737 Max stoppage hits suppliers in California and nationwide

and Tom Krisher

Associated Press

Dec. 18, 2019 3:40 PM PT

As Boeing Co. prepares to shut much of a huge factory near Seattle that builds the grounded 737 Max jet, the economic hit is reverberating in Southern California and across the United States.

When the company announced this week that it will temporarily halt production of the 737 Max — the nation’s largest manufactured export, analysts say — with no timetable for production to resume, it cast a cloud over the hundreds of companies that make the plane’s parts.

The Southland’s aircraft supply chain is taut, full of small companies that have synced their operations to the needs of midsize and large manufacturers, said Ivan Rosenberg, head of the Aerospace and Defense Forum trade association.

“I’ve got clients wondering how fast this is going to work its way down the supply chain to them,” Rosenberg said. “There’s a lot of uncertainty right now, and business hates uncertainty. It would be nice to know how long this is going to last.”

Wesley Turnbow, chief executive of metal-finishing company EME Inc., which provides aircraft parts with a protective coating, said work for Boeing comprises half of his company’s business. He estimates coating parts for 737 Max makes up about 5% or 10%. He hasn’t gone so far as to expect to lay off workers, but the Max halt “could really affect our future,” he said.

If the halt lasts longer than two or three months, the industry could see widespread job cuts, said Paul Weisbrich, an investment banker at D.A. Davidson & Co. Mom-and-pop shops will be hit first, while the midsize companies with more diversification in their revenue will be able to weather the storm longer, he added.

The Max was grounded worldwide in March after two deadly crashes in Indonesia and Ethiopia killed a total of 346 people. Boeing kept buying parts and churning out the plane, amassing about 400 Max jets that it can’t deliver to airlines. To slow down its cash burn, the company is pausing production of the Max starting in January.

There are some winners, Weisbrich said. Companies working on maintenance and repair as well as spare parts will see more business, because the grounding of the Max means airlines will need to fly older planes longer.

An executive at a Southern California components manufacturing firm, who declined to be named because he was not allowed to disclose information, said his company has lost significant business from Boeing since the planemaker dialed down production in recent months. However, he said, his company is seeing a rise in demand for high-quality spare parts.

Getting the 737 Max back in the air depends largely on the Federal Aviation Administration, which is evaluating Boeing’s effort to fix flight-control software that was a major factor in the crashes. Investigators have found that software designed to stop an aerodynamic stall was a huge problem for pilots, and Boeing is updating the code to make it less aggressive.

The FAA will not give a date for when the Max can return to the skies, and last week the agency said Boeing had an unrealistic expectations for putting the plane back into service. New FAA Administrator Stephen Dickson has said the decision will be on the agency’s timetable, not Boeing’s, indicating that it will take longer than Boeing had expected.

Places such as Wichita, Kan., Stamford, Conn., and Cincinnati are also feeling the pinch. Those cities are home to some of the 900 companies worldwide that supply parts for the troubled plane.

Boeing does not currently plan to lay off any of the 12,000 workers at its factory in Renton, Wash. But smaller parts companies like Wichita-based Spirit AeroSystems might not have that luxury. They could be forced to cut employees, and some might even get pushed out of business.

With 13,500 workers, Spirit is the largest employer in Kansas’ biggest city. It gets half of its revenue from making fuselages for the 737.

Even though Max production slowed earlier this year, Spirit and other suppliers continued to crank out parts, putting many of them in storage. As of Friday, Spirit had 90 fuselages on a ramp adjacent to nearby McConnell Air Force Base.

CFM International, a joint venture between General Electric and France’s Safran, which makes the Max engines, also faces uncertainty.

The Cincinnati company said Tuesday that it’s working with customers and other suppliers “to mitigate the impact of the temporary shutdown of the 737 Max production.”

The company, which has more the 80 manufacturing sites worldwide with about 50,000 workers, said it can move people and manufacturing across multiple engine programs. That may hold off any layoffs. CFM produces other engines for commercial and military aircraft.

Stamford-based Hexcel, which makes composite materials used on the 737 Max frame and engines, already was reporting lower sales after Boeing slowed the rate of Max production. On Tuesday the company tried to sound hopeful, saying it’s confident in the airplane’s long-term success and looks forward “to its return to flight and gradual ramp-up in production during 2020.”

The 737 Max is such a big product that by itself, the production hiatus will shrink the U.S. gross domestic product by around 0.5% in the first three months of 2020, predicted JP Morgan Economist Michael Feroli. That could cut the U.S. economy’s growth rate by a roughly a quarter, to 1.5%.

Joseph Brusuelas, chief economist for RSM, a tax advisory and consulting firm, predicted layoffs by suppliers and wrote in a note that some may have trouble staying in business. At an event his firm hosted in Wichita last summer, one executive from a midsize company indicated that if the Max grounding turned into a production halt, “it would be an existential risk” to that firm.

“It cannot be overstated just how important the domestic and global supply chains associated with Boeing are to the small- and medium-sized firms,” Brusuelas wrote.

If parts supply companies stop production, it will be difficult for them to quickly restart their factories, and that could further delay any startup of Boeing’s assembly lines.

Spirit AeroSystems CEO Tom Gentile said in October during the Kansas Economic Outlook Conference that it would take a long time to come back if production were reduced.

Boeing’s situation is so important, it has been discussed at the White House, top presidential advisor Kellyanne Conway said Monday.

Asked if President Trump might intervene, she said: “Boeing knows the president is watching. He’s met with them.... When you say he intervenes and gets involved, it’s to protect American interests. Safety first when it comes to airlines.”

The ripple effects of the Max grounding already have hit airlines, which have been forced to delay putting the Max into their flight schedules. That has cut the number of available seats, pushing prices up. But analysts say it also has stopped airlines from adding routes and expanding.

Southwest Airlines, which was counting on the Max to update its fleet, pushed back any hope of restoring the plane to service by five weeks, to April. American Airlines did the same last week. United, which already pulled the Max from its schedules through March 4, said it will keep monitoring the process to determine when the aircraft can safely fly again.

Hussain is a Times staff writer. Krisher writes for the Associated Press.