The U.S. Departments of Justice and Transportation are scrutinizing the development and federal approval of the now-grounded Boeing 737 MAX jet in rare simultaneous investigations that experts say will add to the aerospace company’s mounting legal worries. 

The DOJ started a criminal investigation into the development of Boeing Co.’s 737 MAX jets after securing a Washington, D.C., grand jury subpoena for more information and records, according to The Wall Street Journal.

The DOT confirmed Tuesday that Transportation Secretary Elaine Chao asked the agency’s Office of Inspector General to formally audit the Federal Aviation Administration’s certification process for the Boeing 737 MAX 8 aircraft. The jets were involved in both the March 10 crash of Ethiopian Airlines Flight 302 that killed 157 people and October’s Lion Air Flight 610 crash in the Java Sea that killed 189.

The planes have since been grounded globally.

In light of the parallel investigations by federal prosecutors and the DOT’s internal watchdog, experts said Boeing must prepare for a legal onslaught as it fights any suggestion that it hastily manufactured unsafe planes and maintained a cozy relationship with regulators. For its part, the FAA must gird itself against the assertion that its oversight lapses led to the 737 MAX 8 jets being certified in the first place, they said. 

Jeffrey Hoffman, white collar defense and investigations counsel at Windels Marx Lane & Mittendorf LLP, told Law360 that the stakes are high for Boeing as the Justice Department begins asking questions related to any potential criminality and negligence leading to the planes being approved for flight.

Investigators likely will focus on the MAX 8’s Maneuvering Characteristics Augmentation System, or MCAS, which has been widely cited as a potential major factor in both the Ethiopian Airlines and Lion Air crashes. It is an automated anti-stalling system — that Boeing has said pilots can always override — designed to help compensate pitch and certain maneuvering situations, like when the plane’s nose is too high.

“What was known about the problem with this software?” Hoffman said. “Who knew about it? When was it known, and was there a cover-up? Did they know that this was a problem and they just decided for financial reasons to go ahead with it and bury the problem? Then the question becomes who was involved and was it endemic in the company or one-off, so to speak.”

To get a sense of what the DOJ might target in its Boeing-related investigation, experts said past DOJ probes involving major players in the heavily regulated transportation space might offer some clues. After Volkswagen AG’s diesel emissions-cheating scandal broke in 2015 and led to a parade of litigation and enforcement actions, the German automaker in 2017 agreed to plead guilty to three criminal felony counts and pay a $2.8 billion criminal penalty to the DOJ for lying to regulators and obstructing justice.

In another investigation, Takata Corp. agreed in 2017 to plead guilty to wire fraud and pay a total of $1 billion in criminal penalties for falsifying critical test data and continuing to sell defective airbag inflators that were linked to more than a dozen deaths in the U.S., according to the DOJ.

The circumstances with Boeing are different, but the DOJ will still be looking for whether there was knowledge of a faulty product that was then put on the market, experts say.

Pablo Quiñones of Quiñones Law PLLC, a former federal prosecutor and deputy chief of the DOJ’s Fraud Section, said that in Boeing’s case, the DOJ investigation may focus on whether there were any misrepresentations or fraud with submissions made to FAA in order to get the aircraft approved.

“There may be similarities to cases in which safety standards were in place to protect consumers or the public and companies entered into resolutions related to allegations they tried to sidestep those safety standards,” Quiñones said.

“The nature of the grand jury is to determine whether criminal conduct occurred,” he added. “The mere existence of the investigation doesn’t indicate either way whether anything improper happened, so it’s too early to tell what the potential consequences are.”

Ethiopia’s transport minister said Sunday that preliminary data from flight records collected from the Ethiopian Airlines’ wreck established “clear similarities” between that crash and the Lion Air crash. He didn’t specify the similarities.

Timothy McCulloch, chair of Dickinson Wright PLLC’s aviation practice group, said that until the factual findings from the crashes are revealed, Boeing’s biggest problem is that its star aircraft may very well remain grounded for the foreseeable future.

“This is a huge problem for Boeing because the vast majority of its sales are going to be stalled, and indeed, may vanish to Airbus,” he said, referring to the French plane maker and Boeing’s chief rival. “Thus my sense is that Boeing is going to want the investigation to be completed as quickly as possible without a finding of criminal or grossly negligent conduct by the company. This is going to be a very tricky tightrope for Boeing to walk.”

