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  HOME | Business & Economy (Click here for more)

US Economy Could Take Hit from Crisis at Boeing

NEW YORK – Boeing’s decision to temporarily halt production of the troubled 737 MAX 8 airliner is expected to cause the US gross domestic product (GDP) to drop in the first quarter and have a “domino effect” throughout the aerospace company’s supply chain, experts said.

The aircraft maker is heading into 2020 amid growing uncertainty over whether it will be able to overcome the crisis caused by the Federal Aviation Administration’s decision to ground the 737 MAX.

On Monday, Boeing said president and CEO Dennis Muilenburg had resigned effective immediately and been replaced by David Calhoun, who had been serving as the company’s chairman.

Concern about Boeing has been growing not just because of the decision to halt production of the company’s best-selling model, but because 2020 will be a year in which the aerospace company will have to deal with lawsuits and investigations linked to the software failure that caused two 737 MAX crashes, killing a total of 346 people.

The 737 MAX was grounded following a March 10 crash that killed 157 people in Ethiopia. On Oct. 29, 2018, an Indonesian Lion Air 737 MAX crashed in the Java Sea, killing 181 passengers and eight crew members.

Accident investigators in Indonesia blamed design flaws and flight certification errors for the crash of the Lion Air 737 MAX 8.

The design flaws were aggravated by insufficient pilot training in the use of the MCAS flight control system and maintenance problems on the part of Lion Air, among other factors, the Indonesian National Transportation Safety Committee said in a report.

The initial results of the investigation into the crash of the 737 MAX 8 in Ethiopia found that the crew followed all the established procedures but was unable to disable the automated stall-prevention system, which caused the plane to lose altitude.

The crew apparently turned on the Maneuvering Characteristics Augmentation System (MCAS), which is designed to prevent the plane from stalling, once again and tried to cut off the power to the trim motor.

The MCAS, however, kicked in and continued driving down the aircraft’s nose. The same thing happened to the Lion Air crew.

Earlier this month, Southwest Airlines received compensation from Boeing for the losses caused by the grounding of the carrier’s 34 737 MAX planes, which cannot fly again until they are cleared by the FAA.

Credit rating agencies have raised concerns about Boeing and while the aerospace company’s credit rating remains at “A,” reflecting the strength of its business, Fitch Ratings cut the company’s outlook to “negative” from “stable” in July.

Fitch noted that “the MAX situation also presents significant public relations challenges, and the impact on Boeing’s reputation and brand will be a watch item for the next year or more.”

In the short-term, however, the company’s borrowing costs should not be affected, but Boeing’s credit rating could be cut at some point.

Credit rating agencies like Fitch, Moody’s and Standard and Poor’s evaluate the financial strength and future solvency of countries and corporations, and whether they will be able to meet their financial obligations.

Boeing’s woes could have a negative impact on the US economy and on Wall Street, whose leading indices have set numerous new records in 2019.

Shares of Boeing, which has a market capitalization of $188 billion, were up about 8 percent year-to-date and rose more than 2.5 percent on the news that Muilenburg had stepped down.

Fitch Ratings chief economist Brian Coulton told EFE that he did not expect the crisis at Boeing to dramatically affect the annual growth rate of US GDP in 2020.

The economist said, however, that the aerospace company’s decision to temporarily halt production of the 737 MAX could affect the first-quarter GDP number.

While Boeing said none of its employees would be affected by the temporary production halt, analysts expect suppliers to feel some pain.

US Bureau of Labor Statistics economist and researcher Steven Crestol told EFE that while Boeing has not announced layoffs for now, suppliers who depend directly on the company or the 737 MAX program would feel the secondary effects.

Crestol said that while it was too early to calculate what the cost of the temporary production halt might be, he was concerned about smaller companies.

Joseph Foudy, a professor at New York University’s Stern School of Business, said he thought Boeing’s problems might create a drag on GDP because the aerospace company was the largest exporter in the United States.

Foudy said that if Boeing, also a major defense contractor, got into real trouble, private investors or the US government would rescue it.

Over the weekend, Boeing was in the news because its CST-100 Starliner spacecraft failed to reach the International Space Station (ISS).

On Friday, the reusable spaceship stalled in orbit during an unmanned test flight and was unable to reach the ISS.

The Starliner, which was sent into space by a United Launch Alliance (ULA) Atlas V rocket, experienced what Boeing described as “a mission timing anomaly that made it use too much fuel to reach the intended destination of the International Space Station.”

The Starliner separated from the Atlas V without any problems, but the spacecraft was unable to achieve the orbit needed to dock with the ISS.

The CST-100 Starliner successfully landed on Sunday at the US Army’s White Sands Missile Range in New Mexico.

 

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