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Boeing Proposes Settlement to End Claims From Fatal Plane Crashes

November 9, 2021 by Tom Ramstack

WILMINGTON, Del. — Boeing is proposing a $237.5 million lawsuit settlement to end complaints about its troubled 737 MAX airliners but the bigger question is whether the payment will allow the company to fully recover from the crashes that killed 346 people.

Boeing’s best-selling airplane was grounded for 20 months beginning in 2019 until software and pilot training upgrades were completed.

The settlement it proposed Friday would resolve claims by investors who accused the corporate directors of jeopardizing the company’s future by safety and governance lapses.

The settlement requires Boeing to establish an ombudsman program to give employees a method for reporting safety issues without fear of reprisal. In addition, the board of directors must add a member who is a product safety specialist.

The $237.5 million to shareholders follows $2.5 billion Boeing paid in compensation and penalties after the 2018 Lion Air crash in Indonesia that killed 189 and the 2019 Ethiopian Airlines crash that killed 157 just minutes after takeoff from Addis Ababa in 2019.

In both cases, Boeing’s software that controlled maneuvering of the 737 MAX airplanes was blamed.

Airline regulators around the world immediately grounded 387 of the planes. The FAA cleared the aircraft to fly again on Nov. 18, 2020. Canada and Ethiopia allowed resumption of their service in January 2021. They are still grounded in China.

Boeing also has resumed delivering the upgraded 737 MAX to airlines around the world. But the investors who sued are asking whether the company has done enough.

Last week, Michael O’Leary, chief executive of European discount carrier Ryanair, said in a pre-recorded statement to investors, “Boeing is losing customers all over the place.” Ryanair is Boeing’s biggest customer in Europe.

Boeing led the world in aircraft manufacturing revenue until the FAA grounded the 737 MAX. 

In 2018, Boeing reported $101 billion in revenue, while Airbus Industries — it’s nearest competitor — reported $75.1 billion.

By the next year, after the crashes, Airbus replaced Boeing as the world’s biggest aircraft manufacturer with $78.9 billion in revenue. Boeing earned $76.6 billion in the same year.

The shareholders’ lawsuit depicted a company that made a series of bad decisions leading to the 2018 and 2019 crashes.

Part of the problem was the popularity of the 737 MAX. After gaining FAA certification in 2017, the company ramped up production at factories that strained to keep pace with the orders of Boeing’s most profitable aircraft.

An FAA investigation later raised questions about whether some workers performed tasks beyond their skill set to avoid falling behind schedule.

Boeing’s strategy for serving customers worked well until Lion Air Flight 610 fell out of the sky near Jakarta. Five months later, Ethiopian Airlines Flight 302 went down.

When the drop in airline passengers from the COVID-19 pandemic was added to Boeing’s plight, about $30 billion of cash disappeared from the company’s bottom line.

The shareholders’ lawsuit accused Boeing’s directors and officers of breaching their fiduciary duties and acting with gross negligence in their rush to complete the 737 MAX’s design and development.

The lawsuit was led by the New York State and Local Retirement System, the New York State Common Retirement Fund and the Fire and Police Pension Association of Colorado.

New York State Comptroller Thomas DiNapoli, who helps oversee the New York funds, said in a statement that the pension funds sued Boeing’s directors “because they failed in their fiduciary responsibility to monitor safety and protect the company, its shareholders, and its customers from unsafe business practices and admitted illegal conduct.”

He added, “It is our hope, moving forward, that the reforms agreed to in this settlement will help safeguard Boeing and the flying public against future tragedy and begin to restore the company’s reputation. This settlement will send an important message that directors cannot shortchange public safety and other mission-critical risks.”

Tom can be reached at [email protected]

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