Friday, July 13, 2012

FAA Seeks Boeing Penalty Over Late Tank Instructions

The Wall Street Journal

The Federal Aviation Administration proposed a $13.57 million civil penalty against Boeing Co. BA +2.51% stemming from a missed deadline for instructions to help airlines install devices to reduce fuel-tank explosion risks on hundreds of the company's older jets.

The agency said the Chicago-based plane-maker failed to meet the deadline for issuing so-called service bulletins affecting more than 380 planes.

In a statement, Boeing didn't specifically address the deadline issue, saying it planned to "thoroughly review the FAA's letter" and then respond to it. The company said it is committed to continue what it called "pioneering efforts in the complex process of developing and certifying" the fuel-tank devices. Boeing also said it has provided service instructions to the FAA for retrofitting the parts on planes, reiterating that about 1,800 Boeing aircraft world-wide currently have the safety devices onboard.

The proposed penalty is the second-largest financial demand ever levied by the FAA against an airline or manufacturer for safety-related matters. It is unusually large for the kind of lapses the agency says Boeing committed.

The FAA's move comes after months of discussions to try to reach a compromise between agency officials, Boeing and the main trade association representing U.S. carriers. Airlines have been asking the FAA to extend certain deadlines for modifying fuel tanks—to reduce the risk of explosions—on Boeing jetliners. The industry's push is part of a broader industry campaign to target federal safety rules that the carriers consider excessive.

But in this case, the FAA decided that the crux of the problem was Boeing's failure to issue timely final instructions, after a number of preliminary installation bulletins turned out to need revisions.

In a March 28 letter, Airlines for America, the industry's biggest trade group, said two deadlines beginning at the end of 2014 could lead to the temporary grounding of some older planes because of a lack of parts and detailed repair instructions. The fix—one of the most expensive FAA safety initiatives—involves installing gear that pumps nitrogen inside fuel tanks to prevent fumes from exploding. Newly manufactured planes already have nitrogen systems installed at the factory.

The FAA said it also plans to take some action to give airlines more leeway in compliance schedules. The agency plans to maintain its previously announced 2017 deadline for having all the work completed, according to these officials. But airlines can request extensions of the interim 2014 deadline to have retrofits finished on at least 50% of their affected planes, according to the agency and industry officials.

"We take this matter very seriously," acting FAA Administrator Michael Huerta said in a statement. "We have issued hundreds of directives to eliminate fuel ignition sources over the past 16 years, and this step will add another layer of safety."

The fix was prompted by the 1996 crash of TWA Flight 800, a Boeing 747 jumbo jet that broke apart shortly after taking off from New York en route to Paris, killing all 230 people aboard. In the wake of the disaster, the FAA ordered some 200 separate, electrical-wiring-related fixes to reduce the chances of sparks or short circuits inside fuel tanks. Ultimately, it mandated the installation of nitrogen-generating equipment in the event those simpler, less-expensive safeguards failed.

Arguments trying to pin blame for the delays has pitted the industry against the FAA and Boeing. In the past, Boeing has said it was working expeditiously to complete installation instructions. The FAA adopted the final rule mandating the fuel-tank fixes in July 2008, following years of heated debate with industry about the need and the projected costs of the modifications.

Honeywell International Inc., HON +1.83% which manufactures many of the fuel-tank safety devices, previously indicated it was ready and able to provide the necessary parts but had received relatively few orders, according to industry officials.

According to the FAA, Boeing was nearly a year late in issuing service instructions covering 747 jumbo jets, finally providing them to the agency on Oct. 24, 2011. The company was 406 days late in submitting service instructions for Boeing 757 jets, the FAA said.

Some pilots groups and outside safety experts had criticized the airline industry for allegedly dragging its feet to complete installation of the devices. The proposed penalty, however, supports claims by the industry association that necessary parts and instructions weren't available on a timely basis in order to meet the compliance deadlines.

The FAA said European plane maker Airbus, a unit of European Aeronautic Defence & Space Co., submitted its instructions in time to meet the FAA's Dec. 27, 2010, deadline.

Boeing can appeal the proposed penalty inside the FAA, and has the right to ultimately ask a federal court to review it.

A spokesman for Airlines for America said carriers "follow the rigorous standards set by the FAA, including only installing FAA-certified modifications on our aircraft." He said the industry group is "working with the FAA to complete the approved modifications."

Four years ago, the FAA proposed a civil penalty in excess of $10 million against Southwest Airlines Co., LUV +1.40% after determining the airline knowingly operated 46 Boeing 737 aircraft on some 60,000 flights without performing mandatory structural-safety inspections. The enforcement case sparked a public outcry as well as major congressional and FAA investigations, with the airline ultimately agreeing to pay $7.5 million to settle the high-profile case.

In 2010, the FAA proposed a $24.2 million civil penalty against AMR Corp.'s American Airlines unit, alleging intentional maintenance violations on more than 250 of its aircraft. The widespread flight cancellations and federal investigations that led to that proposed penalty sparked another high-profile test of the FAA's enforcement authority.

Two years ago, American maintained the maintenance discrepancies were minor, didn't pose any safety risks and didn't warrant the FAA's proposed penalty. The penalty remains unpaid and in limbo, despite extensive discussions between the company and the FAA. 


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