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Russian company first Boeing customer to sue over 737 Max planes

Avia agreed years ago to buy 35


  • Rob McLean, CNN Business

Posted: Aug 27, 2019 12:42 PM CDT

Updated: Aug 27, 2019 12:42 PM CDT

Stephen Brashear/Getty Images

Stephen Brashear/Getty Images

A Boeing 737 MAX airplane is pictured on he tarmac with its signature winglet and fuel efficient engines outside the company’s factory on March 11, 2019 in Renton, Washington. 

(CNN) – A Russian company that leases aircraft is suing Boeing over the plane maker’s grounded 737 Max 8 jets. It is the first Boeing customer to sue over the grounding.

Avia, which agreed several years ago to buy 35 of the planes, claims Boeing breached the contract by misrepresenting how safe the plane was to fly, and alleges it put profits ahead of safety, as it competed with rival Airbus for market share.

Boeing “represented that the 737 Max 8 was an airworthy and safe aircraft, and that it had been designed in compliance with aviation regulations,” Avia said in its lawsuit, which was filed Monday in an Illinois court. Boeing is headquartered in the state. “Despite its representations and due to its negligent conduct, Boeing manufactured and designed an aircraft that was not safe for flight.”

The suit was first reported by the Financial Times. Boeing declined to comment Monday night to CNN Business about the lawsuit.

The delivery of 33 of the planes that Avia ordered was rescheduled last year, although the lawsuit does not make clear why. They are scheduled for delivery some time between 2022 and 2024, instead of between 2019 and 2022 as originally planned, according to court documents.

Avia now wants to cancel its order. The company asking for more than $115 million to account for losses and damages it says were caused by what it called Boeing’s “wrongful acts and omissions.” Avia is also seeking punitive damages.

The company’s 737 Max 8s were grounded in mid-March in the wake of the fatal crashes in Ethiopia and Indonesia. Boeing announced in May that it had finished the development of a software fix to the aircraft and had already flight tested it. The software, known as MCAS, will have to be reviewed by the FAA and air regulators worldwide who want to review it.

It’s still not clear when the plane will be allowed to return to service, but its CEO told CNBC in June that he believes the plane will be back in the air before the end of 2019.

“We’re committed to providing the FAA and global regulators all the information they need, and to getting it right. We’re making clear and steady progress and are confident that the 737 Max with updated MCAS software will be one of the safest airplanes ever to fly,” Boeing CEO Dennis Muilenburg said in a statement earlier this year.

Nearly 400 planes already in airline fleets have been grounded and Boeing has halted deliveries of the 737 Max, although it continues to build them.

Boeing says the aircraft is the fastest-selling airplane in its history. It has received about 5,000 orders from more than 100 customers around the world.

Boeing executives and executives at several major airlines have said they plan to reach an agreement on compensation for the groundings and for the delays in deliveries. Details of that compensation are not yet known, although Boeing has taken a $4.9 billion after-tax charge related to potential concessions and other considerations to its customers.

In its lawsuit, Avia claimed that Boeing made “false representations” to the US Federal Aviation Administration during the Max’s certification process. Avia also alleges that Boeing “downplayed and misrepresented” problems after a Max flown by the Indonesian carrier Lion Air crashed last year. Another Max flown by Ethiopian Airlines crashed several months later.

“As a result, and in reliance on Boeing’s misrepresentations regarding the airworthiness of the subject aircraft, Avia continued to abide by the terms” of its purchase agreement, according to court documents. Avia said it was “unable to make an informed decision” with regard to the way it did business with Boeing.

“We are committed to seeing this through, if necessary, to trial, to pursue not only our compensatory damages but also punitive damages given Boeing’s outrageous conduct,” said Steven Marks, an attorney representing Avia. Marks also represents more than 30 families of those who died in the two crashes. Boeing executives and executives at several major airlines have said they plan to reach an agreement on compensation for the groundings and for the delays in deliveries. Families of the 346 people killed in the two crashes have filed numerous lawsuits. Some pilots have sued too for lost pay because of the grounding. Boeing has announced a $100 million compensation fund for families of those killed in the crashes.

Last week, CNN reported that an international panel created after the two crashes was expected to recommend the FAA change the way it certifies planes, as well as address safety concerns that aircraft technology is becoming far more sophisticated than the regulations that govern it.

— CNN’s Chris Isidore, Rene Marsh and Gregory Wallace contributed to this report.