Sunday April 28, 2019 (RBB NEWS) – In this April 10, 2019, file photo a Boeing 737 MAX 8 airplane being built for India-based Jet Airways lands following a test flight at Boeing Field in Seattle. Boeing Co. reports earnings Wednesday, April 24. (AP Photo/Ted S. Warren, File)
Boeing Inc.’s (BA) costs to defend lawsuits tied to the Lion Air and Ethiopian Airlines crashes of its 737 Max 8 aircraft that resulted in the deaths of 346 people remain uncertain as the company issued its quarterly earnings report Wednesday.
The company reported a steep drop in first-quarter earnings, its first financial filing since the second fatal crash, in part due to at least $1 billion in setbacks anticipated from the global grounding of its most profitable jetliner. The report referenced undetermined potential litigation costs based on the two crashes, saying “We cannot reasonably estimate a range of loss, if any, that may result given the ongoing status of these lawsuits, investigations, and inquiries.”
Shortly after takeoff from Jakarta, Indonesia on October 29, Lion Air Flight 610 crashed into the Java Sea. Ethiopian Airlines Flight 302 similarly crashed shortly after takeoff from Addis Ababa, Ethiopia on March 10.
Boeing did not respond to an email from Yahoo Finance asking how many crash-related lawsuits have been filed. However, a search of court documents and news reports shows the company is facing at least 34 claims from victims’ families and one claim seeking class certification on behalf of shareholders. The claims allege Boeing is responsible for losses after installing an unsafe anti-stall system, called “MCAS” (Maneuvering Characteristics Augmentation System), on its 737 Max 8 planes, suspected to have played a role in both crashes. Boeing CEO Dennis Muilenburg said it was “apparent” the system had been activated in both crashes.
Dennis Muilenburg, chief executive officer of the Boeing Co., gestures during a discussion at the U.S. Chamber of Commerce aviation summit in Washington, D.C., U.S., on Thursday, March 2, 2017. Photographer: Andrew Harrer/Bloomberg via Getty Images
“Liability will not truly be in dispute here. Boeing is at fault. Their equipment failed. Their planes crashed twice,” Mark Lindquist, an attorney with the Herrmann Law Firm who is representing the families of 26 victims of the Lion Air crash, told Yahoo Finance.
Other foreseeable complaints could come from airlines that have been not only forced to ground all 737 Max 8 aircraft, but also must calculate whether consumers will be willing to fly on the troubled jets, if regulators re-certify the model as airworthy. That calculation could impact whether airlines seek to cancel or modify purchase contracts.
According to the Capa Fleet Database, Boeing had delivered 378 MAX 8 aircraft, globally as of March 11, the day after the Ethiopian crash, at which time another 5,526 were on order. List price for the MAX 8 was $117.1 million in 2018.
Added to the uncertainty of potential expenses for Boeing are pending regulator probes. The U.S. Justice Department initiated a criminal investigation into Boeing’s Federal Aviation Administration certification, as well as how it marketed its 737 Max 8 planes. The U.S. Department of Transportation’s Office of Inspector General is also conducting an inquiry.
Shareholders say Boeing misled investors
On April 9, the lawsuit seeking class certification was brought on behalf of shareholders who purchased Boeing stock between January 8, 2019 and March 21, 2019. The proposed class period covers a time frame beginning after the Lion Air crash, and extending beyond the Ethiopian Airlines crash, when Boeing’s stock experienced a steep decline.
According to the complaint, Boeing’s share price dropped “as the truth began to emerge” that its new automated anti-stall system may not have been fully disclosed to pilots.