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The Boeing 737 MAX crisis, a "shock" for the American economy - France 24


The Boeing 737 MAX crisis, a "shock" for the American economy

Washington (AFP)

Bad for Boeing, bad for the American economy: the cessation of production of the 737 MAX is a signal that the aircraft manufacturer remains stuck in the crisis which will not spare the growth of the United States.

The American aircraft manufacturer took note on Monday that its star plane was not about to fly by announcing the suspension of production from January, and for an indefinite period.

The 737 MAX has been grounded since mid-March after two accidents that killed 346 people. And while Boeing hammered that its plane would fly before the end of the year, the FAA, the American regulator, showered its hopes last week.

"This decision shows that the process (returning the 737 MAX to service) takes more time than Boeing anticipated and that this has an impact on the group's liquidity," Ernie Arvai, aeronautical expert at AFP, told AFP. AirInsight.

In addition, Boeing is starting to seriously lack storage capacity while some 400 units are crowded in its parking lots.

The aircraft manufacturer also had to face the fact that the 737 MAX problem extended far beyond the malfunction of MCAS, the anti-stall system, implicated in the fatal crashes of Lion Air and Ethiopian Airlines occurred on October 30, 2018 and March 10, respectively.

"Other problems relating to the computer integration of flight controls, display in the cockpit and pilot training made the (return to service) process more difficult," explains Ernie Arvai.

For the time being, the American manufacturer ensures that the cessation of production will not have any repercussions on its workforce, the approximately 12,000 people assigned to the production of the MAX in Renton (suburb of Seattle), which may be assigned to other tasks and / or relocated to other factories.

On Wall Street Tuesday, the title Boeing is back in the green slightly after having sold more than 4% the day before.

However, the Boeing decision "leaves many questions unanswered," responded analysts at JP Morgan in a note.

What about the duration of the production stoppage, the pace of production when it resumes, the date of recertification of the aircraft, the delivery time once the ban is lifted and above all, how Boeing will Does it support the supply chain during production shutdown.

- Subcontractors -

For Michel Merluzeau, the suspension of production could, initially, help Boeing, provided that this does not last beyond the first quarter of 2020.

"For the first quarter, this allows Boeing to prepare for the MAX's return to service," he said. Especially since the stored aircraft will have to undergo a serious overhaul before flying due to the long immobilization.

On the other hand, "from April, if we do not have visibility on the dates of return to service, the crisis risks to accelerate and to put in difficulty the chain of subcontractors", underlines- he. And, "it could lead to layoffs at Boeing".

For the time being, under an agreement with its subcontractors, Boeing will continue to pay its partners on the 737 MAX program.

More than 600 companies support the production of the 737 family. And "many of these companies are small and medium-sized enterprises and we know that they, too, were affected by the immobilization on the ground of the 737 Max", had recognized President Dennis Muilenburg in October.

Boeing recorded in its accounts in July a $ 5.6 billion charge for compensation to airlines who had to cancel thousands of flights and replace the 737 MAX in their programs with other aircraft.

Boeing will "burn more than a billion dollars a month, even after the production of the 737 Max stops," said JP Morgan.

But the impact will spread far beyond the aeronautics sector.

About 25% of Boeing's production is intended for the American market, about 75% for export, recalls Gregory Daco, chief economist at Oxford Economics.

"We looked at the impact on (...) investment, trade and stocks. And what we found was that if you accumulate the three effects in the first quarter of next year, you get an impact on GDP of around 0.5% in annualized figures, "he told AFP.

"It is relatively important for a particular company," he added. "Most of this impact will come from exports, around 0.4%, and 0.1% from the investment side."

And as US growth slows, "this is a shock," he notes.

© 2019 AFP

Source: france24

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