Boeing kept FAA in the dark on key 737 MAX design changes, says report

Boeing Co failed to submit certification documents to the U.S. Federal Aviation Administration (FAA) detailing changes to a key flight control system faulted in two fatal crashes, a long-awaited government report seen by Reuters has found.
The flight control system, known as MCAS, was "not an area of emphasis" because Boeing presented it to the FAA as a modification of the jet's existing speed trim system, with limited range and use, according to the report.

The 52-page report by the U.S. Department of Transportation's Office of Inspector General (IG), dated June 29 and set to be made public Wednesday, laid bare mistakes made by both the planemaker and FAA in the development and certification of Boeing's top-selling aircraft.
The FAA declined to comment beyond the department's response attached to the report. The IG did not immediately respond to a request for comment. A Boeing spokesman said the company had taken steps to enhance safety and was committed to transparency. "When the MAX returns to service, it will be one of the most thoroughly scrutinized aircraft in history, and we have full confidence in its safety," he said.
The IG's report is the latest of reports faulting the plane's approval, while the Justice Department has an ongoing criminal investigation.
The 737 MAX has been grounded from commercial flight worldwide since March 2019 after two crashes killed 346 people in Ethiopia and Indonesia over a five-month span.
Boeing's so-called MCAS stall-prevention system has been faulted in both crashes, when the system repeatedly and forcefully pushed down the jet's nose as pilots struggled to intervene, among a cocktail of factors pinpointed by crash investigators.
The inspector general report details activities from the early phase of the certification process in January 2012 through the second crash. It also details allegations of "undue pressure" from Boeing management on workers handling safety certification, though it adds that all "formally reported" instances of undue pressure were "satisfactorily addressed."
The IG's office will issue recommendations to the FAA later this year, the Transportation Department said in comments about the draft report submitted on June 8.
The FAA is currently evaluating the MCAS upgrades during a series of certification test flights this week that could pave the way for the jet's return domestically by year end.
REGULATORS IN THE DARK
In response to the report, the Transportation Department said the FAA's certification of the 737 MAX was "hampered by a lack of effective communication" between the agency and U.S. planemaker.
Crucially, that included the "incomplete understanding of the scope and potential safety impacts" of changes Boeing made to the jet's flight control system to give it more power and authority, the agency said.
"Boeing did not submit certification documents to FAA detailing the change," the report said. "FAA flight test personnel were aware of this change, but key FAA certification engineers and personnel responsible for approving the level of airline pilot training told us they were unaware of the revision to MCAS."
The FAA conducted its first-ever detailed review of the system in January 2019, three months after the first crash in Indonesia. The review resulted in documentation that was never finalized, the report said.
The report also noted that, after the Indonesia crash, the FAA completed a risk analysis that found that the uncorrected risk to the 737 MAX was 2.68 fatalities per 1 million flight hours, which exceeded the FAA's risk guidelines of 1 fatality per 10 million flight hours.
A December 2018 FAA analysis determined a risk of about 15 accidents occurring over the life of the entire 737 MAX fleet if the software fix was not implemented.
After the crashes, Boeing proposed and FAA accepted a redesign of MCAS software that would include additional safeguards against unintended MCAS activation.
Boeing also created a Product and Services Safety Organization for employees to raise concerns over safety and undue pressure, first reported by Reuters.
Boeing agreed to develop the MCAS software update by April 12 and operators would have until June 18, 2019, to install the software. As Boeing worked on proposed software upgrade for MCAS, a second plane crashed in March 2019 in Ethiopia.

