How Boeing 737 Max cutbacks hit Pa. factories from Concordville to Harrisburg

(Includes more information from TE Connectivity 10 a.m.) Jet airliners are among America’s most expensive products and most valuable exports. So Boeing Corp.’s plan to stop work on what had been its biggest seller, the 737 Max jets built at its 12,000-worker plant in Renton, Wash., next month, is bad news, not just for Boeing but for nearly 1,000 other companies that supply parts, and the entire U.S. economy.

The stop in production, as airlines review where to buy their next planes, will cut U.S. economic growth this winter by half a percentage point, at a time when the long economic expansion has already been slowing, estimates Wells Fargo economist Jay H. Bryson in a report to clients. Boeing says it will try to keep the 12,000 workers from the plant busy on other projects.

The stalled assembly lines will cut into sales by suppliers, too. Locally based manufacturers including Ametek, DuPont Co., Southco, TE Connectivity, and Triumph Group, among others, all make parts or materials for Boeing’s 737s, though many of their plants are far outside their home region.

Boeing announced Monday that it will temporarily stop building the 737 Max in January as it has failed to secure Federal Aviation Administration approval for its changes to computer systems on the planes. The 737 Max has been grounded since last spring when 346 people were killed in two crashes in Indonesia and Ethiopia that investigators have blamed on automatic flight control systems. Boeing says it set $100 million aside for stricken families and communities.

Boeing had kept building the planes and telling shareholders it expected sales would shortly resume. But now, with no firm date for getting 737 Max planes back in the sky, “some of the company’s customers are examining purchasing planes from rivals, such as Airbus, which could have long-term impact on Boeing’s bottom line” and employment, economist Beata Caranci told TD Bank clients in a report. Caranci noted that Boeing has also announced plans to make fewer 787 passenger jets at its South Carolina assembly plant, starting next year.

Rival Airbus is a consortium of European plane-makers, some of which are also supplied by American manufacturers. That could lessen the impact of Boeing’s drop in orders. But Trump administration tariffs on European manufactured goods could affect those orders, too, Caranci noted.

“Boeing’s plans to suspend production of the 737 MAX may save some cash in the near term, but it could introduce additional risk into the supply chain,” warned Christopher A. Dinicola in a report to clients of Standard & Poor’s on Thursday. Boeing may have to keep buying 737 MAX parts from smaller suppliers to keep them from going out of business or losing their workers, he added.

The Boeing 737 uses latches made by Southco, whose world headquarters is in Concordville, Delaware County, along with one of its manufacturing plants. The company, owned by successors of four families who opened its original works in Chester more than 100 years ago, also has a warehouse near Philadelphia International Airport.

“We sell many products to Boeing” sometimes via third-party distributors, affirmed Al Frattarola, global engineering director at Southco.

But, since Southco also counts Boeing’s rivals as customers, “the grounding of the 737 Max does not affect Southco in any significant capacity," Frattarola added. “Our business is diversified enough that we can absorb the impact of any single event such as this” without affecting overall staffing or production.

Like other big aerospace manufacturers, “Boeing is a key customer for TE Connectivity,” said Jeff Cronin, spokesman at the company’s Berwyn offices. TE Connectivity makes compact, lightweight cables, connectors, relays and contactors for airliners, including “a wide range of products for the 737 MAX. Some terminals used within the 737 are manufactured in Central Pennsylvania,” though most are made elsewhere.

Triumph made parts or assemblies for 737 Max at four of its 41 plants, none of them near its Chesterbrook headquarters. Triumph chief executive Daniel Crowley met with top Boeing officials about the 737 Max last month in Seattle, and was then “encouraged by the progress Boeing is making on the return to service.” Crowley told shareholders that Triumph would be able to quickly supply more parts -- but that was before Boeing announced it would stop making the planes.

Crowley also told investors that 737 Max added up to several percent of Triumph’s annual sales, which were on track to decrease “less than 2 percent” due to Max issues, before the company announced it was stopping the line at Renton. Triumph didn’t respond to a request for comment.

UPDATE: On Jan. 3, Moody’s Investors Service said it was considering downgrading Triump’s credit rating -- already a junk-bond Caa1 -- to a still lower grade, in part because of the loss of 737 Max orders. “The impact pf this unexpected development will be detrimental to Triumph’s liquidity profile, which remains only marginally adequate in the event of a prolonged shut-down,” wrote Moody’s analyst Eoin Roche in a report to clients.

“We anticipate broad-based disruption through much of the global aerospace supply chain,” he added, noting Triumph is already deep in debt. The company’s sales have dropped to $3.2 billion last year from $3.9 billion in 2014 as Triumph sells or shuts divisions in an effort to regain profitability.

EARLIER: Ametek, based in Berwyn, makes flight-critical stabilizer trim actuators for 737s at a plant in England, among other products for Boeing. “Relative to the size of Ametek,” with over $5 billion in yearly sales, Ametek’s “737 Max exposure is not significant,” and it can shift work elsewhere “to minimize the impact” of Max delays, said spokesperson Kevin Coleman.

Boeing has also used Wilmington-based DuPont Co.'s Tedlar polyvinyl fluoride, made at plants in Towanda, Pa. and other U.S. cities, in its 737 interiors for insulation and scuff resistance.

“We will work with our suppliers to minimize operational disruption,” said Boeing spokesperson Dee Russell. “Our objective continues to be ensuring supply-chain health and production-system stability, including preparedness for seamless transition in the future" to other product lines.

The airliner production cuts don’t affect Boeing’s Ridley Park military aircraft works, the largest manufacturing complex in the Philadelphia area, which employs 4,600.

Ridley faces a separate challenge: The area’s congressional delegation has been struggling to secure long-term U.S. funding for its largest program, Army Chinook CH-47 helicopter upgrades, which the Trump administration had hoped to ax, along with other war systems suited to 1900s-style U.S. invasions in Europe, as it shifts to meet new threats from China and Russia.