The Federal Aviation Administration said Thursday Boeing will pay at least $17 million in penalties and must undertake multiple corrective actions to improve quality control in building the 737.
Though that’s the largest fine imposed in some years, it’s a relatively small amount for Boeing. Federal law limits the maximum fine the FAA can impose to about $30,000 per defective airplane delivered.
More damagingly, the FAA action adds yet another black mark to recent revelations about serious quality control shortcomings in Boeing’s production system. It further harms the jetmaker’s reputation, already blackened by the design errors that led to the two fatal 737 Max crashes.
Just last week, Congress demanded records to begin an investigation of ongoing quality lapses.
In a statement Thursday, Boeing said “we take our responsibility to meet all regulatory requirements very seriously.”
“These penalties stem from issues that were raised in 2019 and which we fully resolved in our production system and supply chain,” Boeing said. “We continue to devote time and resources to improving safety and quality performance.”
The FAA fine relates to two separate defects that Boeing allowed to be installed on its Renton-built 737s, including both the older 737 NG model and the newest 737 Max.
Between June 2015 and April 2019, Boeing installed defective head-up guidance systems made by supplier Rockwell Collins on 618 Boeing 737 NGs and 173 Boeing 737 Maxes.
These are systems that display the jet’s key instrument readings on a glass panel in front of the pilot’s face so that they can be read at critical moments — such as when coming in to land — without the need for the pilot to look down at the main instrument panel. Such systems are typically optional extras ordered by premium airlines, including many U.S. carriers.
The FAA said the Rockwell head-up display systems were equipped with sensors that had not been tested or approved.
Even though the systems were therefore not in conformance with the production certificate, Boeing certified the aircraft as airworthy and delivered them to airlines.
When the FAA in March 2020 first proposed a fine for this specific quality failure, it said, “Boeing failed to follow its own Business Process Instructions, which are in place to help prevent such situations from occurring.”
Moveable slats on the wing
The second violation cites Boeing for installing defective slat tracks on the leading edges of the wings of 178 Maxes and 133 NG models and failing to oversee the quality assurance system at the suppliers of the slat track system.
The slat tracks guide the movable control surfaces on the leading edge of an airplane’s wings that slide out during takeoff and landing.
The defective slat tracks were weakened by a condition known as hydrogen embrittlement that occurred during cadmium-titanium plating that was performed by Southwest United Industries (SUI), a third-tier supplier to Boeing that does metal finishing in Tulsa, Oklahoma.
SUI notified Kencoa Aerospace, a supplier to Boeing of machined aerostructures in Eastman, Georgia, on July 6, 2018, that a batch of slat tracks had failed a quality test indicating the presence of hydrogen embrittlement.
A month earlier, the defective parts had shipped to Boeing’s major 737 supplier, Spirit AeroSystems in Wichita, Kansas, and were then delivered to Boeing’s final assembly line in Renton.
Kencoa informed Spirit of the problem on Aug. 3, 2018, and Spirit told Boeing on Sept. 11, 2018. Yet through early March 2019, when the Max was grounded worldwide after the second deadly crash, Boeing certified the planes as airworthy and delivered them to airlines.
When the FAA in January 2020 first proposed a fine for this quality lapse, it stated starkly that “Boeing knowingly submitted aircraft for final FAA airworthiness certification after determining that the parts could not be used due to a failed strength test.”
Federal law limits the fines
For these two violations, the FAA originally proposed fines totaling $29 million more than a year ago, a relatively trivial penalty for a company that before the pandemic made a 2018 net profit of $10.5 billion.
However, Congress limits on the fines meant that, depending on inflation adjustments in force when each violation occurred, the maximum penalty possible ranged from $27,500 to $33,333 per airplane that was delivered with one of the cited defects.
The settlement announced Thursday reduces the total potential fine to $27 million, citing corrective action already taken by Boeing, and in addition defers $10 million of that amount.
Boeing has agreed to pay $17 million within 30 days. It will have to pay the additional $10 million only if it does not complete further specified corrective actions within certain set time frames.
“Keeping the flying public safe is our primary responsibility. That is not negotiable, and the FAA will hold Boeing and the aviation industry accountable to keep our skies safe,” said FAA Administrator Steve Dickson in a statement.
Boeing’s problems with quality control seem to have reached a crescendo lately, prompting the latest congressional inquiry.
A litany of recent problems
Recent problems include defective fuselage joins that stopped deliveries of the 787 Dreamliner for more than four months and an electrical defect that stopped deliveries of the 737 Max for about five weeks
In February last year, Boeing found debris that mechanics left inside the wing fuel tanks of several undelivered Maxes, a problem that had earlier repeatedly afflicted the KC-46 Air Force tanker program in Everett.
Last August, the FAA proposed a fine of more than $1.25 million on Boeing, alleging that senior managers in South Carolina exerted undue pressure on employees designated to represent the FAA in safety inspections of 787s at that plant.
These lapses follow a sweeping transformation of Boeing’s quality system in 2019 that deliberately eliminated thousands of quality checks during production and cut hundreds of quality inspector jobs.
However, quality shortcomings also showed up in previous years.
In 2015, Boeing paid $12 million in fines to settle more than a dozen FAA investigations that had revealed a pattern of falsified paperwork and ignored procedures that created quality issues on the production lines of both Boeing and its suppliers.
Last December, the FAA imposed a further $5.4 million fine on Boeing for not meeting its performance obligations under that 2015 settlement.
“Boeing failed to meet all of its obligations under the settlement agreement, and the FAA is holding Boeing accountable by imposing additional penalties,” Dickson, the FAA administrator, said then.
The FAA said the new corrective actions required for Boeing in the latest settlement, which must be implemented to avoid the extra $10 million fine, include:
Strengthening procedures to ensure that Boeing does not install on aircraft any parts that fail to conform to their approved design.
Performing Safety Risk Management analyses to determine whether Boeing’s supply chain oversight processes are appropriate and whether the company is ready to safely increase the 737 production rate.
Revising its production procedures to enable the FAA to observe production rate readiness assessments, the data on which the company bases the assessments, and the results of the assessments.
Taking steps to reduce the chance that it presents to the FAA aircraft with nonconforming parts for airworthiness certification or a Certificate of Export.
Enhancing processes to improve its oversight of parts suppliers.
The FAA decision to closely monitor Boeing’s readiness to raise the 737 production rate could trim the company’s hopes to get quickly ramp up Max deliveries.
Boeing, laden with debt, is counting on increased Max deliveries to generate cash. In addition, it needs to build and deliver more Maxes to try to keep pace with Airbus’ rival A320 family of jets.
Airbus on Thursday said it plans to build 45 of those single-aisle jets per month by year-end and called on suppliers to prepare for a future firm rate of 64 jets per month by the second quarter of 2023, a potential rate hike to 70 jets per month in early 2024 and possibly as many as 75 per month in 2025.
With the Max having already lost considerable market share to the A320 since the two crashes, if Airbus can achieve such unprecedented production rates it will apply tremendous pressure to Boeing.
Citing industry sources, Reuters reported Thursday that Boeing is targeting a production rate of 42 Maxes a month by fall 2022.
Nevertheless, Boeing stock rose sharply Thursday after Southwest Airlines CEO Gary Kelly made comments indicating the airline needs to order hundreds more Maxes.
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