Boeing’s problems could soon become your problem

Analysis by Bryan Mena, CNN

Washington (CNN) — Boeing’s problems aren’t just Boeing’s. They also could spell trouble for your wallet and the broader US economy.

One of America’s biggest manufacturers is dealing with some serious production, quality and safety problems that worsened this week after a 787 Dreamliner plunged suddenly mid-flight, injuring dozens of passengers. It’s not yet clear whether Boeing was to blame, but it came at a horrible time for a company grappling with some severe damage to its already-battered reputation.

Boeing’s crisis could result in more expensive airfares and weaker economic growth, economists say.

The aircraft manufacturer is a massive company with a workforce of more than 140,000 employees around the world, generating tens of billions in revenue each quarter as one of two global players in the production of planes, the other being Airbus.

Boeing’s production alone represents a significant part of America’s economy. But the country – and the world – relies on its planes for travel, business, deliveries and jobs.

Delays in deliveries, which Boeing and several airlines expect as it undergoes an intensive federal investigation of its manufacturing processes, could reduce the number of planes available to Americans and cut into all those economy-boosting benefits its normally provides.

More expensive airfares

Boeing’s mid-flight disasters, most notably an Alaska Airlines 737 Max door plug that blew off the side of the plane shortly after takeoff, clearly mean the company has issues to address.

Boeing has already slowed down production of its popular 737 Max jets as regulators scrutinize the company’s practices, which has already led to fewer flights being scheduled as airlines brace for snags in deliveries. The sharp 6.1% drop in new orders for durable goods in January was largely due to fewer order for Boeing jets.

Boeing reported this week that it shipped a meager 17 Max jets in February, which was half as much the company shipped in December. Southwest and United earlier this week said they expect Boeing to ship them fewer planes than they planned on receiving, so they’ll hire fewer pilots.

Fewer jets could also push up airfares.

“Less supply of airplanes coming online means there’s going to be more demand for flying than capacity is able to fulfill, so that keeps upward pressure on airfares, all else equal,” Kathy Bostjancic, chief economist at Nationwide, told CNN. “We have already seen airfares jump the last few months and it was up 3.6% in February.”

Boeing’s need to address its problems means it likely won’t cut back on hiring, even if demand for its planes weakens.

“I don’t see them trimming labor at a time of serious quality concerns and if anything, Boeing might try to hire more to get the quality issues right,” José Torres, senior economist at Interactive Brokers, told CNN.

Higher labor costs would mean Boeing loses even more money, plunging the company into an even deeper financial hole. That would inflict even further damage to Boeing’s already-beaten down stock price.

Weaker US economic growth and a boon for Airbus

When regulators believed Boeing would halt production of the 737 Max jet in January 2020, after two fatal incidents in 2019 and the subsequent grounding of those jets that year, the New York Fed estimated that the production shutdown could shave 0.4% from US gross domestic product in 2020, the broadest measure of economic output. (Boeing continued to build the 737 Max throughout the crisis).

Then, of course, the pandemic happened, which dealt an even tougher blow to the company, resulting in nearly $12 billion in losses that year.

The New York Fed analysis stated that “Boeing is a large firm that is highly integrated in the domestic production network” and that production stoppages can “have significant effects on the macroeconomy.”

Since Boeing is the single largest US exporter, weaker demand for its planes would means fewer exports, which contribute to GDP growth if they exceed imports — known as “net exports.”

Boeing hasn’t announced that it will stop producing any of its aircraft outright, but its plans to increase production of the 737 Max are on hold as the Federal Aviation Administration awaits for the company’s plan on how to end its continued quality issues.

And Boeing’s years of problems have led to success for its French rival Airbus, which has overtaken Boeing as the world’s largest aircraft manufacturer.

It’s not easy for airlines to switch manufacturers overnight, but the trend is clearly pointing in Airbus’ favor, and if US imports of Airbus planes for domestic carriers pick up as Boeing indeed suffers weaker demand, that would then weigh on America’s GDP.

“The declining demand of plane orders by airlines for Boeing aircrafts might just get directed towards Airbus instead, and doesn’t just disappear,” Lisa Simon, chief economist at Revelio Labs, wrote in a statement to CNN.

She added that “this whole fiasco absolutely will likely have adverse effects on the aircraft manufacturing sector in the US” and that it would be “good for the European market.”

The-CNN-Wire
™ & © 2024 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.