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.
“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.
A preliminary report issued by Ethiopian regulators said an investigation “clearly showed that the Ethiopian Airlines Pilots who were commanding [the Ethiopian Airlines flight] followed Boeing's recommended and FAA's approved emergency procedures,” yet could not prevent the plane’s nosedive. Investigations to determine definitive causes for the crashes have not been completed.
The shareholder suit, filed in federal district court for the Northern District of Illinois, claims Boeing violated securities laws by failing to disclose the MCAS issue following the Lion Air crash.
“Defendants misled investors about the sustainability of Boeing’s core operation — its Commercial Airplanes segment — by touting its growth prospects and profitability, raising guidance, and maintaining that the Boeing 737 Max was the safest airplane to fly in the skies,” the lawsuit claims.
In an email to Yahoo Finance, Boeing said it would not comment on the class action litigation.
More victims’ lawsuits to come
At least 29 wrongful death claims have been filed in U.S. courts against Boeing on behalf of victims of the Lion Air crash that killed all 189 people on board. At least five U.S. lawsuits have been initiated over the Ethiopian Airlines crash that resulted in the deaths of all 157 passengers and crew.
“Very few have been filed thus far,” Thomas Demetrio, a plaintiff’s attorney who has represented the families of multiple air crash victims, including those of Lion Air crash victims, told Yahoo Finance. “I’m sure there will be more to come.”
Lindquist said Lion Air has illegally sought consent from victims’ families to settle legal claims, including those they may have against Boeing and other potential defendants, by coupling a proposed liability release with a unique Indonesian law that requires airline carriers to pay roughly $94,000 U.S. dollars to crash victims’ families without needing to show fault.
“The lawyers for Lion Air offered different families slightly more than [the required amount] and in exchange asked these victims’ families to sign away all their legal rights, not only against Lion Air, but against Boeing, and literally hundreds of other corporate entities,” Lindquist said.
“At some point, Boeing’s going to try to move the cases out of the United States to Indonesia,” Lindquist added, though he says he is confident the litigation will remain in the U.S. because evidence concerning the allegedly defective equipment is located in the U.S. and because the U.S. has a significant interest in the safety of planes manufactured within its jurisdiction.
The second crash could prove more costly for Boeing to settle wrongful death claims if the company is found to have known about, and failed to address, a safety issue that became apparent after the first crash. Demetrio said he is waiting to hear the outcome of the FAA and international investigations before filing a complaint on behalf of victims of the Ethiopian Airlines crash.
Lion Air victims
The Herrmann Law Group filed a claim on behalf of 17 Lion Air crash victims in King County, Washington, where Boeing is headquartered and where its 737 Max 8 is manufactured. The case, since moved to the federal district court for the Northern District of Illinois, now includes 24 families. The Herrmann firm expects to add two more victims to the litigation.
The estate of one victim, Rohmanir Pandi Sagala, who died in the Lion Air crash filed a federal lawsuit in the U.S. District Court for the Northern District of Illinois.
The father of Indonesian man, Dr. Rio Nanda Putrama, filed a wrongful death lawsuit in the Circuit Court of Cook County.
Deceased Lion Air passengers Rudi Roni Lumbantoruan and Remand Ramadhan are represented by their families who also filed wrongful death actions on behalf of their estates in federal district court in the Northern District of Illinois.
Lion Air co-pilot, Harvino, who died in the Java Sea crash, is represented in a lawsuit filed by his family in December.
Ethiopian Airlines victims
The first wrongful death action filed in the U.S. based on the Ethopian Airlines crash was brought in the U.S. District Court for the Northern District of Illinois, where Boeing is headquartered, by the family of 24-year-old, Samya Stumo, the grandniece of former presidential candidate, Ralph Nader.
The family of 31-year-old victim, Jackson Musoni, a Rwandan man who died in the Ethopian crash, filed a wrongful death lawsuit claiming Boeing’s MCAS system was defectively designed.
American victim Mucaad Hussein Abdalla is also among victims whose family has sued Boeing, alleging the company “actively concealed the nature of the automated system defects.”
A similar action was filed by siblings of a 29-year-old engineer, George Kabau. Kabau’s family hopes that by filing an action Boeing will be forced to release documents, including communications, concerning its 737 Max aircraft model.
Minnesota resident Mucaad “Siraaj” Hussein Abdalla, 31, was among the victims of Ethiopian Airlines whose family filed a complaint in federal court.
Among cases filed on behalf of crash victims, Boeing faces claims of wrongful death, product liability, negligence, failure to warn, and civil conspiracy. Some litigants who have also filed claims against Lion Air or Ethiopian Airlines, as well as the FAA, and Rosemount Aerospace which manufactured the MCAS sensor.
“Boeing had an opportunity to tell the world ‘We care about you’ by grounding these planes. Instead they’re still trying to cast guilt or fault on these pilots of both aircraft,” Demetrio said. “It’s very clear to me that the PR and legal teams are not working together at Boeing.”
In its quarterly filing Wednesday, Boeing scrapped its prior estimates saying, “previously issued 2019 guidance does not reflect 737 MAX impacts.” The company said it would issue new guidance on a future date. Boeing has not said when its 737 Max 8 model will be permitted to fly.
See also:
Boeing faces a ‘very, very serious’ criminal probe — Here’s what to expect
Alexis Keenan is a New York-based reporter for Yahoo Finance. She previously worked for CNN and is a former litigation attorney. Follow on Twitter @alexiskweed.