By Nathan Bomey (USA TODAY)
An acknowledgment by Boeing’s CEO that a new maneuvering system in the company’s 737-Max airplanes contributed to two fatal crashes could leave Boeing exposed to billions of dollars in legal liabilities, experts say.
Still, CEO Dennis Muilenburg’s statement may be an effort to show that Boeing remains in control of the situation, protecting its reputation and minimizing future losses by ensuring airlines, flyers and investors keep faith in the company.
Muilenburg on Thursday apologized and said that a preliminary report blames a system embedded in the planes for playing a role in the crashes of Lion Air Flight 610 on Oct. 29 and Ethiopian Airlines Flight 302 on March 10.
He said an initial report makes it “apparent that in both flights” a maneuvering system “activated in response to erroneous angle of attack information.”
The crashes killed nearly 350 people and triggered the worldwide grounding of 737-Max planes until Boeing can deliver a fix.
“We at Boeing are sorry for the lives lost in the recent 737 MAX accidents,” Muilenburg said in a statement. “These tragedies continue to weigh heavily on our hearts and minds.”
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Stanford Law Professor Robert Rabin, an expert on torts who has tracked the matter, said it’s too early to tell precisely how Muilenburg’s statement will affect Boeing’s liability.
But “based on what we have up to now and what the CEO said in his statement, it does seem that there’s a very strong case of liability,” Rabin said. “It seems clear that there was a defect in the operation of the sensors to begin with.”
Carl Tobias, a corporate legal liability expert and law professor at the University of Richmond, said there are still significant questions regarding the circumstances of the suspected Boeing defect. “But I do think there’s exposure and potentially substantial exposure,” he said.
Jim Corridore, a stock analyst at CFRA Research who tracks Boeing, said Muilenburg “definitely stopped short of admitting full liability” for the crashes.
He pointed to the CEO’s comment that Boeing would provide “associated training and additional educational materials that pilots want in the wake of these accidents” to prevent another accident like this “from ever happening again.”
“The statement about additional pilot training – that seems to be a little bit of a loophole for them in terms of being able to claim just in lawsuits, mind you, that they are not directly responsible,” Corridore said. “I would hate to see them go that route. I think the best move for PR and to move forward is to just take the full brunt of the losses and move forward.”
Corridore said that the crash liability could add up to anywhere from $1 billion to several billion dollars for Boeing but that it’s an isolated incident that’s “not going to cripple them.” He maintained his recommendation for investors to buy Boeing stock.
Boeing’s stock has rebounded since late March and closed at $391.93 Friday. Boeing shares are 10.1% above the pre-October crash level and 27% above their price at the start of 2018.
“Obviously there’s going to be severe liability related to lawsuits for the victims and their families, but as long as there’s no malicious intent, if there’s no situation where they knew something and they didn’t act on it” the liabilities are manageable, Corridore said.
Muilenburg’s statement may have been designed to mitigate the public relations blow to Boeing’s reputation because the company wants to show customers that it’s in control of the situation, Stanford’s Rabin said.
“It’s not going to threaten Boeing’s solvency,” he said. “The bigger financial threat to Boeing is if they lose future business or some of the contracts that are already outstanding.”
On Oct. 29, the day of the Lion Air crash, Boeing stock fell 7.8% but then investors appeared to largely shrug off the accident. They rose the following week before generally declining through December 24 and then rebounding strongly, broadly tracking the Standard & Poor’s 500 index during a volatile period. However, after the Ethiopian Airlines crash March 10, Boeing shares fell 14.2% over the next two weeks even as the broad market trended higher.
Although the crashes happened overseas, passengers filing wrongful death suits likely can file suits against Boeing in U.S. courts, legal experts said.
The family of 24-year-old victim Samya Stumo, an American citizen who was killed on the Ethiopian AIrlines flight on March 10 while taking a trip for work, has already filed a lawsuit.
Rabin said that settlements are common in these types of cases so that victims and the targeted corporation can avoid a long period of uncertainty and costly legal tangling.
In addition to lawsuits from passengers, airline customers could pursue cases against Boeing to recover their economic damages.
For example, Southwest Airlines recently disclosed that it lost about $150 million in revenue during the first quarter due to the groundings and other one-time issues.
Southwest estimated that the grounding forced it to cancel 2,800 flights during the period ended March 31. The company has 34 of the Boeing 737 Max 8 aircraft, the most of any American airline.
Contributing: Paul Davidson
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
This article originally appeared on USA TODAY: Boeing faces liabilities as CEO Dennis Muilenburg acknowledges ‘apparent’ 737 Max problem