In January 2024, an Alaska Airlines flight experienced a blowout on a Boeing jetliner. The incident occurred during a flight from Portland, Oregon, to Ontario, California. A panel that was supposed to plug a space left for an extra emergency door blew off the Boeing 737 MAX 9 aircraft, resulting in a gaping hole on the side of the plane. Fortunately, there were no serious injuries, but the situation raised concerns about Boeing’s safety.
Boeing has responded to the blowout incident on the Alaska Airlines 737 MAX 9 by cooperating with the Department of Justice (DOJ) investigation. The DOJ is conducting a criminal investigation into the incident, and Boeing has been in contact with passengers and crew who were on the affected flight. However, Boeing has declined to provide further comments regarding the situation.
The investigation will also examine whether Boeing complied with a previous settlement related to the safety of its 737 Max aircraft following the fatal crashes in 2018 and 2019. In 2021, Boeing agreed to pay $2.5 billion to settle an investigation into the crashes of flights operated by Lion Air and Ethiopian Airlines. The missing records for work done on the door panel of the Alaska Airlines plane have raised additional concerns.
Boeing’s response underscores the importance of transparency, safety protocols, and accountability in the aviation industry. The outcome of the investigation will determine any necessary actions to prevent similar incidents in the future.
What is the Boeing 737 Max
The Boeing 737 MAX is an aircraft model that was developed by the American aerospace company Boeing as an updated and more fuel-efficient version of their popular 737 series of narrow-body jet airliners. The 737 MAX features new engine technology and aerodynamic improvements to offer better fuel efficiency, increased range, and enhanced performance compared to previous models.
The 737 MAX is designed to be more fuel-efficient than earlier 737 models, thanks to the use of more fuel-efficient CFM International LEAP-1B engines, advanced aerodynamics, and other modern technologies, which help reduce fuel consumption and operating costs.
The 737 MAX comes in several variants, including the 737 MAX 7, MAX 8, MAX 9, and MAX 10, offering seating capacities ranging from around 130 to 230 passengers. The aircraft has increased range capabilities compared to earlier models, allowing airlines to operate longer routes.
The 737 MAX features an updated cockpit design with the latest avionics systems, including a digital flight deck and Boeing’s Advanced Technology winglets, which help improve aerodynamic efficiency and reduce drag.
The 737 MAX is equipped with various safety features, including the Maneuvering Characteristics Augmentation System (MCAS), designed to enhance aircraft control and handling characteristics. After two fatal accidents involving the 737 MAX in 2018 and 2019, Boeing made significant modifications to the MCAS system and underwent recertification before returning the aircraft to service.
What Happened to the 737 Max in 2018-2019
In 2018, two tragic accidents involving Boeing 737 MAX aircraft occurred, leading to the grounding of the entire 737 MAX fleet worldwide and prompting intense scrutiny and investigations into the aircraft’s safety systems.
On October 29, 2018, Lion Air Flight JT610, a Boeing 737 MAX 8 aircraft, crashed shortly after takeoff from Jakarta, Indonesia. The crash resulted in the loss of all 189 passengers and crew on board. Investigators later determined that a faulty sensor and the aircraft’s automated anti-stall system, known as the Maneuvering Characteristics Augmentation System (MCAS), were factors in the crash.
In March 2019 an Ethiopian Airlines also experienced an accident shortly after takeoff from Addis Ababa, Ethiopia, resulting in the tragic loss of all 157 people on board. Similar to the Lion Air crash, investigators found that the MCAS system played a role in the accident.
The two crashes raised serious concerns about the safety of the Boeing 737 MAX aircraft and led to the grounding of the entire 737 MAX fleet by aviation authorities worldwide, including the Federal Aviation Administration (FAA) in the United States.
Boeing faced intense scrutiny and criticism over the design and certification of the 737 MAX, particularly regarding the MCAS system and the training provided to pilots. The company embarked on a comprehensive review of the aircraft’s systems, made significant modifications to the MCAS software, and implemented additional safety enhancements to address the issues identified in the accidents.
Following extensive testing, changes, and recertification processes, the Boeing 737 MAX was gradually cleared to return to commercial service by aviation regulators around the world. Airlines that operate the 737 MAX have since resumed flying the aircraft with the updated software and enhanced training protocols to ensure the safety of passengers and crew.