Coronavirus: China okays India request to airlift 250 nationals from Wuhan

After 24 hours of hectic parleys, India gained Beijing’s permission to airlift Indians from Wuhan. A Boeing747 VT-ESO will leave Mumbai at midnight to airlift 250 Indians.
“Once they are brought back, they will be kept in quarantine for two weeks,” said Minister of Health and Family Welfare Harsh Vardhan on Tuesday.
Sources said Beijing buckled under pressure from the Ministry of External Affairs (MEA). “Our crew was ready to go. The permission took time,” said an Air India executive. Meanwhile, IndiGo, too, has advised its pilots and cabin crew to wear masks and avoid public places during layovers in Thailand, China, Vietnam, and Singapore.
Stepping up its preparation to fight the threat of a potential novel coronavirus (nCoV) outbreak, the Indian government on Tuesday said that screening of passengers would be expanded to 20 airports along with adding new laboratories to test the virus. So far 35,000 passengers have been screened in India. Vardhan held a review meeting on Tuesday to take stock of the situation. He said that in the next one or two days, passenger screening would be expanded to 20 airports, from the current seven. At present, thermal screening of passengers coming from China is being done at the seven big airports — Mumbai, New Delhi, Kolkata, Bengaluru, Hyderabad, Chennai, and Kochi.
Read: What is coronavirus
chartVardhan said the government plans to test the virus at 10 laboratories across the country. At present, only the National Institute of Virology in Pune is conducting the tests; so far, 20 samples have been sent to the Pune lab.
On Tuesday, the government activated four new laboratories — the Indian Council of Medical Research’s viral research and diagnostics lab network — at Alleppey, Bengaluru, Hyderabad, and Mumbai for testing samples. Three suspected patients are under observation at Delhi’s Ram Manohar Lohia Hospital.
Meanwhile, ports, too, have stepped up vigil. Yashodhan Wanage, deputy chairman, Mumbai Port Trust, said that they have been asked (by the government) not to give shore permit to vessels coming from China.
Gujarat’s Health Commissioner Jai Prakash Shivahare said wards at all medical colleges in the state have been isolated, even as rapid response teams are being deployed at key entry points, including airports. He added that not only are response teams being deployed (according to guidelines from the Centre), but Gujarat has started providing training via videoconference to district teams and medical colleges.

Read: Coronavirus LIVE updates here
Kerala government on Monday said 288 people are under observation, of which seven have shown symptoms. However, test results were negative for five; results for the rest are awaited, said State Health Minister K K Shailaja.
ALSO READ: Scare of rapidly-spreading coronavirus keeps India indices in the red
Prime Minister Narendra Modi directed the government machineries to take up the issue in a comprehensive manner, resulting in the first big meeting last Saturday. At that meeting, chaired by P K Mishra, principal secretary to the PM, top bureaucrats from across the ministries, including health, civil aviation, home affairs, and external affairs, briefed Mishra on the preparedness and response measures taken so far.
Two days later, Cabinet Secretary Rajiv Gauba took a follow-up review meeting. Plans to evacuate Indians in Wuhan — the centre of the virus outbreak in China, which has been under lockdown — were also discussed. A decision was taken that the MEA would make a request to the Chinese authorities for possible evacuation. Significantly, in the meeting chaired by Gauba on Monday, top representatives of the National Disaster Management Authority and Directorate General (Armed Forces Medical Service), too, were present, besides officials from the health, civil aviation, MEA, and defence, among others.
In response to the confirmed case of the nCoV in Nepal, India has stepped up vigil at the border with Nepal.
Global panic
Germany confirms human transmission of China virus, first such case in Europe
Hong Kong suspends rail and ferry links with the mainland to curb virus spread
Chinese President Xi Jinping assures the world of defeating a "d
emon" coronavirus
Starbucks and WeWork are shutting locations in China, while Facebook, Nissan Motor and other companies are enacting measures to shield employees in areas hardest hit by the outbreak
Goldman says staff with mainland China exposure should avoid office
Apple’s plan to ramp up iPhone production by 10% in the first half of this year may hit a roadblock as manufacturing in
China is affected

Fired Boeing CEO loses bonus, but still walks away with millions of dollars

Former Boeing Chief Executive Officer Dennis Muilenburg won’t get severance and must forfeit stock awards worth tens of millions of dollars after his botched handling of two deadly plane crashes ended a decades-long career at the firm.
He forfeited unvested equity awards that could have been worth as much as $31 million if certain targets had been exceeded, Chicago-based Boeing said Friday in a regulatory filing. Muilenburg, 56, also won’t receive a bonus for 2019.
Still, he gets to keep awards and stock options that had already vested, along with his pension and deferred pay — totalling as much as $80.7 million, according to calculations by Bloomberg. By contrast, Boeing set aside $50 million to compensate the families of crash victims.
The loss of some awards and denial of severance sends a strong signal that the board lost confidence in the once-heralded CEO.
It was a swift fall for Muilenburg, whose 34-year career unraveled last year in the aftermath of the accidents involving the firm’s 737 Max jetliner, which killed 346 people. The crashes prompted a global flight ban of the aircraft, damaged the planemaker’s reputation and lopped more than $50 billion off its market value. “Dennis received the benefits to which he was contractually entitled,” Boeing said in an emailed statement. “We thank Dennis for his nearly 35 years of service.”
Muilenburg tried for months to help the firm regain its footing. But directors lost confidence after he struggled to defend Boeing before US lawmakers, failed to repair its relationship with the Federal Aviation Administration and repeatedly underestimated the time needed to get the grounded airplanes back in operation.
In December, the company was publicly rebuked by FAA head Steve Dickson and also said it would temporarily halt production of the planes. Then came the embarrassing failure to dock its Starliner space capsule with the International Space Station. Days later, the board voted to dismiss Muilenburg.
David Calhoun, a General Electric veteran who has been on Boeing’s board for a decade, was named CEO effective January 13. The board granted him $10.9 million in annual target compensation, and two other awards worth a combined $17 million, one of them tied to operational milestones that include a “full safe return to service of the 737 Max,” according to the filing.
Public-company executives typically don’t receive severance benefits if they’re fired because they violated the firm’s policy or broke laws. Terminations and resignations prompted by poor job performance or loss of confidence among directors, however, can fall in a gray area. In such instances, boards sometimes strike bespoke deals with departing executives, allowing them to collect some or all of their severance and keep some of their previously granted stock awards —arrangements that can amount to tens of millions of dollars.
In exchange, the executive typically must promise not to sue or publicly criticize the company.
But boards can also elect to withhold exit payments — a move that some may interpret as a public rebuke.
Previous Awards

