Gapping up
In reaction to strong earnings/guidance:
- QD +4.3%
M&A news:
- AMID +30.3% (to be acquired by ArcLight Energy Partners for $5.25/unit in cash)
- WP +9.2% (to be acquired by Fidelity Nat'l Info (FIS) for approximately $43 bln in cash & stock)
- DB +5% (Deutsche Bank is reviewing strategic options and confirms discussions with Commerzbank)
- COTY +2.4% (Board unanimously recommends JAB Holding tender offer at a price of $11.65 per share in cash) .
Select China related names showing strength:
- YNDX +2.8%, WB +2.1%, MOMO +1.6%, TAL +1.5%, JD +1.3%, BABA +1.1%, .
Other news:
- PHAS +121.8% (announced that results from the Phase 1 clinical trial of PB2452 demonstrated that PB2452 provided immediate and sustained reversal of ticagrelor antiplatelet effects without report of drug-related serious adverse events)
- DERM +68% (positive results from a Phase 2b dose-ranging study of lebrikizumab)
- TORC +14.2% (positive end-of-Phase 2 meeting with FDA and planned initiation of global phase 3 program for RTB101)
- EW +7.9% (reports SAPIEN 3 Valve proves superior to surgery in Partner 3 Trial; results published in the New England Journal of Medicine)
- ARWR +4.6% (submits IND to FDA for adaptive Phase 2/3 trial of ARO-AAT for alpha-1 antitrypsin deficient liver disease)
- PLUG +4.1% (responds to Seeking Alpha article; says co has reported this in current liability as a transparent reflection of what the company is doing)
- CLVS +3.5% (to present data from post hoc exploratory analyses from the ARIEL3 Phase 3 clinical study of Rubraca)
- MAR +2.2% (will outline its plan to add between 275,000 and 295,000 rooms by 2021; sees FY21 EPS in line with estimates)
- CS +2% (in sympathy with DB) SAN +2% (in sympathy with DB)
- RBS +1.5% (in sympathy with DB)
- MNK +1.5% (appoints CFO)
Analyst comments:
- HIIQ +5.4% (upgraded to Buy at B. Riley FBR)
- OKTA +3.2% (upgraded to Buy from Neutral at Goldman)
- CARG +2% (resumed with a Buy from a Neutral at Goldman)
- ADNT +1.8% (upgraded to Sector Weight from Underweight at KeyBanc Capital Markets)
- DLPH +1.7% (upgraded to Sector Weight from Underweight at KeyBanc Capital Markets)
- ELAN +1.2% (upgraded to Buy from Neutral at BofA/Merrill)
- EXEL +1.1% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
- DG +1% (upgraded to Overweight from Equal Weight at Barclays)
Early premarket gappersGapping up:
- TENX +17.2%, PLUG +6.8%, SM +4.8%, EW +4.6%, CLVS +3.9%, DB +3.5%, MT +3.1%, TTM +3%, YNDX +2.5%, SBGL +2.4%, MOMO +2.2%, TLRD +2.2%, WB +2%, CS +2%, CHL +1.9%, SAN +1.8%, BBL +1.8%, RIO +1.8%, TAL +1.5%, UNFI +1.4%, AEG +1.3%, JD +1.2%, RBS +1.2%, SQ +1.2%, BABA +1%, AU +0.6%
Gapping down:
- SYNA -17.8%, HUN -4.9%, BA -3%, BIOS -2.5%, ING -2.5%, HMY -2.5%, VALE -1.9%, LIN -1%, SHOP -1%, DIS -0.9%, SLB -0.9%, TEVA -0.8%, ASML -0.7%
Apple’s Big Spending Plan to Challenge Netflix Takes Shape
Apple is coming to Hollywood.
Delete that.
Hollywood is going to Apple.
On March 25, a delegation of producers, studio executives and big-name actors will enter the subterranean 1,000-seat Steve Jobs Theater in Cupertino, Calif., for one of those Apple showcases, with the chief executive, Tim Cook, commanding the stage before a crowd of loyalists.
This time around, the focus won’t be on the next must-have device. With iPhone sales showing signs of fatigue, the event is intended to draw attention to the company’s billion-dollar-plus bet on entertainment, an initiative that will put Apple in direct competition with Netflix, Amazon and HBO.
