By: Julia Baranov
Earlier in 2021, Boeing’s shareholders filed a lawsuit against the board of directors following the plane crashes of 2018 and 2019.[1] The lawsuit alleged that the board “failed in their fiduciary responsibility to monitor safety and protect the company, its shareholders and its customers from unsafe business practices and admitted illegal conduct.”[2]
On October 29, 2018, Indonesia Lion Air Flight 610 crashed minutes after take-off, killing all passengers and crew.[3] Less than a year later, on March 10,2019, Ethiopia Airlines Flight 302 crashed killing all 149 passengers, just six minutes after takeoff.[4] During an investigation, it was found that the cause of the crash was the same in both situations: “a single malfunctioning sensor.”[5] Both planes were Boeing 737 MAX.
Following the crashes, Boeing came to agreement with the victims’ families. Boeing accepted responsibility for the Ethiopia crash, stating that the plane “was in an ‘unsafe condition’ to fly.”[6] Similarly, the airline came to an agreement with the families of the Indonesia crash victims. The agreed upon settlement allowed families to file suit against the company for compensatory damages; a clause in the settlement also states that Boeing accepts liability for any “subsequent lawsuit brought on the issue,” however, families may not seek punitive damages from the company.[7]
Despite coming to an agreement with the victims’ families for the damages they suffered, Boeing was also facing a lawsuit from Boeing shareholders. Just days after the Ethiopian Airlines Flight 302 crash, all (393) the 387’s were grounded.[8] While some were voluntarily grounded by the operating airline, the majority were grounded by government regulators.[9] During that time, the 387 MAXs were making 8,600 flights a week.[10] After two crashes in less than five months and the groundings of the 737, Boeing stock prices fell. With Boeing’s initial goal of having the 737 MAX operating again within three months pushed back nearly two years, Boeing faced financial issues.[11] In 2019, the company lost $636 million, reporting the first annual loss since 1997.[12] Comparatively, 2018 proved to be a very successful year for the company with $10.46 billion in profit.[13] Along with the losses Boeing faced from their plane groundings, they were also
“ordered to pay more than $2.5 billion in fines, including $500 million to people who lost relatives in the Lion Air Flight 610 and Ethiopian Airlines Flight 302 crashes in 2018 and 2019.”[14]
In the 2019 earnings report, “Boeing reported a loss of $2.33 per share for the fourth quarter” and a 37% drop in revenue in the last three months of 2019.[15] Boeing was not able to recoup their losses in 2020, as they sought a $60 million financial bailout due to further disruptions caused by coronavirus.[16]
With the myriad of issues plaguing the company leaving them in financial distress, shareholders filed a “lawsuit that claimed the plane maker’s board failed to properly oversee safety matters related to the 737 MAX.”[17] The plaintiffs’ overall complaint is that the Boeing board
“failed in their fiduciary responsibility to monitor safety and protect the company”
which directly went against their duty to protect and manage the shareholders’ best interest in the company.[18]
On November 5, 2021, the Boeing board of directors agreed to pay “hundreds of millions of dollars and impose new safety measures, closing out a lawsuit brought by Boeing shareholders that began after two crashes of the latest version of its best-selling passenger jet killed hundreds of people and caused regulators to ground the jet worldwide.”[19] In addition to the $237 million settlement amount that will be paid out by the directors’ insurance companies, Boeing agreed to various reforms including, but not limited to, the “creation of an Aerospace Safety Committee responsible for all airplane safety issues,” a “[t]ransition of new board members and departure of many of the board members serving at the time of the 737 MAX crashes,” and “[a]ppointment of new board members, three of whom must have air-safety and aviation industry experience.”[20]
Moving into 2022, Boeing remains “optimistic.”[21] Boeing has been “in discussions with Chinese regulators on re-certifying the single-aisle 737 MAX.”[22] China, who was the first to ground all 737s, remains one of the only countries that is still grounding the aircraft. As of December 2,2021, Boeing’s 737 MAXs will be allowed to resume their commercial flights in China by early 2022.
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[1] Joanna Partridge, Boeing Directors to Face Investor Lawsuit Over 737 Max Fatal Crashes, The Guardian (Sept. 8, 2021, 7:58 AM), https://www.theguardian.com/business/2021/sep/08/boeing-directors-to-face-investor-lawsuit-over-737-max-fatal-crashes.
[2] David Shepardson, Boeing Directors Agree to $237.5 Million Settlement Over Max Safety Oversight, Reuters (Nov. 5, 2021, 5:03 PM), https://www.reuters.com/article/boeing-lawsuit-idTRNIKBN2HQ293.
[3] Sinéad Baker, This Timeline Shows Exactly What Happened on Board the Lion Air Boeing 737 Max That Crashed in Less Than 13 Minutes, Killing 189 People, Bus. Insider (Oct. 20, 2019, 1:11 PM), https://www.businessinsider.com/lion-air-crash-timeline-boeing-737-max-disaster-killed-189-2019-10.
