Mnuchin: Boeing woes could cut half-point from US growth

January 14, 2020 07:31
The Federal Aviation Administration is not expected to approve the MAX’s return to service until at least February and potentially March or later, Reuters reported. Photo: AFP

 

Challenges faced by US planemaker Boeing to get the grounded 737 Max back to the skies could shave a half-percentage point from the country's economic growth this year, Treasury Secretary Steven Mnuchin told Fox Busines Network.

"For this year, we've been looking at 2.5 to 3 percent [GDP growth], as I said, it may be closer to 2.5 because of the adjustment of the Boeing numbers," Mnuchin told Maria Bartiromo on Fox's Sunday Morning Futures.

"But this would have been 3 percent otherwise. There's no question that USMCA and the China deal are going to add significantly to growth."

Boeing's 737 MAX, the best-selling aircraft in the company's history, has been grounded since March after two crashes in less than six months that killed 346 people.

According to Bloomberg News, the grounding has cut more than US$50 billion from the planemaker’s market value, and remains uncertain when the fleet will be back in operation.

"Now let me just say that there's no question that the Boeing situation is going to slow down the GDP numbers," Mnuchin told Bartiromo.

"Boeing is one of the largest exporters, and with the 737 Max, I think that could impact GDP as much as 50 basis points this year. But we look forward to very healthy growth in 2020."

Still, Mnuchin appears to have a more optimistic assessment of the economy than other economists.

Economists surveyed by Bloomberg News this month forecast a 1.8 percent GDP growth, down from an estimated 2.3 percent in 2019. They put the chances of a recession happening over the next 12 months at 30 percent.

On Monday, David Calhoun began his job as Boeing's new chief executive, Reuters reported.

Calhoun, 62, a longtime Boeing director named chairman in October after the board stripped Dennis Muilenburg of the title, was named CEO following the firing of Muilenburg amid growing concerns about the company’s relationship with regulators and its handling of the MAX.

Additional costs

Boeing has estimated costs of the MAX grounding at more than US$9 billion to date and is expected to disclose significant additional costs during its fourth-quarter earnings release on Jan. 29.

Boeing faces rising costs from halting production of the MAX this month, compensating airlines for lost flights and assisting its supply chain.

The company, which is due to report fourth-quarter earnings on Jan. 29, is also considering raising more debt and could announce its plans as early as this month, a source told Reuters.

Moody’s on Monday said it had placed Boeing’s A3 senior unsecured credit rating under review for a possible downgrade.

Recent developments, including layoffs at key supplier Spirit AeroSystems Holdings Inc. and the release of damaging messages between Boeing employees suggested a more costly and protracted recovery for the manufacturer to restore market confidence, Moody’s said.

Calhoun, a former executive at Blackstone private equity group and experienced corporate crisis manager, is already working to repair the company’s relationships with regulators, airlines and lawmakers. He previously headed a General Electric Co.'s division that included airplane engines.

Calhoun told employees in an email on Monday he sees “opportunities to be better. Much better. That includes engaging one another and our stakeholders with greater transparency, holding ourselves accountable to the highest standards of safety and quality, and incorporating outside-in perspective on what we do and how we do it.”

Pilot training

Last week, the board and its interim CEO reversed course and recommended regulators require simulator training for pilots before they resume flying the MAX. Directors also authorized the release of more than 100 pages of damaging internal messages that disclosed company efforts to avoid costly simulator training for the MAX amid troubling questions about its culture.

In one email, an employee said the 737 MAX was “designed by clowns who in turn are supervised by monkeys”. A source close to Calhoun said on Sunday it was important employees saw the emails, which Boeing last week described as “completely unacceptable”.

Calhoun wants to “get rid of the culture of arrogance” at Boeing that led to the messages written by a small number of employees, the source said.

On Friday, the board approved a US$1.4 million annual salary for Calhoun and long-term compensation of US$26.5 million if he achieves several milestones, including the return to service of the 737 MAX.

Reuters has reported the Federal Aviation Administration is not expected to approve the MAX’s return to service until at least February and potentially March or later.

Boeing is still working to complete a number of key hurdles on the MAX’s return, including completing a software documentation audit with regulators and addressing potential wiring issues.

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CG