— This is the script of CNBC's news report for China's CCTV on December 18, 2019, Wednesday.
To give you a sense of the economic spillover effects of Boeing's planned 737 MAX shutdown, let's start with a few key numbers
A new report from JPMorgan Chase suggests the move could knock 0.5% off America's GDP growth in the first quarter of next year, that is in line with Oxford Economics' forecast.
If so, the outlook for us economic growth in the first quarter of next year will be very bleak, perhaps around 1 per cent, rather than the 1.6 per cent previously forecasted.
At the same time, even after the shutdown, Boeing still needs to burn more than $1 billion a month on the 737 MAX, according to JPMorgan.
Boeing now spends about $2 billion a month on the 737 MAX, which doesn't immediately go to zero after halting production as it still has to pay internal overhead, labor costs and other fees for suppliers, this is the cost of maintaining future production capacity. Boeing's related spending will only be cut by about half after suspending production, according to JPMorgan.
Even so, the shutdown of Boeing's 737 MAX remains a headache problem for suppliers, apart from revenue and profit, staff issue is also very tricky. We mentioned yesterday that the 737 MAX's biggest supplier today is Spirit AeroSystems, who makes the airframe.
At present, the company can guarantee the productivity of 52 aircraft per month and can steadily increase to 57 when necessary. Furloughs could be hard to avoid if Boeing, which is in difficult negotiations with the company, stops paying it to build and store the fuselage, In addition to this company, Boeing's 737 MAX is estimated to have 680 suppliers worldwide, many of them offering products that are so niche that it is hard to find alternatives in a short time. In addition to upstream suppliers, Boeing has also had to deal with downstream airlines, which have complained publicly about their losses from the grounding of the 737 MAX. Boeing, which signed a confidential settlement with southwest airlines last week, is understood to compensate affected airlines with $5 billion.
Industry experts estimate that the grounding of the 737MAX and its aftermath will cost Boeing $14 billion, but the final figure is likely to be higher. Already, there are concerns about whether the 737 MAX shutdown is a one-quarter problem or a longer-term problem. as a week ago, Boeing was insisting it could go around by the end of the year, and investors have already paid a price for not being cautious about estimating the timing of go-around.
After announcing the news of suspending production, Boeing's share price is likely to have erased all of the strong gains it made at the start of the year by the end of the year
We will also keep a close watch on the future development of Boeing