[4] Ethiopian Airlines: ‘No Survivors’ on Crashed Boeing 737, BBC (Mar. 10, 2019), https://www.bbc.com/news/world-africa-47513508.
[5] Dominic Gates, Q&A: What Led to Boeing’s 737 Max Crisis, Seattle Times (las updated Nov. 22, 2020, 5:52 PM), https://www.seattletimes.com/business/boeing-aerospace/what-led-to-boeings-737-max-crisis-a-qa/ (“[T]hat trigger left the pilots in a deadly struggle against a new flight control system that ultimately forced their jet into a nose dive.”).
[6] ‘A Significant Milestone’: Boeing Agrees to Settle With Ethiopia 737 Max Crash Victims, USA Today (Nov. 11, 2021, 7:54 AM), https://www.usatoday.com/story/travel/airline-news/2021/11/11/boeing-settlement-crash-ethiopia-737-max/6383633001/.
[7] Ismael Awad-Risk, Boeing Closes a Settlement with the Families of the Victims of Ethiopian Flight 302, Aviacionline (Nov. 11, 2021), https://www.aviacionline.com/2021/11/boeing-closes-a-settlement-with-the-families-of-the-victims-of-ethiopian-flight-302/.
[8] Meg Wagner, Brian Ries, Veronica Rocha & Ben Westcott, Boeing 737 Max 8 Planes Grounded After Ethiopian Crash, CNN (last updated Mar. 14, 2019, 7:03 AM), https://www.cnn.com/world/live-news/boeing-737-max-8-ethiopia-airlines-crash/h_2a7a511377223351a128330860e4811c.
[9] Id.
[10] Denise Lu, et al., From 8,600 Flights to Zero: Grounding the Boeing 737 Max 8, N.Y. Times (last updated Mar. 13, 2019), https://www.nytimes.com/interactive/2019/03/11/world/boeing-737-max-which-airlines.html.
[11]Kent German, 2 Years After Being Grounded, The Boeing 737 Max is Flying Again, CNET (June 19, 2021, 11:00 AM), https://www.cnet.com/news/boeing-737-max-8-all-about-the-aircraft-flight-ban-and-investigations/; See also Chris Loh, 737 Max: The Jet Will Fly Again by July, Simple Flying (Apr. 24, 2019), https://simpleflying.com/737-max-flying-again/.
[12] Leslie Josephs, Boeing Posts First Annual Loss in More Than Two Decades as 737 Max Crisis Drags On, CNBC (Jan. 29, 2020, 7:07 AM), https://www.cnbc.com/2020/01/29/boeing-ba-earnings-q4-2019.html.
[13] Id.
[14] Mychael Schnell, $500M Compensation Fund Opens for Boeing 737 Max Victims’ Families: Report, The Hill (June 22, 2021, 12:55 PM), https://thehill.com/policy/transportation/aviation/559608-500m-compensation-fund-opens-for-boeing-max-737-victims.
[15] Josephs, supra note 12.
[16] Jeremy Bogaisky, Boeing Seeks $60 Billion Bailout for U.S. Aerospace, Forbes (Mar. 17, 2020, 11:56 PM), https://www.forbes.com/sites/jeremybogaisky/2020/03/17/boeing-seeks-60-billion-bailout-for-us-aerospace/?sh=5c98a6d4661c.
[17] Boeing Shareholders Reach Settlement in 737 Max Board Oversight Suit- WSJ, Reuters (last updated Nov. 4, 2021, 11:04 PM), https://www.reuters.com/business/aerospace-defense/boeing-shareholders-agree-settle-737-max-board-oversight-suit-wsj-2021-11-05/.
[18] Gates, supra note 5.
[19] Joe Walsh, Boeing Directors Settle Shareholder Lawsuit Over 737 Max Crashes For $237.5 Million, Forbes (Nov. 5, 2021, 9:24 AM), https://www.forbes.com/sites/joewalsh/2021/11/05/boeing-directors-settle-shareholder-lawsuit-over-737-max-crashes-for-2375-million/?sh=214873e7344b.
[20] Michael Volkov, Boeing Settles Shareholder Litigation and Agrees to Reforms (Part IV of IV), JD Supra (Nov. 30, 2021), https://www.jdsupra.com/legalnews/boeing-settles-shareholder-litigation-3233185/.
[21] Siddharth Vikram Philip, Boeing Signals Optimism on Resolving Dreamliner, Max Issues, Bloomberg (Nov. 13, 2021, 11:57 PM), https://www.bloomberg.com/news/articles/2021-11-13/boeing-signals-optimism-on-resolving-dreamliner-max-issues.
[22] Id.