Boeing’s (BA) legal problems are mounting. They are starting to become a problem for the rest of the airline industry too.
Alaska Airlines (ALK) said Tuesday its 2024 capacity estimates are "in flux" due to federal scrutiny of Boeing. United Airlines (UAL) said it asked Boeing to stop building planes not yet certified by the FAA. Southwest Airlines (LUV) said it cut its capacity forecast, citing fewer Boeing deliveries than expected.
"Boeing needs to become a better company,” Southwest Airlines CEO Bob Jordan said Tuesday as his company's stock dropped nearly 15%.
Boeing's challenges are a problem for major airlines "because they can’t grow as much as they originally thought," Helane Becker, a TD Cowen senior research analyst, said on Yahoo Finance Live Tuesday. She predicted the airlines will do “what they always do, which is adapt.”
Boeing’s increased exposure to aircraft delivery delays and legal risks is spooking its own investors, too. Its stock fell 4.5% Tuesday after the New York Times revealed details of an FAA audit that followed an accident involving a door “plug” on an Alaska 737 Max-9 flight on Jan. 5.
The incident unleashed widened regulatory scrutiny and temporarily grounded Boeing's 737 Max 9 planes in the US. The Department of Justice has reportedly also recently launched an investigation into the incident.
An investigation by the National Transportation Safety Board (NTSB) found that four bolts meant to fasten the Alaska door plug in place were missing and likely not installed at the time the aircraft was delivered to the airline.
The FAA audit, according to the New York Times, found that Boeing's Max production practices failed 33 of the FAA’s 89 quality control requirements. Boeing’s supplier Spirit AeroSystems, which makes the fuselage for the Max aircraft family, failed seven of the regulator’s 14 audit checks.
Boeing Commercial Airplanes CEO Stan Deal said in a memo to employees Tuesday that "the vast majority" of the noncompliances in the audit "involved not following our approved processes and procedures."
The Alaska Airlines blowout in January led dozens of passengers on board the flight to file lawsuits against Boeing.
Those passengers are seeking punitive damages — meant solely to punish Boeing for the alleged production lapses — plus damages to compensate them for their alleged physical and emotional injuries, including stress, anxiety, trauma, PTSD, and hearing damage.
“Boeing’s current and former CEO and senior leadership have prioritized profits and share price over the safety of the flying public despite repeated design, manufacturing, production, testing, and systemic quality-control issues and defects with the Boeing 737 Max aircraft,” Mark Lindquist, a lawyer who sued Boeing on behalf of 26 of those Alaska Airlines passengers, said.
The long legal road ahead
Past history suggests it will take years to untangle all of the legal challenges. Boeing, after all, has faced a mountain of litigation and government investigations before.
A prior round of trouble for Boeing began in 2018 and 2019 with two crashes of Max-8 jets operated by Lion Air and Ethiopian Airlines. Dozens of lawsuits followed.
Families of victims who died in the crashes alleged Boeing had recklessly installed and failed to fully inform pilots about a new anti-stall system on its 737 Max-8 planes called “MCAS” (Maneuvering Characteristics Augmentation System).
Boeing shareholders sued, waging similar claims. Once federal authorities confirmed that the MCAS system played a role in both crashes, the Justice Department filed criminal charges against Boeing, accusing the company of criminally defrauding the FAA.
To avoid liability, Boeing entered a deferred prosecution agreement in January 2021. The agreement requires it to compensate airlines and victims’ families and steer clear of reporting and transparency lapses for three years.
The agreement is suspected to have piqued the DOJ's attention again. On Sunday, the Wall Street Journal reported the department had opened a criminal investigation into the Alaska blowout.
Other headaches
Boeing’s current troubles extend to other aircraft too. In February, pilots for United Airlines reported that a 737 Max-8’s controls jammed during a landing at New Jersey’s Newark airport. A federal investigation into the incident is now underway.
In another report in February, the FAA documented that de-icing equipment installed on 737 Max and 787 Dreamliner aircraft could decrease engine thrust.
Compounding the bad news, a 787 Dreamliner flying from Australia to New Zealand and operated by LATAM plummeted during a flight this week. Roughly 50 passengers are said to have reported injuries with one passenger in serious condition.
What caused the drop in altitude is not yet known. According to Reuters, passengers said one of the aircraft’s pilots communicated that he had temporarily lost control.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
Yahoo Finance's Ines Ferre also contributed to this report.
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