The premiere date for the service is getting closer, with the first of a dozen or more shows likely to start streaming before the year is out. At next week’s presentation, Apple is expected to reveal details of what it has been working on with stars from both sides of the camera like Reese Witherspoon, Jennifer Aniston, Brie Larson, Jason Momoa, Octavia Spencer, J.J. Abrams, M. Night Shyamalan and Steven Spielberg.
The tag line, “It’s show time,” appeared prominently on the invitations. For many of the show business people, this will be their first trip to Cupertino, the corporate home of their new patrons.
Apple didn’t need stars before, but it needs them now. Although the company was the first publicly traded American firm to be valued above $1 trillion, its most recent earnings report showed flat profits and falling revenue.
So the plan now is not only to sell devices, but to fill them with content. That has led the company into the alien territory of Hollywood, where local customs can clash with Silicon Valley folkways.
Apple is a relatively late arrival to streaming. Netflix, Amazon and Hulu have offered original programming for several years and are now formidable presences at the Emmys. In 2018, there were nearly 500 scripted television shows available in the United States, with Netflix spending at least $8 billion on new content. Amazon, the Walt Disney Company and Warner Media have increased their programming budgets to keep pace.
Apple has decided to put more emphasis on its services — think Apple Music and Apple Pay — to increase revenues. The strategy will include an expansion of Apple News, which is expected to be highlighted at the showcase, and the star-studded streaming service. Apple has negotiated with the likes of HBO, Starz and Showtime to populate its screens, Bloomberg has reported, but the centerpiece will be original programming.
The event at the Apple Park campus in Cupertino is also meant to drive home — for iPhone fans and anyone in Hollywood who hasn’t been paying attention — just how many shows Apple has pulled together. Five series have completed filming. Around a half dozen more are on the verge of wrapping production, according to several people familiar with the shows who were not authorized to speak publicly. And the number of original productions is expected to increase in 2020.
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With all that new material, Apple will transform itself, seemingly overnight, from a tech giant into a more general enterprise, with a slate of original entertainment offerings sizable enough to put it in a league with Showtime, Hulu or FX.
Interviews with more than a dozen people who have had dealings with Apple, all of whom said they couldn’t speak publicly about private discussions, suggest that, while the producers and stars appreciate having another deep-pocketed company to pitch, they also have … well, let’s call them concerns.
Those concerns have arisen from the culture clash that may inevitably come about when a tech company that is used to guarding its trade secrets gets involved in show business, which runs on a stream of conversation, much of it of the just-between-us variety.
Players expect to be kept in the loop. But many of the people working with Apple said they have received little or no information on how, exactly, their shows will be released. Or even when they will be released, other than a vague assurance of “later this year, probably fall.” They also don’t have a clear idea of Apple’s marketing plans for the shows. Or what their colleagues in the newly built Apple stable are up to.
Apple’s entertainment team is based in Culver City, Calif., historically a center of moviemaking. It is led by two former Sony television executives, Jamie Erlicht and Zack Van Amburg, under the watch of the senior vice president of internet software and services Eddy Cue. Mr. Cue hired the Sony veterans in 2017, after Apple rolled out its first original series, a reality show called “Planet of the Apps,” which was a dud. About $1 billion was set aside for them to spend on programming, and they have blown well past that amount by now.
While Apple may be a late arrival to the streaming party, its showcase will take place two and a half weeks before Disney is expected to preview elements of its new streaming platform, and many months before Warner Media provides details of its version.
Apple’s entertainment team has not been totally opaque. It has provided feedback to individuals involved in the shows, but it has been tight-lipped about the marketing and rollout plans. The March 25 event may allay Hollywood’s concerns, but several people involved in the new programs have interpreted the lack of communication as a sign that there may not be a clear game plan.
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People involved in the coming series also said that Apple executives had expressed squeamishness when it comes to the portrayal of technology in the shows — how exactly are you using that iPhone? Or that Mac laptop?
Apple was sensitive to a reputation it earned, early on, as a home for uplifting programming, with little or no room for the gritty antihero fare that has defined many critically acclaimed series over the last two decades, from “The Sopranos” onward. Executives at the company bristled when they discovered there would be scenes involving crucifixes in Mr. Shyamalan’s new thriller for the service, as The Wall Street Journal reported in September. But Apple ultimately allowed the crucifixes to remain, according to two people familiar with the series.
Apple had no comment on any aspect of its streaming plans.
Hollywood’s concerns have not prevented big names from making deals with the company. In all, Apple has ordered roughly two dozen series from the likes of Oprah Winfrey, Damien Chazelle, Chris Evans and others.
