As of last week, the production of the Boeing 737 Max (NYSE: BA) has been paused indefinitely.
The plan to pause production was announced in December, but that announcement didn't include any specifics on the timeline, and this newest report didn't either.
This production hold will undoubtedly make it harder for Boeing to recover from the snafu surrounding the now infamous 737 Max. The Max was grounded in March of last year after two crashes that resulted in 346 deaths.
Now, Boeing has a fleet of about 400 grounded 737 Max planes waiting for approval before they can be delivered. Despite this, according to Boeing's website, "The 737 MAX is the fastest-selling airplane in Boeing history with about 5,000 orders from more than 100 customers worldwide." Still, Boeing won't receive most of the money from those purchases until delivery, and that makes continued production untenable.
Boeing's internal turmoil surrounding the plane hasn't helped things either.
Meanwhile, the Federal Aviation Administration said in a statement that they will be "following a thorough, deliberate process to verify that all proposed modifications to the Boeing 737 MAX meet the highest certification standards." While Boeing originally hoped to have the Max back in the air by the end of 2019, FAA administrator Stephen Dickson announced in December that approval wouldn't come until some time in 2020. It was soon after this announcement that Boeing released plans to temporarily shut down Max production.
Boeing said that rather than furloughing or laying off workers, they will reassign Max workers to other duties. Federal law states that workers would have to be paid for 60 days following a layoff notice, and Boeing still hopes to restart production relatively soon. The process of laying off these workers would cost too much. Also, the production factory is located in Renton, Washington which is in an area with a 50-year low unemployment rate of 2.9%. As new Boeing CEO Dave Calhoun wrote in an email to employees last week, the company will "keep taking steps to maintain our supply chain and workforce expertise so we're ready to restart production."
Boeing may not be laying off anyone, but their suppliers are. Spirit AeroSystems (NYSE: SPR), Boeing's largest supplier and manufacturer of the Max's fuselage among other things, announced on January 10 that they would be laying off 2,800 employees in Wichita, Kansas. Spirit's shutdown is likely to last even longer than Boeing's: Boeing slowed production of the Max to 42 planes a day after the grounding, but Spirit continued to make 52 Max fuselages a day. They now have around 100 fuselages waiting to be used in new Max planes when production restarts.
Spirit said they would also be laying off workers in two plants in Oklahoma and that they may need to layoff even more Wichita workers, and Spirit isn't the only Boeing supplier facing layoffs. 737 Max component production accounted for 50% of Sprit's business, but there are at least seven other suppliers who earn 10% or more of their revenue from the Max.
On the same day that Spirit AeroSystems announced they would be laying off 2,800 workers, Boeing's fired CEO received a $62 million exit package. This amount was made up of Boeing stock, pension payments, and other deferred contributions. Meanwhile, laid off Spirit workers will receive 60 day's pay.
Boeing is now asking for $10 billion in loans from banks including Citigroup (NYSE: C), Bank of America (NYSE: BAC), Merrill Lynch (NYSE: IPB), Wells Fargo (NYSE: WFC), and J.P. Morgan (NYSE: JPM) to shore up their losses according to people familiar with the matter.
In Davos, President Donald Trump brought up Boeing and the 737 Max at least three times. He says that planes and automobiles have become too complex and that too much software had ruined the 737 Max. New software did play a role in both 737 Max crashes. This echoed sentiments the President shared on Twitter last March: "Airplanes are becoming far too complex to fly... I see it all the time in many products. Always seeking to go one unnecessary step further, when often old and simpler is far better." In an interview with CNBC, Trump called Boeing a "very disappointing company".
In an interview on Fox News' "Sunday Morning Futures", Treasury Secretary Steven Mnuchin said that the 737 Max crisis could slow U.S. economic growth by half a point in 2020.
"There's no question that the Boeing situation is going to slow down the GDP numbers. Boeing is one of the largest exporters, and with the 737 Max, I think that could impact GDP as much as 50 basis points this year," Mnuchin said.