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When cost-cutting kills: the Boeing 737 Max 8

Criminal penalty paltry 0.24% of fiscal 2018 revenue.

On 10 March 2019, a Boeing 737 Max 8 crashed minutes after take off from the capitol of Ethiopia, killing all 157 people on board; it was the second 737 Max 8 crash in five months. That prior crash had killed all 189 people on board after the plane crashed minutes after take off from Jakarta, Indonesia.

Boeing initially blamed those 346 deaths on pilot error.

Then-Boeing CEO Dennis Muilenburg latched onto findings that pilot inexperience and lack of training were part of a chain of events that led to the tragedies. Yet both the March 2019 Ethiopian Airlines crash and the October 2018 crash of Lion Air Flight 610 involved a software system, MCAS, that was supposed to keep people safe — but instead contributed to tragic deaths when triggered by a single faulty sensor.

At the time of the crash of Ethiopian Airlines Flight 302 and Lion Air Flight 610 in Indonesia five months earlier, the FAA was being led by an acting administrator, Daniel Elwell (06 January 2018 – 12 August 2019). The FAA was slow to ground the plane.

In fact, Boeing had known about problems with the software system since 2012. The plane was grounded from March 2019 until December 2020. There was a Congressional investigation.

The US Congressional Enquiry was scathing about the culture at both Boeing and the FAA and the difficulty of the FAA in overseeing Boeing’s work.

In January 2021, while Trump was still President, Boeing agreed to a $2.5 billion fine to settle a U.S. Department of Justice (DOJ) charge of “conspiracy to defraud.” The settlement came during the tenure of acting attorney general Jeffrey A. Rosen but was crafted when William Barr was attorney general.

“Today’s deferred prosecution agreement holds Boeing and its employees accountable for their lack of candor with the FAA regarding MCAS,” according to Special Agent in Charge Emmerson Buie Jr. of the FBI’s Chicago Field Office.

Boeing will pay a total criminal monetary amount of over $2.5 billion, composed of a criminal monetary penalty of $243.6 million, compensation payments to Boeing’s 737 MAX airline customers of $1.77 billion, and the establishment of a $500 million crash-victim beneficiaries fund to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the Boeing 737 MAX crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302.

To put that criminal penalty of $243.6 million in context, Boeing’s revenue was $101.1 billion in fiscal 2018. Net earnings: $10.5 billion.

The criminal penalty was a paltry 0.24% of revenue or 2.3% of net earnings (after who-knows-how-many tax breaks).

U.S. House Transportation Committee chairman Peter DeFazio called the DOJ settlement “a slap on the wrist [that] is an insult to the 346 victims who died as a result of corporate greed.”

Analysts noted the $1.77-billion airline compensation was already covered by accounting provisions and some had already been paid, meaning the remaining burden was relatively small…

 

The $243 million fine, which the Justice Department said was at the “low end” of the sentencing guidelines, represents the amount Boeing saved by not implementing full-flight simulator training.

No wonder corporations don’t worry about obeying laws and regulations.

These were extremely minor monetary penalties.

The Board fired the head of Boeing Commercial Airplanes who received a lump sum cash payment of $14.75 million “to make up for leaving pension benefits from his previous employer.” He had been at GE Aviation for 27 years, serving as its Aviation Services CEO for two.

The company also fired CEO at the time; he walked away with an estimated $80 million in pension benefits and stock as a going-away gift.

At the time, Boeing had set aside only about half that, $50 million, for families of the 346 who were killed in the two crashed.

The DOJ charged a former Boeing chief technical pilot with fraud in 2021. This designated jailee was very far down the organization chart. A U.S. District Court judge dismissed the charges in February 2022.

 

 

#scitech, #society  (049/365)

📷 Flickr 737-400

Daily posts, 2022-2023

By Kathy E. Gill

Digital evangelist, speaker, writer, educator. Transplanted Southerner; teach newbies to ride motorcycles! @kegill

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