The 737 MAX airplane isn’t just important for Boeing, it also matters for airlines and even the U.S. economy. This puts the plane maker in a position of power, even as complaints mount about how the company handled safety issues.
Whistleblower warnings about the jet continued to emerge over the weekend. It is becoming clear that the company was opaque with regulators and airlines in explanations of the plane’s safety features.
Yet evidence of the plane’s importance to the U.S. economy may discourage authorities from punishing the company more than is strictly necessary.
On Thursday, official data showed a drop in March aircraft shipments. Some economists see this detail of an otherwise encouraging durable goods report as the first sign that the grounding of Boeing’s 737 MAX jet is having a small—but visible—macroeconomic impact.
The plane has been parked since March when a second deadly crash was linked to its stall-prevention system. Deliveries of the 737 MAX were then stopped and production subsequently cut by about 20%. Boeing is working on getting a fix approved by regulators, but several airlines have said they won’t operate it until at least August.
The 737 MAX has accounted for almost half of Boeing’s orders over the past few years, providing a significant boost to U.S. exports. Aircraft sales to the rest of the world are worth more than $50 billion a year. And as Paulson Institute researcher Neil Thomas points out, Boeing’s commercial aircraft business has been a front-line ambassador of U.S. economic interests abroad, particularly in China.
Airlines, too, are dependent on the jet. Most can’t really switch from the 737 MAX to a competing jet—like Airbus’ A320—because they rely on many other Boeing products.
Friday’s first-quarter gross domestic product data wasn’t affected by the crisis, probably because the company only reduced output in April. In the second quarter, however, the damage to equipment spending and exports—not wholly offset by inventory buildup of undelivered planes—is likely to reduce U.S. economic growth by about a fifth of a percentage point, according to analysts both at Wells Fargo Securities and Goldman Sachs.
It’s a small impact, which is likely to be partially reversed in the third quarter if Boeing ramps up production again. Still, not every company can boast about showing up in GDP data.
Investors can expect more unnerving Boeing headlines. The company urgently needs to fix its relationship with airlines and regulators to secure its multiyear backlog of jet orders. There are also concerns that heightened scrutiny around certification will push up costs—for starters, it may affect programs such as the 777X and the project for a new midsize airplane.
Yet investors can take some comfort from the company’s unusual degree of market and political power. Airlines and government officials have every reason to find a fix too. The Boeing 737 Max is simply too big to fail.
Write to Jon Sindreu at [email protected]
- Pictures Raise Specter of Fake Evidence in 737 Max Crash Probe
- Why Doesn't the US Government Bailout Boeing - Their Union Wants More Money Too
- The Jade Goody - Max Clifford Affair
- Airlines Hammered by Financial Crisis Big Time
- So, What's Your One Rep Max?
- How to Get a Big Chest Quickly - Most Effective Ways For a Massive Chest
- Max Bounty CPA Network Review
- The West Wing will shift from Netflix to the HBO Max when the streaming service launches next year
- Who Sings Big For Me?
- Poker Tips - Guide to Playing Starting Hands - The Big Blind