The Boeing Company has been hit with a proposed class action lawsuit filed by two investors in its employee retirement plan who claim the aircraft manufacturer failed to disclose known safety issues with its 737 MAX series.
The Boeing Company has been hit with a proposed class action lawsuit filed by two investors in its employee retirement plan who claim the aircraft manufacturer breached its fiduciary duties by failing to disclose known safety issues with its 737 MAX series. Citing Employee Retirement Income Security Act (ERISA) violations, the lawsuit claims Boeing should have known the problems would eventually manifest themselves to the public and cause a drop in Boeing stock prices, which indeed took a hit after two 737 MAX aircraft were involved in fatal crashes.
According to the lawsuit, the Boeing employee benefit plan includes as an investment option the VIP Stock Fund, which allows participants to invest in Boeing stock. However, the price of Boeing stock, the case alleges, has been artificially inflated “for many years,” as the company has failed to disclose known problems with its Boeing 737 MAX series.
Following technological advances, the suit explains, the aircraft in the MAX series were fitted with larger, more fuel-efficient engines that, when installed on the same airframe as previous models, materially changed the balance and flight characteristics of the plane. As a result, the case goes on, the flight control systems for the MAX aircraft had to be adjusted to offset the imbalance caused by the new engine placement. According to the complaint, the modified control systems began exhibiting problems during takeoff and would incorrectly detect danger of a stall, forcing the nose of the plane down. Boeing was aware of the issue, the suit says, and developed a warning light system for the planes that would alert pilots if there was a problem with the aircraft’s sensors. Rather than making the warning system standard, however, the company supposedly offered it as an optional $80,000 add-on.
The safety issues and the decision to make warning systems optional would have been widely “analyzed, reviewed and discussed among Boeing executives well beyond the engineering divisions,” the lawsuit says. Thus, the case argues, Boeing knew for years that the 737 MAX aircraft “faced crucial safety problems” that would eventually become known to the public, yet remained silent and allowed retirement plan members to continue purchasing Boeing stock at inflated prices.
The truth began to reveal itself, according to the complaint, in October 2018 when a 737 MAX crashed in Indonesia shortly after takeoff. The tragic incident was again repeated in March 2019, when a 737 MAX went down just minutes after taking off in Ethiopia.
In the wake of the two crashes, the case says, regulatory agencies in almost every country grounded the 737 MAX aircraft, causing Boeing to suffer “significant setbacks.” In response, Boeing’s stock price reportedly plummeted, injuring participants in its retirement plan.