The producer J.J. Abrams has two Apple series in the works, one with Jennifer Garner, who played the lead in the Abrams-produced ABC series “Alias,” and a musical show starring the singer-songwriter Sara Bareilles that is about to go into production.
Apple has also given the green light to animated “Peanuts” specials and children’s shows made with Sesame Workshop, and it plans to round out its offerings with films it has acquired recently at Sundance and the Toronto International Film Festival.
The First Apple Lineup: A Preview
Here are the projects that have either completed filming or are nearing their wrap dates. They are the likeliest to appear in Apple’s first wave of shows.
Untitled Series With Reese Witherspoon and Jennifer Aniston
Apple’s splashiest project is a behind-the-scenes series about a morning TV show. The company committed itself to two full seasons before seeing a script. Along with Ms. Witherspoon and Ms. Aniston, who are also producers, the cast includes Steve Carell, Billy Crudup and Mark Duplass. The series had some backstage drama last year, when its showrunner, Jay Carson, Hillary Clinton’s former press secretary and a supervising producer of “House of Cards,” was replaced by Kerry Ehrin, the co-creator of A&E’s “Bates Motel.” Brian Stelter, the CNN host and author of the 2013 book, “Top of the Morning: Inside the Cutthroat World of Morning TV,” serves as a consultant. Shooting for season one is nearly done.
“Amazing Stories,” a Steven Spielberg Reboot
Revival of the NBC series of the same name. After its own showrunner problems — the original producer’s vision was too dark for almost everyone involved, including Mr. Spielberg — Edward Kitsis and Adam Horowitz, the duo behind the ABC series “Once Upon a Time,” took over. Expected to wrap soon.
“Are You Sleeping?” a Mystery Starring Octavia Spencer
A drama featuring the prolific Academy Award winner in the lead role, “Are You Sleeping?” is based on a crime novel by Kathleen Barber that featured a cold case and a sleuth with a podcast. According to Ms. Spencer’s Instagram account, shooting finished late last year.
“For All Mankind,” a Ronald D. Moore Sci-Fi Series
This space drama from the producer of the cult-favorites “Outlander” and “Battlestar Galactica” is a alternate-history look at what would have happened if the global space race had continued. This one is in the can.
“See,” With the “Aquaman” Star Jason Momoa
A fantasy epic starring the “Aquaman” star (please note, the series is not called “Sea”) that poses the question, What would happen to humanity if everyone lost their sight? Also with Alfre Woodard, who has been in everything from “Scrooged” to “Luke Cage.” Now shooting.
A New Shyamalan Thriller
A thriller from the maker of “The Sixth Sense” and “Glass” starring Rupert Grint, Lauren Ambrose and Nell Tiger Free. The story is a secret. Filming has come to an end.
“Little America,” From the Writers of “The Big Sick”
An anthology series focused on stories of immigrants coming to the United States. Produced by Lee Eisenberg (“The Office”) and the husband-and-wife screenwriting duo behind “The Big Sick,” Kumail Nanjiani and Emily V. Gordon. Now shooting.
A Comedy From the “It’s Always Sunny in Philadelphia” Duo
Rob McElhenney and Charlie Day, the stars and producers of the long-running FX and FXX sitcom. It’s done.
“Central Park,” a Cartoon Musical
An animated series — with songs! — from the “Bob’s Burgers” creator, Loren Bouchard, the “Frozen” voice actor Josh Gad and the producer Nora Smith. Should be finished in the next few months.
“Home,” From the Documentary Filmmaker Matt Tyrnauer
An unscripted series from the maker of “Scotty and the Secret History of Hollywood” and “Studio 54” that will take viewers inside lavish homes owned by non-celebrities. Expected to be finished in a few months.
“Dickinson,” an Emily Dickinson Comedy
A new spin on the reclusive poet of Amherst, Mass., from the playwright Alena Smith, who has written for Showtime’s “The Affair” and displayed her comedy chops with the cult Twitter account @TweenHobo and the 2014 novel “Tween Hobo: Off the Rails.” It stars Hailee Steinfeld, of “True Grit” and “Bumblebee,” as the title character, and the “30 Rock” alumna Jane Krakowski as her mother. Shooting is done.
