Boeing Reaches $2.5 Billion 737 Max Settlement with U.S.
Boeing agreed to pay more than $ 2.5 billion in a legal settlement with the Justice Department resulting from the 737 Max debacle, the government said Thursday. The agreement triggers a criminal complaint Boeing conspired to fraud against the Federal Aviation Administration, which regulates the company and rates its aircraft.
The Max was grounded worldwide in March 2019 after 346 people were killed in accidents in Indonesia and Ethiopia. The two accidents have deeply damaged Boeing’s former reputation and damaged its relationships with airlines and aviation regulators around the world. The company eventually fired its managing director and the scandal cost it billions in fines, settlements and lost orders.
In less than two weeks in the Trump administration, how would a Justice Department in Biden see an agreement off the table? President Trump had spoken repeatedly about the importance of Boeing to the economy and even said last year that he was in favor of a bailout for the company.
There was never any real danger that prosecutors would seek criminal conviction. Such a move could potentially have put Boeing, one of the largest US manufacturers, out of business and cost tens of thousands of jobs at the aircraft manufacturer, its suppliers and other companies.
The company’s criminal charges centered on the actions of two employees who withheld information from the FAA about changes to software known as MCAS. The software was later implicated in both crashes.
“Boeing employees chose the win over openness path by keeping essential information about the operation of their 737 Max aircraft from the FAA and trying to cover up their deception,” said David P. Burns, assistant attorney general for the Criminal division division said in a statement. “This resolution holds Boeing responsible for the criminal misconduct of its employees, addresses the financial implications for the Boeing airline’s customers and hopefully provides some compensation for the families and beneficiaries of the accident victims.”
Under Thursday’s agreement, Boeing will set up a $ 500 million fund to compensate the families of the deceased and pay a fine of nearly $ 244 million. The company will also pay $ 1.77 billion in compensation to its airline customers who were unable to use or deliver the Max, which is still grounded in some parts of the world. American Airlines became the first U.S. carrier to resume flights on board the plane last week after the FAA removed its primer in November, provided Boeing or the airlines made certain changes to the plane.
“I firmly believe that acceding to this resolution is the right thing for us – a move that appropriately recognizes that we have failed to live up to our values and expectations,” said David Calhoun, who was appointed Boeing CEO in January 2020 in a note to the staff. “This resolution is a serious reminder to all of us of the importance of our duty of transparency to regulators and the consequences our business can have if either of us fails to meet these expectations.”
In January last year, Boeing had expected that grounding the plane would cost the company more than $ 18 billion. But that was before the coronavirus pandemic brought travel to a standstill and messed up the aviation industry. In 2020, Boeing lost more than 1,000 aircraft orders, mostly for the Max, although there are still more than 4,000 left.
The Max is a mainstay of the global passenger fleet used for domestic flights or short international trips. As a single-aisle jet, this is the type of smaller airline that has become increasingly popular in recent years. It is also more economical than its predecessor.
While the deal will solve one of Boeing’s legal problems, others remain open.
Lawyers representing the families of those killed on board Ethiopian Airlines Flight 302 in March 2019 said the allegations contained in the deal were “the tip of the iceberg of Boeing’s wrongdoing.” Your customers are pursuing separate civil proceedings against the company.
“The FAA should not have allowed the 737 Max to return to service until all of the aircraft’s defects are corrected and transparent and independent safety reviews have been carried out – which have not yet taken place,” the lawyers said in a statement.
The settlement also does not affect the criminal investigation into whether Boeing employees violated the law in connection with knowingly misleading the FAA when the company filed for approval for the 737 Max. Their actions prompted the FAA to leave information about the MCAS software out of a final report, which, according to the Justice Department, resulted in it not being included in training materials for aircraft and pilots.
That investigation appeared to have had some momentum about a year ago as prosecutors summoned several Boeing employees to a federal grand jury. However, the pace of the investigation slowed in the months following the March pandemic.
Prosecutors were investigating whether one of the company’s top pilots, Mark Forkner, had deliberately lied to regulators about the nature of the new flight control software. The software that could press the aircraft’s nose down played a role in the two fatal crashes.
Mr Forkner’s lawyers previously stated that he had not misled regulators and would never endanger the safety of pilots or passengers.
Deferred law enforcement agreements are widely used by the government in criminal cases against companies. They effectively keep law enforcement pending and allow companies to temporarily avoid charges if they do not commit wrongdoing for a period of time. In the Boeing case, the charges will be dismissed after three years if Boeing honors the deal.
The Justice Department did not seek to appoint an independent observer to monitor Boeing’s compliance with regulations – a move the government sometimes takes in such deals – because it said that “the wrongdoing was neither widespread nor widespread across the company committed by a large number of employees ”.
Wells Fargo agreed to pay $ 3 billion last February for a deferred prosecution that was due to the mistreatment of customers at its community bank.