounded globally in March after crashing twice within the span of 5 months, claiming a combined 346 lives.
Since then, Boeing cut its production of the model to 42 planes per month. And yesterday it announced the suspension of the production altogether come January. “Wait, they were still manufacturing this plane?” – the collective public of planet earth.
If and when the airliner receives regulatory approval to take flight again, which at the earliest would be February, Boeing would re-focus on delivering the backlog of 400 finished jets before trying to produce and fill the 4,545 MAX orders that exist today.
This news comes less than a week after regulators warned Boeing of unrealistic expectations for the plane to return to service. Boeing and the FAA suggested the jet could fly in November or December, which, as you can clearly tell by my writing this newsletter, has not happened.
This news doesn’t just suck for Boeing though. It will affect the thousands of jobs related to over 600 suppliers within the global MAX supply chain. The US economy will feel the pain too, as Boeing is the largest US manufacturing exporter and one of the country’s largest employers.
As for workers at Boeing, the company has stated that miraculously, it doesn’t expect the layoffs and will instead reassign the 12k works at the 737 assembly plant in Washington state… for now.
The bottom line…
Shares fell 4.29% during trading and an additional 0.55% after-hours. The good news? This move should halve the $4.4B spent each quarter to produce and store the grounded jets, but will likely inflate costs over time by spreading the fixed expenses over fewer planes. The aircraft creator has set aside nearly $10B to cover higher production costs and compensation.
According to Luke Tilley, chief economist at Wilmington Trust, ceasing production of the MAX a quarter will shave 0.3% from the quarterly annualized GDP growth in the US. Woof.