Boeing Faces First Customer Lawsuit Over 737 MAX

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by Tyler Durden
Tuesday, Aug 27, 2019 - 11:52

Expectations that the Boeing 737 MAX 8 will return to the skies any time in the near future have largely faded, and now, after dedicating billions of dollars to compensating customers, Boeing is finally facing their wrath in the courtroom. The FT reports that a Russian aircraft-leasing company has filed a lawsuit against the aerospace company seeking not only the return of the deposit it paid for the 35 MAX 8s that it ordered, but also punitive damages in the hundreds of millions.

Avia Capital Services, a subsidiary of Russian state conglomerate Rostec, accused Boeing of "negligent actions and decisions" that led to two deadly accidents and roughly 350 deaths. Regulators around the world grounded the 737 MAX 8 in response to the accidents, and investigations have pointed toward issues with the plane's software as the culprit.

In its lawsuit, Avia also claimed that the design of the MAX 8 was "defective", and - embracing a more conspiratorial tone - that Boeing knew about these defects bu withheld this "critical information" from US regulators and Boeing's customers.

The lawsuit was filed in Cook County circuit court in Chicago, where Boeing is based.

Avia ordered 35 MAX 8s, and paid a cash deposit of $35 million to secure its order. In its lawsuit, the company is seeking the return of this deposit, along with another $75 million of lost profits plus additional punitive damages.

The company's lawyer, Steven Marks of the Miami aviation law firm Podhurst Orseck, said Boeing had offered the company compensation for the MAX 8's problems, but that this compensation was "inadequate." Marks is also representing the families of some of the victims.

Boeing CEO Dennis Muilenburg has said it's possible that the MAX 8 could be re-approved for passenger service by October. But it's entirely possible that the CEO could be jawboning to convince customers to hold off from moving ahead with lawsuits. Of course, the families of the victims who died in the two plane crashes attributed to flaws in the 737 MAX 8's anti-stall system are moving ahead with their lawsuits, even after Boeing set aside $100 million for payoffs.

In the meantime, orders for new 737 MAX 8s have dried up, and if the plane isn't given the OK to return to the skies before the end of the year, it's possible that Boeing could halt production of its most popular aircraft, according to CBS News.

American firms like Southwest (the 737 MAX 8s' largest customer) have been far more understanding and willing to work with Boeing. But how much longer until their patience runs out, and they start filing lawsuits?

Though this hasn't been reflected in Boeing shares, it's still entirely possible that a flood of legal judgments could bankrupt Boeing.