Muilenburg didn’t have a fixed-term employment agreement with Boeing, but he was entitled to receive a year’s salary and bonus and immediate vesting of his outstanding stock awards if he was laid off.
But he hardly left empty-handed. Boeing allowed him to keep some portions of previously granted awards, stock options and money he’s accumulated in his pension and deferred compensation account, which functions as super-sized 401(k).
The awards were worth about $33.7 million as of Friday’s close, assuming the company tops certain performance thresholds. His options would net him $18.5 million if he exercised them and immediately sold the shares. And his pension and deferred pay amounted to $28.5 million as of Dec. 31.
In all, it adds up to about $80.7 million.
Boeing also disclosed that Kevin McAllister, who led the firm’s commercial airplanes division until he was fired on Oct. 22, had to give up awards and dividends worth approximately $52.9 million. But he did receive $14.8 million to make him whole for a pension benefit he forfeited when he left GE.

For turnaround veteran Calhoun, the task is cut out at beleaguered Boeing

Beleaguered BoeingCo is putting its future in the hands of a turnaround veteran who has led several companies in crisis, cut his teeth at engine maker General Electric Co and has spent a decade on the board of the world's largest planemaker.
Newly appointed Chief Executive David Calhoun, 62, was made Boeing's chairman two months ago in the midst of the crisis that has rocked the company since airliner disasters in Indonesia and Ethiopia led to the grounding of its best-selling 737 MAX.

This isn't his first taste of corporate upheaval.
Calhoun became chairman of the Caterpillar Inc board shortly after federal agents raided its headquarters in 2017, headed a General Electric unit that included jet engines after the Sept. 11, 2001 attacks, and turned round media research company Nielsen to go public. He has also been a longtime executive at Blackstone private equity group.
"Having seen him run GE's aviation business after 9/11, I know he can execute under pressure," former GE chief executive Jeff Immelt told Reuters by email when asked about Calhoun, adding that Calhoun would restore customer trust in Boeing.
As Calhoun tackles the MAX crisis, he also faces questions from European regulators over a deal to buy the commercial arm of Brazil's Embraer in a major strategic move.
Calhoun, who has co-written a book on business, "How Companies Win," says being candid is part of being a leader, an approach which many critics say was absent from Boeing's initially guarded approach to concerns about the 737 MAX.
"The second you get into the office til the second you leave, every interaction is judged," he said in a video published in 2014 by the Jack Welch Management Institute.
"You try to hide anything from everybody and I think your body language becomes perfectly apparent." Yet in his short time as Boeing chairman, Calhoun has showed his ability to force changes behind the scenes, as seen by his role in the departure of Kevin McAllister as chief executive of Boeing's planemaking arm in October. The removal was silent and swift, foreshadowing Dennis Muilenburg's ouster this week.
Some insiders saw McAllister - another GE veteran - as a scapegoat for the MAX crisis. Others say he paid the price for distractions including widely publicized cracks in the company's older 737NG jets, which caught the board off guard. The 737 MAX was not impacted by the cracking issue.
The reckoning came at an informal board dinner in Texas led by Calhoun in late October. As directors wound up a two-day summit a day later, Calhoun and Muilenburg took McAllister aside and told him he was out, two people briefed on the meeting said.
In a sign that the board was already claiming a new voice under recently appointed chairman Calhoun, having split the CEO and chairman roles, the decisive dinner conversation that led to the shake-up took place without Muilenburg, the people said.
Boeing declined comment on confidential board discussions.
McAllister and Muilenburg could not be reached.
Pressure for change
Now, Calhoun must repair frayed relations with regulators, continue to manage a cash squeeze from the crisis and bring to market the new 777X jet at a time of tough regulatory scrutiny.
His experience on the Boeing board will allow Calhoun to "take the reins in short order without the need for a longer period of familiarization," said Timm Schulze-Melander, industrials specialist at European research house Redburn.
As a long-time board member who learned the industry at GE, Calhoun shares the qualities of both an insider and outsider - worrying some who question whether he is the fresh blood Boeing needs to overhaul what often seems a smug corporate culture.
"Boeing needs a revamp of its corporate governance. The board should be fired," said Paul Njoroge, a Toronto-based investment professional who lost his family in the Ethiopia crash.
"I don't think (Calhoun) is going to change the culture of Boeing," he added.
A former Nielsen executive called Calhoun a "hard-nosed" leader who does not warm to dissent, but who can inspire.
"(Boeing) might need someone as tough as Dave. I don't think he would be a good manager over a long period of time. As a crisis manager, he might be able to get it done," the person said.
Even though Calhoun sat on Boeing's board throughout the development of the MAX, some argue he has the tenacity to drive through reform.
"It is hard to bring in somebody who doesn't know aviation or have credibility with airlines," said Lundquist Group managing director Jerrold Lundquist, a consultant who first met Calhoun in the 1990s and who believes he is what stricken Boeing needs.
"It is tough to come in cold. To some degree that is a trade-off they have to make," Lundquist said.

