Boeing Misled Investors on Safety of New 737s, Suit Says

Nov. 29, 2018, 3:41 PM

The Boeing Co. allegedly misled investors about the safety of the stall-prevention system used in 737 MAX planes like the one involved in October’s Lion Air crash.

The jetmaker and its executives didn’t tell shareholders its new plane’s automated stall-prevention feature might have “deadly malfunctions,” according to a Nov. 28 complaint. Investigators have implicated the system in Indonesian airline Lion Air’s deadly Oct. 29 crash, the complaint said.

The stall-prevention system is meant to keep pilots from accidentally “raising a plane’s nose dangerously high,” according to the complaint. However, the crash investigation revealed that the feature could sometimes push the plane’s nose down suddenly and prevent pilots from pulling it back up, the complaint said.

A Boeing representative declined to comment on the suit.

The would-be class complaint pointed to a number of Boeing statements on the importance of safety, its rigorous testing process, and the “stringent regulatory requirements and performance and reliability standards” the company’s required to meet.

A Boeing executive told investors the 737 MAX’s reliability and performance were “outstanding,” according to the complaint. The executive also said Boeing wasn’t “seeing issues or any problems that are out of the ordinary” with the new plane’s production.

Despite the company’s purported commitment to safety, Boeing didn’t always inform airlines the new system was installed on their planes, preventing pilots from training on the new features, according to the complaint.

Boeing’s stock price fell $12.31 per share—about 3.4 percent—in the two trading sessions after news reports linked the flaw to the crash. The share price fell $44.71 total—around 12.5 percent—in the 11 days following the reports, the investors said.

The company’s 2016 10-K warned investors that "[a]ny failure of any Boeing aircraft to satisfy performance or reliability requirements could result in disruption to our operations, higher costs and/or lower revenues,” the complaint said. The 2017 10-K included similar language, according to the complaint.

The case is Ostroff v. The Boeing Co., N.D. Ill., No. 1:18-cv-07853, complaint filed 11/28/18.

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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