Southwest Airlines revealed it would be removing Boeing 737 MAX planes from its flight schedule through April 13. Credit:

Boeing’s recent decision to pause 737 MAX production will cut 0.5 percentage points from gross-domestic-product growth in the first quarter of 2020, JPMorgan said Tuesday.

The model is Boeing’s bestselling product, and the production cut will have a material effect on GDP by pulling inventory growth lower, JPMorgan’s chief US economist, Michael Feroli, said in a note, Business Insider reported.

Feroli estimated earlier in 2019 that a complete production halt would wipe 0.6 percentage points from GDP growth in the next quarter. Boeing has since cut 737 MAX production to 42 a month from 52, a shift that accounts for the small adjustment in the hit to GDP growth, Feroli wrote.

Since the production adjustment, the 737 MAX hasn’t hit GDP growth — the decline in deliveries to airlines was offset by an inventory buildup, the economist said. The company already has 400 undelivered planes in storage.

“Accordingly, the expected drag on 1Q GDP growth should be concentrated in reduced inventory accumulation,” Feroli wrote.

The “production” component of GDP includes investment in inventory or fixed assets.

The pause could also harm firms in Boeing’s supply chain, Feroli added, as several parts-manufacturers rely on the aircraft as a steady revenue driver.

Boeing announced that it would halt 737 MAX production in January as it looks to clear the plane for commercial service. The Federal Aviation Administration earlier this month said Boeing’s timeline for the model was “not realistic,” punting the expected date for the plane’s recertification.

The anticipated return of 737 MX production should boost GDP in the future, Feroli said, but Boeing’s announcement lacked a timeline for when the plane would resume commercial flights.

Though JPMorgan’s previous first-quarter GDP-growth forecast didn’t account for a pause in 737 MAX production, Feroli said the projected 1.25% jump remained intact. The bank already expected “a noticeable deceleration in inventory accumulation,” so it didn’t adjust its expectation lower, the note said.

Meanwhile, Southwest Airlines revealed it would be removing the planes from its flight schedule through April 13, 2020, Travel Pulse reported.

The decision to remove the MAX flights was implemented to reduce last-minute cancellations and unexpected disruptions. Any traveler who already purchased tickets for impacted journeys will be notified of their re-accommodated flights.

In total, the airline removed around 300-weekday flights from its schedule.

Southwest officials revealed they are monitoring “information from Boeing and the Federal Aviation Administration (FAA) on the impending 737 MAX software enhancements and training requirements.”

The carrier previously removed the MAX from its flight schedules through February and March, based on continued uncertainty around the timing of the 737 fleet’s return to service.

In addition, Southwest announced plans last week to share approximately US$125 million in MAX compensation from Boeing with its employees. The airline is the largest operator of the troubled aircraft with a total of 34 in its fleet.

Perhaps the Economist put it best: “Since March Boeing’s response has been an ugly mixture of remorse, evasion and swagger, as it has gambled that it can get the MAX, and its business, rapidly back in the air. On December 16th that strategy ran out of runway when the firm announced it would suspend production of the stricken plane.”

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