To end a United States Department of Justice (DOJ) investigation into two fatal 737 MAX crashes, Boeing will enter a guilty plea to a criminal fraud conspiracy, the agency has announced in a court filing.
Although Boeing is spared a legal battle with federal prosecutors thanks to the agreement in principle reached between the DOJ and the firm, it may find it more difficult to resolve the ongoing issue that was started by the mid-air panel blowout on an Alaska Airlines aircraft on January 5, 2024.
As part of the plea deal, Boeing is supposed to pay a criminal fine of USD 243.6 million, doubling an earlier agreement. The aviation giant has also agreed to invest at least USD 455 million over three years to strengthen safety and compliance programmes and to have the Justice Department appoint an independent monitor to oversee compliance for three years.
The agreement comes after the DOJ concluded in May that Boeing had violated a 2021 agreement that had protected the company from prosecution for the 346 deaths due to the fatal 737 MAX crashes that occurred in Ethiopia and Indonesia in 2018 and 2019.
The Original Agreement
In 2021, the Department of Justice consented to postpone legal action against Boeing and requested that a judge drop an accusation of conspiracy to mislead the US Federal Aviation Administration (FAA), provided that the corporation fulfilled the agreement’s requirements for three years.
To avoid breaking US fraud laws, Boeing committed to modernising its compliance procedures and providing frequent reports. However, the mid-air incident in January 2024 happened two days before the agreement’s expiration.
The Justice Department is also opposing a bid by the families of those killed to force the Joe Biden government to immediately appoint a monitor that would oversee Boeing for five years. The DOJ said it generally takes “a number of months” to identify and vet candidates. Boeing’s guilty plea will include the admission of making knowingly false representations to the FAA about having expanded a key software feature used on the MAX to operate at low speeds that were tied to both fatal crashes.
The aviation giant claimed to have “respected the terms” of the settlement and informed the prosecutors that it disagreed with their conclusion.
The deal, which the DOJ and Boeing worked out ahead of the government’s deadline of July 7 to choose whether to prosecute the business, will require judicial approval. According to the brief, the DOJ and Boeing are working to complete it and submit it to the court by July 19.
However, things may get complicated for Boeing as the Pentagon now plans to assess the venture’s improvement plans (mostly on the aircraft production front) and DOJ deal before determining what impact the planemaker’s plan to plead guilty could have on its government contracts.
A guilty plea potentially threatens the company’s ability to secure lucrative government contracts with the likes of the US Defence Department and NASA, as per a Reuters report, quoting a senior Joe Biden administration official who further added the Pentagon will conduct the review “to make a determination as to what steps are necessary and appropriate to protect the Federal Government” under federal contracting regulations.
Boeing’s Definition Of The Guilty Plea
Boeing might find it more difficult to get federal contracts, like those with the US military, if it has a criminal record. In 2023, 37% of Boeing’s total revenue came from government contracts, which included sales of foreign military equipment to the US government. A government report from 2022 stated that Boeing had Defence Department contracts worth USD 14.8 billion.
Franklin Turner, a federal contracts attorney with McCarter & English, stated, “In the world of government contracting, an indictment or judgement of criminal responsibility can have a tremendous impact on a corporation.”
To keep doing business with government departments and agencies, Boeing may ask for waivers. Officials should refer to certain details supplied in prior DOJ settlements when addressing the matter. To what degree the proposed Boeing plea deal accomplishes this is yet unknown.
Professor of law at the University of Michigan, Vikramaditya Khanna, said that government representatives at each department or agency must determine if Boeing is eligible for a waiver because the venture is a convicted criminal.
As per the reports, Boeing has already reached out to the US Defence Department over how the planemaker’s planned guilty plea could affect its extensive government contracts. Pentagon spokesperson Air Force Major General Patrick Ryder told reporters the agency would assess the impact of the guilty plea on Boeing’s contracts, adding that any actions taken by the defence department would be under the US government contracting regulations.
The deal is also likely to be scrutinised outside the United States where Boeing is a key player in global markets, defence industry experts said.
The Canadian government is also “awaiting a decision on these legal proceedings and will assess implications once confirmed” and said the planned acquisition of the Poseidon P-8A is proceeding.
“On paper, Boeing faces possible restrictions on future exports to a swathe of international markets, though whether it is excluded could depend on discretion allowed to local agencies and the realities of the defence market,” Reuters reported further.
The United Kingdom, which operates Boeing’s P-8A maritime patrol aircraft, and the European Union, both have rules barring contractors with definitive criminal convictions from bidding for public contracts across many sectors for certain periods.
Financial Damages To Boeing
The agreement calls for Boeing to pay a pecuniary penalty of USD 487.2 million, of which it would only be required to pay half since the government would credit it for prior penalties.
A judge would presumably have to determine how much Boeing must pay in damages. In 2021, the business settled the initial conspiracy accusation by paying USD 2.5 billion in penalties and reparations. This amount covered both criminal penalties and compensation for customers and the families of crash fatalities.
A three-year probationary period is part of the plea deal for Boeing.
Whether the business should make any further payments to the relatives of the victims remains up to a federal judge’s determination. According to the filing, Boeing has also committed to investing at least USD 455 million over the following three years to enhance and unify its safety and compliance procedures.
Family members intend to appear at a future hearing to object to the plea deal. Paul Cassell, an attorney for the families, described the proposed deal as the result of “crafty lawyering between Boeing and the DOJ” and called for a public trial. In 2023, US District Judge Reed O’Connor levelled harsh criticism at Boeing, citing what he called “egregious criminal conduct”. But he said he was limited in what actions he could take.
US Senator Tammy Duckworth has said that despite the expected guilty plea, Congress “must not let up on its own oversight of both Boeing and the FAA, and that is something I plan to continue to pursue.
Tough Road Ahead
As part of the plea agreement, Boeing will have an impartial observer oversee its safety and compliance procedures for three years.
Under President Joe Biden, the Justice Department has resumed using corporate monitors in its dealings with businesses to address allegations of wrongdoing. Under the previous administration, the practice had lost favour.
Usually, businesses oppose these terms. The DOJ-selected outside companies serve as the government’s eyes and ears. The business pays the expenses.
As part of the plea deal, the relatives of the people killed in the deadly crashes will meet with the board of directors of Boeing.
The fact of the matter is that apart from paying hefty fines, Boeing’s most lucrative business, i.e. defence contracts is in harm’s way right now, a situation the aviation giant has faced never before. If proven guilty, winning government contracts will be near impossible for the venture, but it can get waivers to continue its business with Washington. As per a Reuters report, the Joe Biden government is mulling the option of sending its business from the Virginia-based company to a foreign entity.
Boeing’s shares have fallen some 43% since 2018. Its aircraft production rate of 737 MAX jets was capped at 38 per month. The company is eyeing an ambitious 18-fold earning increase from 2024.
If orders are further delayed, along with dents to credibility, things will further go haywire. News of the Joe Biden government undertaking inspections on Boeing aircraft is still occupying headlines.
And in no way the guilty plea will end Boeing’s woes. The families of the 2018 and 2019 crash victims will ask a judge to reject the deal.
Additionally, Boeing is still liable for whatever comes of subsequent mishaps, like the panel blowout on an Alaska Airlines flight earlier 2024, or whistleblower claims over lax manufacturing standards.