Shareholder Lawsuits Over Boeing Mishaps Could be a Major Albatross

Posted on 08/13/2020

An Air India Express Boeing 737 has crashed in India on August 7, 2020, causing at least 18 fatalities and numerous injuries. The flight was intended to take passengers home to India and protect them from the coronavirus. It was raining at the time of the incident, but it is not yet clear what caused the crash. Boeing has been under a cloud of suspicion for its history of faulty maintenance and deadly mistakes in regard to its new planes. The 737-800 that crashed was only two years old.

In regards to the MAX disasters, Bloomberg reported that “The public pension funds of New York and Colorado are best positioned to lead a consolidated shareholder lawsuit blaming Boeing Co.’s board and management for the fallout from two catastrophic 737 MAX 8 crashes, a Delaware judge ruled.” The pensions have the resources available to go toe to toe with Boeing in court, unlike most other shareholders.

Specifically, The Fire & Police Pension Association of Colorado and New York’s Comptroller Thomas DiNapoli will be the lead plaintiffs. DiNapoli is the trustee of the New York State Common Retirement Fund. DiNapoli’s office put out a statement that says Boeing management embraced “a financial-engineering corporate culture. The complaint alleges that Boeing’s Board and officers woefully abdicated their obligation to monitor safety to the extent it was no longer even a topic of discussion in board meetings, despite numerous safety-related red flags.” DiNapoli personally blasted Boeing’s “indifference to public safety.”

The lawsuit accuses Boeing of having “no oversight” of the MAX. San Francisco’s Lieff Cabraser Heimann & Bernstein LLP and Friedlander & Gorris PA of Delaware will represent the plaintiffs. Boeing’s legal troubles will continue, since dozens of additional lawsuits include “wrongful death suits, securities fraud claims, racketeering allegations involving Southwest Airlines Co., and a suit for lost pay by the Southwest pilots union,” noted Bloomberg. Boeing has retained Richards, Layton & Finger PA to represent them.

More Bad News From The Press

Months ago Michele Malkin accused Boeing of taking “very odd” actions and perhaps engaging in secretive behavior involving corporate relations: “The troubled aircraft company has been desperately seeking business after China’s de facto boycott the past couple of years and stands to benefit most from the China trade deal signed in January.” Boeing was a provider of choice to fly medical supplies into China. Malkin believes a “COVID-pro-quo” possibly occurred. Also earlier in 2020, the U.S. Congress lashed Boeing for its “culture of concealment.” Failures in oversight were also uncovered as a result of the investigation. Pilots and regulators were kept in the dark about Boeing’s new flight system until the first MAX plane crashed. The world grounded the MAX after the second crash. Scrutiny of Boeing revealed various safety lapses, including mechanics leaving tools in finished planes. Undoubtedly, access to China’s domestic market would help the company, but attempts by Boeing to gain the interest of China appear doomed to failure.

Word is now hitting the airwaves that China is actually pushing its own domestic aircraft, and avoiding Boeing planes as much as possible. In this case, Airbus won’t be the beneficiary. China’s passenger plane, the Comac C919, is made by Commercial Aircraft Corporation of China. Established in 2008, the company is state-owned and based in Shanghai. Flying has increased in China, and the Comac is approved to fly domestically and in certain cases, abroad. It cannot fly in the U.S. without Federal Aviation Administration (FAA) approval. By funding airports in emerging markets such as Africa, experts say China has customized the infrastructure specifically for their planes.

The Wall Street Journal came out with a late day story on Friday August 7, 2020 indicating another shakeup: “Mark Forkner, who as Boeing’s 737 MAX chief technical pilot oversaw regulatory approvals for training and pilot manuals, is among more than 4,400 Southwest employees who opted for a voluntary buyout package.” Forkner was a critical figure in the investigation over the MAX crashes. His chat records indicated that he misled the FAA without realizing it. The WSJ goes on: “While at Boeing, Mr. Forkner helped Boeing avoid FAA requirements that MAX pilots undergo simulator training, a costly prospect for Boeing’s airline customers.” In fact, 346 died in the two crashes and the liabilities for shareholders are shaping up to be significant.

Further Costs

On August 8, 2020, Barrons reported on an internal FAA survey that found widespread agreement that “The Federal Aviation Administration is too nice to Boeing.” Increased government regulations could be on the way, especially if Boeing reaches the point where it has to rely on a government bailout. On July 29, 2020, Boeing reported that it lost US$ 2.4 billion over the previous quarter. Boeing had to offer US$ 25 billion in bonds to help it manage the MAX crisis. The last three month period took out 9.6% of the new money. With 16,000 jobs already expected to be cut, Boeing CEO David Calhoun hinted that more layoffs were coming due to the coronavirus. Calhoun was put in place to manage the turnaround after Dennis Muilenburg was shown the door. Muilenburg took with him a “golden parachute” or total compensation package of US$ 80 million that includes pension benefits and stock options. Muilenburg did not receive a bonus for 2019. In addition to the employee layoffs, Boeing has cancelled its dividend, done away with its stock buybacks, and drastically reduced manufacturing.

Keywords: The Boeing Company, Boeing Co., Fire and Police Pension Association of Colorado, New York State Common Retirement Fund.

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