Turbulent Skies Ahead for Boeing

April 18, 2019

Boeing has already been named in various product liability suits regarding the back to back crashes of Ethiopian Airlines and Lion Air flying the Boeing 737 Max but a new suit was brought on April 10, 2019 by a proposed class composed of the company’s own shareholders naming the company, CEO, and CFO as defendants. The complaint alleges the company knew of potential safety problems with the new configuration and failed to take corrective action. In fact, as alleged, they were not only disregarding these concerns but after the first crash they were even touting the plane as being as safe as any airplane in the skies. The complaint points to this statement and others that actually caused Boeing shares to continue rising in value in the time period between the 2 crashes.

The Boeing 737 Max is a relatively new configuration of the 737 model that has been in the skies for over 50 years now. The new Max configuration was released in 2016 and was designed with larger engines in a bid for fuel efficiency. These engines were so much larger than the original version of the 373 that in order to safely sit high enough off the ground they were moved forward on the wing rather than being almost completely tucked underneath as before. This created a problem, though, where the flight characteristics of the plane changed from the earlier configurations.

To avoid unnecessary new certifications for the plane and to allow pilots to operate the new Max variant without additional new training, Boeing instead created a new flight computer control system called “Maneuvering Characteristics Augmentation System” (MACS). This computer system attempts to automatically correct the plane’s flight characteristics to more closely mimic the original design. According to the allegations in the complaint, they implemented this software with little explanation and failed to even mention it in the flight crew operations manual. Instead, other safety features which would have worked in conjunction with this system were withheld as optional features carrying an additional charge. The complaint even cites to a statement made to the American Airlines pilot union by an unnamed Boeing executive where they state their pilots would never have experienced these problems because American Airlines had purchased the additional safety features.

It is argued Boeing’s failure to properly implement and train pilots on that directly contributed to the crashes which caused their market value to fall by $34 billion following the second crash. The complaint paints a picture of the company’s press releases saying all the right things continually driving up stock prices, while behind the scenes the company allegedly knew the safety issue for the 737 Max was still looming. After the second crash occurred on March 10, 2019 a clear picture of a common cause between these 2 crashes began to emerge. Numerous news sources began reporting that MCAS could likely be a reason for the crashes. Eventually the entire 737 Max fleet was grounded by countries worldwide. Boeing cut their production projections for the Max by 20%. This all caused Boeing’s stock price to tumble following the second crash.

The plaintiff alleges in their complaint that Boeing themselves directly contributed to an over-inflated stock price by “material omissions and false and misleading statements” which caused the plaintiffs to pay stock prices artificially inflated beyond their market value. While the complaint does extensively analyze the statements made to the public being the basis for over-inflated stock prices, it doesn’t go into great detail regarding the class composition. It is merely the possible “thousands of members” who purchased shares from January 8, 2019 to March 21, 2019 and relied on the company’s statements. Boeing has not yet filed an answer to the complaint.

Sources:

Seattle Times: Investigators find new clues pointing to potential cause of 737 MAX crashes as FAA details Boeing’s fix

Docket: Seeks v. The Boeing Company

Image Source: REUTERS/Matt Mills McKnight

Not a Westlaw subscriber? Sign-up for a free trial today.