Why grounding 737 MAX jets is a big deal for Boeing

The 737 MAX is Boeing’s most important plane, and China is Boeing’s most important market. That’s why China’s decision to ground all Boeing 737 MAX 8 jets operated by its airlines is so significant.

It’s too early to know how long the grounding will last or what the ultimate fallout will be, but the news is not good for Boeing.

China’s decision to ground the planes came after a second 737 MAX 8 crash in less than six months. An Ethiopian Airlines flight crashed Sunday and a Lion Air flight from Indonesia went down in October.

“A suspension in China is very significant, as this is a major market for Boeing,” said Greg Waldron, Asia managing editor at aviation research firm FlightGlobal.

Boeing has predicted that China will soon become the world’s first trillion-dollar market for jets. By 2037, Boeing estimates China will need 7,690 commercial jets to meet its travel demands.

Airbus (EADSF) and Commercial Aircraft Corporation of China, or Comac, are vying with Boeing for the vast and rapidly growing Chinese market.

Comac’s first plane, designed to compete with the single-aisle Boeing 737 MAX and Airbus A320, made its first test flight in 2017. It is not yet ready for commercial service, but Boeing can’t afford any missteps.

RENTON, WA - JANUARY 29: A Boeing 737 MAX 8 airliner lifts off for its first flight on January 29, 2016 in Renton, Washington. The 737 MAX is the newest of Boeing's most popular airliner featuring more fuel efficient engines and redesigned wings. (Photo by Stephen Brashear/Getty Images)

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Boeing has made significant inroads in China with its 737 MAX family. A dozen Chinese airlines have ordered 180 of the planes, and 76 of them have been delivered, according Boeing. About 85% of Boeing’s unfilled Chinese airline orders are for 737 MAX planes.

The 737 has been Boeing’s bestselling product for decades. The company’s future depends on the success the 737 MAX, the newest version of the jet. Boeing has 4,700 unfilled orders for 737s, representing 80% of Boeing’s orders backlog. Virtually all 737 orders are for MAX versions.

So far, US airlines have not grounded their 737 MAX jets. American Airlines (AAL), Alaska Air (ALK), United Airlines (UAL) and Southwest Airlines (LUV) have ordered a combined 548 of Boeing’s 737 MAX jets, 65 of which have been delivered. Alaska has not yet taken delivery of any of its 737 MAX jets yet, although the other three have. If those 65 jets are grounded, it wouldn’t cause major disruptions for the US airlines, because they maintain huge fleets of other planes.

A problem with lithium batteries led airlines to ground all Boeing 787 Dreamliners worldwide in early 2013. Boeing agreed to pay its customers for the cost of pulling the those planes from service. But it kept building the 787 jets at its normal pace, even as the planes stayed grounded for several months. Boeing said the cost of the problem was “minimal,” and it did not report any lost sales because of the groundings.

Still, investors were nervous about the 737 and about the Chinese market. Boeing’s (BA) stock plunged 8% Monday.

SEATTLE, WA - JANUARY 29: A Boeing 737 MAX 8 airliners taxis after landing at Boeing Field to complete its first flight on January 29, 2016 in Seattle, Washington. The 737 MAX is the newest generation of Boeing's most popular airliner featuring more fuel efficient engines and redesigned wings. (Photo by Stephen Brashear/Getty Images)

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It’s not yet known whether the crashes of the Ethiopian Airlines and Lion Air flights were related. Everyone aboard both flights died in the crashes.

China’s airline regulator said Sunday it had “zero tolerance for safety hazards.”

The airline regulator in Indonesia said the 737 MAX 8 planes would need to be inspected before flights resumed. Several other airlines also announced they would ground their 737 MAX 8 planes.

Boeing said in a statement it was “deeply saddened” by the crash. The company is sending a technical team to the Ethiopian Airlines crash site to provide assistance to investigators.

Jethro Mullen contributed reporting.