Duty to disclose: The law or just good public relations?

 - July 28, 2008, 10:27 AM

If you had just bought a $23 million corporate jet, do you think the manufacturer would tell you if it knew the airplane had a potentially dangerous mechanical problem? When a dozen professional pilots were asked that question, each responded in the affirmative. “Of course–the OEMs are required by law to disclose that sort of thing,” one said. But the truth isn’t quite so simple.

Would your CEO think his multi-million-dollar investment entitled him to a heads-up if the OEM knew there was something wrong with the aircraft? David Wetherell certainly would have thought so–if he’d given it any thought at all, which he hadn’t.

Wetherell is an investor in Internet startup companies. He helps build them and then either sells them or takes them public. Wetherell decided he needed a corporate jet to enhance his business. His research indicated that a Challenger 604 was the right airplane for him, so he set up Kittredge Aviation as a holding company and in September 1999 he signed a purchase agreement for a new Bombardier Challenger 604. He took possession of the $23 million finished aircraft on Feb. 8, 2001.

Less than two months later–on April 1–Wetherell was in the aircraft en route to his home in Massachusetts from St. Thomas, U.S. Virgin Islands. According to the crew, the aircraft had been cruising at FL410 feet for approximately one hour and fifteen minutes at 240 kias when the engine indication and crew alert system indicated fluctuating oil pressure and increasing oil temperature in the left engine and then sounded an alarm.

The alarm triggered a recorded engine-failure warning, waking Wetherell, who was resting in the back of the aircraft. The crew initiated an in-flight engine shutdown per the aircraft flight manual and declared an emergency to ATC. The aircraft was over the Atlantic Ocean and 300 miles from the nearest airport. ATC directed the aircraft to Islip, N.Y., for an uneventful emergency landing attended by a complement of crash and rescue vehicles. Wetherell was understandably concerned.

A General Electric Aircraft Engines representative was dispatched, but his troubleshooting found no discernible reason for the problem. He replaced the lube pump and oil with Aeroshell 500 per the engine manual fault isolation recommendation. The pump was tested and no discrepancies found. A test flight was completed on April 4 with GE and Jet Aviation representatives on board to ensure no further problems. (Kittredge Aviation had an established arrangement with Jet Aviation to maintain the aircraft.) The flight lasted more than 4.5 hours, of which more than two hours were flown at FL410. The flight was uneventful and the aircraft was returned to service.

On May 4, Gordon Fraser, GE Small Commercial Engine Operations’ Bombardier programs manager, wrote to Wetherell, “Just a short note to extend General Electric Company’s apologies for the inconvenience caused to Kittredge Aviation as a result of your in-flight shutdown. General Electric Company is aggressively pursuing the cause of this unfortunate event. I want to assure you that I am personally aware of the situation and will work with our team to understand the cause of the event and provide follow-up to Jet Aviation.” Wetherell had been shaken by the incident but was reasonably reassured. However, the reassurance was short lived.

Another Warning

On May 11, Wetherell was returning to Bedford, Mass., from the West Coast with his 12-year-old son on board. The aircraft had been level at FL410 for almost 14 minutes at 225 kias when once again there was a low oil pressure warning and rising oil temperature–this time in the other engine. The crew reduced power and descended to FL330, but the warning persisted, so another in-flight shutdown was performed and the aircraft diverted to Chicago O’Hare.

Again a GE rep was dispatched, the lube pump was replaced, the oil was switched from Aeroshell 500 to Exxon 2380 and the aircraft returned to Bedford. Oil samples were taken and analyzed, a Jet Aviation rep and GE rep witnessed the pump test at a vendor and no discrepancies were found. GE’s recommendation was the installation of an A-sump pump kit on both engines for additional scavenge margin.

On May 23, Fraser wrote another letter to Wetherell: “Please allow me the opportunity to apologize again, on behalf of GE, for your recent engine in-flight shutdowns experienced on your CF34-3B engines. As we discussed before, in-flight shutdowns are very rare. This is small comfort when you have experienced two such events within a month on your aircraft.”

Enclosed with the letter was a copy of a document titled, “CF34 Engine Topics note to all CF34/Challenger Operators.” Fraser explained the document “was prompted by your recent experience and is intended to address your questions regarding our understanding of the events, the background and proposed action plan.”

