By Andy Pasztor and Andrew Tangel
Boeing Co.'s board failed to challenge then-Chief Executive
Dennis Muilenburg on the safety of the 737 MAX or his campaign to
counter negative news reports between two fatal crashes that
claimed 346 lives, according to newly released portions of a
shareholders' lawsuit that cites internal company documents.
About two weeks after the initial crash in late 2018, Mr.
Muilenburg devised "a public relations, investor relations and
lobbying campaign," according to the lawsuit, partly designed to
push back against the bad publicity and criticism by U.S.
airline-pilot groups attacking Boeing's disclosures regarding the
jet's design. He discussed the plan with then-lead director Kenneth
Duberstein and board member David Calhoun, now Boeing's CEO,
according to internal emails cited in the suit.
Around the same time, Boeing was publicly pointing to pilot and
maintenance errors as important factors in the fatal plunge of Lion
Air Flight 610 in Indonesia, even as it was privately beginning
work on a fix to an automated flight-control system implicated in
that crash. The system, called MCAS, later also led to a second MAX
crash in early 2019 in Ethiopia.
The new details, contained in a recently amended version of a
shareholder lawsuit filed against Boeing's board in Delaware's
Court of Chancery, included inner-workings at the highest levels of
the company as it became embroiled in one of the biggest corporate
crises in modern American history. U.S. regulators late last year
allowed the MAX to resume passenger flights, ending a nearly
two-year grounding.
A Boeing spokesman on Monday said the company was seeking to
dismiss the shareholders' suit, which he said lacked merit. He said
Boeing was dedicated to safety, quality and integrity and that the
company's senior management and board had engaged in "robust safety
oversight," including extensive reviews of engineering,
airplane-development and production processes. He said Boeing had
improved safety, quality and compliance since the MAX crisis.
"It should come as no surprise that a filing by plaintiffs
seeking to gain advantage in a lawsuit presents a misleading and
incomplete picture of the activities of Boeing and its board of
directors," the spokesman said. Mr. Muilenburg declined to comment.
The company declined to make current executives and directors
available. Former directors and executives either declined to
comment or couldn't be reached. After the crashes, Boeing revamped
its internal structure to give the board greater oversight of
safety matters.
The Wall Street Journal previously reported on an earlier
version of the suit that had been heavily blacked-out. The suit,
which relies on a trove of internal Boeing documents, includes
communications such as emails among executives and directors during
the nearly five-month period between the two crashes and their
aftermath. Previously redacted portions of the earlier version of
the suit became public Monday, after the Journal asked the court to
release the information.
Morgan Zurn, vice chancellor of the Delaware state court, said
in her Feb. 1 order that Boeing's internal "communications are at
the very heart of this board oversight case." Saying that little
had been revealed about how Boeing's board responded to the MAX
crashes, she added: "The public interest favors disclosure."
The lawsuit sheds light on a key period of Boeing's recent
history that resulted in Mr. Calhoun, a director since 2009,
becoming Mr. Muilenburg's successor as CEO. A former top executive
at aircraft engine-maker General Electric Co., Mr. Calhoun became
the board's chairman after the second MAX crash before directors
ousted Mr. Muilenburg in December 2019.
After the Lion Air crash in October 2018, which was soon
followed by the Federal Aviation Administration's conclusion that
MCAS "posed an unacceptably high risk of catastrophic failure," the
suit alleges directors didn't order an immediate safety
investigation of the system or how it was approved by regulators or
investigate its safety. Instead, according to the suit, "the board
supported the public relations campaign" of Mr. Muilenburg "to
attack accurate media coverage respecting the 737 MAX."
Among the news articles discussed inside the company was a Nov.
12, 2018, Journal article that said Boeing withheld information
about the MAX's new flight-control feature from airline pilots.
That feature was part of the FAA's initial safety
certification.
The following day, according to the latest version of the suit,
Mr. Muilenburg sent an update to the board calling the Journal
article "categorically false."
By early December 2018, according to the suit, Mr. Muilenburg
instructed Anne Toulouse, then the company's chief spokeswoman, to
"keep pushing back" on coverage by the Journal, telling her "the
only engineering and PR problem we have is the pseudo problem
fabricated by the WSJ!"
A Journal spokesman said: "The Journal's reporting on Boeing has
been fair, accurate, and we stand by our conclusions. We will
continue to cover Boeing in the same responsible manner."
Earlier this year, Boeing struck a $2.5 billion deal with the
U.S. Justice Department to settle a criminal investigation centered
on two company employees who allegedly misled FAA training
specialists about the suspect flight-control system. As part of
that settlement, Boeing acknowledged that portions of its flight
manuals gave pilots false, inaccurate and incomplete
information.
In discussing an emergency safety bulletin the FAA issued after
the Lion Air crash, the suit said that Mr. Muilenburg was more
concerned with potential cash-flow disruptions than safety matters.
"We need to be careful" that the FAA's interest in the contents of
flight manuals, he wrote to Greg Smith, the company's chief
financial officer, "doesn't turn into a compliance item that
restricts near-term deliveries."
The risk-management update to the board after the first crash
didn't include oversight of airplane safety, according to the suit,
nor did safety issues surface as part of a December 2018 meeting of
the board's audit committee.
The committee----then headed by director Larry Kellner, a former
airline executive who is now Boeing's chairman----discussed a plan
to further ramp up MAX production and supplier disruptions that
affected aircraft deliveries, according to meeting materials cited
by the suit.
Safety concerns gained prominence internally with the March 2019
crash of Ethiopian Airlines Flight 302. Just days later, Mr.
Muilenburg's chief of staff, Ann Schmidt, urged the CEO to address
safety problems objectively, telling him not to "drink [Boeing's]
own bath water." The reputation of Boeing and the 737 "has been
severely hit if not destroyed at this point when looked at from a
flying public -- the passengers and voters -- point of view," she
said in the March 14, 2019 note.
She encouraged Mr. Muilenburg to "start the journey to
rebuilding our reputation -- which we will and have done before
with real data and not based on our tendency to want to only see
the good."
In a March 15, 2019, email exchange between board members Arthur
Collins and Mr. Calhoun, Mr. Collins discussed how when he was CEO
of Medtronic PLC, the medical device maker, every board meeting
started with a product safety discussion. He suggested Boeing focus
an entire board meeting on reviewing quality, according to an email
cited in the suit.
Mr. Collins said: "I recognize this type of approach needs to be
communicated carefully so as to not give the impression that the
board has lost confidence in management (which we haven't) or that
there is a systematic problem with quality throughout the
corporation (which I don't believe there is)," Mr. Collins wrote to
Mr. Calhoun, who previously served on Medtronic's board.
The lawsuit said Mr. Calhoun forwarded the emails to Mr.
Muilenburg, who said he would address the issues in board
materials.
In April 2019, vice presidents in charge of engineering and
safety for the commercial aircraft unit provided their first report
directly to the board, according to the suit: "The presentation
opened with a primer entitled: 'What is Certification?'"
Alison Sider contributed to this article.
Write to Andy Pasztor at andy.pasztor@wsj.com and Andrew Tangel
at Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
February 08, 2021 21:01 ET (02:01 GMT)
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