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UPDATE 6-FAA gives Boeing 90 days to develop plan to address quality issues

(Adds Bloomberg News report on DOJ in paragraphs 7-9, after-hours trading performance in paragraph 10)

By David Shepardson and Valerie Insinna

WASHINGTON, Feb 28 (Reuters) - Boeing must develop a comprehensive plan to address "systemic quality-control issues" within 90 days, the head of the U.S. Federal Aviation Administration said Wednesday, after a mid-air emergency last month sparked renewed safety concerns.

The head of the FAA demanded the plan in a statement critical of the planemaker following an all-day meeting with CEO Dave Calhoun on Tuesday.

"Boeing must commit to real and profound improvements,” FAA Administrator Mike Whitaker said. "Making foundational change will require a sustained effort from Boeing’s leadership, and we are going to hold them accountable every step of the way, with mutually understood milestones and expectations."

Calhoun said in a statement Boeing's leadership team was "totally committed" to addressing FAA concerns and developing the plan.

"We have a clear picture of what needs to be done," Calhoun said. "Boeing will develop the comprehensive action plan with measurable criteria that demonstrates the profound change that Administrator Whitaker and the FAA demand."

Boeing has scrambled to explain and strengthen safety procedures after a door panel detached during a Jan. 5 flight on a brand new Alaska Airlines 737 MAX 9, forcing pilots to make an emergency landing while passengers were exposed to a gaping hole 16,000 feet above the ground.

Bloomberg News reported on Wednesday the Justice Department is scrutinizing the Alaska Airlines MAX 9 blowout to determine if it falls under a 2021 deferred-prosecution agreement over two fatal 737 MAX 8 crashes in 2018 and 2019 that killed 346 people.

If prosecutors determine the MAX 9 blowout is a breach of that agreement, Boeing could face criminal liability, the report said, citing an unidentified source.

Boeing said last month the DOJ was currently considering whether the company fulfilled its obligations under the agreement. The Justice Department declined to comment on Wednesday.

Boeing shares fell 1% in after-hours trading.

PRODUCTION CAP

Boeing's production rate has been capped by the FAA and its operations closely scrutinized by lawmakers and customers following the Jan. 5 incident. The new FAA statement raises fresh questions about how long the production rate freeze will last.

Whitaker said Boeing's plan must incorporate forthcoming results of the FAA production-line audit and findings from an expert review panel report released on Monday.

That report, which had been commissioned in early 2023, was highly critical of the company's safety management processes, saying Boeing suffered from "inadequate and confusing implementation of the components of a positive safety culture."

Boeing last week abruptly removed Ed Clark, the head of its troubled 737 MAX program, as part of a management shakeup.

The FAA said on Wednesday that Boeing must take steps to improve its Safety Management System (SMS) program, which it committed to in 2019 and combine it with a Quality Management System to "create a measurable, systemic shift in manufacturing quality control."

Whitaker visited Boeing's Renton, Washington, factory, where the 737 MAX line is produced, on Feb. 12. He expressed concerns about some things he saw on the tour, two people briefed on the matter told Reuters.

The FAA meetings with Calhoun lasted more than seven hours, sources said, and much of it focused on a series of quality issues at the planemaker.

The participants included Boeing Commercial Airplanes CEO Stan Deal, the planemaker's new head of quality Elizabeth Lund and Mike Fleming, Boeing senior vice president and general manager, airplane programs.

"Boeing must take a fresh look at every aspect of their quality-control process and ensure that safety is the company’s guiding principle," Whitaker said.

The Alaska Airlines mishap is Boeing's second major crisis in recent years, after the crashes in 2018 and 2019 prompted a grounding of the 737 MAX for 20 months that damaged Boeing's reputation.

The door panel that flew off the MAX 9 appeared to be missing four key bolts, according to a preliminary report this month from the U.S. National Safety Transportation Board. The panel is a plug in place on some MAX 9s instead of an additional emergency exit.

The FAA panel report referenced the recent issues, saying it amplified concerns that "safety-related messages or behaviors are not being implemented across the entire Boeing population."

Airline industry executives have expressed frustration with Boeing's quality control. France's Airbus, the only other major manufacturer of commercial jets, in January reported record annual jet orders and confirmed an 11% rise in 2023 deliveries, maintaining the top manufacturing spot against Boeing for a fifth year.

The door plug blowout led to a weeks-long grounding of the MAX 9 in January and angered Boeing's airline customers. Some, including Alaska Airlines, announced they would conduct enhanced quality oversight of planes before they leave the Boeing factory.

(Reporting by David Shepardson and Valerie Insinna; Editing by Nick Zieminski, Aurora Ellis and Jamie Freed)

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