U.S. Campaign to Ban Huawei Overseas Stumbles as Allies Resist
WASHINGTON — The Trump administration’s aggressive campaign to prevent countries from using Huawei and other Chinese telecommunications equipment in their next-generation wireless networks has faltered, with even some of America’s closest allies rejecting the United States’ argument that the companies pose a security threat.
Over the past several months, American officials have tried to pressure, scold and, increasingly, threaten other nations that are considering using Huawei in building fifth-generation, or 5G, wireless networks. Mike Pompeo, the secretary of state, has pledged to withhold intelligence from nations that continue to use Chinese telecom equipment. The American ambassador to Germany cautioned Berlin this month that the United States would curtail intelligence sharing if that country used Huawei.
The warnings stem from the United States’ concern that Huawei and other Chinese telecom companies are a significant security threat given Beijing’s control over the industry. Top officials have pointed to new Chinese security laws that require Huawei and other companies to provide information to intelligence officials, arguing China could gain access to the vast amounts of data that will ultimately travel over 5G, allowing Beijing to spy on companies, individuals and governments — an accusation Huawei has vehemently denied.
But the campaign has run aground. Britain, Germany, India and the United Arab Emirates are among the countries signaling they are unlikely to back the American effort to entirely ban Huawei from building their 5G networks. While some countries like Britain share the United States’ concerns, they argue that the security risks can be managed by closely scrutinizing the company and its software.
The decisions are a blow to the Trump administration’s efforts to rein in Beijing’s economic and technological ambitions and to stop China from playing a central role in the next iteration of the internet.
American government officials are now looking for other ways to curb Huawei’s global rise without the cooperation of overseas allies, including possibly restricting American companies from supplying Huawei with key components that it needs to build 5G networks across the world.
“It is looking dicey. We are running out of runway,” said Mike Rogers, the former Republican congressman who led the House Intelligence Committee and who has long been a fierce critic of Huawei.
The United States is not ready to admit defeat, but its campaign has suffered from what foreign officials say is a scolding approach and a lack of concrete evidence that Huawei poses a real risk. It has also been hampered by a perception among European and Asian officials that President Trump may not be fully committed to the fight.
Mr. Trump has repeatedly undercut his own Justice Department, which unveiled sweeping criminal indictments against Huawei and its chief financial officer with accusations of fraud, sanctions evasion and obstruction of justice. Mr. Trump has suggested that the charges could be dropped as part of a trade deal with China. The president previously eased penalties on another Chinese telecom firm accused of violating American sanctions, ZTE, after a personal appeal by President Xi Jinping of China.
Those moves have only deepened concerns that the administration’s fight against Huawei is not really about national security and instead reflects its political and economic ambitions.
European and Asian officials have complained privately that recent American intelligence briefings for allies did not share any sort of classified information that clearly demonstrated how the Chinese government used Huawei to steal information, according to people familiar with the discussions. European officials have told counterparts that if the United States has evidence the Chinese government has used its companies to do so, they should disclose it.
One senior European telecommunications executive said that no American officials had presented “actual facts” about China’s abuse of Huawei networks.
Ren Zhengfei, the founder of Huawei, has accused the United States of having political motivations in leveling criminal charges against the company and has said the firm does not spy for China.
Unlike the United States, European wireless networks are much more dependent on Huawei, so banning its equipment would be far more consequential. Many of the leading carriers, including Vodafone and Deutsche Telekom, use the company’s equipment, and a widespread ban would result in costly changes that executives have warned may delay the debut of 5G in the region.
Garrett Marquis, a spokesman for the National Security Council, said the United States continued to work “with our allies and like-minded partners to mitigate risk in the deployment of 5G and other communications infrastructure.”
Mr. Rogers said the notion that other nations could adequately manage the security risk was misplaced. “They are so convinced they can get over the security problem. It defies logic,” he said.
But he said Mr. Trump had not helped his administration’s efforts by suggesting that a national security matter like Huawei could be wrapped into some type of trade pact with China.
“That is a big mistake,” Mr. Rogers said. “You have taken a national security issue and given it away in a trade deal. This is about the security of data.”
Europeans have their own China trade worries, which could also factor into reluctance to ban Huawei. Although European officials have grown increasingly suspicious of Beijing’s growing economic might, China is still the European Union’s second-largest trading partner after the United States. This week, Mr. Xi is scheduled to be in Italy.
“I’m not sure a ban is the solution,” said Caroline Nagtegaal, a member of European Parliament from the Netherlands who helped write a resolution on the cybersecurity risks posed by China that avoided calling for a Huawei ban. “We have to be very careful making a step like that.”