The document said: “Based on GE’s experience with the CF34 fleet and our investigation of the subject of [in-flight shutdown] events, we have concluded that the cause of the events is engine oil scavenge system variability. In infrequent instances, as occurred on the subject aircraft when flying at altitudes above 35,000 feet, engine oil scavenge system variability may result in insufficient margin in the aft accessory gearbox scavenge pump element, resulting in low, and frequently accompanied by fluctuating, oil pressure at altitudes in excess of 35,000 feet. GE plans to release this new pump design to the field after successful completion of the qualification program, including flight-testing.

“The small number of events experienced have occurred only in CF34 engines configured without A-sump pumps. The CF34 is a derivative of the military’s TF34 engine, which, because of more stringent mission requirements, required an A-sump scavenge pump to scavenge the A-sump during climb and dive attitudes. As a derivative, the original CF34 engine configuration included A-sump pumps. However, bizjet and regional jet missions do not require a separate A-sump scavenge pump to meet their mission requirements. Therefore, after completion of both successful rig testing and limited aircraft flight testing, a new configuration without the A-sump pump was introduced on CF34-3A1 engines ESN 807495 and CF34-3B engines ESN 872174 and up. The elimination of the A-sump pump has provided improved maintainability, reduced complexity and reduced weight benefits.”

Fraser went on to explain: “As the engine configuration with the A-sump pump kits has demonstrated sufficient scavenge capability, based on your experience, we are offering to convert your engines to incorporate the A-sump pump kits.”

The letter also says, “Before these two events, an event of this type has never been reported on an in-service Challenger aircraft using currently approved oils. There have been infrequent occurrences under similar conditions in the regional jet fleet.”

According to a June 25, 2001 internal GE document obtained by Wetherell’s attorney, “CF34-3 Low Oil Pressure At High Altitude Review,” the A-sump scavenge pump was removed from the CF34-3 configuration in May 1997. The report included the following notations:

• The first high-altitude loss of oil-pressure event was reported in May 1998.

• A second reported event occurred in February 1999, and six more were reported through October 1999.

• An engineering investigation was initiated in November 1999.

• Five of eight initial events were attributed to the oil used. Mobil 254 was more likely to foam and reduce scavenge margin. This oil was removed from the approved oil list in aircraft and engine manuals.

• Analysis indicated that the forward-to-aft accessory gearbox scavenge split was different from the 60/40-percent split used to substantiate the A-sump pump removal.

• GE initiated the pump redesign to improve the aft-altitude accessory gearbox scavenge margin.

• A Service Bulletin for service evaluation of the P06 pump was issued on Oct. 24, 2000.

• A new pump P06 field evaluation was initiated in March 2001. GE planned to introduce the new pump in production in the fourth quarter of 2001.

Wetherell thought somebody at Bombardier or GE should have mentioned the problem before his April 1 flight, and attorney David Bunis agreed.

According to Bunis, a partner of Dwyer & Collora of Boston, which represented Wetherell, “GE knew there was a high-altitude, low-pressure defect shortly after the September 1999 purchase and long before the aircraft was built, but didn’t disclose the defect until Wetherell had experienced two in-flight shutdowns,” he told AIN in a pre-settlement interview.

Problems Emerged Earlier

But even before June 2001, GE was obviously aware there were issues about the engine. In a Jan. 12, 2000 internal GE e-mail from Richard Turner, a support engineer on the CF34 program, to Fraser, Turner wrote, “The…investigation of [low oil pressure]/fluctuations at altitudes above 37,000 feet is complete and a most probable root cause has been assigned. As this is an agenda item for the Bombardier/GE task team, I would like to share information with them. Unfortunately, there is no scheduled leadership review prior to next Wednesday’s Montreal meeting. I’ve summarized the important findings, conclusions and recommended actions below. Even though…TOPS 8D team members [were] in full agreement with these conclusions and actions, I want feedback from you both as to what I can tell Bombardier.”

TOPS 8D–Team-Oriented Problem Solving, Eight Disciplines–refers to a systematic method to describe, analyze, solve and prevent the recurrence of problems. It is a tool often used to find the root cause of a problem that develops in the latter stages of the development and testing of new aircraft to determine why the problem was not found earlier.

The January 2000 memo detailed the following:

Documented events on eight CF34-3B/3B1 engines…(possibly one other at Montreal flight test). Four of these (one repeated the next day) used Mobil 254 oil; the other 4 (or 5) used another Type II oil. Most (probably all) of these events occurred during the first few times the A/C saw high altitudes for extended time. Oil pressure steadily decreased while wide fluctuations were experienced, but tank oil level is acceptable on ground.

