Boeing’s woes are stacking up. The latest blow? A class-action lawsuit filed by shareholders on Tuesday that charges that the airline defrauded them for not informing them of technical deficiencies of their ill-fated plane.
The problems began when two 737 Max 8 planes crashed on take-off. The cause? Boeing’s own safety systems malfunctioned at crucial moments in the flight.
Suit: Boeing Deceived Shareholders
In the filing, Boeing shareholder Richard Seeks accused the aircraft maker of effectively putting profitability and growth ahead of airplane safety. He’s one of many shareholders who are livid at the hit Boeing’s market value took as a result of the Ethiopian Airlines 737 MAX 8 crash.
The complaint states the company rushed the 737 MAX to market to compete with the upgraded Airbus SE.
According to QZ, the Federal Aviation Administration certifies planes piece-by-piece in a process called “type certification.” Because the certification process is so long and costly, there is “supplemental type certification,” which allows manufacturers to use a shortened process for parts which are “sufficiently similar” to their predecessors.
This may be at the heart of Boeing’s issues.
Just hours after a preliminary report on the Ethiopian Airlines jet crash, Boeing CEO Dennis Muilenburg acknowledged that the erroneous activation of the jet’s anti-stall feature contributed to the two accidents.
Citing the preliminary report, Muilenburg admitted Boeing’s so-called anti-stall feature activated upon receiving erroneous information. This led to the loss of control of the aircraft by the flight crew.
Boeing has not released an official statement on this shareholder action.
Boeing Stock Falls for Third Consecutive Day
The suit names Chief Executive Dennis Muilenburg and Chief Financial Officer Gregory Smith as defendants.
According to Reuters, Seeks is the lead plaintiff. He bought 300 shares in early March and sold them at a loss in the last two weeks.
Boeing’s stock slid more than 1.1 percent on the news. At last check, BA shares traded at $364.92.
Bears Pound the Table, But Boeing Bulls Hold on Tight
Boeing dealt with the two high-profile crashes in rapid succession. The first involved a Lion Air flight in Jakarta in Indonesia where 189 people died. The Ethiopian Airlines crash took the lives of 157 people.
After the Ethiopian crash, the company grounded the suspect planes around the world. It vowed to work with investigators and issued apologies immediately.
Financially, the results were a further disaster. Spooked stock analysts dumped on the stock. Bank of America Merrill Lynch downgraded Boeing stock to neutral from buy and slashed its price target to $420 from $480. That action came earlier this month.
BofA analyst Ronald Epstein warned:
“The reputational loss from these events could erode long-term market share and pricing power of the 737 MAX. A six-month delay also means lower margins due to penalties owed to customers, weaker negotiating position with airlines as airlines consider cancellations, and operational inefficiencies from the production disruption.”
Aircraft buyers canceled orders. Deliveries of 737 aircraft fell to 89 in the latest quarter, a 49 percent drop from fourth-quarter deliveries of 173, and about a third of last year’s deliveries of 132.
Not everyone is down on the aeronautics giant, however. Many believe the company will bounce back.
“Boeing makes a really good product and they are going to fix this airplane. I have no doubt. Boeing has always done what they’ve said they are going to do. It’s unfortunate they’ve had these fatalities but you’re not going to replace the Max 8 with an Airbus overnight. That’s just not going to happen,” said Gordon Bethune, a former CEO of Continental Airlines on CNBC’s Squawk Box.”