Boeing CEO Bashed in Congress as Stock Shrugs Off Max Risk

Julie Johnsson and Justin Bachman
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Boeing CEO Bashed in Congress as Stock Shrugs Off Max Risk

(Bloomberg) -- Boeing Co. Chief Executive Officer Dennis Muilenburg was pummeled with calls to resign, attacks on his integrity and condemnation of a flight-control system linked to two fatal 737 Max crashes as he gave two days of often-contentious testimony in the U.S. Congress.

Missing from the proceedings, however, were blockbuster revelations likely to delay the U.S. Federal Aviation Administration’s final review of whether the Max can safely return to the skies after a grounding of more than seven months -- a crucial question for Boeing investors and the embattled CEO.

Muilenburg’s appearance was “all about making sure Boeing looked contrite and ready to work with regulators and to reinforce the idea that the Max is getting close to getting back into service,” said George Ferguson, an analyst with Bloomberg Intelligence. “And it looks like he did that.”

Having weathered the grilling in Congress, the CEO’s next test will be to win U.S. recertification of the Max by year-end as he has repeatedly promised. Badly missing that deadline will roil airline customers, undermine public confidence in the jet and put Muilenburg’s job further at risk.

FAA Administrator Steve Dickson, in an Oct. 29 USA Today contribution, reiterated that as the agency addresses crash investigator recommendations, it wouldn’t be hurried as to “when, whether or how the 737 Max will return to service.”

Muilenburg fielded questions about the jet from furious lawmakers in a five-hour appearance Wednesday. For the first time, he publicly detailed errors in the design and communications around the software linked to both crashes. And he expressed regret over Boeing’s response after a Lion Air jetliner fell from the sky on Oct. 30, 2018 -- a tragedy that repeated itself less than five months later in Ethiopia.

“If we knew then what we know now, we would have grounded after the first accident,” Muilenburg told a House of Representatives committee. “If we could have saved one life, we would have done it.”

Boeing fell less than 1% to $346.66 at 9:59 a.m. in New York. The shares rose about 1.5% during the CEO’s two-day stint on Capitol Hill as investors were reassured for the moment that the Max’s return didn’t face big new obstacles.

Tense Hearings

In hearings that were at times angry, emotional and technical, Muilenburg worked to salvage Boeing’s reputation and save his job.

Directors at the company stripped him of his chairman’s role earlier this month and ousted Kevin McAllister, the head of the commercial aircraft division. The crashes and global grounding have been unprecedented for an advanced jetliner and have cost Boeing more than $9 billion so far.

“These two accidents happened on my watch. I feel responsible to see this through,” Muilenburg said. Earlier in the hearing, he spoke about his upbringing on an Iowa farm and the beginning of his career at the company as an intern. His voice cracked with emotion as he discussed the victims.

The tone contrasted with a Boeing statement a year ago, when the company angered Lion Air owner Rusdi Kirana by pointing out piloting and maintenance lapses cited in an initial report on the disaster off the coast of Indonesia.

Angry Airlines

Other airlines have griped about the company’s overly optimistic assessments of when its best-selling plane will be cleared to fly.

“I think Boeing have missed a beat, frankly, in the way that they’ve responded to this crisis,” Ed Sims, CEO of Canada’s WestJet Airlines Ltd., said in an interview this week.

While the 737 Max’s design was largely in place when Muilenburg took over as CEO in mid-2015, he has borne the brunt of criticism for the company’s response to the crisis. For months, he insisted that engineers followed Boeing and FAA processes in designing the software -- known as the Maneuvering Characteristics Augmentation System -- that was implicated in both crashes.

At the Wednesday hearing, Muilenburg conceded that Boeing made three mistakes on MCAS: designing it to activate with a single sensor, omitting it from pilot training and under-estimating how long pilots would take to respond when the system kicked on.

“I am accountable and my company is accountable,” he said.

Lawmakers grilled Muilenburg and John Hamilton, chief engineer at the commercial division, over a 737 factory meltdown in 2018 as well as the company’s handling of the Max crashes and victim lawsuits.

“This is about a catastrophic design flaw and regulatory failure,” said Representative Colin Allred, a Democrat from Texas.

He accused Muilenburg and Boeing of “negligence” with MCAS, which was designed with a single point of failure. In both crashes, a sensor fed erroneous signals to the system, which repeatedly guided the plane’s nose down until pilots eventually lost control.

Representative Peter DeFazio, a Democrat from Oregon, displayed slides of internal Boeing documents and emails -- some never before seen publicly -- that raised questions about the development of MCAS.

Safety Question

In one document from 2015, a Boeing employee questioned the decision to permit MCAS to be triggered by only one of the two sensors mounted on the jet’s nose. Boeing has since redesigned MCAS to prevent a repeat of such a failure, in part by incorporating readings from both angle-of-attack sensors.

“I guess the question is, why wasn’t it that way from day one?” DeFazio said.

Lawmakers and victims’ relatives also slammed Muilenburg’s compensation, which surpassed $23 million last year, up 27% from the year before. Nadia Milleron, mother of 24-year-old Ethiopian Airlines crash victim Samya Stumo, said outside the hearing room that she was outraged that Muilenburg received a bonus at all for 2018.

“He is not the human being to be doing this job, and neither is his board,” Milleron said.

Muilenburg said compensation matters were in the hands of the board.

So is his future at the Chicago-based planemaker.

“I thought he did no harm to Boeing,” said Scott Hamilton, a consultant who publishes a popular aviation news website, referring to the CEO’s appearance in Congress. “That was his mission. I do not believe the board will pull the plug on him until the Max is back in the air. And assuming that the Max is back in the air, by the time of the shareholders’ meeting next year we’re going to see a change.”

(Updates with FAA Administrator quote in fifth graph)

--With assistance from Alan Levin, Courtney Rozen, Ryan Beene and Jon Morgan.

To contact the reporters on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net;Justin Bachman in Dallas at jbachman2@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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