Boeing pleads guilty to fraud in US probe of fatal 737 MAX crashes

Boeing (BA.N) has agreed to plead guilty to a criminal fraud conspiracy charge and pay a fine of $243.6 million to resolve a U.S. Justice Department investigation into two 737 MAX fatal crashes, the government said in a court filing on Sunday.

The plea deal, which requires a judge’s approval, would brand the planemaker a convicted felon in connection with crashes in Indonesia and Ethiopia over a five-month period in 2018 and 2019 that killed 346 people. The settlement drew swift criticism from victims’ families who wanted Boeing to face a trial and suffer harsher financial consequences.

The Justice Department’s (DOJ) push to charge Boeing has deepened an ongoing crisis engulfing Boeing since a separate January in-flight blowout exposed continuing safety and quality issues at the planemaker. A guilty plea potentially threatens the company’s ability to secure lucrative government contracts with the likes of the U.S. Defense Department and NASA, although it could seek waivers.

Boeing became exposed to criminal prosecution after the Justice Department in May found the company violated a 2021 settlement involving the fatal crashes. Still, the plea spares Boeing a contentious trial that could have exposed the company’s decisions ahead of the fatal crashes to even greater public scrutiny. It would also make it easier for the planemaker, which will have a new CEO later this year, to try to move forward as it seeks approval for its planned acquisition of Spirit AeroSystems (SPR.N).

A Boeing spokesperson confirmed it had “reached an agreement in principle on terms of a resolution with the Justice Department.” As part of the deal, the planemaker agreed to spend at least $455 million over the next three years to boost safety and compliance programs. Boeing’s board will have to meet with relatives of those killed in the MAX crashes, the filing said.

The deal also imposes an independent monitor, who will have to publicly file annual progress reports, to oversee the firm’s compliance. Boeing will be on probation during the monitor’s three-year term.

Lawyers for some of the victims’ families said they planned to press Judge Reed O’Connor, who has been overseeing the case, to reject the deal. In a separate document filed to the court, they cited O’Connor’s statement in a February 2023 ruling: “Boeing’s crime may properly be considered the deadliest corporate crime in U.S. history.”

The deal is a “slap on the wrist,” said Erin Applebaum, a lawyer at Kreindler & Kreindler LLP representing some of the victims’ relatives.

The DOJ on June 30 offered a plea agreement to Boeing and gave the company until the end of the week to take the deal or face a trial on a charge of conspiring to defraud the Federal Aviation Administration (FAA), which the DOJ in its Sunday court filing said was “the most serious readily provable offense.”

The fraud centered around knowingly false representations Boeing made to the FAA about new software that saved money by requiring less intensive training for pilots. The Maneuvering Characteristics Augmentation System (MCAS) software feature was designed to automatically push the airplane’s nose down in certain conditions. It was tied to the two crashes that led to the FAA grounding the MAX fleet for 20 months, an action that cost Boeing $20 billion and was lifted by the government in November 2020.

A panel blew off a new Boeing 737 MAX 9 jet during a Jan. 5 Alaska Airlines flight, just two days before the 2021 deferred agreement that had shielded the company from prosecution over the previous fatal crashes expired. Boeing faces a separate ongoing criminal probe into the Alaska Airlines incident.

The agreement only covers Boeing’s conduct before the fatal crashes and does not shield the planemaker from any other potential investigations or charges related to the January incident or other conduct.

The deal also does not shield any executives, the DOJ filing said, though charges against individuals are seen as unlikely due to the statute of limitations. A former Boeing chief technical pilot was charged in connection with the Boeing fraud agreement but acquitted by a jury in 2022.

The agreed penalty will be Boeing’s second fine of $243.6 million related to the fatal crashes — bringing the full fine to the maximum allowed. The company paid the fine previously as part of 2021’s $2.5 billion settlement. The $243.6 million fine represented the amount Boeing saved by not implementing full-flight simulator training for MAX pilots.

Families of the victims last month pressed the Justice Department to seek as much as $25 billion. The DOJ and Boeing are working to document the full written plea agreement and file it in federal court in Texas by July 19, the DOJ said in the court filing.