(Bloomberg) -- U.S. aviation regulators have begun a formal investigation of Boeing Co. after company employees alleged they faced duress that threatened their independence while assessing aircraft designs on behalf of the government.
The Federal Aviation Administration’s compliance action, which focuses on a controversial program known as Organization Designation Authorization that grants planemakers authority to sign off on designs for the agency, is looking at whether workers faced “undue pressure,” according to recently released government documents.
The FAA has sent Boeing two letters of investigation, which can lead to enforcement actions including fines and other penalties, according to a little-noticed section of a watchdog report on how Boeing and the FAA approved the 737 Max, which was grounded last year after its second fatal crash.
The report by the Transportation Department Inspector General, which found that Boeing had withheld critical information on the Max during its certification, said the FAA has spurned the company’s attempts to settle the investigation. The FAA’s investigation has so far stopped short of an enforcement case.
While decisions by Boeing’s designees have played a role in approvals of the system that malfunctioned in both crashes that killed 346 people and has led to reviews of the program by Congress, the FAA’s investigation isn’t looking directly at the 737 Max’s certification, according to the IG report.
Nevertheless, the agency’s investigation and any possible enforcement actions against Boeing could influence Congress as it weighs reforms to the system. Leaders of a Senate committee that oversees the FAA have crafted a bipartisan measure designed to give the agency more authority over certification and House lawmakers are writing a separate bill addressing the issue.
In November 2018, shortly after the crash of a Lion Air 737 Max near Jakarta, the FAA initiated a formal compliance action against Boeing involving allegations from designees who had complained to the agency about interference or duties that conflicted with their roles as representatives of the government, the report said.Five Boeing engineers raised the allegations. One of the five had reported instances of undue pressure through the formal Boeing process of resolution, the IG said, citing FAA information.In the months that followed, Boeing tried several times to resolve the issue by what is known as a corrective action plan, in which the company would promise to improve its processes and prevent such violations in the future.“FAA did not accept Boeing’s response to this compliance action,” the IG said in the report last week. “FAA also issued two separate letters of investigation in June 2019 and March 2020 against Boeing, related to potential undue pressure of unit members.”
Such letters of investigation serve notice on a company that FAA believes it has potentially violated regulations and lays out the case. They also would allow Boeing to respond to the allegations, possibly arguing that it hadn’t committed a violation.
The FAA didn’t accept Boeing’s response to its initial June 2019 letter, according to the IG. The agency “is currently evaluating that letter of investigation and the formal compliance action together,” according to the report.The FAA is still waiting for Boeing to respond to the more recent letter it sent in March.
The FAA doesn’t comment on possible ongoing investigations, said agency spokesman Lynn Lunsford.
“We take all allegations of undue pressure very seriously, investigate them carefully, impose corrective action where warranted, and work to resolve them cooperatively with the FAA,” Boeing spokesman Bradley Akubuiro said in an email.
The company had said earlier this year in a filing with the Securities and Exchange Commission that it may be subject to unspecified penalties, though they wouldn’t create a significant impact on overall finances.
A series of the company’s own internal audits of the designee program in 2018 and 2019 showed that significant numbers of employees were concerned about pressure, but found no FAA violations related to the issue, according to the IG report.
The watchdog’s report offers new details into possible enforcement actions being contemplated by the FAA against the U.S.’s largest aircraft manufacturer.
The agency had previously said that Boeing’s decision not to fix a malfunctioning warning light on the Max was a violation of FAA regulations. After a 2015 agreement to settle 13 separate investigations against Boeing, the company agreed to pay $12 million in the case but could be liable for an additional $24 million if FAA concludes violations continued.
The FAA late in 2019 and early this year also announced two enforcement cases against Boeing for allegedly installing substandard components on wings, including on the 737 Max. The agency announced a proposed $19.7 million fine against the company in March for allegedly installing unapproved equipment in the cockpits of 737s.
A federal criminal probe has also been opened against the company in the wake of the crashes.
The 737 Max crashes -- the October 2018 one off the coast of Indonesia and a second near Addis Ababa in March 2019 -- have prompted intense scrutiny of Boeing and the FAA, and led to billions of dollars in losses for the company. A system designed to improve the plane’s safety repeatedly attempted to dive the jets after a malfunction and pilots in both cases lost control.
The feature known as Maneuvering Characteristics Augmentation System was originally supposed to be overseen directly by FAA engineers, but the agency allowed Boeing to make the final approvals. The sign-off came after changes were made to the system that weren’t fully explained to the FAA, according to the IG report.
Congress had in recent decades steadily expanded the authority of programs that designate partial authority to the aviation industry in an attempt to streamline approvals and make U.S. companies more competitive. Company representatives are supposed to follow aviation regulations and remain independent. The ODA at Boeing is made up of almost 1,500 employees, though they work in the unit part-time.
The IG, which has previously raised concerns about oversight of ODA programs, is working on a new report specifically about how it functioned during the 737 Max’s certification. The oversight agency didn’t make recommendations in its recent report, saying it may do so in the future.
The FAA announced in May that it is writing new regulations specifically to address the potential for undue pressure to be placed on company employees acting in the agency’s behalf.
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