Paul Hudson on the FAA Boeing and Corporate Crime

Within five months, two Boeing 737 Max 8 airplanes have crashed – one in Indonesia and one in Ethiopia – killing all 346 people on board.

Paul Hudson

What are the implications for Boeing?

Paul Hudson is a public interest attorney who lost his daughter in 1988 when Pan Am 103 was blown out of the sky by a bomb over Lockerbie, Scotland.

Hudson helped organize the families of the victims to pass a law through Congress that allowed lawsuits against foreign governments to recover for acts of terror. The families of the 270 victims then sued the government of Libya for the bombing and recovered $2.7 billion in a record settlement.

Hudson now heads an airline passenger consumer group called

Since 1993, he has been a member of the Federal Aviation Administration’s (FAA) Aviation Rulemaking Advisory Committee.

Over the past ten years in the United States, there have been 90 million commercial airline flights and only a handful of fatalities. There is a sense that commercial air travel in the United States is relatively safe.

“I wouldn’t disagree with that,” Hudson told Corporate Crime Reporter in an interview last week. “It is relatively safe. You can make an argument that it is so much safer than auto transportation that we shouldn’t worry about air crashes at all.”

“But there is a psychological factor. The public has very little tolerance for mass disaster – whether it is the Titanic, which was supposed to be unsinkable, the Hindenburg, that ended not only the dirigible but the company behind it and Germany’s dominance in that field, to the de Havilland Comet, which was the first jetliner in the 1950s – it had three crashes in one year. No one ever bought a Comet again, even though they fixed the problem. No one ever bought a commercial airliner from the UK again.”

“These Boeing crashes have a serious potential effect for an entire industry and even for the entire U.S. economy.”

A recent Wall Street Journal article projects a $1.7 billion settlement for both the Indonesia and Ethiopia crashes. How do these Boeing cases differ from other airline crashes?

“Boeing has to worry about punitive damages and potential criminal liability if it is found that they willfully hid these dangers and falsified the safety tests and certifications.

“The most recent example is the falsification of emissions tests in the case of Volkswagen and a number of other automobile companies. Those didn’t involve fatalities, but there were high fines and damages, not to mention the reputational injury. There is also the liability from the airlines who bought these planes. There are some 350 of them out there. If the plane has to be scrapped – the plane is worth $100 million each.”

“But the most serious potential for the company is if people refuse to fly on these planes. Then the airlines are not going to buy them. And if other countries will no longer accept the FAA’s imprimatur of safety, that could hold the sales and deliveries of the planes indefinitely. And China, Russia, Brazil and Airbus are all coming out with commercial airliners in the next few years that will compete heavily with Boeing. And they could lose their duopoly position and perhaps worse.”

When you say even worse – does this threaten the viability of the company?

“I don’t know enough to say that. I’ve read that the 737 Max 8 alone represents about half of their current revenues and growth. The two driving revenue sources for Boeing are the 737 Max 8 and the 787 Dreamliner.”

Is this Max 8 plane fixable?

“The short answer is – we don’t know at this time. It is clearly more than a little software glitch. It may involve extensive software changes. It may involve recalling the planes and changing some hardware. It may involve redesign – meaning scrapping the plane – because it’s inherently unstable.”

Boeing CEO Dennis Muilenburg admitted last week that “it’s apparent that in both flights, the MCAS activated in response to erroneous angle of attack information.”

What are the implications of that admission?

“It would seem that would take negligence off the table. It seems that they are admitting fault. How far it goes – whether it goes to gross negligence or beyond that, to some kind of intentional wrongdoing, that remains to be seen.”

How do you see the litigation playing out?

“I’m not an expert in product liability. There are technical defenses. And Boeing has successfully defended other cases on technical legal grounds – lack of privity – things like that. Typically, the victims of air crashes sue the airline. They may sue equipment manufacturers and others.”

“For international air crashes, there is a cap on damages. It’s now about $139,000 on a semi-no fault basis per passenger. In order to break that cap, you have to prove intentional misconduct. It’s an international equivalent of gross negligence or worse. That has only been done a couple of times in commercial aviation history. It was done in the Pan Am 103 case.”

“Ethiopian Airlines is going to take the position that it is entirely Boeing’s fault, that their people did all the right things, that Boeing knew something was wrong, they not only didn’t fix it, but they mismanaged any training for the pilots. That could have implications for litigation.”

“But in general, the amount of money available on a negligence basis is going to be covered by insurance –  whether it is for Boeing or for the airlines. But when you get into gross negligence or intentional misconduct, that kind of liability tends not to be covered by insurance.”

What are the implications on the criminal side?

“People can be arrested. They could be jailed under a negligent homicide type charge. If the crash had occurred in the United States, that could potentially play out. This occurred in Ethiopia. I’m not an Ethiopian lawyer and I don’t know what their law is on this. There have been such cases where companies have been charged with criminal negligence. In June 2010, Warren Andersen, the CEO of Union Carbide was indicted and convicted in connection with the Bhopal disaster. The U.S. didn’t extradite him. But Ethiopia could try and indict Boeing officials.”

There is a federal manslaughter statute in the United States. BP pled guilty in 2013 to 11 counts of manslaughter in connection with the Deepwater Horizon explosion and fire in the Gulf of Mexico. Arguably, in the Boeing case, the crime was committed in Chicago, where Boeing is headquartered.

“The actual act would have occurred in the United States. The victims would be in these two crashes overseas. I’m not a criminal lawyer or a corporate crime lawyer so I’m not going to opine on that question.”

[For the complete q/a format Interview with Paul Hudson see 33 Corporate Crime Reporter 15(13), Monday April 15, 2019, print edition only.]

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