H&P opinion, legal consequences and business implications on the Boeing 737 Max 8 accidents

Lion Air Flight 610 took off from Jakarta (Indonesia) on Monday 29th of October 2018, at 6:20AM local time. Its destination was Pangkal Pinang, the largest city of Indonesia’s Bangka Belitung Islands. Twelve minutes after takeoff, the plane crashed into the Java Sea, killing all 189 passengers and crew. Nearly five months later, Ethiopian Airlines Flight 302 took off from Addis Ababa, Ethiopia on Sunday, 10th of March 2019, at 8:38AM local time. Its destination was Nairobi, Kenya. Six minutes after takeoff, the plane crashed near the town of Bishoftu, Ethiopia, killing all 157 people aboard.

H&P lawyers and aerospace consultants have studied all the articles coming out about the possible technical aspects of the failure, the MCAS software, Pilot training and we would like to make some initial comments on the functionality of the Management System, a Process Control model and its compliance. H&P believe that the implications and consequences for Boeing are not still defined enough but will start to be seen in the short term.

LEGAL CONSEQUENCES AND LIABLITIES FOR THE PARTIES

1. Boeing main legal consequences

From the legal perspective we would like to give some guidelines on the legal consequences that Boeing could face due to issues related to the 737 Max 8.

Firstly, based on our legal understanding it would need to be proved that there was a violation of safety. On a preliminary base, we have no doubt that there will be some litigation and court proceedings, as precedents have been set with other aircraft systems, that caused feasible failures. If it was a deliberate act of safety breach, there is a court case to rule on this. If it can be proven there was willful neglect, there will be millions of dollars in compensation.

The media informed that nearly three dozen lawsuits have been already filed against Boeing since its 737 Max 8 aircraft operated by Lion Air crashed in Indonesia on 29th of October, killing all 189 people aboard.

Now that an Ethiopian Air flight in a 737 Max 8 crashed in Ethiopia on 10th of March and killed 157 people, and the United States and many other countries grounded the aircraft series pending further investigation, Boeing could face countless other lawsuits, report Crain’s Chicago Business and CNN.

Eight of the passengers on Ethiopian Airlines Flight 302 were citizens of the United States of America, whose families could bring lawsuits against Boeing.

Peter Flowers, a partner with plaintiff’s law firm Meyers & Flowers in Chicago who filed a lawsuit against Boeing on behalf of a Lion Air crash passenger, said in a press release Wednesday that he thinks mounting evidence will prove that Boeing failed to manufacture a safe aircraft. “The company’s ongoing negligence resulted in the deaths of passengers and crew of the Lion Air flight, and possibly now the Ethiopian Airlines flight as well,” Flowers said in the release. “It is no wonder so many countries are grounding Boeing’s 737 Max 8”.

2. Airliners are asking Boeing for liabilities and compensation due to grounding fleet.

H&P lawyers believe that airlines may bring legal actions over revenue losses incurred due to grounding. American Airlines flies 24 Max 8 jets, and were waiting on the delivery of 16 more this year. Another 20 should be delivered in 2020 and 2021, and 40 are slated to join its fleet in 2024. Southwest Airlines, American Airlines or any other airline that operates the series also could sue over loss of revenue during the grounding of the fleet.

Norwegian Air CEO Bj?rn Kjos announced to the customers in a recorded message that the airline would seek compensation from Boeing. Norwegian has eighteen 737 Max 8 planes in its fleet, mostly for trans-Atlantic flights between Europe and the East Coast of the United States. The airline has ordered more than 100 of the 737 Max 8 planes. “It is quite obvious we will not take the cost related to the new aircraft that we have to park temporarily,” said Norwegian CEO Bj?rn Kjos in a recorded message to customers. “We will send this bill to those who produce this aircraft”.

Aviation authorities in most of European countries as well as the United States, Australia, Indonesia, China and elsewhere have temporary barred the planes from their airspace. A growing number of airlines have also announced they may not fly the planes until they know what happened in the fatal crashes.

There are more than 350 of the 737 Max planes of different configurations that have already been delivered to airlines around the world.

The lawyers of Norwegian Air are not ready to confirm how much money the company would be seeking from Boeing for this grounding. It is difficult to be precise on how much Boeing would have to pay at it will be determined by terms of sales contracts between the aircraft maker and its customers, just a simple delay with a delivery can cause Boeing or the rival Airbus to compensate its customers.

3. FAA and future legal implications

In H&P opinion, the legal consequences may not be limited only to Boeing. CNN reported, US Justice Department prosecutors have issued multiple subpoenas as part of an investigation into Boeing’s Federal Aviation Administration certification and marketing of 737 Max planes, sources briefed on the matter.

Transportation Secretary Elaine Chao on Tuesday asked the agency’s inspector general to investigate the Max certification. Criminal investigators have sought information from Boeing on safety and certification procedures, including training manuals for pilots, along with how the company marketed the new aircraft, the sources said.

The Seattle Times reported: The FBI has joined the criminal investigation into the certification of the Boeing 737 MAX, lending its considerable resources to an inquiry already being conducted by U.S. Department of Transportation agents, according to people familiar with the matter.

