Boeing pleads guilty to conspiracy charge over 737 Max crashes
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Boeing pleads guilty to conspiracy charge over 737 Max crashes

Boeing pleads guilty to conspiracy charge over 737 Max crashes
Boeing 737 Max planes are assembled at the company’s factory in Renton, Washington. (Jennifer Buchanan/Pool/Reuters via CNN Newsource)

By Chris Isidore, CNN

New York (CNN) — Boeing has agreed to plead guilty to one count of conspiring to defraud the United States in connection with its role in two 737 Max plane crashes, the Justice Department said in a court filing late Sunday.

It is another setback for the company after a series of embarrassing security blunders, but an agreement has avoided 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 plane maker to pay. Families of victims of two deadly 737 Max crashes oppose the deal, the department said.

The guilty plea is a major blow to the reputation of Boeing, a company once known for the quality and safety of its commercial aircraft. In addition to the deadly 737 Max crashes, 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 operated by Alaska Airlines blew off early in the flight, leaving a huge hole in the side of the plane and further damaging Boeing’s reputation.

The agreement stipulates that Boeing will have to operate under the supervision of an independent monitor – someone chosen by the government – ​​for three years. But that supervision and the fine did not satisfy the victims’ families, according to one of their lawyers.

“This favorable agreement ignores the fact that 346 people died as a result of the Boeing conspiracy,” said a statement from Paul Cassell, a law professor at the University of Utah who represents many family members of victims of the 2018 Lion Air crash and the 2019 Ethiopian Air crash.

“This fraudulent and generous deal is clearly not in the public interest,” he added. The families are demanding a public trial into the charges.

Justice Department defends deal

The Justice Department said the penalties Boeing agreed to were the most severe available. It also said it had obtained other improvements, including oversight of the monitor and a requirement that Boeing spend more on safety and compliance when building planes.

“This resolution protects the American public,” the Justice Department said in a 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 further legal trouble for Boeing and its executives. It said that while no one will face criminal charges as a result of the agreement, “DOJ resolves solely with the company—and does not provide any immunity to any individual employee, including executives, for any conduct.”

“DOJ is only resolving Boeing’s misconduct leading up to the 737 Max crashes — and is not providing immunity for any other corporate conduct, including the Alaska Airlines 1282 incident,” it added. While no one was seriously injured on that flight, CNN confirmed that passengers and crew on that flight were notified that they could be considered victims of a crime.

However, on Monday morning, family members of the victims of two tragic plane crashes sharply criticized the guilty plea agreement.

“A miscarriage of justice is a gross understatement,” said a statement from Zipporah Kuria of England, who lost her father, Joseph, in the Ethiopian Airlines crash. “This is a terrible abomination. I hope that, God forbid, if this happens again, the Justice Department will be reminded that it had the opportunity to do something significant and chose not to do it.”

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

“The penalties and conditions imposed on Boeing as a result of this settlement are not materially different from those that failed to change Boeing’s safety culture and led to the Alaska Air doors exploding,” said aerospace engineer Javier de Luis, who lost his sister Graziella in the second crash. “When another crash occurs, any DOJ official who signed this agreement will be as responsible as the Boeing executives who refused to put safety before profits.”

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

Boeing investors seemed pleased with the terms of the deal. Shares of Boeing (BA), a component of the Dow Jones Industrial Average, rose 3% in morning trading.

Design flaw hidden from regulators

The company allegedly defrauded the Federal Aviation Administration during the certification process for the 737 Max to carry its first passengers. The plane entered service in 2017, but two fatal crashes led to a 20-month grounding of the planes. An investigation revealed a design flaw in the autopilot system. Boeing has admitted liability for the fatal crashes and that its employees concealed information about the design flaw from the FAA during certification.

In January 2021, federal prosecutors and Boeing reached an agreement to settle criminal charges and defer any criminal proceedings in the case. During the three-year probationary period that followed, Boeing agreed to improve the quality and transparency of its dealings with the government. But the Alaska Airlines incident occurred just days before the probationary period ended, leading to a series of federal investigations into the company’s practices.

In May, the Justice Department said it was considering re-filing criminal charges against Boeing over potential breaches of the January 2021 agreement. Boeing argued in court papers that it did not breach the agreement and should be spared prosecution. The guilty plea Sunday night, which came just before a midnight deadline set by the Justice Department, settled that issue.

The cost of pleading guilty

Under the original 2021 agreement, Boeing agreed to pay $2.5 billion. But about 70% of that amount was payments Boeing had already agreed to make to its airline customers to compensate them for the 20-month grounding of the planes. Another $500 million was a fund to compensate victims of the crashes. Only $243.6 million was a punitive fine for the government, which would double under a new guilty plea.

Boeing also agreed to spend $455 million on compliance and safety programs over the next three years, which the government said would represent a 75 percent increase over the company’s annual spending on those programs.

The company’s various problems have caused deep financial losses since the second fatal 737 Max crash. It has reported underlying 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 currently has close to $47 billion in long-term debt, and if its debt rating is downgraded to junk bond status, the cost of borrowing money would skyrocket.

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

No loss of government contracts

The company avoided another serious penalty – the loss of the right to do business with the government.

Such a penalty would be a devastating blow to the planemaker, which derived about 37% of its revenue in 2023 from federal contracts.

The likelihood of such a penalty being imposed was slim because Boeing and the federal government are so dependent on each other, said Richard Aboulafia, managing director of AeroDynamic Advisory, an aerospace and defense management consulting firm.

Despite the struggles of the past five years, Boeing remains a key part of the U.S. economy. It remains the nation’s largest exporter and employs nearly 150,000 people in the U.S. The company estimates its economic impact at $79 billion, supporting 1.6 million direct and indirect jobs at more than 9,900 suppliers in all 50 states.

Boeing’s only major rival in the commercial aircraft market, European manufacturer Airbus, has a backlog of more than 8,000 jets, meaning any Boeing customer placing an order for an Airbus plane today would have to wait nearly a decade for its delivery.

The fraud allegations contained in Sunday’s guilty plea and the investigation into the Alaska Airlines incident are not the only safety issues currently being raised about Boeing aircraft. The Alaska Air incident has brought new attention to a series of incidents, large and small, that have raised safety concerns aboard Boeing aircraft.

More than a dozen whistleblowers who work or have worked for the company or its contractors have come forward in recent months to speak to congressional investigators and the media about their concerns about procedures and practices at Boeing. The allegations include knowingly using defective parts in planes and assembly procedures that did not meet Boeing standards.

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

Those allegations and the Alaska Air incident have prompted a steady stream of safety issues and incidents that have drawn attention that had never been noticed before. For example, the FAA is in the process of issuing a notice to airlines on Monday about a problem with oxygen masks on 2,600 U.S. planes, spread between the 737 Max and some older versions of the 737, that could cause problems with the masks falling on passengers when they are needed. The notice says the problem could be fixed through inspections.

Boeing said it had no comment on the FAA airworthiness directive, which came after Boeing itself issued a service bulletin to airlines that own the planes.

This story has been updated with additional information and context.

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