Boeing agrees to plead guilty to defrauding the FAA, but escapes punishment sought by victims’ families

New York

Boeing has agreed to plead guilty to charges of conspiring to defraud the United States over two fatal 737 Max crashes, the Justice Department said in a court filing Sunday evening.

It marks another black eye for the company after a series of embarrassing security blunders, but the deal avoids potentially more serious consequences.

It will pay up to $487 million in fines — a fraction of the $24.8 billion the planemaker wanted the families of the victims to pay. Affected families Two fatal accidents The department said it opposes the 737 MAX deal.

The guilty plea is a serious blow to the reputation of Boeing, once known for the quality and safety of its commercial aircraft. 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 the 737 Max that Alaska Airlines flies An explosion early in flight left a gash in the side of the jet and further damaged Boeing’s reputation.

The agreement stipulates that Boeing will operate under the supervision of an independent monitor — a person selected by the government — for a period of three years. But that oversight and fines have left the victims’ families unsatisfied, says one of their lawyers.

“This dear deal fails to recognize that 346 people died as a result of Boeing’s conspiracy,” said the report by Paul Cassell, a law professor at the University of Utah. 2018 Lion Air crash And 2019 Ethiopian Airlines Crash victims.

“This deceptive and generous deal is clearly not in the public interest,” he added. The family has sought a public inquiry into the allegations.

The Justice Department argues that the fines Boeing agreed to are too harsh. It also won other improvements, including a monitor’s oversight and a demand that Boeing pay more to comply with safety and regulations while building the plane, it argued.

“This decision protects the American people,” the DOJ’s statement said. “Boeing must make historic investments to strengthen and consolidate its compliance and safety programs. This criminal conviction demonstrates the Department’s commitment to holding Boeing accountable for its misconduct.

The report also raised the possibility of further legal trouble for Boeing and its executives. While no individual faces criminal charges as a result of the settlement, “the DOJ is only settling with the company — and there is no immunity for any individual employees, including corporate executives, for any conduct.”

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“The DOJ is settling with Boeing only for misconduct prior to the 737 Max crashes — and does not provide immunity for any other corporate conduct, including the Alaska Airlines 1282 incident,” it added. Although no one was seriously injured on the flight, CNN has confirmed that passengers and crew on the flight received notice that they may be considered victims of a crime.

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

“A miscarriage of justice falls short of describing it,” said UK-based Zipporah Kuria, who lost her father Joseph in the Ethiopian Airlines crash. God forbid, if this happens again, it’s a reminder that the DOJ had an opportunity to do something meaningful, and I hope it didn’t.

“Nothing will change without full transparency and accountability,” said Ike Riffle, a California resident who lost his two sons, Melvin and Bennett, in the crash. “With this deal, there will be no trial, no expert testimony, and no one who committed these crimes will have to answer to the charges in court.”

“The penalties and conditions imposed on Boeing as a result of this plea agreement are not significantly different than Boeing’s failure to change its safety culture, which resulted in the Alaska Air door explosion,” said Javier De Luis, an aerospace engineer who lost his sister. Graciella in the second crash. “When the next accident happens, every DOJ official who signed this agreement will be as responsible as the Boeing executives who refused to put safety before profit.”

Boeing released a brief statement saying, “We can confirm that we have reached an agreement in principle based on a resolution with the Department of Justice, subject to the approval of certain terms.”

Boeing investors were pleased with the terms of the deal. Boeing shares (B.A), a component of the Dow Jones industrial average, rose 3% in morning trade.

According to the allegations, the company defrauded the Federal Aviation Administration during the process of certifying the 737 MAX to carry its first passengers. The aircraft started service in 2017, but two fatal accidents a 20 months landing of jets. Investigations revealed a design flaw in its automation system. Boeing admitted responsibility for the fatal accidents, and its employees withheld information about the design flaw from the FAA during certification.

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In January 2021, federal prosecutors and Boeing reached an agreement to settle criminal charges and postpone any prosecution in the matter. During the three-year trial period that followed, Boeing agreed to improve its quality and transparency with the government. But the Alaska Airlines incident came just days before that probationary period ended, leading to a series of federal investigations into its practices.

In May, the DOJ said that Considers filing criminal charges Again against Boeing due to potential breach of that January 2021 contract. Boeing argued in its own court filings that it did not breach the contract and that it should avoid the lawsuit. Sunday night’s indictment, which came just before the Justice Department’s midnight deadline, settled that issue.

Under the original 2021 contract, Boeing agreed to pay $2.5 billion. But Boeing has agreed to pay about 70% of that amount to its airline customers as compensation for grounding planes for 20 months. Another $500 million was to fund compensation for accident victims. Only $243.6 million represented a criminal fine for the government, which doubled after the new criminal plea.

Boeing has agreed to spend $455 million over the next three years on its compliance and safety programs, a 75% increase over the company’s annual spending on those programs, the government said.

The company’s various problems since the second fatal 737 Max crash have caused deep financial losses. It has posted $31.9 billion in core operating losses since the 20-month grounding began. 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 credit rating is downgraded to junk-bond status, its cost of borrowing will rise.

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

The company also avoided another severe punishment – losing the right to do business with the government.

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

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According to Richard Aboulafia, managing director of Aerodynamic Advisory, an aerospace and defense management consultant, the potential for such a fine was low because both Boeing and the federal government depended heavily on each other.

Despite its troubles over the past five years, Boeing is still a vital part of the U.S. economy. It is the nation’s largest exporter and employs nearly 150,000 American workers. 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 competitor for business jets, European manufacturer Airbus, has more than 8,000 jet orders, meaning any Boeing customer ordering an Airbus plane today would have to wait nearly a decade for 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 planes. The Alaska Air incident brought renewed attention to a series of incidents, large and small, that raised safety concerns with Boeing jets.

More than a dozen whistleblowers who work or work for the company or its contractors have come forward to speak in recent months. Congressional investigators And at Boeing their concerns were the media about practices and procedures. Allegations including knowing use Defective parts in airplanes and Assembly proceedings It didn’t 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 Security issues and incidents Getting attention that never got attention in the past. For example, the FAA is in the process of issuing a notice to airlines on Monday about a problem with oxygen masks on about 2,600 U.S. planes spread between the 737 Max and some older versions of the 737. If they are needed. According to the notice, the problem can be resolved through investigations.

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

This story has been updated with additional reporting and context.

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