The Boeing 737 Max is now on hold.
The assembly line in Renton, Washington, has temporarily stopped building Boeing’s bestselling plane, the company confirmed late Monday. Boeing announced plans to pause production for an undetermined period in December, but it had not previously announced a precise day for the shutdown.
Boeing will not furlough or lay off workers because of the shutdown, but pain will ripple through its supply chain and could hurt America’s economic growth. The shutdown will make restarting production and recovering from the crisis more difficult for Boeing once it finally gets permission for the plane to fly again
In a statement from the Federal Aviation Administration, the administration said its first priority is safety, and it is “following a thorough, deliberate process to verify that all proposed modifications to the Boeing 737 MAX meet the highest certification standards.”
It added that it is continuing to work with other safety regulators “to review Boeing’s work as the company conducts the required safety assessments and addresses all issues that arise during testing.”
The FAA has set no timeframe for when its work will be completed.
The 737 Max has been grounded since March following two fatal crashes that killed all 346 people on board. Although Boeing couldn’t deliver the 737 Max planes to customers, the company continued to build the jets, albeit at a slightly reduced pace of 42 a month. It now has about 400 completed jets parked in Washington and Texas, waiting to be delivered to airlines around the world.
But Boeing (BA) doesn’t get most of its money from the sale of the jets until they are delivered, and it could not indefinitely continue to incur the costs of building them without being able to deliver them.
The company hoped that the plane would fly again before the end of 2019. But in December Stephen Dickson, administrator of the FAA, announced approval would not come until some time in 2020. Shutdown plans were announced a week later.
Boeing would not release a headcount for people who had been working on the plane. The company said the employees will be reassigned to other duties during the shutdown, and there are a number of reasons for that.
First, under federal labor law, Boeing would have to pay them for 60 days following a layoff notice. Since Boeing is still hoping to resume work on the plane soon, it probably would have limited cost savings to go through the process of laying off the workers.
And with unemployment in the Seattle metropolitan area at 2.9% – lower than the national unemployment rate that’s at a 50-year low – Boeing can’t risk losing the workers it needs once production resumes. In his email to Boeing employees a week ago, new CEO Dave Calhoun said the company would “keep taking steps to maintain our supply chain and workforce expertise so we’re ready to restart production.”
But Boeing’s largest supplier, Spirit AeroSystems (SPR), which makes the fuselage and other parts for the Max, announced on January 10 that it would lay off 2,800 employees in Wichita, Kansas. Spirit’s shutdown will probably last longer than Boeing’s, because it has continued making 52 fuselages a month since March, more than than the the reduced pace at which Boeing was building. So Boeing has about 100 completed fuselages waiting for it to resume production.
Other Boeing suppliers have also laid off staff without making public announcements. At least seven other Boeing suppliers got 10% or more of their revenue from the 737 Max program, according to credit rating agency Moody’s. The Max accounted for about 50% of Spirit’s business, and the suspension of the line resulted in its debt being downgraded to junk bond status.
The communities where suppliers have factories will also feel the effect of the shutdown. On Friday, Moody’s announced it is considering a downgrade for the city of Wichita and the county where it is located because of the Spirit layoffs.
The shutdown could also hurt the US economy. Numerous estimates suggest that the shutdown could even take a half-percentage point off of America’s gross domestic product, a key measure of US economic health, in the first quarter.