Accusations of corporate misconduct are piling up against Boeing following the two crashes of its 737 Max airliner in Indonesia and Ethiopia. Is the company somehow guilty of malfeasance?
Since the second Boeing 737 Max crashed a few weeks ago, there’s hardly been a day when the company’s been out of the headlines. This week shareholders filed a class action lawsuit alleging Boeing “effectively put profitability and growth ahead of airplane safety and honesty.” Also, two leading shareholder activist groups called for a boardroom shake up. Institutional Shareholder Services told investors that Dennis Muilenburg should be stripped of his dual role as chairman and chief executive, and a new, independent Chairman appointed. Glass Lewis targeted Lawrence Kellner, head of the audit committee, arguing a “lapse in the board’s oversight of risk management.”
Is Boeing at fault? It’s time for a forensic examination of the issues involved.
The background to this saga is the rivalry between the two titans that dominate the booming global aircraft industry – Boeing and Airbus. There is a lot of money at stake – FlightGlobal, the industry publication, predicts well over $1 trillion of plane sales over the next 15 years. Boeing’s annual revenues are already in excess of $100 billion. There are also a lot of jobs – Boeing employs over 150,000 people directly and many times that number depend on it indirectly. The rivalry between these two giants attracts a lot of attention.A few years ago it seemed that Airbus was stealing a march on Boeing thanks to the superior fuel-efficiency of its aircraft. Then Boeing came up with the bright idea to re-engineer their successful 737 plane to create the more fuel efficient “737 Max”. Two new engines improved fuel efficiency by 14 per cent.
But they were large and had to be fitted slightly higher and forward on the wings. This had a tendency to tip the aircraft upward. The now infamous MCAS system was installed to counter this. MCAS stands for Manoeuvring Characteristics Augmentation System. Essentially a forward sensor indicates if the nose is nudging skyward, and the flight computer counters by raising the stabilizer fin at the rear. It does this up to 2.5 degrees in nine seconds. It is the action of this MCAS system that is believed to be behind both recent crashes.
Three questions are now the focus of attention. The training of pilots – was this underplayed to maximize sales? The sale of safety features only as an optional extra – is this fair? And, finally, the role of the US regulator – was it too reliant on Boeing’s self-regulation?
A big selling-point for the new 737 Max was that it was so similar to the existing 737 that little retraining was necessary. Indeed, reportedly, pilots had as little as one hour’s training on an iPad. Training where the new MCAS system wasn’t even mentioned. After the first crash in Indonesia, the Seattle Times reported that pilots “were not informed during training about (this) key change.” Indeed the South West pilots union complained “we do
not like the fact that a new system was put on the aircraft and wasn’t disclosed.” The American Airlines pilot association sent out a general warning about MCAS. “This is the first description you, as 737 pilots, have seen….it is not in the flight manual.”
These union warnings were four months before the second crash. Months when the Boeing share price moved upwards as the company made reassuring noises. In the last few desperate moments of the first crash, the Indonesian cockpit crew can be heard desperately searching in their manual for what was going wrong with the aircraft. To be clear, the Boeing 737 Max manual is 1,600 pages long. MCAS appears only in the glossary.
The 737 Max has two safety features that relate to MCAS, sold as optional extras. An angle of attack indicator, and a warning light if sensors give conflicting readings. Neither of the planes that crashed had purchased these optional extras. Should they not have been automatically included? Senator Elizabeth Warren, US presidential candidate and corporate watchdog, waded in: “Outrageous. Safety features that stop airplanes from falling out of the sky shouldn’t cost extra – and regulators shouldn’t look the other way when companies like Boeing compromise safety for profit.”
The role of the regulator certainly is interesting. There were several awkward days after the second crash when the FAA refused to ground the 737 Max, unlike just about every other country. The FAA lets engineers employed by Boeing themselves oversee tests and vouch for safety. Mary Schiavo, a former inspector general for the US Transportation Department, cried “foul” years ago. In “Flying blind, flying safe” she claimed that 95% of 777’s inspected in the 90s were certified by Boeing itself. In 2005, the FAA under Marion Blakey shifted even more authority to manufacturers, allowing them to handpick which employeesvouch for aircraft safety. Ms Blakey later become head of the manufacturers own lobby organization.
By 2011 the Transportation department was expressing concern that the FAA “has not ensured engineers are adequately trained to perform their expanded enforcement responsibilities.” Liam Wallis, a former Boeing employee charged with assessing aircraft safety, alleges he was dismissed from Boeing when he whistleblew. A few weeks ago the US Department of Justice launched a criminal investigation into how Boeing won approval for MCAS and why it wasn’t flagged in manuals.
Boeing are working hard on a fix to get the 737 Max back in the air. On Tuesday, the FAA announced that software and training changes were “operationally suitable.” Flight investigators have been carrying out pilot simulations of MCAS malfunction. According to the New York Times, these show that pilots have just 40 seconds to save the aircraft. The trouble with MCAS is even when turned off it can turn itself on again. In the last few seconds of the Ethiopian flight the experienced pilot struggled with the computer to regain control of the plane. The computer pulled the nose down 24 times, angling it into a nosedive directly into the ground at an ever accelerating speed. In order to shut down the MCAS system completely, a pilot must flip a switch by their thumb, then flip two different switches elsewhere, before finally turning a crank (yes, a crank) to regain control of the aircraft. All this in 40 seconds. That’s how long it’s taken you to read this paragraph.
Whatever the FAA says, it is the passenger who will have the final say. Would you fly on a 737 Max?
Christopher Walker is a writer on business and politics. He has worked for many years in the area of institutional investment and ESG.