Ronald Goldman, an aviation accident attorney with Baum Hedlund Aristei & Goldman PC and a pilot, told Law360 that to have a commercial airline crash scene and wreckage viewed as a potential crime scene is “remarkable,” particularly when both the DOJ and DOT have launched individual investigations.

“What they’re looking for is if anybody in the certification process looked the other way or gave a pass to the installation of this MCAS system,” he said.

That’s why the FAA is also under a harsh spotlight.

“To help inform the department’s decision making and the public’s understanding, and to assist the FAA in ensuring that its safety procedures are implemented effectively, this is to confirm my request that the Office of Inspector General proceed with an audit to compile an objective and detailed factual history of the activities that resulted in the certification of the Boeing 737-MAX 8 aircraft,” Chao said in a Tuesday memo to DOT Inspector General Calvin L. Scovel III. “Please keep me apprised of the status of your work as it progresses.”

According to the DOT, it took more than five years for the Boeing 737 MAX 8 jets to clear FAA approval. Boeing first requested what the agency calls an amended type certification for the aircraft in January 2012, which allows for modifications to the original design of an aircraft that’s already certified. The FAA signed off on the amended type certification in March 2017.

Goldman, the aviation accident attorney and pilot, said that the 737 MAX jets have larger engines that are set differently on the aircraft wings — more forward — affecting the balance and weight of the plane. That was essentially a design flaw that created a nose-heavy problem that Boeing corrected with its special anti-stalling software, MCAS, he said.

“This was a ‘fix’ to correct design errors and design problems that were accepted because it was cheaper to do this and do it this way than get a fresh piece of paper of a new type certificate,” Goldman said of Boeing’s request to grandfather the 737 MAX 8 aircraft into the certification it already had for the 737 model. “This is worthy of a serious investigation into who signed off, who knew about the issues it could create and who decided that pilots need not be bothered with specific information.”

Dickinson Wright’s McCulloch said that aircraft certification is complicated, that the FAA office overseeing the certification and Boeing have a long history of working together successfully, and the actual accident investigations aren’t yet complete.

It’s unsurprising that the DOT inspector general would start looking into FAA personnel and processes, but it is surprising for the DOJ to also step in, he said.

“My sense is that the two investigations could work at cross purposes because the parties being investigated may very well cease cooperating in the investigation as a result of the criminal jeopardy,” McCulloch said. “Other than that I think it is too early to tell how this process will play out, or whether there will be other investigations, such as a congressional investigation.”

The FAA has staunchly defended its aircraft certification processes, saying in a statement Tuesday that they are “well-established and have consistently produced safe aircraft designs.”

“The 737-MAX certification program followed the FAA’s standard certification process,” the agency said.

The FAA said that with any safety certification project, it reviews any proposed designs and methods used to show that such designs and the overall airplane comply with FAA standards. It also conducts ground and flight tests to demonstrate that the plane meets the FAA standards, evaluates the plane to determine the required maintenance and operational suitability for putting the aircraft into service and works with other civil aviation authorities on their approval of the aircraft, approvals that are based primarily on work already completed by the FAA.

President Donald Trump on Tuesday nominated former Delta Air Lines executive and pilot Steve Dickson to serve as FAA administrator, potentially lending some stability to an agency rocked by the Boeing matter.

Boeing said in a statement on Tuesday that it will fully cooperate in the DOT’s audit. The DOT’s Office of Inspector General and the Department of Justice declined to comment.

Experts say the inspector general’s office will likely take a hard look at the FAA’s Organization Designation Authorization, which outsources parts of the certification process. The FAA usually designates a qualified person — typically an employee of the manufacturer who is an engineer or quality assurance agent, and not an FAA staffer — to conduct safety inspections and issue certificates on the FAA’s behalf. The individuals are called designated engineering representatives.

Mark Dombroff, co-leader of LeClairRyan’s aviation industry practice, told Law360 that the FAA has always had a designee system — given that its resources are stretched thin — to do the “front-end approval” of an aircraft, but that doesn’t mean those approvals aren’t subsequently scrutinized by FAA employees.

“I find it all very disappointing, the concept that with a company like Boeing, which in my view is a world-class operation in the aviation industry, it is somehow intimated there’s been improprieties between them and the FAA regarding the certification of airplanes,” Dombroff said. “To all of a sudden ascribe wrongdoing to anybody, I also think is incredibly premature. We don’t know what happened to the airplane. We just don’t know.”

Source: Law360, by Linda Chiem, editing by Jill Coffey and Breda Lund.