“TOPS 8D conclusions: Root cause is gulping (oil hiding) in the [accessory gearbox] due to aft scavenge pump element marginal capacity versus demand. Pump capacity drops rapidly at higher altitudes and engine variation causes some to have higher aft [accessory gearbox] oil flow. Statistically, Mobil 254 aggravates the problem. This may be due to a deaeration/foaming property at lower pressures.

“Recommended actions: Delete Mobil 254 from the approved oil list and test all new oils for deaeration/foaming properties before approval. Options to match the [accessory gearbox] fwd and aft scavenge pump capacity more optimally with the oil flow demands.”

Responding to Turner’s memo the same day, Anthony Scianna, another CF34 program support engineer and one of several GE employees who received copies of the memo, wrote, “I’d worry about sharing this at this early stage. I don’t know how much they already know but I’d say they will get all over GE’s case if you give this info, force us to do a rapid fix/retrofit (whatever it is) and they’d issue a message to the field saying to fly below some damn altitude because GE has a problem with (its) scavenge system. I suggest we do a little more internal staffing before we dump this turd on the table. I think we need our own plan and the resolve to push for it before we give them yesterday’s TOPS 8D results.”

In a June 28, 2001 letter to Wetherell, Bombardier’s Remy St. Martin, director of customer action center for business aircraft, wrote, “Two new engines, with A-sump pump configuration, will be available for installation the week of July 16, 2001. Arrangements need to be made directly between Jet Aviation/Kittredge Aviation and GE at your earliest convenience prior to your August need date. You are also given the option to install (free of charge) two P06 pumps, 24 months after the pumps become available.” Long before then, however, Wetherell had been spooked and decided he wanted to return the Challenger to Bombardier.

Vote of No Confidence

On July 31 Bunis sent a letter to Bombardier. In it, he wrote:

“Mr. Wetherell has no confidence in Bombardier’s and General Electric’s shifting assurances that the aircraft is safe and reliable.

“Over the past three months Bombardier and General Electric have blamed the engine failures on (1) low oil level, (2) faulty pumps, (3) oil type, (4) “engine oil scavenge system variability” and (5) oil contamination.

“As of May 14, 2001, General Electric could not confirm that new pumps were tested to verify output at the equivalent of 41,000 feet or that the two new pumps installed on Mr. Wetherell’s aircraft were compliant to specifications. Any opportunity to investigate and understand the incidents has been precluded by Bombardier’s and General Electric’s failure to collect oil samples after either of the two engine failure incidents. Bombardier’s and General Electric’s recent statement that the engine failures resulted from something called the ‘random stacking of variables’ is jargon-laced guesswork and is cold comfort to a father and son flying [at] 41,000 feet.

“By any measure, the two engine failures substantially impair the aircraft’s integrity and render it unsuited for its intended purpose. As Attorney James Stokes indicated to you on July 6, 2001, Mr. Wetherell and Kittredge have revoked their acceptance of the defective Challenger 604 and hereby tender the aircraft back to Bombardier. Mr. Wetherell and Kittredge hereby demand a full refund of their purchase price (including the completion costs of the green aircraft) plus their net out-of-pocket expenses caused by Bombardier’s and General Electric’s unfair and deceptive business practices, including the cost of alternative means of transportation, storage and maintenance fees and attorney and consulting fees.

“If we do not resolve this matter amicably within the next 30 days, I will have the enclosed complaint (which has already been filed) served on Bombardier and General Electric and the matter will be resolved publicly in the Suffolk County Superior Court in the Commonwealth of Massachusetts.” Bombardier and GE balked and the complaint was served.

The wheels of justice being what they are, the issue dragged on. The plaintiff requested a summary judgment and GE responded in opposition this past January, saying, “What the plaintiffs fail to establish–or even allege–is that GE had a duty to disclose any information to the plaintiffs. The reason for this is obvious: GE was under no such duty– particularly given that…there was simply nothing to disclose prior to execution of the September 1999 [aircraft purchase agreement].”

It is true that the low-oil pressure incidents predating the signing of Wetherell’s purchase agreement were attributed to the foaming tendency of Mobil 254 oil. In fact, GE did subsequently make that fact public and removed Mobil 254 from its list of approved oils.

In late January, Boston’s Suffolk Superior Court denied GE’s and Bombardier’s motions and ruled that the case would go to trial on April 14, on claims against Bombardier for “revocation of acceptance” and against GE based on various breaches of warranty.

Shortly before the trial date, all parties settled for undisclosed terms. A spokeswoman for Bunis told AIN that the terms of the settlement precluded parties to the settlement from discussing it. However, she verified that Wetherell did return the aircraft to Bombardier, though the financial terms are not publicly available.

