US GDP Growth Stunted by Grounding of Boeing's Max 737

After two flight crashes of its newest plane, the 737 Max, Boeing decided to ground all of them.  As the US’s major manufacturing exporter, the grounding of the plane has impacted the national economy.  With production nearly halted, the suppliers and investors of the 737 Max have dramatically changed hiring and investments.  This has taken a toll on the nation’s GDP, and we can’t blame it all on the trade war with China. 

It all started back in October 2018 when the first 737 Max crashed near Indonesia.  Then just five month later, another crash occurred, killing over 300 passengers.  This succession of events leads to Boeing’s decision to ground all of their 737 Max planes.  After several investigations, it was discovered that there were flight control issues.  This is more severe than the software fix Boeing initially proposed.  It is said the new planes won’t fly until the end of the year, according to the Federal Aviation Administration. 

Since then, airlines who have purchased the planes has had to cancel flights and use alternative planes or even leasing some.  Thankfully, there are more Max planes in production than in service.  However, airlines who were inline to purchase the planes have either cancelled their agreement or pushed back the delivery date.  One airliner, Norwegian Air, said they will be seeking payment for the groundings. 

Due to the reduced output of the Max, there has been a decline in exported goods.  While the US-China trade war has caused some manufactured goods to no longer be exported, commercial aircraft exports have dropped as well.  We are seeing a steady decline month to month, with rates as high as 1.3%.  Economists believe the decline in production rates of the Max will lower the US economy by 0.1%.  While this may seem small, it can grow if Boeing isn’t able to meet its target date of October 1st. If the FAA is right, deliveries won’t happen until the beginning of next year, thereby hurting our economy for the third and fourth quarters. 

As mentioned earlier, the groundings have hurt suppliers.  American Airlines Group and General Electric will need to amend their profit growth, citing financial damage due to the pause in deliveries and production.  The 737 Max was Boeing’s highest selling plane with more than $600 billion valuation sold.  This amount is now at risk due to grounding and possible delay in production longer than expected.

Many people were polled in regard to the crashes and Boeing’s plane.  According to a recent study, many US travelers say they will avoid flying the Max and some will go as far to say they will spend more money to avoid that plane.  With this sentiment, Boeing could lose more than the estimated $38 billion already lost.  This represents about 16% of its market share, a significant loss considering the 737 program accounts for a third of Boeing’s profits. 

Analysts believe this will have a longer-term effect on the overall GDP of the US, coupled with the on-going trade war with China.  With only a 2% gain on the GDP for the second quarter, the remaining of the year looks bleak.