Following the grounding of the 737 MAX fleet worldwide in March 2019, Boeing worked to address the issues related to the aircraft’s flight controls and safety systems. The updated version of the 737 MAX has undergone rigorous testing and certification processes to ensure its safe return to commercial service.
What Criminal Penalties Could Boeing Face?
In January 2021, Boeing reached a Deferred Prosecution Agreement with the Justice Department with to settle charges related to the 737 Max crashes. As part of the deferred prosecution agreement, Boeing paid two and a half billion dollars. This includes a criminal monetary penalty of $243.6 million. Boeing committed to compensate its 737 Max airline customers with a total of $1.77 billion.
A $500 million fund was established to compensate the heirs, relatives, and legal beneficiaries of the 346 individuals who tragically lost their lives in the two Boeing 737 Max crashes.
The deferred prosecution agreement had a three-year term, set to expire on January 7, 2024. Boeing is required to certify to the DOJ that it has complied with its obligations under the deferred prosecution agreement. The DOJ has a six-month evaluation period during which it assesses Boeing’s compliance with the terms of the deferred prosecution agreement.
During this evaluation, the DOJ will hold another conferral session with crash-victim families and their representatives to gather input and information.
If the DOJ finds that Boeing has not complied with the DPA, the case could proceed to trial or a guilty plea resolution. The criminal investigation has dampened sentiment and negatively impacted Boeing share trading.
What is a Deferred Prosecution Agreement?
A Deferred Prosecution Agreement (DPA) is a legal arrangement between a prosecutor, typically the Department of Justice (DOJ) in the United States, and a corporation or individual facing criminal charges. Under a DPA, the prosecutor agrees to defer or suspend the prosecution of the case against the defendant for a specified period, typically in exchange for certain conditions, penalties, and commitments from the defendant.
As part of the DPA, the defendant typically admits, acknowledges, or agrees to certain facts related to the alleged criminal conduct. This acknowledgment of wrongdoing is a crucial element of the agreement.
The defendant agrees to cooperate with the government’s investigation, provide information, and comply with certain requirements, such as implementing enhanced compliance programs, monitoring mechanisms, and internal controls.
In many DPAs, the defendant agrees to pay financial penalties, fines, restitution, or disgorgement of ill-gotten gains as part of the resolution of the case. These financial penalties are intended to deter future misconduct and compensate victims, if applicable.
The defendant commits to implementing reforms, corrective actions, or remediation measures to address the underlying issues that led to the alleged criminal conduct. These may include changes in corporate governance, compliance practices, ethics training, or internal controls.
DPAs often involve the appointment of an independent monitor or compliance advisor to oversee the defendant’s compliance with the terms of the agreement, verify progress, and report back to the government on the defendant’s conduct.
If the defendant successfully fulfills all the terms of the Deferred Prosecution Agreement within the specified period, the prosecutor may dismiss the criminal charges or decline to pursue further prosecution. Failure to comply with the terms of the DPA could lead to the revival of criminal charges.
Deferred Prosecution Agreements are commonly used by prosecutors as a tool to resolve criminal investigations involving corporations or individuals in a manner that encourages cooperation, remediation, and accountability while avoiding the potentially severe consequences of a criminal conviction. DPAs are subject to judicial oversight and approval to ensure fairness, transparency, and compliance with the law.
The Bottom Line
Boeing stocks is down approximately 30% year-to-date (see chart), as concerns over its 737 Max has damaged sentiment. Boeing has indeed faced challenges related to aircraft purchases from airlines.
Major carriers, including United Airlines, Southwest Airlines, Delta Air Lines, and Alaska Air Group, have been affected by Boeing’s crisis of confidence. Airlines had previously planned to receive specific aircraft in 2024, but Boeing’s slowed output has disrupted these plans.
United Airlines CEO Scott Kirby asked Boeing to halt building 737 Max 10 jets due to uncertainty surrounding certification timelines. Southwest Airlines, expects no 737 Max 7 deliveries in 2024 (instead of the anticipated 79 planes) and will only receive 46 Max 8 models. Alaska Airlines has cut their capacity outlook remains uncertain due to delivery uncertainties.