Boeing 737NG lease rates likely to increase by 10% on MAX grounding

The grounding of Boeing 737 MAX jets across the world in the wake of the crash of an Ethiopian Airlines plane that killed over 150 passengers could lead to an increase in lease rentals of the aircraft’s earlier variant, 737NG (next generation), according to aviation consultants and executives from leasing firms.
Demand for the Boeing 737NG model remains firm, they said, adding that rates might rise by about 10 per cent.

Regulators around the world suspended flights of 737 MAX planes following the Ethiopian Airlines crash last Sunday. The 737 MAX aircraft, which comes with a fuel-efficient engine, entered into service in 2017, and globally there are over 350 such planes with airlines. The MAX’s earlier variant, known as the NG series, continues to be a mainstay for carriers around the world, including Air India Express, Jet Airways, and SpiceJet in India.
Demand for 737NG planes is expected to pick up due to the grounding of MAX planes. Typically, the new lease rate for 10-year old 737NGs would have been between $200,000 and $250,000 per month, which might go up by 10 per cent in current negotiations, said Phil Seymour, CEO of aviation consultancy IBA Aviation. He added many airlines might look at extending their existing 737 NG leases, but this might change if Boeing issued a fix in the short term. “The Boeing 737NG aircraft will remain in demand because of its ultra-reliable engine. The secondary market for the planes is firm and the rents of used NG planes will firm up by around $ 20,000. Once the MAX fix is reliably introduced, the NG lease rents will go back to normal,” said the CEO of an aircraft leasing firm.
ALSO READ: Boeing suspends 737 MAX deliveries as France probes black boxes
“Airlines could also look at short-term 737NG leases to fill up the gap caused by the MAX grounding,” said aviation consultant Vishok Mansingh.
chartJet Airways has 119 planes in its fleet, including 5 MAX aircraft, but nearly half of its fleet has been grounded because of non-payment of lease rentals and cash crunch.
Robert Martin, BOC Aviation Limited’s CEO, said on Thursday he saw “quite a lot of demand” for 737NG planes. He added that the company would look to redeploy planes leased to Jet Airways in case there is no resolution to its crisis.
SpiceJet has a fleet of 76 planes, including 13 737 MAX aircraft.
It has 47 737NG planes in its fleet and is inducting two more planes on short-term lease to cater to its capacity expansion in summer. These joined the fleet today and will start operations from Saturday. SpiceJet is also looking to lease more planes to fill the gap. Air India Express has 25 737NG planes and is not looking for an immediate fleet expansion.
ALSO READ: Average fares jump over 65% on Boeing 737 MAX ban, says Yatra.com
Lease rates for an aircraft depends upon its age, lease term and creditworthiness of an airline, besides the demand. Globally passenger demand continues to be on rise and lessors have not encountered difficulty in placing the used NG aircraft with carriers. Boeing has a pending order book of less than 100 for 737 NG planes and over 4,700 unfilled MAX orders.
Delays in the introduction of Boeing 787 and the aircraft's global grounding due to problems with lithium-ion batteries one year into its service had led to an increase in lease rates of older 767 planes and 737 NG planes lease rates too could benefit from the uptick in demand.