Many countries facing American pressure have not made any final decisions. In Britain, for instance, intelligence officials say the threat can be managed, but the government could ultimately overrule them.
To bolster its campaign, the administration has begun threatening retaliation against countries that do not agree to its demands.
Mr. Pompeo suggested in Hungary that the presence of Huawei could influence decisions on where to station troops overseas, noting that its adoption in wireless networks would make it “more difficult for America to be present.” He followed up on Fox Business Network, saying if countries adopted Huawei technology, the United States “won’t be able to share information” with them.
The American ambassador to Germany, Richard Grenell, expanded on Mr. Pompeo’s public messaging with a letter to Berlin, warning of repercussions should it use Huawei. The letter was first reported by The Wall Street Journal.
Chancellor Angela Merkel of Germany quickly shot back, saying her country was “defining our standards for ourselves.”
Andrea Kendall-Taylor, a former American intelligence officer who is now the director of the Transtlantic Security Program at the Center for a New American Security, said administration officials had wrongly framed the decision for European powers as standing with either the United States or China. Countries in Europe, including Britain and Germany, do not want to make that choice, and instead want to maintain good trade relations with China.
“The U.S. needs to approach this not as a black and white issue,” Ms. Kendall-Taylor said. “The U.S. should avoid generating more resentment in already fraught relations with the Europeans. To manage the China challenge we will need the Europeans on our side, so we need to work together.”
The Trump administration has had some small victories, at least rhetorically. The Czech Republic’s cybersecurity agency has issued warnings about Huawei and other Chinese telecom companies, though the government remains divided over a ban. Poland earned praise from Vice President Mike Pence for its actions against Huawei, which included arresting one of its employees on espionage charges. But as Poland courts Chinese investment, it is unclear if it will embrace a full ban.
The most decisive action against Huawei by an American ally is outside Europe, where Australia last year banned the company from its 5G networks.
The administration continues to look for other ways to put Huawei at a global disadvantage, including an executive order that would prohibit American companies from using Chinese telecommunications gear in 5G networks. Intelligence and security officials are also considering a more aggressive presidential order that would prevent American companies from supplying Huawei with components that it needs to build 5G networks.
While Huawei would eventually make its own version of those components, such export restrictions could slow down the company’s 5G development, winning time for competitors to improve their own offerings.
American officials are also exploring ways to counter Huawei’s biggest advantage: its low price and financing deals. Members of Congress and administration officials have discussed ways for the United States and its allies to offset the favorable financing deals China offers for its telecom equipment. Among the options under consideration is providing some type of financing to allied telecom companies building 5G networks.
While the United States has continued to talk tough, Mr. Trump has yet to sign any executive order that would curb Huawei’s growth and his recent comments have created doubt about how far he is prepared to go.
Last month, the White House dispatched officials from the State, Defense and Commerce Departments and from the Federal Communications Commission to a wireless industry conference in Barcelona, Spain, to make the case against Huawei. But a few days before the convention started, Mr. Trump appeared to backtrack on his administration’s position, posting on Twitter that he wanted American companies to win on their merits, “not by blocking out currently more advanced technologies.”
“The administration policy on Huawei and ZTE has been characterized by fits and starts and contradictions,” said Representative Adam B. Schiff, Democrat of California, who has been a top critic of Mr. Trump. “I am not sure I can make heads or tails of it.”
American and European officials said that behind the scenes, the negotiations were far more nuanced than the public threats. Some European officials believe that privately the White House has been more receptive to their arguments that the security threat of Chinese telecom companies can be tempered.
But the efforts to cajole or pressure European powers may have come too late, say current and former European and American officials. European officials have also told their American counterparts that there is no alternative to Huawei that offers better, more secure equipment, even at a higher price.
British officials have said the risk from Huawei can be mitigated without a ban, through tough oversight and restricting Huawei to less critical parts of its networks. The British government operates a security lab where it inspects Huawei’s equipment and code for cybersecurity flaws. Last year, the inspections discovered problems with Huawei software code, but the authorities said it was not related to the Chinese government.
Germany is taking a similar approach, with Huawei opening a research center in the city of Bonn where security officials can review its products. The company has also opened a facility in Brussels.
Mark Sedwill, Britain’s national security adviser, said it was more important to focus on the security of the system, not the origin of the company that made the equipment. Criminal hackers, not the governments of other countries, remain the biggest threat, he said.
