Shareholders sue Boeing over crashes, disclosures

The suit against Boeing seeks damages for alleged securities fraud violations and names chief executive Dennis Muilenburg (above) and chief financial officer Greg Smith as defendants.
The suit against Boeing seeks damages for alleged securities fraud violations and names chief executive Dennis Muilenburg (above) and chief financial officer Greg Smith as defendants.

CHICAGO • Boeing Co's legal troubles grew this week as a new lawsuit accused the company of defrauding shareholders by concealing safety deficiencies in its B-737 Max planes before two fatal crashes led to their worldwide grounding.

The proposed class action on Tuesday filed in Chicago federal court seeks damages for alleged securities fraud violations, after Boeing's market value tumbled by US$34 billion (S$46 billion) within two weeks of the March 10 crash of an Ethiopian Airlines B-737 Max 8 plane.

Chief executive Dennis Muilenburg and chief financial officer Greg Smith were also named as defendants. Boeing spokesman Charles Bickers had no immediate comment.

According to the complaint, Boeing "effectively put profitability and growth ahead of airplane safety and honesty" by rushing the B-737 Max to market to compete with the Airbus SE, while leaving out "extra" or "optional" features designed to prevent the Ethiopian Airlines and Lion Air crashes.

It also said Boeing's statements about its growth prospects and the B-737 Max were undermined by its alleged conflict of interest from retaining broad authority from federal regulators to assess the plane's safety.

Mr Richard Seeks, the lead plaintiff, said Boeing's compromises began to emerge after the Ethiopian Airlines crash killed all 157 on board, five months after the Lion Air crash killed 189.

Mr Seeks said he bought 300 Boeing shares early last month and sold them at a loss within the past two weeks. The lawsuit seeks damages for Boeing stock investors from Jan 8 to March 21.

Shareholders often file lawsuits accusing companies of securities fraud for concealing material negative information that causes the stock price to decline upon becoming public.

Chicago-based Boeing faces many other lawsuits over the crashes, including by victims' families and by participants in its employee retirement plans.

Boeing said on Tuesday that aircraft orders in the first quarter fell to 95 from 180 a year earlier, with no orders for the B-737 Max following the worldwide grounding.

This suggests a wait-and-watch approach for airlines as Boeing rides out the worst crisis in its history.

Still, Boeing is ahead of its European rival Airbus, which last week said it had won 62 gross orders during the first three months of this year, but some 120 cancellations left it with a negative net order.

Last Friday, Boeing said it planned to cut monthly B-737 production to 42 planes from 52, and was making progress on a B-737 Max software update to prevent further accidents.

It is still unclear when the Max jets will fly again, with global regulators, including China, saying they would join a United States Federal Aviation Administration panel to review the aircraft's safety.

"A fix and removal of the grounding prior to September 2019 could be perceived positively," Jefferies analyst Sheila Kahyaoglu said, noting that fresh scrutiny of the certification process could potentially filter into Boeing's 777X programme.

REUTERS

A version of this article appeared in the print edition of The Straits Times on April 11, 2019, with the headline 'Shareholders sue Boeing over crashes, disclosures'. Print Edition | Subscribe