Boeing agrees to plead guilty to defrauding the FAA but escapes ...

Boeing has agreed to plead guilty to one charge of conspiracy to defraud the United States for its role in two fatal 737 Max crashes, the Justice Department said in a court filing Sunday evening.

It represents yet another black eye for the company after a series of embarrassing safety blunders, but the agreement avoids what could have been more serious consequences.

It will pay up to $487 million in fines — a fraction of the $24.8 billion that families of crash victims wanted the aircraft maker to pay. The families of victims of two fatal crashes of the 737 Max oppose the deal, the department said.

The guilty plea is a severe blow to the reputation of Boeing, a company once known for the quality and safety of its commercial planes. Beyond the fatal crashes of the 737 Max jets, the company has faced a series of questions about the safety and quality of its planes. In January, a door plug on a 737 Max flown by Alaska Airlines blew out early in a flight, leaving a gaping hole in the side of the jet and further damaging Boeing’s reputation.

The agreement stipulates that Boeing will have to operate under the oversight of an independent monitor – a person to be chosen by the government – for a period of three years. But that oversight and the fine did not satisfy the families of victims, according to one of their attorneys.

“This sweetheart deal fails to recognize that because of Boeing’s conspiracy, 346 people died,” said a statement from Paul Cassell, a law professor at the University of Utah who represents many family members of the 2018 Lion Air crash and 2019 Ethiopian Air crash victims.

“This deceptive and generous deal is clearly not in the public interest,” he added.The families are seeking a public trial on the charges.

Justice Department defends deal

The Justice Department argues that the penalties Boeing agreed to were the most serious available. It argued it won other improvements as well, including the oversight of a monitor and the demand that Boeing spend more on safety and compliance of rules when building aircraft.

“This resolution protects the American public,” said the DOJ’s statement. “Boeing will be required to make historic investments to strengthen and integrate its compliance and safety programs. This criminal conviction demonstrates the department’s commitment to holding Boeing accountable for its misconduct.”

The statement also raised the possibility of more legal problems ahead for Boeing and its executives. It said that while no individuals face criminal charges as a result of this agreement, “DOJ is resolving only with the company — and providing no immunity to any individual employees, including corporate executives, for any conduct.”

“DOJ is resolving with Boeing only for misconduct that predated the 737 Max crashes — and not providing immunity for any other corporate conduct, including the Alaska Airlines 1282 incident,” it added. While no one was severely injured in that flight, CNN has confirmed that passengers and crew on that flight have received notice that they might be considered victims of a crime.

But family members of victims from the two fatal plane crashes blasted the plea agreement early Monday.

“Miscarriage of justice is a gross understatement in describing this,” said a statement from Zipporah Kuria of England who lost her father, Joseph, in the Ethiopian Airlines crash. “It is an atrocious abomination. I hope that, God forbid, if this happens again the DOJ is reminded that it had the opportunity to do something meaningful and instead chose not to.”

“Without full transparency and accountability nothing will change,” said a statement from California resident Ike Riffel, who lost his two sons, Melvin and Bennett, in the crash. “With this deal, there will be no investigation, there will be no expert witness testimony, there will be no perpetrators of these crimes to answer the charges in court.”

“The penalties and conditions imposed on Boeing as a result of this plea deal are not substantively different than those that failed to change Boeing’s safety culture and that resulted in the Alaska Air door blowout,” said aerospace engineer Javier de Luis, who lost his sister Graziella in the second crash. “When the next crash happens, every DOJ official that signed off on this deal will be as responsible as the Boeing executives that refuse to put safety ahead of profits.”

Boeing issued a brief statement saying only that it can “confirm that we have reached an agreement in principle on terms of a resolution with the Justice Department, subject to … approval of specific terms.”

Boeing investors appeared pleased by the terms of the deal. Shares of Boeing (BA), a component of the Dow Jones industrial average, were up 3% in morning trading.