“We think we have a pretty mature approach to this that so far — through regulation, through transparency, through setting very close standards — is protecting our interests and securing economic benefits,” Mr. Sedwill said this month during a speech at the Atlantic Council.
#BREAKING: Person has opened fire in a tram in the Dutch city of Utrecht; #Netherlands; Multiple people are reported to have been injured
Prosecutors, Transportation Department Scrutinize Development of Boeing’s 737 MAX
A grand jury’s subpoena seeks broad documents related to the jetliner
A grand jury in Washington, D.C., issued a broad subpoena dated March 11 to at least one person involved in the 737 MAX’s development, seeking related documents, including correspondence, emails and other messages, one of these people said. The subpoena, with a prosecutor from the Justice Department’s criminal division listed as a contact, sought documents to be handed over later this month.
It wasn’t immediately clear whether the Justice Department’s probe is related to scrutiny of the Federal Aviation Administration by the DOT inspector general’s office, reported earlier Sunday by The Wall Street Journal and that focuses on a safety system that has been implicated in the Oct. 29 Lion Air crash that killed 189 people, according to a government official briefed on its status. Aviation authorities are looking into whether the anti-stall system may have played a role in last week’s Ethiopian Airlines crash, which killed all 157 people on board.
The subpoena was sent a day after the Ethiopian Airlines crash a week ago.
Representatives of the DOT and Justice Department couldn’t immediately be reached late Sunday. The inspector general’s inquiry focuses on ensuring relevant documents and computer files are retained, according to the government official familiar with the matter.
A Boeing spokesman declined to comment, saying the Chicago-based company wouldn’t respond to questions concerning legal matters or governmental inquiries.
The Justice Department probe involves a prosecutor in the fraud section of the department’s criminal division, a unit that has brought cases against well-known manufacturers over safety issues, including Takata Corp.
In the U.S., it is highly unusual for federal prosecutors to investigate details of regulatory approval of commercial aircraft designs, or to use a criminal probe to delve into dealings between the FAA and the largest aircraft manufacturer the agency oversees. Probes of airliner programs or alleged lapses in federal safety oversight typically are handled as civil cases, often by the DOT inspector general. The inspector general, however, does have authority to make criminal referrals to federal prosecutors and has its own special agents.
Repeatedly over the years, U.S. aviation companies and airline officials have been sharply critical of foreign governments, including France, South Korea and others, for conducting criminal probes of some plane makers, their executives and in some cases, even individual pilots, after high-profile or fatal crashes. The FAA’s current enforcement policy stresses enhanced cooperation with domestic airlines and manufacturers—featuring voluntary sharing of important safety data—instead of seeking fines or imposing other punishment.
The U.S. government scrutiny comes as Ethiopia’s transport minister, Dagmawit Moges, said there were “clear similarities” between the two crashes. U.S. officials cautioned that it was too early to draw conclusions because data from the black boxes of the Ethiopian Airlines plane still need to be analyzed.
The two crashes have sparked the biggest crisis Boeing has faced in about two decades, threatening sales of a plane model that has been the aircraft giant’s most stable revenue source and potentially making it more time consuming and difficult to get future aircraft designs certified as safe to fly.
The Transportation Department’s inquiry was launched in the wake of the Lion Air accident and is being conducted by its inspector general, which has warned two FAA offices to safeguard computer files, according to people familiar with the matter. The internal watchdog is seeking to determine whether the agency used appropriate design standards and engineering analyses in certifying the anti-stall system, known as MCAS.
The FAA said Sunday that the 737 MAX, which entered service in 2017, was approved to carry passengers as part of the agency’s “standard certification process,” including design analyses; ground and flight tests; maintenance requirements; and cooperation with other civil aviation authorities. Agency officials in the past have declined to comment on various decisions regarding specific systems. Sunday’s statement said the agency’s “certification processes are well established and have consistently produced safe aircraft.”
Earlier, a Boeing spokesman said: “The 737 MAX was certified in accordance with the identical FAA requirements and processes that have governed certification of all previous new airplanes and derivatives. The FAA considered the final configuration and operating parameters of MCAS during MAX certification, and concluded that it met all certification and regulatory requirements.”
Boeing Chief Executive Dennis Muilenburg said in a statement Sunday the company continues to support the Ethiopian investigation, “and is working with the authorities to evaluate new information as it becomes available.”
