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Boeing and Trump face a clear conflict of interest, aviation experts say

Aarthi Swaminathan
Finance Writer

This post has been updated.

Boeing has said that it will issue a software upgrade for the problematic flight control system that many pilots have said they’ve had an issue. That fix is expected to come in the next 10 days, according a new report by the AFP.

The Federal Aviation Administration’s delay in grounding Boeing 737 Max 8’s aircraft is related to the airplane manufacturer’s close business relationship with the U.S. government, aviation experts told Yahoo Finance.

“First of all, the FAA in United States has a dual function,” aviation attorney Arthur Rosenberg told Yahoo Finance’s The First Trade. “It certifies airplanes, it’s responsible for safety of flight, and it also has an economic interest in air transportation.”

Meanwhile, “Boeing on the other side is purely an economic interest,” Rosenberg continued. “I think that the economics were playing behind the scene — lost revenue to Boeing if they had to ground this.”

Rosenberg highlighted a Jefferies note that puts early estimates of the grounding at around $5 billion — around 5% of its revenue. Melius Research puts that estimate at around $1 billion in permanent costs and several billion in “timing-related” costs.

“There is a conflict of interest — and has been,” former FAA Operations Inspector Bill McNease told Yahoo Finance. “I actually testified before a congressional committee back in 2007 about the conflict between the FAA and different operators.”

U.S. President Donald Trump, left, is introduced by Boeing's chief executive officer Dennis Muilenburg during the debut event for the Dreamliner 787-10 at Boeing's South Carolina facilities on February 17, 2017 in North Charleston, South Carolina. (Photo: Sean Rayford/Getty Images)

Furthermore, airplane aficionado and former owner of the now-defunct Trump Shuttle is president. And President Trump has a personal relationship with Boeing CEO Dennis Muilenburg: Muilenburg donated $1 million to Trump’s inaugural committee, visited Trump’s Mar-A-Lago club in December 2016, and promised to build new Air Force One planes for less than $4 billion as Trump demanded.

“I hope it’s going to be for a short period of time,” Trump told reporters on Thursday when asked about the grounding. “The biggest thing is, they have to find out what it is. I’m not sure that they know, but I thought we had to do it, we had to take a cautionary route.”

Foreign carriers have less of an interest’

The FAA grounded all Boeing 737 Max 8s on Wednesday — a move that came after rising pressure on the agency after airlines around the world did the same.

Rosenberg that there was another big incentive for Boeing to pressure the FAA to not ground the planes — Boeing’s fear of losing market share.

“Foreign carriers have less of an interest, they’re less tied in,” said Rosenberg, referring to other aviation authorities grounding the Boeing plane across the world. “They were competitors abroad.”

A look at Boeing 737 MAX 8 aircraft by country. (Graphic: Reuters)

Rosenberg explained that major European competitor Airbus had their own version of the 737 — the A320 — and the Chinese were also becoming a formidable rival with “their own new plane coming to market to compete with the 737 Max 8 and 9.”

This then created a strong incentive for Boeing to keep its 737 Max 8’s — which were used by numerous carriers from Air Canada to Air China — running at regular speed, he argued, and that “economics were clearly playing in the background.”

The business of politics

In the administration of former celebrity businessman Donald Trump, the confluence of business interests and politics is messier than ever.

The Trump administration and Congress have significant interests to businesses from tobacco to technology as lobbyists donate to political campaigns and pour money into Super PACs supporting various candidates.

Several appointees in Trump’s White House also have overt ties to businesses — such as Department of Commerce Secretary Wilbur Ross and Department of Education Secretary Betsy DeVos.

The first of the large Boeing 737 MAX 9 models sits at the front of the assembly line and almost ready to roll out at the company's airplane production facility Monday, Feb. 13, 2017, in Renton, Wash. (Photo credit: AP Photo/Elaine Thompson)

Boeing in particular has donated significantly to various politicians — Democrats and Republicans alike — and it has historically enjoyed a close relationship with government. One of the company’s first contracts involved supplying seaplane trainers to the US Navy.

In December, Trump named Patrick Shanahan — who served 31 years at Boeing managing the 787 Dreamliner passenger jet — as his acting defense secretary.

And Boeing has nominated Trump’s former U.S. Ambassador to the United Nations Nikki Haley to join its board in late April.

‘There should be a congressional hearing’

Another potential gray area is the issue of airworthiness certifications.

Former National Transportation Safety Board (NTSB) chief Jim Hall told Yahoo Finance that one of the ways that private interest has encroached into air safety was because of a special law that allows Boeing to self-police itself.

In other words, because of a rule instituted in 2005 by the FAA, airline manufacturers can select their own employees who would determine whether the aircraft is safe or “airworthy,” Hall explained.

“There should be a congressional hearing to look at the certification process,” said Hall. “The information and effective responsibility has tilted from the FAA to Boeing as a result of this change.”

An Air Canada Boeing 737 MAX 8 jet approaches Toronto Pearson International Airport for landing on March 13, 2019 in Toronto, Canada. (Photo: Cole Burston/Getty Images)

Retired U.S. Airways pilot Captain John M. Cox, who also runs a company called Safety Operating System and has also flown older 737s for 15 years, downplayed the risk.

“This has been a long, long standing situation,” Cox told Yahoo Finance. “These are very specifically trained, designated individuals with great expertise are allowed to ensure compliance and conformity for the FAA and submit reports to the FAA.”

Cox continued: “There is still oversight and these designated representatives are checked and re-qualified on a regular basis. Although they may work for [Boeing], their responsibility is that of the FAA.”

Hall’s other critiques of the FAA touched on the fact that the FAA has no permanent leadership at present — only an acting administrator — and that the FAA severely lacked the funding to run efficiently.

Shutdown delays

Another wrinkle to the issue is that a WSJ report in February suggested that the government shutdown between December and January may have delayed a fix for the 737 Max 8’s software issue.

After the Lion Air crash in October 2018, according to the report, unnamed US officials who looked at the findings disagreed with Boeing over a fix regarding the plane’s flight-control feature.

The disagreements were reportedly over technical and engineering issues and how extensive the fix should be, they explained, which was suspended for five weeks because of the shutdown.

The FAA, however, dismissed these claims in a press conference late Wednesday.

The NTSB logo is seen during a safety event for children at Trailside Middle School, in Ashburn, Virginia August 25, 2015. (Photo: PAUL J. RICHARDS/AFP/Getty Images)

In any case, the longest-ever shutdown in history had consequences in terms of safety.

The NTSB told Yahoo Finance that while it did some of its investigative work despite having its workforce furloughed because of the shutdown — which includes the Lion Air crash — it failed to prevent several others.

“Ninety-seven accidents that the NTSB was unable to investigate due to employees being furloughed to include the following that now require investigative action,” an NTSB spokesperson told Yahoo Finance.

Furthermore, “investigators were unable to respond to major accidents… What that means post-shutdown, is that we missed prevention opportunities.”

Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.

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