A design flaw hidden from regulators

According to the charges, the company defrauded the Federal Aviation Administration during the process of certifying the 737 Max to carry its first passengers. The plane started service in 2017, but the two fatal crashes led to a 20-month grounding of the jets. Investigations revealed a design flaw in its autopilot system. Boeing has admitted responsibility for the fatal crashes, and that its employees withheld information about the design flaw from the FAA during certification.

In January 2021, the federal prosecutors and Boeing reached an agreement to settle criminal charges and defer any prosecution on the matter. During a three-year probationary period that followed, Boeing agreed to improve its quality issues and transparency with the government. But the Alaska Airlines incident came just days before that probationary period was due to end, which led to a series of federal investigations into its practices.

In May, the DOJ said it was looking into bringing criminal charges against Boeing once again due to a potential violation of that January 2021 agreement. Boeing had argued in its own court filings that it did not violate the agreement and that it should be spared prosecution. Sunday night’s guilty plea, which came just before a midnight deadline set by the Justice Department, settled that issue.

Cost of the guilty plea

Under the original 2021 agreement, Boeing had agreed to pay $2.5 billion. But about 70% of that amount represented payments Boeing had already agreed to make to its airline customers as compensation for the 20-month grounding of the planes. Another $500 million was a fund to compensate crash victims. Only $243.6 million represented a criminal fine to the government, which would be doubled after the new guilty plea.

Boeing has also agreed to spend $455 million on its compliance and safety programs over the next three years, which the government said will represent a 75% increase over what the company was spending annually on those programs.

The company’s various problems have caused deep financial losses since the second fatal 737 Max crash. It has posted core operating losses of $31.9 billion since the start of the 20-month grounding. It is also at risk of losing its investment-grade credit rating for the first time in its history.

The company now has nearly $47 billion in long-term debt, and if its debt rating is downgraded to junk bond status, its cost of borrowing money will soar.

But an additional fine in the hundreds of millions, rather than the billions, is still affordable for the company, despite its financial woes.

No loss of government contracts

The company avoided another serious penalty — the loss of the right to conduct business with the government.

Such a penalty would have been a crippling blow for the planemaker. About 37% of its revenue in 2023 came from federal contracts.

According to Richard Aboulafia, managing director at AeroDynamic Advisory, an aerospace and defense management consultant, the possibility of such a penalty was minimal as both Boeing and the federal government are heavily reliant on each other.

Despite its troubles over the last five years, Boeing is still a key component of the US economy. It remains the nation’s largest exporter, and has nearly 150,000 US employees. The company estimates its economic impact at $79 billion, supporting 1.6 million direct and indirect jobs at more than 9,900 suppliers spread across all 50 states.

Its only significant rival for commercial aircraft, European manufacturer Airbus, has a backlog of more than 8,000 jet orders, meaning any Boeing customer placing an order for an Airbus plane today would have to wait nearly a decade for it to be delivered.

The fraud charges encompassed in Sunday’s guilty plea, and the investigations into the Alaska Airlines incident, are hardly the only safety issues being raised about Boeing planes currently. The Alaska Air incident brought renewed attention to a series of events, large and small, raising safety concerns aboard Boeing jets.

More than a dozen whistleblowers who work or worked at the company or its contractors have come forward in recent months to speak to Congressional investigators and the media about their concerns procedures and practices at Boeing. Allegations include knowingly using flawed parts on planes and assembly procedures that did not meet Boeing’s own standards.

In each case, Boeing said it investigated the allegations and addressed them appropriately.

Those allegations and the Alaska Air incident have resulted in a steady drumbeat of safety issues and incidents getting attention that might never have gotten attention in the past. For example, the FAA is in the process of publishing a notice Monday to airlines about a problem with oxygen masks on 2,600 US airplanes, spread between the 737 Max and some older versions of the 737 which could cause problems with the masks dropping down to passengers if they are needed. The problem can be addressed by inspections, according to the notice.

Boeing said it had no comment on the FAA’s airworthiness directive language, which was issued after Boeing had already issued a service bulletin itself to airlines that own the jets.

This story has been updated with additional reporting and context.