Mr. Muilenburg added: “As part of our standard practice following any accident, we examine our aircraft design and operation, and when appropriate, institute product updates to further improve safety.”
A Department of Transportation spokesman declined to comment about the investigation by the inspector general. Representatives of the office couldn’t be reached on Sunday.
Governments world-wide have grounded the MAX, an updated version of the decades-old 737, while investigators and engineers seek clues.
The Department of Transportation inquiry, which hasn’t been previously reported, focuses on a Seattle-area FAA office that certifies the safety of brand new aircraft models and subsequent versions, as well as a separate office in the same region in charge of mandating training requirements and signing off on fleetwide training programs, people familiar with the matter said.
Files and documents covered by the directive also pertain to the FAA’s decision that extra flight-simulator training on the automated system wouldn’t be required for pilots transitioning from older models, according to people familiar with the matter.
Officials in those offices have been told not to delete any emails, reports or internal messages pertaining to those topics, people familiar with the matter said, adding that the probe also is scrutinizing communication between the FAA and Boeing.
The Department of Transportation inquiry is casting a wide net for documents about potential agency lapses just as House and Senate committees prepare for public hearings in the coming weeks that are expected to grill the FAA’s senior leadership on the same topics.
The DOT inquiry is likely to raise more questions about how Boeing designed the airliner, how pilots are trained to fly it and the decisions the FAA took approving the model. The result could be changes to how the FAA certifies aircraft models, particularly giving more scrutiny to design changes from earlier models.
The FAA is moving to require more extensive training on the anti-stall system than Boeing had been championing, according to people familiar with the deliberations. The more-robust instruction, consisting of pilots engaging in self-guided instruction on a laptop computer, would include more details and require more time to complete than reading a handout, according to people familiar with the matter. Boeing has been advocating comparatively limited training, the people said, consisting of new, written materials aviators would receive explaining operation of the automated stall-prevention feature—and how to respond if it malfunctions.
The investigation is the latest problem for a plane that was born in a different kind of corporate emergency, according to industry officials and engineers close to the company: an urgent need in 2011 to create a relatively small, fuel-efficient jetliner that could compete with a model from rival Airbus SE that had swiftly gained traction among customers. A person familiar with Boeing’s development of the plane said the company didn’t rush the project, which had been on the drawing board for some time then.
To meet the marketing and financial imperatives of speedy FAA certification, Boeing needed to build a plane that would handle basically the same as earlier versions of its 737. From the outset, that was a regulatory requirement in order to obtain certification as a so-called derivative model, which would translate into a significantly faster approval process and traditionally less FAA scrutiny of certain systems.
The automated anti-stall system, called the maneuvering characteristics augmentation system, initially was intended to assist cockpit crews in the unlikely event that high-altitude, high-speed maneuvers suddenly pushed up the nose more than aviators anticipated. The goal was to make cockpit controls behave the same as they did in previous models, even though behind the scenes the automated system was doing much of the work.
But as the engineering effort and flight tests progressed, according to industry and FAA officials familiar with the process, the Boeing team saw the same feature as a potentially important safety net for a different hazard highlighted in previous crashes: lower-altitude stalls in which startled pilots mistakenly pulled back on the controls and sometimes crashed aircraft. FAA officials also recognized the potential benefits and approved the system as part of the overall MAX approval.
Outside experts now contend both Boeing and the FAA underestimated the accompanying risks—and installed a system that wasn’t highlighted in manuals or pilot training.
The FAA’s green light, according to safety experts and former agency officials, came in part because earlier versions of the 737 had proved so safe.
During some of the discussions with the FAA, according to people familiar with the matter, Boeing’s team persuaded the agency that the system shouldn’t be considered so essential that its failure could result in a catastrophic accident. As a result, it would be acceptable for the system to rely on a single sensor. In the Lion Air crash, investigators believe, faulty data sent by a single sensor led the MCAS system to erroneously push the plane’s nose down steeply, triggering a fatal plunge into the ocean.
The MAX’s grounding threatens Boeing’s ability to generate cash with plane deliveries halted. Boeing, which has been minting 737s at an unprecedented clip of 52 planes a month, plans to reach 57 planes monthly this year.
The 737 has been a cash cow for Boeing since shortly after it entered service in 1967. Last year, Boeing delivered to Southwest Airlines Co. the 10,000th 737 to roll off its production line in Seattle. It was an industry record for any airliner. The company has a backlog of more than 4,600 of the planes airlines have ordered and yet to receive.
