Earlier this week, Boeing fired CEO Dennis Muilenburg, pledging to repair relationships with customers and regulators. It might not be at the top of the list, but Boeing’s next leader will also need to patch up an escalating issue with a long-time supplier.
Leonardo, an aerospace and defense giant based in Italy, filed a lawsuit Monday against Boeing, just hours after Muilenburg’s termination. Leonardo claims Boeing suddenly took issue earlier this year with parts it has supplied for decades, charging tens of millions in repair costs. Boeing has allegedly refused to pay invoices for other parts Leonardo has supplied, in a breach of contract, according to the suit.
Leonardo has made slats — aerodynamic surfaces on the edges of wings that slow planes down and help them take off and land in shorter distances — for Boeing 767 planes since 1979, per the lawsuit. In June, Boeing reported several issues with the slats for the first time, including minor scratches and “foreign object debris.”
Boeing repaired the slats, according to the suit, and then sent Leonardo a bill for close to $26.2 million. Boeing allegedly pledged to withhold payments on other invoices from its long-time partner until the bill got paid in full.
In court documents, Leonard said it bills Boeing roughly $20 million per year for slats.
“This means that, under Boeing’s current claim that it has the right to set off $26 million against Leonardo’s future invoices, Leonardo would be forced to produce slats for Boeing at no cost for more than one year,” according to court documents.
Boeing escalated the dispute earlier this month when it warned Leonardo of plans to send a second invoice for slat repairs and “collateral impact” totaling $33 million, according to court documents.
Leonardo argues in the lawsuit that Boeing is on the hook for any repairs because the issues are the result of its “outdated and/or defective design drawings and industrialization processes.” Boeing had never complained about minor issues in slats before, the suit says.
“Boeing has always been responsible for the design drawings and specifications which have produced the allegedly ‘nonconforming’ slats at issue, and either knows, or should have known, that such designs are susceptible to producing what are, at most, minor scratches and residue inside an enclosed chamber in the slats,” according to the suit.
Boeing declined to comment on the suit.
Leonardo is asking the court to declare Boeing responsible for the slat repairs and force it to resume paying invoices. Leonardo seeks to recover approximately $24 million in costs for products that Boeing “improperly rejected,” and additional damages due to the impact the dispute has had on its financial situation.
The two companies have a long history together, and a strained relationship with an important supplier could add to Boeing’s current problems. In addition to their longstanding parts relationship, Boeing and Leonardo last year won a $2.4 billion contract to build 84 new helicopters for the U.S. Air Force.
Last year, Leonardo brought in €12.2 billion in revenue ($13.55 billion U.S.). It has more than 46,000 employees across the globe, including more than 6,000 in the U.S.
This developing struggle comes at a critical time for Boeing. Muilenburg was fired this week amid continued fallout over two 737 MAX crashes last year that killed hundreds of passengers. Boeing CFO Greg Smith will serve as interim CEO until Jan. 13, when David Calhoun, the company’s current board chair will take over the chief executive job.
Reaction to the leadership change has been largely positive. Calhoun will have a tall task ahead: Repairing the company’s image from the 737 MAX crisis while re-focusing on beefing up its technology.
Leonardo vs. Boeing by Nat Levy on Scribd
