Boeing says it won't lay anyone off as it halts 737 Max production, but for the 600 suppliers that make parts for the plane, the suspension could be damaging
- Boeing announced on Monday that it will temporarily suspend production of the 737 Max, as the plane remains grounded into 2020.
- The company said the 12,000 employees at its Renton, WA factory, where the Max is built, would not face layoffs or furloughs "at this time," and would be reassigned to other tasks.
- However, almost 600 suppliers manufacture components for the plane. Those companies, some of which have tens of thousands of employees, and have less diverse revenue streams than Boeing, face potential ripple effects and impact from the production halt.
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When Boeing announced that it would temporarily halt production of the 737 Max, it said that it had no plans for layoffs or furloughs "at this time." Employees would be redirected onto other projects, or would focus on maintaining stored, undelivered aircraft, and getting them ready to fly to customers.
But Boeing's 12,000 Renton, Washington, employees are not the only workers whose livelihood depends on the 737 Max.
A network of about 600 suppliers and hundreds more subcontractors create components for the 737 Max, ranging from materials like metal and composites, pieces like engines, smoke detectors, and ventilation systems, and even entire components, such as wings or fuselages.
The impact of the production slowdown on those companies is more difficult to predict. Many of them also make components for other Boeing plane types and other aircraft manufacturers, like Airbus. But the 737, Boeing's best-selling plane, makes up a significant portion of their workload.
Brett Ryan, an economist at Deutsche Bank, estimated that the shutdown could knock 0.4 percentage points from real GDP growth in the US this quarter and into next year, according to The Guardian, factoring in the ripple effects of strain on suppliers.
The question will be whether the companies have enough cash on hand to keep up manufacturing during Boeing's shutdown, space to store completed but undeliverable components, and bandwidth to deliver the backlog of stored components once Boeing's assembly line resumes.
Boeing reduced 737 Max production from 52 planes a month in April to 42, which it has maintained until announcing the suspension. However, it continued to purchase components from suppliers at the original rate, in order to maintain its supply chain and avoid disruptions once the plane returns to service.
It is not clear whether Boeing will continue to purchase from suppliers at this rate.
In a statement, Boeing said that it would keep the supply chain, along with customers and employees, "top of mind" as it continues to assess the situation and make decisions.
"This will include efforts to sustain the gains in production system and supply chain quality and health made over the last many months."
However, the real world impact to workers at the companies remained less clear.
Wichita-based Spirit AeroSystems, which produces the fuselage, pylons, thrust reverser, wing leading edges, and engine nacelles for the Max, earns 80 percent of its revenue from Boeing, according to Reuters. An extended production slowdown could have significant impacts on its bottom line. Stock prices were down more than one percent Tuesday morning.
While Spirit is one of the bigger suppliers, plenty of others rely on Boeing for revenue.
CFM International, a joint venture between General Electric and Safran SA, of France, makes engines for the Max. UK-based Senior PLC creates airframes. United Technologies Corp, which makes landing systems and avionics, warned of a 10 cent per share loss in its 2019 earnings due to the Max grounding.
Other manufacturers, like Honeywell, Hexcel, Woodward, and Meggitt, make a variety of components. Honeywell told Business Insider that it did not expect a significant financial impact. Other suppliers did not return Business Insider's request for comment.
Boeing has not said when it might resume production of the plane.
Do you work for Boeing or one of its suppliers? Contact this reporter at dslotnick@businessinsider.com.
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