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Stepan Lavrouk
Stepan Lavrouk
Articles (549) 

Federal Regulators Almost Grounded Boeing’s 737-Max Before Ethiopian Crash

Wall Street Journal report alleges the company did not tell airlines about disabled warning system

April 30, 2019 | About:

We have written previously about the circumstances that led to the deadly Ethiopian Airlines and Lion Air Boeing (NYSE:BA) 737-Max crashes. Since then, a lot of coverage has centered on why the maneuvering characteristics augmentation system malfunctioned, why pilots were not adequately trained on its usage and why the Federal Aviation Administration allowed the planes to fly in the first place. We have also argued there was likely more to the story than was first reported.

Conflicting narratives

The Wall Street Journal reported on Sunday that Boeing disabled critical safety features on the 737-Max without informing either the FAA or Southwest Airlines (LUV), the biggest buyer of the aircraft. The feature in question was supposed to trigger when the aircraft’s "angle of attack vane" sensors began to malfunction. It is widely believed these malfunctioning sensors fed erroneous data to the MCAS, causing both aircrafts’ noses to pitch downward.

The safety features were disabled in order to make them part of a premium package to sell customers, a practice that has come under fire. Some politicians have introduced legislation to make this illegal. Boeing, for its part, denies purposefully disabling the feature, instead blaming a software glitch for the malfunction. In a statement, the company said:

“The disagree alert was tied or linked into the angle of attack indicator, which is an optional feature on the MAX. Unless an airline opted for the angle of attack indicator, the disagree alert was not operable.”

In other words, the alert was intended as a standalone feature on the base Max model, but since it was tied to the angle of attack indicator (a premium feature), it was unable to function as designed. If this version of the story is true, it is certainly less damaging than the Journal’s original accusation, but is still a serious oversight on Boeing's part.

Not everything adds up

What is less explicable is why neither Boeing nor the FAA took action after the Lion Air crash in late 2018. The same report by the Wall Street Journal said regulators discussed grounding all 737-Max aircraft until the problem had been resolved. Supposedly, a small number of FAA inspectors had raised concerns about the angle of attack sensors, but these never made their way up the chain of command. Had these voices been listened to, there is a very good chance the Ethiopian Airlines crash could have been avoided.

This story should raise further concerns about the close relationship between the FAA and Boeing. The agency has become increasingly reliant on the airplane manufacturer for information regarding the safety of its aircraft, which represents a clear conflict of interest. This relationship could come under fire from legislators and could result in punitive action against the company, which is a risk the market is not currently pricing in.

Disclosure: The author owns no stocks mentioned.

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About the author:

Stepan Lavrouk
Stepan Lavrouk is a financial writer with a background in equity research and macro trading. Specific investing interests include energy, fundamental geoeconomic analysis and biotechnology. He holds a bachelor of science degree from Trinity College Dublin.

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