According to a Bombardier Aerospace spokesman, “We normally don’t comment on litigation. We settled out of court, we’re all quite content with the settlement, and that’s all Bombardier is prepared to say.”

A spokesman for GE Aircraft Engines said, “The substance of the internal e-mail between GE engineers [referencing the January 2000 internal e-mail memos] has been grossly misrepresented. In fact, the sender [Scianna] merely emphasized the company’s intention to gather all relevant facts and to analyze the most appropriate technical solution before briefing the airframe manufacturer. We always prefer to know all the facts before offering our customers solutions.

“In the fall of 2001, after considerable investigation and communication with the FAA, GE issued a Service Bulletin to the approximately 190 operators of Challenger 604s equipped with CF34 engines, offering to upgrade the engines’ oil pumps with an improved model at no cost to operators.

“This technical solution, as well as its implementation, was fully supported and approved by the FAA. No engine equipped with the upgraded pump has experienced a low-oil-pressure event of the type at issue in the lawsuit.

“GE follows a process for addressing technical and safety issues that meets and exceeds FAA requirements, and GE’s actions with respect to the issues in this case were consistent with this process. The court has considered and rejected all allegations of misrepresentation advanced against GE. The only claims that remain against GE involve allegations of breach of warranty.”

The issue that is noteworthy to the industry is whether a manufacturer has a duty to disclose a problem. The fine print in Bombardier’s contract says it is not responsible for anything to do with engines, and that engines are solely GE’s responsibility. According to Bunis, GE took the position that it has no obligation to inform the public of problems. In a pre-settlement interview, he said, “GE claimed it didn’t discover there was a problem until after my client ordered the aircraft. However, it was discovered before the aircraft was built.” So the question remains, does an OEM have an obligation to its customer’s safe use of the product?

What Does Part 21 Say?

According to Rich Mileham, manager of the FAA’s airworthiness safety program for the Great Lakes region, “Under FAR Part 121 it is required that an SDR [service difficulty report] be filed anytime there’s an interruption of a flight for any cause and any time there’s a mechanical problem but there’s no equivalent for Part 91 flights.” He further explained the provisions of Part 21, which covers certification procedures for parts and products.

According to FAR 21.3, regarding the reporting of failures, malfunctions, and defects, the holder of a type certificate, such as an OEM, “shall report any defect in any product, part or article manufactured by it that has left its quality-control system and that it determines could result in…(10) An engine failure.” It is worth noting that in Wetherell’s case no low-oil-pressure event actually resulted in an engine failure, but rather in crew-initiated, precautionary in-flight shutdowns to preclude possible engine damage or failure caused by insufficient lubrication.

When a manufacturer becomes aware of a problem it issues a Service Bulletin addressing the issue. SB compliance is mandatory only if it is associated with an Airworthiness Directive. ADs are issued by the FAA based on SDRs, SBs or an accident investigation recommendation by the NTSB or FAA.

Here’s how the process works: when the FAA becomes aware of a problem, it presents the facts to the manufacturer. The OEM does a feasibility study, and the two determine if there should be a Service Bulletin, AD or both. However, the FAA does have the authority to issue an AD regardless of the manufacturer’s decision about whether or not to issue a Service Bulletin. The important issue is that there is no FAA regulation requiring notification of aircraft owners before that point.

There are several lessons to be learned from Wetherell’s dilemma. In the final analysis, OEMs are not required to inform aircraft owners of potential problems. They are only required to work through the established FAA procedures. As one airworthiness inspector pointed out, OEMs should not be passing on unsubstantiated problems to owners, and once something is substantiated they should be dealing with it in conjunction with the FAA.

Conversely, an ounce of prevention is worth $23 million of cure. While sticking to the FAA’s process might be legally right, perhaps the outcome might have been different had there been more candor earlier on. Much of the problem stemmed from Wetherell’s lack of confidence in the aircraft as a result of what he perceived to be a less than forthcoming OEM. As a result, Wetherell gave up a good aircraft with a manageable problem and a valid solution.

Finally, how many times do people have to be reminded that e-mail never dies? It is often treated in the same manner as off-hand comments in an office, but in reality it is a black-and-white record of what one has said. It doesn’t matter if it wasn’t intended to be read by anyone else. Case law is now buried in e-mail the writer never intended to be made public. It isn’t difficult to believe that Scianna wanted to gather all relevant facts and to analyze the most appropriate technical solution before briefing the airframe manufacturer, but the wording also made it very likely that a jury would have seen it as arrogant and highly self-serving.