Clear Skies Ahead: Lessons From the Boeing Trial
While the Boeing 737 crashes in 2018 & 2019 may seem like a distant memory, the Alaska Air incident in January of this year has brought scrutiny to Boeing once again. Over the last few months, Boeing has been the subject of investigation by the U.S. Department of Justice, recently receiving a plea deal that would include a fine of $243.6 million and Boeing pleading guilty to a criminal fraud conspiracy charge. So, how did Boeing get to this point? What can other manufacturers, or really any organization, learn from this?
Timeline of Events
- Lion Air Flight 610 (October 2018): The first major incident occurred when Lion Air Flight 610, a Boeing 737, crashed shortly after takeoff from Indonesia, killing all 189 people on board.
- Ethiopian Airlines Flight 302 (March 2019): Another Boeing 737 MAX crashed shortly after takeoff from Ethiopia, killing all 157 people on board. Similarities with the Lion Air crash led to worldwide grounding of the 737 MAX fleet.
- Deferred prosecution agreement (January 2021): Boeing entered into an agreement and paid more than $2.5 billion in fines and compensation over the incidents.
- Alaska Air flight 1282 (January 2024): A door plug blew out mid-flight. While there were no casualties, it reignited suspicions, including a U.S. DOJ criminal investigation and Boeing paying Alaska Airlines $160 million for lost earnings.
Why a Trial Now?
The first two accidents were blamed on new technology and Boeing’s deception of the Federal Aviation Administration when obtaining certifications. As part of the deferred prosecution agreement in 2021, Boeing agreed to strengthen its compliance program and enhance compliance reporting. After the Alaska Air incident, speculation rose as to whether Boeing was following the terms of the initial agreement, and the investigation was reignited.
Among other things, the trial underscored broader issues related to corporate ethics, accountability, and the balance between innovation and safety/quality in the aerospace industry.
Ethics and Accountability
During the hearing in June, Senators chastised the former CEO, who stepped down earlier this year, for creating a fearful work culture that retaliates against employees who speak out. More than a dozen whistleblowers have come forth, and the former CEO admitted that he knew whistleblowers have been retaliated against. One whistleblower testified, “Despite what Boeing officials state publicly, there is no safety culture at Boeing and employees like me who speak up about defects with its production activities and lack of quality control are ignored, marginalized, threatened, sidelined, and worse.”
- Takeaway – Tone at the top is critical: Having a whistleblower program is a best practice. Organizations should have a mechanism for reporting issues or complaints without fear of retaliation. In this scenario, it relates to quality control, but this also applies to human resources or financial reporting. Having a whistleblower program is not enough, though. In order for the program to be effective, the leaders of the organization need to demonstrate strong corporate ethics that are exemplified in the corporate culture and reflected in their daily leadership. Secondly, those who are part of receiving whistleblower complaints need to have accountability to ensure that each complaint is properly vetted and resolved.
Balancing Innovation with Safety and Quality
Based on the chain of events and the testimony that has come to light, it appears that choices were made to cut some corners for the sake of earnings per share. Senator Josh Hawley stated during the hearing that “multiple whistleblowers come before this committee and allege that Boeing is cutting every possible corner on quality and safety, not just in the past, but now. They’ve alleged that you’ve eliminated safety inspections. They allege that when they raise quality issues and concerns, they were reassigned, they were retaliated against, they were physically threatened.”
- Takeaway – Quality needs to remain paramount over speed: In an economic environment where skilled employees are increasingly hard to come by, every company is trying to do more with less. However, there must be a balance; at the end of the day quality must remain the focus. While not every manufacturer has the same elevated safety risk as the aerospace industry, cutting corners exposes each company to financial losses, reputational damage, reduced employee morale, and legal and compliance issues.
Please reach out to a member of our Manufacturing & Distribution team for more information on the topic outlined above. For more information regarding our Manufacturing & Distribution experience, visit our Manufacturing & Distribution industry page.
About the Author
Shalane is a Director at McKonly & Asbury. With over 15 years of experience, she is a leader in the firm’s external Audit and Assurance Segment serving middle-market, closely held businesses. She assists her clients with financial st… Read more