The FBI Seattle office and Justice Department’s criminal division in Washington are leading the investigation.

4. Boeing shares impact and orders being revised. What are the possible legal liabilities for Boeing?

The correct answer to this depends on whether the lawyers working with the aerospace experts can determine a definitive cause behind the crashes in Ethiopia and Indonesia and if Boeing can come up with a remedy to address both. H&P believe that the holistic point of view in terms of identifying these liabilities will be a decisive approach.

“Certainly, there is near-term damage to both Boeing’s reputation and its business,” said Jim Corridore, director of industrials equity research at CFRA Research. “But how long lasting and how deep this impact is depending on the outcome of the investigation and how Boeing reacts”.

Boeing has received orders for more than 5,000 737s and 2,639 of them, more than half are for the MAX 8. About 350 have been delivered so, at $122 million a plane, the 2,300 MAX 8s still to be built total $278 billion. That is three times Boeing’s annual revenue of just over $100 billion, and that revenue is under threat as airlines line up to postpone purchases.

Already, 236 planes might be in doubt, from carriers Virgin Australia, Garuda, Lion, Russia’s Utair and VietJet.

Richard Aboulafia, an aviation analyst with the Teal Group, said of the investigation, however, he believes that a company that made billions in revenue last year will ultimately be able to find a fix and recover from this crisis. Though the deaths in the plane crash are a “tragedy,” he said, “I just don ‘t think it’s that serious a problem from a company health standpoint. The worst-case scenario is in the hundreds of millions” in monetary losses. “If they find the cause (or causes) of the 737 MAX’s problems, so swiftly, and develop a suitable set of solutions, then Boeing should be fine,” he said. “Boeing has no time to waste, though. At this point, it is possible some airlines may be considering scaling back their 737 MAX orders, and airlines that have not yet placed orders need to be convinced the MAX is safe or they will buy from Airbus”.

Fitch Ratings said in a note that it wasn’t ready to downgrade Boeing yet. “Groundings and delivery delays would likely need to last beyond several months for the company’s rating to be affected,” the company wrote. But analysts say diversification will save Boeing. “So much of their new business is coming from drones, from the unmanned aerial vehicles,” said Hillary Kramer, Portfolio Manager at Kramer Capital in the US. “It’s so much more than just airplanes, and so much more than just 737s”.

5. FAA reputation

As investigators in France begin to examine the black box flight recorder from Ethiopian Airlines flight 302, questions are being asked about aviation regulators on the other side of the Atlantic. In particular, why was the US so slow to ground its fleet of Boeing 737 MAX 8s after two crashes in four months, which between them claimed more than 300 lives? And why was US President Donald Trump who made the announcement and not the Federal Aviation Administration (FAA)?

Veteran airline industry Peter Harbison, from the Centre for Asia-Pacific Aviation, believes the FAA’s reputation has been seriously damaged. Mr. Harbison told the ABC the fact that the US was the last major country in the world to ground its 737 MAX 8s — and that it was the President who announced it — implied it was a business, as well as a safety, decision.

FAA Nominee Steve Dickson formerly a Delta Airlines executive, said: “The FAA’s safety reputation is in tatters, with current safety officials facing multiple investigations for improper certification of the 737 MAX after two crashes and inadequate emergency evacuation testing, criticism for long delays and defaults in safety rulemaking, lax enforcement of existing safety regulations, ineffective management of air traffic control modernization, mounting congestion delays from lack of airport management and construction, and no Senate-confirmed senior management”.

6. Thailand regulation, safety protocol and preliminary actions taken after the accident

H&P is a law firm with a well-known practice in Aviation Law, therefore we would like to make some brief comments on the protocols followed in Thailand after the accidents of Jakarta and Ethiopia. First of all, the regulation in Thailand concerning civil aviation is compiled at the Air Navigation Act B.E. 2497 and the Notification of the Revolutionary Council No. 58 B.E. 2515.

These regulations entitle the Ministry of Transport, the Civil Authority of Thailand and the Department of Airports to supervise the aerospace sector in a country such as Thailand where the tourism is one of the most important contributors of the GDP.

The Air Navigation Act, B.E. 2497 (1954) in Chapter 7 and sections 61 to 64 stipulates the proceeding in case an accident would take place in Thailand. In this case the accidents took place outside of Thailand (Indonesia and Ethiopia) but there was a direct effect on one of the airliners registered in Thailand.

Last 12th of March 2019, the Civil Aviation Authority of Thailand (CAAT) gave a statement relating to the accidents of Boeing 737 MAX 8 as follows: “There is no Boeing 737 Max 8 operating under Thai carriers. There is one Thai airline operating Boeing 737 Max 9, which is a different type […] CAAT temporarily suspended the operations of 737 Max 9 aircraft of Thai Lion Mentari Co. Ltd for passengers’ safety precautions”.

On this regard, the power goes beyond as Section 41/83 stipulates that “When it is evident that any Aircraft or an Aircraft of any type is unsafe for operation, the Director General shall order that such Aircraft, the Aircraft of such type or other Aircraft of similar types be prohibited from flying, and shall require the Aircraft registrant to rectify such Aircraft until safety for operation is met”.

Read the H&P report and legal opinion here