Boeing was toying with a new plane to replace the 737, launched in 1967, and had engineers working on the new plane concept. While many airlines liked the idea, existing 737 customers didn’t want to retrain their pilots at huge cost and so lobbied for an updated, more-efficient 737 they could also get faster and more cheaply.
Then in 2011 Boeing learned that American Airlines , one of its best customers, had struck a tentative deal with Airbus for potentially hundreds of A320neo planes to renew its short-haul fleet. American invited Boeing to make a counter-offer. Boeing realized it needed to act fast, and offered what would become the MAX.
A senior Boeing executive said late Sunday the MAX was the company’s clear choice from options including a new airplane or a re-engine of the 737 NG. “The decision had to offer the best value to customers, including operating economics as well as timing, which was clearly a strong factor,” this executive said, noting the company embarked on a six-year, consistent and methodical development program.
American eventually bought 260 Airbus planes and agreed to take 200 upgraded 737s from Boeing.
To win customers, and avoid more defections to Airbus, Boeing also made commitments that there would be minimal requirements for new pilot training, which can be costly to airlines, especially if expensive flight-simulator sessions are needed, according to people familiar with the matter. So Boeing tried to minimize differences from its existing fleet. Pilots were never specifically trained, for instance, on the MCAS system. There remains disagreement among U.S. pilots about whether such additional training was necessary since an existing procedure would disable the system.
Boeing has said it developed the MAX’s training and manuals as part of its normal process and its aim was to provide information pilots needed to safely operate the aircraft. The FAA approved the manuals and training.
Rick Ludtke, a former Boeing flight deck design engineer who worked on the MAX but wasn’t directly involved with the MCAS system, said managers applied significant pressure to keep costs low and timetables quick.
“The pressure was incredible to be fast” to keep pace with Airbus, Mr. Ludtke said.
A former senior Boeing official recalled a “healthy urgency that comes from competition” in producing the MAX, but no “undue pressure on the design or the team.”
The senior Boeing executive added: “Safety is our highest priority as we design, build and support our airplanes.”
A Boeing spokesman didn’t immediately respond Sunday to a request for comment about the former Boeing engineer and official’s recollections.
Boeing started building the first MAX in June 2015.
Re-Establishment of the truth after the TIM Board of Directors Meeting (update)
Vivendi (Paris:VIV) denounces the behavior of the Elliott-nominated Telecom Italia (TIM) Board members who yesterday rejected by a majority vote the report issued by the company’s Board of Statutory Auditors, a totally independent body, citing serious irregularities related to the company’s governance and its Board. The supplemental report adopted by the Board yesterday for purposes of the AGM to be held on March 29th in fact fails to mention several acts of serious misconducts by the Chairman and the lead independent director, who did not inform all independent directors in the same manner and were clearly selective in their interactions. Even the proxy advisory firms acknowledged the misconduct of the Elliott-nominated Board members and its Chairman based on the findings of the Statutory Auditors report.
Vivendi urges the Statutory Auditors and Consob to exercise their respective powers to further investigate the findings contained in the initial Statutory Auditors report. A series of governance questions remain unanswered today:
- Why did the Chairman organize the preparatory meeting concerning the dismissal of Amos Genish with the sole participation of the ten Board members designated by Elliott?
- As widely reported by the Italian press, why did at least one preparatory meeting take place in the presence of only the ten Board members nominated by Elliott prior to the November 18, 2018 Board meeting?
- Did the Chairman have any contact with any of Elliott’s representatives before or after the Board meetings of the 13th and 18th of November?
- What was discussed at the meeting between the Chairman and the representatives of at least one minority shareholder that occurred on the 12th of November 2018?
- What were the criteria used in the selection of the legal advisor for a decision as important as the dismissal of the CEO when it was well known that the same law firm has represented Elliott in the past and even sued TIM in recent months?
- Does the Chairman believe he still has the confidence of the minority Board members, the Board of Statutory Auditors and the market?
- Has the Chairman considered stepping down from the Board, in light of the findings of serious breaches in his duties that have emerged from the Report of the Board of Statutory Auditors?
The Board of Directors’ decision yesterday to “self-police” reinforces Vivendi’s belief that TIM shareholders must install a truly independent board. A neutral Board of Directors would restore the appropriate governance conditions to allow for proper stewardship of the company for the benefit of all shareholde